Outlook for 2011-12

Following months of acrimony over the electoral calendar, political stability has improved, but risks remain. The elections for federal president and the islands' governors have taken place in line with a deal brokered by the African Union. Ikililou Dhoinine-the candidate backed by the current president, Ahmed Abdallah Sambi, and his Baobab coalition-has been elected president. Disputes over the timing of the transfer of power are now unlikely. However, further unrest could occur in Mohéli-Comoros's most marginalised island-to which the presidency is due to rotate for the first time since independence. Mr Sambi is unpopular in Mohéli and his ally's victory in an election marred by irregularities may well be seen as an attempt to circumvent a genuine transfer of power to Mohéli. Inter-island disputes are expected to persist, although their severity may decline. Economic policy will continue to be supported by the extended credit facility (2009-12) with the IMF. The authorities will try to build on recent improvements in political stability to boost foreign direct investment, but progress is expected to be very slow. Economic growth is forecast to rise to 2.5% in 2011 and 3% in 2012, largely supported by debt relief and strong remittances.

The political scene

The government has cracked down on speculation that tensions may emerge over the handover of power. By choosing the last possible date to leave office, Mr Sambi may have reinforced suspicions that he will try to wield power from behind the scenes. A diplomatic spat between Comoros and France over Mayotte's change of status to an overseas department has been resolved.

Economic policy

The IMF has reiterated its concern that the public wage bill is unsustainable. Remittances, which account for roughly 25% of GDP, will remain vital to sustaining living standards, although they will have little impact on investment, largely because of a dearth of investment opportunities.

The domestic economy

Inflation accelerated in early 2011 because of high oil prices but will continue to be anchored by the country's membership of the Franc Zone. Comoros was one of four countries highlighted at an "Investment Showcase" at a UN conference. Two foreign investors have faced stiff local opposition to their investment plans.

Foreign trade and payments

A new fisheries protocol with the European Union allows for more fishing vessels but a lower annual reference tonnage.

Land area

1,862 sq km, excluding Mayotte (374 sq km)

Population

691,000 (2010; IMF estimate, excluding Mayotte)

Main towns

Population in 2010 (World Gazetteer estimates)

Moroni (capital; Grande Comore): 48,543

Mutsamudu (Anjouan): 25,471

Fomboni (Mohéli): 17,130

Climate

Tropical; hot and humid in November-May; cooler and drier in May-October; weather at Moroni (altitude 59 metres): hottest month, March, 24-31°C; coldest month, August, 19-27°C; driest month, October, 84 mm average rainfall; wettest month, January, 424 mm average rainfall

Languages

French, Arabic, Comorian (derived from Swahili and Arabic)

Religion

Over 95% of the population is Muslim (mostly Sunni)

Measures

Metric system

Currency

Comorian franc (Cfr) = 100 centimes; pegged to the euro at Cfr492:EUR1

Time

Three hours ahead of GMT

Public holidays

May 1st (Labour Day); July 6th (Independence Day); November 27th (anniversary of President Abdallah's assassination); all Islamic holidays are observed in accordance with the lunar calendar; this may mean that the following dates are approximate: Mawlid al-Nabi (the birthday of the Prophet) February 15th, Eid al-Fitr (end of Ramadan) August 30th, Eid al-Adha (Feast of the Sacrifice) November 6th, Islamic New Year November 26th

Official name

The Comorian Union

Form of state

Federal Islamic republic

Legal system

Based on the Napoleonic code and sharia (Islamic law), the constitution was approved in outline by referendum in late 2001

National legislature

Each of the three islands, Grande Comore, Anjouan and Mohéli, has an individual parliament, with different numbers of seats, which are elected directly; the Union has a legislative assembly with 33 members: 24 members of parliament are elected by direct universal suffrage and nine are appointed by the three islands

Head of state

President

National government

Ahmed Abdallah Sambi won the May 2006 presidential election with 58% of the vote; this was the first time that the presidency had been revolved between citizens of different islands, as laid out in the 2000 Fomboni Accord

