Outlook for 2011-12

Re-elected for a second five-year term as president in March 2010, Faure Gnassingbé will remain secure in office over the outlook period. Economic policy will be guided by a programme of reform supported by the IMF. Local elections in 2011 and a legislative election in 2012 will indicate the level of popular support for the historic reconciliation between the regime and the main opposition party, Union des forces de changement. Real GDP growth is forecast to accelerate to 3.6% in 2011 and 3.9% in 2012, backed by a rising level of foreign investment and assistance, investment in infrastructure and the government's programme of structural and financial reform. A wider trade deficit, due to increasing demand for inputs for development projects, will cause the current-account deficit to widen to around 8% of GDP in 2011; it should narrow to 7% of GDP in 2012 as import growth slows.

The political scene

New opposition protests have increased political tension; the protests focus on proposed legislation governing political demonstrations, although it was drawn up following best democratic practice. There has been a minor government reshuffle, partly involving the military men in the cabinet. Several political parties, though not the hardline oppositionist ANC, have signed a new electoral code of conduct drafted with the assistance of several international bodies.

Economic policy

The IMF has published details of its fifth review of Togo's performance under the extended credit facility, commending the government's implementation of, and commitment to, the reform programme. The government will maintain a modest fiscal stimulus in 2011, with the IMF's approval. The government has launched its second-ever bond on the regional market; the five-year bond is worth CFAfr47bn (US$94m). The deadline for final bids in the privatisation of four state-owned banks, delayed until April 2011, may be extended further.

The domestic economy

Rising food and energy prices pushed annual inflation to 4.6% in January. Work has begun on building a third quay at the Port of Lomé, as part of a US$600m development project. Work is due to begin on a second container terminal at Lomé in July 2011.

Foreign trade and payments

According to revised balance-of-payments figures from the IMF, the current-account deficit widened to 7.7% of GDP in 2010, from 7.1% of GDP in 2009, as exports stagnated and imports rose. New joint border posts between Togo and its neighbours will facilitate regional trade.

Land area

56,785 sq km

Population

6.62m (IMF mid-2009 estimate)

Main towns

Population ('000; 2009 estimates)

Lomé (capital): 1,565

Sokodé: 113

Kara: 108

Kpalimé: 78

Atakpamé: 80

Climate

Tropical, drier in the north

Weather in Lomé

Average temperature 27°C; average monthly rainfall 65 mm

Languages

French, Ewe, Kabye and others

Measures

Metric system

Currency

CFA franc (CFAfr; CFA stands for Communauté financiere africaine); tied to the euro at a fixed exchange rate of CFAfr655.957:EUR1

Time

GMT

Public holidays

Fixed: January 1st; January 13th (National Liberation Day); January 24th (Victory Day); April 27th (Independence Day); May 1st (Labour Day); August 15th (Assumption); September 24th (anniversary of a failed attack by Togolese dissidents on Lomé in 1986); November 1st (All Saints' Day); December 25th

Variable (according to the Christian and Muslim calendars): Id al-Fitr; Id al-Adha; Prophet's Birthday; Easter Monday; Ascension Day; Whit Monday

Official name

République togolaise

Form of state

Unitary republic

Legal system

Based on the Napoleonic Code and the constitution of the Fourth Republic promulgated in September 1992 (and amended in December 2002)

National legislature

National Assembly, composed of 81 deputies

National elections

March 4th 2010 (presidential election); October 14th 2007 (legislative election); next elections due in 2015 (presidential election) and 2012 (legislative election)

Head of state

President, elected by universal suffrage for a five-year term; the two-term limit was dropped in 2002; Faure Gnassingbé was elected president in April 2005 and re-elected in March 2010

National government

A 31-member government was formed in May 2010; it is dominated by the Rassemblement du peuple togolais (RPT) but includes representatives from the Union des forces de changement (UFC)

Main political parties

The RPT has ruled since 1969; two opposition parties have seats in parliament-the UFC and the smaller Comité d'action pour le renouveau (CAR); there are several other opposition parties, but none is represented in parliament

President & minister of defence: Faure Gnassingbé (RPT)

Prime minister: Gilbert Houngbo (independent)

Ministers of state

Civil service & administrative reform: Solitoki Magnim Esso (RPT)

Foreign affairs & regional integration: Elliot Ohin (UFC)

Key ministers

Agriculture & fishing: Kossi Messan Ewovor (RPT)

Basic development, craft industry, youth: Victoire Tomegah-Dogbé (RPT)

Commerce & promotion of the private sector: Arthème Ahoomey-Zunu (RPT)

Economy & finance: Adji Otèth Ayassor (RPT)