National elections

Elections for Union president and the governors of the three islands were held simultaneously in late 2010; the first round of voting took place in November and the second round in December; the results have been confirmed by the country's Constitutional Court; the transfer of power to the president-elect is to take place before May 26th 2011; legislative elections took place in December 2009

Main political parties

Comoros has a weak party structure; the political landscape consists of a large number of parties, mainly based on personal loyalties; political alliances are, similarly, typically geared towards supporting a particular leader; the winner of the 2006 presidential election, Mr Sambi, was a founder of the Front national de la justice, an Islamist party; he is now supported by a grouping of parties called the Baobab coalition; the Baobab coalition also secured 19 out of 24 seats in the 2009 election to the Union parliament

Union government

Union president: Ahmed Abdallah Sambi

President-elect: Ikililou Dhoinine

Vice-president in charge of agriculture, fisheries, environment, energy & handicrafts: Idi Nadhoim

Key ministers

Defence, interior & information: Ibrahima Houmadi Sidi

Education, research, culture & the arts: Fouad Ben Mohadji

Elections: Abdourahamane Ben Cheikh Achiraf

External relations & co-operation: Fahmi Said Ibrahim

Finance, budget & investment: Mohamed Bacar Dossar

Health, solidarity & gender promotion: Sounhadj Attouman

Industry, labour, employment & women's entrepreneurship: Moussa Abderemane

Justice, prisons & Islamic affairs: Mohamed Ahmed Djaffar Mansoib

Posts & telecommunications: Houdhoer Inzoudine

Public service, administrative reform, institutional decentralisation & human rights: Djazila Saindou

Governors of the islands

Anjouan (Nzwani): Anissi Chamisidine

Grande Comore (Ngazidja): Mouigni Baraka Said Soilihi

Mohéli (Mwali): Mohamed Ali Said

Central Bank governor

Vacant

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Following months of uncertainty and acrimony over the electoral calendar, political tensions in Comoros have receded, although recent improvements in political stability remain precarious. The elections for Union president and the governors of the three islands have taken place smoothly, in line with an agreement brokered by the African Union (AU) in June 2010. Ikililou Dhoinine-the candidate backed by the current federal president, Ahmed Abdallah Sambi, and his Baobab coalition-has won the federal election. Under the AU-brokered agreement, Mr Sambi is to step down by May 26th 2011 (12 months after his term was originally due to end). There is a small risk that Mr Sambi will try to hold onto power beyond this point-which would lead to renewed political turmoil-although this looks increasingly unlikely.

There is also some risk of renewed unrest in Mohéli-Comoros's smallest and most marginalised island-from which Mr Dhoinine hails, and to which the presidency is due to rotate for the first time in Comoros's history. (Under the 2001 constitution, the Union presidency rotates between the three islands-Grand Comore, Anjouan and Mohéli-every four years.) Mr Sambi is not popular in Mohéli-the opposition won three out of four seats there in the parliamentary election in late 2009, and an opponent of Mr Sambi was elected governor of Mohéli in late 2010. This has cast doubt on the credibility of the presidential primaries, which were confined to Mohéli, and which were won by Mr Sambi's favoured candidate. Indeed, Mr Sambi's opponents allege that the elections were marred by fraud. Mr Dhoinine's victory may therefore be seen in Mohéli as having been orchestrated by Mr Sambi to preserve his political influence and circumvent a genuine transfer of power to the island. There has been no unrest in Mohéli so far, but there remains a risk that such unrest will emerge over the forecast period.

Inter-island disputes, a recurring theme in Comorian politics, are expected to persist, although their severity may decline. Mr Sambi's supporters have won the island elections on both Anjouan and Grande Comore, and their common allegiance to the Baobab coalition may make them more inclined to co-operate with Mr Dhoinine. However, much will depend on how the new federal government allocates resources across the three islands. If Mr Dhoinine is seen to be favouring Mohéli, disagreements between the island and federal administrations would be likely to re-emerge.

The risk of a coup-a lingering possibility in a country that has experienced 21 coups and coup attempts since gaining independence in 1975-has declined since August 2010, when the head of the army, General Salim Mohamed Amir, was placed under house arrest for his alleged complicity in the murder of a senior army officer, Lieutenant-Colonel Ayouba. General Amir's relationship with Mr Sambi was notoriously poor and his removal from office a few months before the election may have been devised to mitigate the risk of military intervention. Religious tensions could re-emerge. There has been no repeat of the attack on the facilities of a Catholic relief organisation in 2007, but it is possible that, with widespread poverty and an ineffectual government, the population may turn towards a radical form of political Islam.

The second round of voting for Union president and the islands' governors took place on December 26th 2010. Mr Dhoinine-the former vice-president-won the nationwide polls in December 2010 with 61% of the vote. Mohamed Said Fazul, a former president of Mohéli and an opponent of Mr Sambi, trailed in second place with 33% of the vote. The opposition has said that the elections were marred by ballot stuffing, the theft of voting papers and the harassment of opposition observers, and has called on the international community to reject the results. International election observers have acknowledged a number of problems, particularly on Anjouan, but pronounced the polls "generally free and fair". Voter turnout in the second round was 52.8%, compared with 67% in the primaries. In the island elections, Mouigni Baraka Said Soilihi was elected governor of Grand Comore and Anissi Chamisidine governor of Anjouan; both are supporters of Mr Sambi. In Mohéli the incumbent, Mohamed Ali Said, who is an opponent of Mr Sambi, won re-election. Assuming that the transfer of power from Mr Sambi to Mr Dhoinine proceeds smoothly, it will mark the first time that the presidency has been held by a Mohélian, and only the second time in the country's turbulent history that power has been transferred through the ballot box. Following the referendum in 2009, the presidential term has been extended from four year to five years. The next set of elections for federal president and island governors is now due to take place in 2016.

Comoros-a former French colony whose currency is linked to the euro-will retain strong ties with France, its main bilateral aid donor and trading partner. Although Comoros will continue routinely to condemn France's "occupation" of Mayotte (the fourth island in the archipelago, which is a French overseas department), relations between the two countries will remain strong, underpinned by France's importance for Comorian economic policy (the French Treasury guarantees the Comorian franc) and the recently renewed military co-operation pact between the two countries. Under Mr Sambi, Comoros has pursued an open-door foreign policy, seemingly cultivating ties with any country that has been willing to provide it with aid or investment. As a result, it is one of the few countries that have cordial relations with both the US and Iran. Relations with Iran have raised some alarm, especially as Iranian military personnel reportedly form part of Mr Sambi's personal security detail. However, this has not alienated the country's Western allies, which seem keen to retain their influence in Comoros. (The US, for example, has continued to provide Comoros with preferential access to its market under the African Growth and Opportunities Act since mid-2008.) Mr Sambi's policy has also led to growing commercial and diplomatic ties with Qatar, Dubai, Kuwait and China. As with most aspects of the policy agenda, foreign policy is expected to remain largely unchanged under Mr Dhoinine. Ties with the Middle East in particular, are likely to stay strong, assuming that the recent generous pledges of aid and investment from the Middle East are upheld. Comoros is expected to remain on good terms with other countries in the region, underpinned in part by its membership of the African Union and the 19-member Common Market for Eastern and Southern Africa (COMESA). The threat from Islamic fundamentalist groups appears limited; to date, there have been no extreme Islamist threats and no known establishment of terrorist cells in Comoros.

The government is likely to try to build on the recent improvements in political stability (assuming these are sustained) to attract foreign direct investment (FDI), particularly in tourism, infrastructure, agriculture and fishing. A national investment promotion agency has been established and generous fiscal incentives are being offered under an investment code introduced in 2007. These include a ten-year exemption from corporate tax on investments worth over Cfr100m (US$290,000). The government also plans to establish a one-stop business licensing window, which may help to lighten the regulatory burden on investors. Complementary reforms are required to improve the efficiency of public institutions that interface with the private sector, including state-owned utility companies and the judiciary, but progress in achieving this will be slow. Efforts to find private-sector partners for the water, electricity and telecommunications utilities are likely to continue, but significant improvements are not expected over the forecast period. Shortfalls in the supply of skilled workers are likely to persist and capacity in the civil service is likely to remain weak. Macroeconomic management is expected to remain largely satisfactory, underpinned by the country's membership of the Franc Zone (which anchors inflation) and the support received under its extended credit facility (2009-12) with the IMF. Macroeconomic stability is also likely to be boosted by the interim debt relief that Comoros is receiving under the IMF and World Bank's heavily indebted poor countries (HIPC) initiative. This is likely to be followed by full HIPC debt relief in mid-2012.

The government will face pressure to improve public finance management and restore fiscal discipline as conditions for reaching HIPC completion. It will be aided by interim debt relief, which will reduce its interest payments. However, progress in reforming parastatals is likely to be slow. The government will also find it difficult to lower the wage bill in the face of strong union pressure; the high cost of running parallel island and Union administrations; and the difficulties of reducing overstaffing given that unemployment is already high and there is little formal employment outside the public sector. Nevertheless, the deficit is expected to decline, largely because of improvements in tax administration. Overall, the deficit is forecast to moderate from an estimated 1.6% of GDP in 2010 to 1.4% of GDP in 2011 and 1.2% of GDP in 2012. Modest but chronic fiscal deficits have boosted external public debt as a proportion of GDP to roughly 50%, and the IMF has pronounced Comoros at risk of debt distress. Comoros should receive full HIPC debt relief in mid-2012, which would restore its debt sustainability towards the end of the forecast period.

Monetary policy is dictated by Comoros's membership of the Franc Zone and is geared towards sustaining its currency peg to the euro. This restricts growth in the money supply and is an important source of price stability. The Banque centrale des Comores (BCC, the central bank) sets its policy rate in line with the euro overnight index average. Interest rates are expected to rise slightly in 2011-12 as the European Central Bank seeks to rein in inflation. In mid-2010 the BCC raised the reserve requirement from 25% to 30% as the entry of two new banks boosted liquidity. Further increases are unlikely over the forecast period.

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Real GDP growth is expected to rise gradually in 2011-12, although this is conditional on political stability being sustained. In 2010 growth increased to an estimated 2.1%, underpinned by a large rise in donor inflows and strong growth in construction, funded largely by remittances. In 2011-12, if political stability remains intact and some progress in made in improving the business environment, FDI from the Middle East should rise, donor engagement would be sustained, progress towards HIPC completion would continue and the development of tourism-which has been shackled by chronic political instability and poor infrastructure-could begin. In line with this, growth is forecast at 2.5% in 2011 and 3% in 2012. Further increases in growth will be difficult to achieve over the short term because of the country's geographic isolation, its small domestic market and its limited supply of fertile land. Even this modest forecast is subject to risks, and growth could weaken sharply in the event of political instability, ineffectual leadership or drought. Conversely, if the government is particularly successful in entrenching political stability and attracting investment, there is a small chance that growth will rise above 3% in 2012.

Comoros's membership of the Franc Zone will continue to have a restraining effect on inflation, as it limits the government's ability to print money and curtails the growth of the money supply. Nevertheless, inflation is expected to rise in 2011, underpinned by supply-side factors. Global oil prices are forecast to increase by 36% in 2011, offsetting the small decline in imported inflation as the euro (to which the Comorian franc is pegged) appreciates by 3% against the dollar. In 2010 inflation moderated to 2.7% despite a sharp rise in oil prices as international prices for the staple food, rice (which is almost entirely imported), fell by over 10%. In 2011 rice prices are expected to rise marginally and overall, inflation is forecast to increase to 3.8%. In 2012 inflation is projected to moderate to 2.3% as oil prices fall by 13%, and rice prices decline by 3.6%, offsetting the rise in imported inflation induced by a weaker euro.

The Comorian franc has been loosely pegged to the euro at Cfr492:EUR1 over the past decade, and to the French franc before that. Comoros's foreign-exchange reserves stood at a comfortable 6.2 months of import cover at end-2010 (well above the benchmark of three months of import cover) and are expected to remain high, aided in part by further interim debt relief. The currency peg is therefore likely to be sustained at the prevailing rate. The euro is expected to weaken against the dollar over the remainder of the forecast period as the fiscal problems in the euro zone persist. In line with this, the Comorian franc is forecast to depreciate from Cfr360:US$1 in 2011 to Cfr390:US$1 in 2012. However, there are significant risks of sharp movements in either direction.

The current-account deficit is expected to remain wide in 2011-12. Goods exports, which consist predominantly of ylang-ylang, vanilla and cloves, will continue to be dwarfed by goods imports. Export growth will be constrained by weak prices and low agricultural yields. Imports will rise sharply in 2011 and grow modestly in 2012, in line with commodity prices. Services exports will grow only modestly-there is potential for tourism to grow rapidly but a record of enduring political stability would need to be established first. Services imports will rise in line with goods imports, keeping the services account in deficit. Income debits will fall as interim debt relief reduces interest payments. Current transfers, which consist of remittances and foreign aid, will remain substantial (equivalent to about 35% of GDP), offsetting the hefty trade deficit. Overall, the current-account deficit is forecast to widen to 9.9% of GDP in 2011 and narrow to 9.6% of GDP in 2012. This deficit will be financed in part by FDI from the Middle East and credit from the IMF.

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Comoros is finally coming to the end of a protracted transition period that has involved months of uncertainty over the transfer of power (December 2010, The political scene). Having won the Union presidential election in December 2010, Ikililou Dhoinine is due to be sworn in as head of state on May 26th, taking over from the current federal president, Ahmed Abdallah Sambi. Although Mr Dhoinine was Mr Sambi's preferred candidate and received the support of the incumbent's Baobab coalition, there has been speculation that tensions may emerge over the timing of the handover of power-speculation on which the authorities have been keen to crack down. In January Al Watwan, a local newspaper that is generally perceived to be pro-government, published an article questioning the need for a five-month transition period. This prompted speculation that Mr Dhoinine would prefer a March handover date. Al Watwan's editor was subsequently dismissed, in a move widely perceived to have been prompted by the publication of the article.

Two Comorian journalists have been charged with "publishing false news" in their coverage of the handover. Ali Moindjié, the editor of Albalad, a private daily, and Hadji Hassanali, the editor of La Tribune des Comores, a bimonthly publication, face up to six months in jail if convicted. The charges against them relate to an article they wrote suggesting that the official presidential swearing-in ceremony could be delayed beyond May 26th. As yet there is nothing to suggest that there will be any such delay, but the authorities' reaction-some would say overreaction-underscores the continuing sensitivity of the issue. Certainly, any deferral of the handover would risk creating instability, notably on the island of Mohéli, which has long harboured suspicions that it risks being deprived of its "turn" at the presidency-under the country's 2001 constitution, the federal presidency is supposed to rotate every four years between Grand Comore, Anjouan and Mohéli. (Mr Dhoinine is from Mohéli.)

On the surface, at least, Mr Sambi seems keen to make the most of his tenure. A deal brokered by the African Union did not specify the date for the transfer of power, stating merely that Mr Sambi must step down before May 26th 2011 (12 months after his term was originally due to end). By choosing the last possible date to leave-and by going on state visits in the final weeks of his tenure-Mr Sambi is likely to have reinforced suspicions among opponents that he is leaving office unwillingly, and that he will try to continue to wield power from behind the scenes. That Mr Dhoinine is Mr Sambi's approved successor will do nothing to allay these concerns, and there is a risk that the new Union president will simply "inherit" the mistrust that has characterised Mr Sambi's relations with the island administrations. Comoros is also entering uncharted territory, in that this is the first time that a politician from Mohéli will be Union president. Mohéli is the smallest and most marginalised of Comoros's islands, and Mr Dhoinine may seek to use the presidency to direct more resources towards his home base. The question is how politicians from Anjouan and Grande Comore will react to any such attempt. Previous experience suggests that they will not respond positively, notwithstanding the fact that end-2010 elections on both islands were won by supporters of Mr Sambi.

Relations between Comoros and France-the former colonial ruler of the islands-deteriorated in the run-up to Mayotte's change of status from overseas collectivity to overseas department; before improving equally quickly. In a March 2009 referendum more than 95% of Mahorais voted in favour of the change under which the island has become a French department and region, governed by Article 73 of the French constitution. Comoros has long claimed Mayotte as part of its national territory. Indeed, Mayotte is the fourth island of the archipelago, but in the country's 1974 referendum on independence, 64% of Mahorais voted against, whereas there were strong pro-independence majorities on Grande Comore, Anjouan and Mohéli. The Comorian authorities have never been reconciled to this loss and thus Mayotte's accession to the status of department was always likely to cause tensions. In mid-March the Union government stated that Comoros would no longer accept people expelled from Mayotte without identity papers-a potential source of difficulty for the French, since Mayotte experiences regular influxes of Comorian "illegal immigrants" attracted by the island's notably higher living standards. Previously these migrants have been deported back to Comoros (often without identity papers). The French government retaliated by suspending requests for visas by Comorians. This triggered a prompt reversal in Comoros's stance-on April 1st the secretary-general of the government, Nourdine Bourhane, signed an agreement with the French ambassador, Luc Hallade, under which Comoros withdrew its insistence on identity cards and France lifted its suspension on visas.

Comoros's acquiescence is perhaps unsurprising as the country's occasional hostile rhetoric towards France is rarely matched with substantive action. Indeed, in September 2010, just days after Mr Sambi made an impassioned speech at the UN criticising France's "occupation" of Mayotte, Comoros revived its military co-operation pact with France (December 2010, The political scene). This underscored the extent to which ties with France remain central to foreign and indeed economic policy (the French Treasury guarantees the Comorian franc). While Comorian politicians will continue to make vocal protests-arguably for domestic consumption rather than in any expectation of success-they are unlikely to risk seriously jeopardising relations with France, which remains a crucial source of aid and investment. Although French aid to Comoros stagnated in 2008 during the global recession, it has begun to rise and is expected to remain substantial over the medium term.

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In early April the IMF released the findings of its March staff mission to Comoros to assess the country's performance under its extended credit facility (ECF; 2009-12) programme. While noting that real GDP growth had improved-to 2.1% in 2010 from 1.8% the previous year-and that the current-account deficit had not widened further (remaining at 8.6% of GDP), the Fund warned that the protracted election and transition period had "weakened the focus on reforms". This is having a particularly serious impact on attempts at wage restraint. The Fund warned that without an "urgent" change in policy, the wage bill could reach 11% of GDP this year and absorb more than half of total revenue. This is unsustainable; indeed, the government has already run into difficulties paying wages-salary payments have been suspended since November 2010 and several months of wage arrears have accumulated.

Ballooning wage bills are a chronic problem in Comoros. This reflects persistent union pressure for higher wages (pressure that politicians find difficult to resist in the run-up to elections); the high cost of running parallel island and Union administrations; and overstaffing (which is politically difficult to address as unemployment is high and formal employment outside the public sector is limited). However, there are some grounds for expecting a decline in the wage bill.

• Comoros has computerised the civil servant payment roster and adequately staffed the unit that monitors wage payments.
• The National Assembly has recently adopted new personnel frameworks for the civil service that will help to reduce civil service staffing from 2011.
• Wage arrears have fallen after a US$26m grant provided by Qatar in May 2010 was used, in part, to pay several months of civil service wage arrears.

Despite this, the projected decline in the civil service wage bill to 7.9% of GDP by 2012 (from 9% of GDP in 2009) looks overly ambitious.

Unsurprisingly, wage restraint forms part of the three key macroeconomic objectives agreed by Comoros and the IMF to sustain economic growth above 4% annually over the medium term. The three objectives are as follows.

• Reforms to widen the fiscal space for higher pro-growth and pro-poor spending will be introduced. This will contain the public-sector wage bill and be achieved through "scaled-up aid and debt relief". Indeed, Comoros is on track to receive debt relief under the heavily indebted poor countries (HIPC) initiative. However, the country's donors are likely to want to see an established track record of reform before committing substantial new funds.
• Structural reforms to improve productivity and competitiveness will be stepped up. This will involve measures to reform public utilities, improve the business and investment climate, and advance financial intermediation. However, these are ambitious reforms, and local politicians have not taken a proactive stance thus far.
• Incentives to encourage remittances to be channelled into productive investment will be introduced.

The importance of remittances has been underscored by surveys carried out in 2009 and 2010 by Gallup, an international polling organisation, which found that almost one-third of the Comorian population receives remittances. The surveys, which covered 135 countries worldwide, suggest that some 3% of adults live in households receiving remittances. The incidence of households that receive remittances is much higher in Sub-Saharan Africa. Indeed, Gallup finds that Sub-Saharan Africa accounts for most of the 35 countries in which 10% or more of households receive such assistance. However, the Comorian level of dependence is unusual even by regional standards-Gallup cites three places in which more than 30% of adults receive remittances: Comoros, the Somaliland region and Zimbabwe. This relatively high percentage would appears to reflect protracted political difficulties and-a not unrelated development-the existence of large diasporas as people leave their home country in search of better earning opportunities or a safer existence.

Remittances can be difficult to measure-they do not necessarily come through formal channels, and recipients can be unwilling to report them-but in Comoros's case they are thought to exceed 25% of GDP. Although they have facilitated imports, they have not had a commensurate impact on investment or long-term growth prospects. This perhaps reflects the fact that there are few investment opportunities, especially for small-scale investors. Indeed, in its report on its April staff mission to the country, the IMF recommended moves to improve the investment climate. However, even if such measures were taken, the more fundamental constraints to investment in Comoros-particularly its geographic isolation and small population-would probably continue to restrict opportunities for investment (see The domestic economy). The main prospect for change seems to lie in the hitherto underdeveloped tourism sector-if tourism were to take off, underpinned by a few large investments in the country's tourism infrastructure, this could create a range of opportunities for small-scale investors. The Fund also suggested that steps need to be taken to facilitate competition in the financial sector, so lowering the cost of remittance transfers and increasing the share of remittances channelled through the formal banking system. This would allow a greater proportion of remittances to be taxed.

According to the IMF's post-mission statement, increased food and fuel prices, and the impact of a large aid-financed settlement of wage arrears, led to a "slight" rise in inflation last year. The Fund does not provide detailed data, but claims that the inflation rate "remained below 7%"-presumably at its mid-year spike. In earlier reports it had suggested that the rate had moderated in the second half of the year, and that prices would end the year at around 3.2%.

It is likely that price rises accelerated again in the early part of 2011-Comoros continues to import much of its fuel, and continued instability in the Middle East and North Africa has seen the price of Brent Blend crude oil increase by almost 50% year on year in the first half of the year. Oil prices are forecast to moderate only slightly in the second half of 2011, suggesting that the IMF's revised inflation forecast of 2.8% for this year is overly optimistic. Although Comoros's membership of the Franc Zone will continue to contain inflationary pressures (by limiting the government's ability to print money), supply-side factors are likely to boost inflation to around 3.8% in 2011.

Comoros was one of four countries highlighted at an "Investment Showcase" held as part of the fourth UN Conference on the Least Developed Countries (LDC-IV). Jointly organised by the UN Conference on Trade and Development (UNCTAD) and the International Chamber of Commerce, Benin, Comoros, Laos and Zambia were singled out as having "huge potential" and having passed "important economic and regulatory reforms" to facilitate investment and investment protection. The Comorian investment guide-presented by the industry minister, Moussa Abderemane-cited the country's "privileged" location along a number of long-established trade routes, a favourable investment and economic regime, and its "immense and largely underexploited" potential for investment and development.

Previous Investment Showcases have led to some investment in the countries profiled, according to the UN: for example, two Indian information and communications firms opened offices in Kenya, while another Indian firm, Tata, established a US$500,000 software development project in Zambia. It is questionable whether Comoros will benefit from similar deals. According to UNCTAD's 2010 World Investment Report, the stock of foreign direct investment (FDI) in Comoros is a mere US$35 per head, and inflows averaged US$8.3m annually over the 2007-09 period. Over the same period, Cape Verde (whose population is smaller than that of Comoros) received US$174m a year and even Somalia obtained US$112m annually. Indeed, recurrent hopes of attracting substantial FDI have almost invariably been unfulfilled, because of perceptions of political instability and weak governance, the small size of the economy, the Comoros's high level of dependence on imports and its geographic isolation. Perceptions of stability and governance have improved slightly-from a very low base-and some Middle Eastern investors have made substantial pledges in recent months. However, there is little that the government can do about the other factors, in the short to medium term, suggesting that any future investments are likely to follow recent trends, and focus on tourism or social infrastructure.

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Recent disputes over port development work illustrate some of the problems facing potential investors. In mid-March a team from Bouygues, a French firm, was prevented by local people from carrying out a survey of a proposed ferry port in the capital, Moroni. Local opposition centred on the need to demolish property to make way for the port, concern about land rights in the area and the lack of information about the planned scheme. Controversy over the port resulted in the removal of the mayor of Moroni, delays to the signature of the ferry port agreement-which forms part of a EUR4m (US$5.6m) scheme for an inter-island ferry service-and a decision by Bouygues to withdraw from the project.

A UK-registered firm, Vocalpad, has faced difficulties over the award of a five-year call-management contract. Vocalpad is due to set up a "unique gateway" through which all international telephone calls to and from Comoros will pass. However, this has prompted strikes at Comores Telecom (ComTel), the local telecommunications parastatal-apparently over sovereignty issues (although concern about potential competition is likely to be an equally strong motivation). This prompted the establishment of a committee-comprising the Department of Telecommunications, the National Agency for the Regulation of Information and Communications Technology (ANRTIC) and ComTel itself-to address concerns, and led to the publication of a "clarification", in which the government stated that telecoms sovereignty will be retained by the Comorian state, and that the director of the new entity, Vocalpad Comores, will be a Comorian citizen. The government added that the single gateway platform will allow the state to put an end to "illegal practices on the network", and that the substantial investment required to set up the gateway is beyond ComTel's financial resources. Vocalpad's contract would appear to be secure therefore. However, the dispute demonstrates the sensitivity of foreign investment in some areas, and also raises questions about the possible impact on the pledged privatisation of ComTel.

In late April the European Parliament adopted a revised fisheries protocol with Comoros, almost five months after the expiry of the previous deal. This followed the approval of the protocol by the EU fisheries ministers late last year (March 2011, Foreign trade and payments). The new arrangement redefines fishing opportunities for EU vessels. Previously 40 tuna seiners and 17 surface longliners were permitted to catch tuna in Comorian waters, paying EUR390,000 (US$480,000) a year. Under the new protocol 70 vessels-45 tuna seiners and 25 surface longliners from France, Italy, Portugal and Spain-will be allowed to fish. However, the annual reference tonnage has been cut from 6,000 to 4,850 tonnes. In line with this, the EU's financial contribution will fall from EUR390,000 to EUR315,250 per year. Beyond the agreed limit, fishing vessels will pay a penalty of EUR65/tonne.

Comoros will receive other funding, however. For example, the EU has agreed additional funding of EUR300,000 a year to develop sectoral infrastructure. Lack of infrastructure-notably processing and storage facilities-has long acted as a constraint on development of the sector, and the infrastructural funding is specifically designed to enable EU vessels to land their catches in Comorian ports rather than, as at present, having to transport them to the Seychelles and other destinations. As well as boosting costs, this is deemed to be increasingly risky given the upsurge of piracy in the Indian Ocean.

There have been concerns locally that greater industrialisation of a sector that is currently dominated by Comorian inshore fishermen using canoes (galawas) could lead to overfishing, the depletion of stocks and reduced biodiversity. (A reduction in biodiversity could damage Comorian attempts to position itself as an eco-tourism destination.) However, the authorities appear to be more sanguine (or rapacious), since the new agreement allows for "experimental fishing" for periods of up to six months. If the results are positive, Comoros could allocate quotas for new species, boosting its earnings further.

In agreeing to the new protocol, members of the European Parliament emphasised that they had to be "more involved" in monitoring the fisheries deal, with regular publication of detailed information on its implementation. In addition, the new agreement includes an automatic review as well as suspension clauses, which give the EU some room for manoeuvre in case of irregularities, human rights violations or major political upheaval. Although this is not specific to Comoros-the European Parliament has insisted that such clauses be included in all fisheries agreements-it has obvious relevance to the country given its long history of political instability.