Environment & forest resources: Kossivi Ayikoe (RPT)

Health: Komlan Mally (RPT)

Higher education & research: François Agbéviadé Galley (UFC)

Human rights, consolidation of democracy: Leonardina Wilson-de Souza (UFC)

Industry, freezone & technological innovation: Bakalawa Fofana (UFC)

Justice, relations with parliament: Tchitchao Tchalim (RPT)

Labour & social security: Octave Nicoué Broohm (RPT)

Mines & energy: Damipi Noupokou (RPT)

President's office (planning & development): Dédé Ahoefa Ekoue (RPT)

Promotion of women: Henriette Amedjogbé-Kouévi (RPT)

Public works: Tchamdja Andjo (RPT)

Security & civil protection: Dokissima Gnama Latta (RPT)

Social action & national solidarity: Mémounatou Ibrahima (RPT)

Sport & leisure: Padumhèkou Tchao (RPT)

Technical education & training: Hamadou Bouraïma-Diabacté (UFC)

Territorial administration & government spokesman: Pascal Akousoulélou Bodjona (RPT)

Tourism: Batienne Kpabre-Sylli (RPT)

Transport: Ninsao Gnofam (RPT)

Water & sanitation: Ayéva Essofa (RPT)

Governor of regional central bank (BCEAO)

Jean-Baptiste Compaoré (interim)

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Faure Gnassingbé, the leader of the long-term ruling party, Rassemblement du peuple togolais (RPT), will remain in office as president during the outlook period after winning a second five-year term-by a comfortable margin-in March 2010. This consolidated both his position and that of the Gnassingbé family, which has ruled Togo since the 1960s, and endorsed his policies of economic reform and socio-political liberalisation. International observers judged the presidential election to have been free and fair, making it the first since independence not to have been obviously rigged. The election heralded a major shift in Togolese politics when Gilchrist Olympio, the leader of the main opposition party, Union des forces de changement (UFC), and an opponent of the Gnassingbé family for nearly 50 years, agreed to join a government of national unity. This split the UFC: diehard oppositionists in the party accused Mr Olympio of betrayal and several leading members left to form a new party, Alliance nationale pour le changement (ANC). However, Mr Olympio's decision was principled and pragmatic, seeking reconciliation with the regime to give himself and his party some part in the future development of the country, at the same time as ending a political confrontation that no longer served the purpose of opposing an illegitimate and repressive regime (Mr Gnassingbé was freely elected and his government respects human rights).

For Mr Gnassingbé, the unity agreement bolsters his credibility as a national leader and his hold on the presidency. Along with his election victory, it will strengthen his control of his party and the army, and reduce the threat posed by hardline elements in the RPT that oppose political and economic liberalisation, such as the president's half-brother, Kpatcha Gnassingbé, who remains in detention after an alleged coup attempt in 2009.

The alliance will allow the government to move forward with institutional and constitutional reforms, to complement progress being made on the economic front. The coalition agreement included commitments to undertake a new population census, compile a new electoral register, draw new constituency boundaries and hold long-delayed local elections. If the agreement holds, as the Economist Intelligence Unit believes it will, it will weaken the political divide, which has long been a source of instability, between the north (where the RPT and the Kabyé and related tribes are dominant) and the south, including the capital, Lomé (where the UFC and the Ewé tribe form the majority).

Local elections being held in 2011 (their date has not yet been announced) will provide the first test of public opinion vis-à-vis the coalition government and Mr Olympio's rapprochement with the regime. UFC supporters across the country will have to decide whether to remain loyal to Mr Olympio and the UFC or transfer their vote to the ANC. Even more significantly, a legislative election in 2012 (probably in October) will determine the composition of the National Assembly for the next five years. It is unclear how much support the opponents of the national reconciliation enjoy; it may be confined largely to political activists in the capital. The ANC will either fade into insignificance, to join the ranks of Togo's many small and inconsequential parties, or it could become a mid-tier player, albeit unlikely to replace the UFC as the main opposition group. The split in the opposition ranks will also benefit the RPT, possibly gaining the party extra seats in 2012. We believe that the coalition government will remain in office until the legislative election, but its survival beyond this date will depend on the election outcome: if the UFC remains the largest opposition group, a new alliance may be formed, but should the UFC lose much of its support to the ANC, the RPT will have to deal with a resurgent opposition.

The judgement of international observers that the presidential election in 2010 was free and fair, despite some irregularities, combined with the absence of serious violence and the restraint shown by the security forces, will facilitate Togo's relations with key partners and donors, as will the formation of the coalition government between the RPT and the UFC. Financial support from key donors, including the EU, the IMF and the World Bank, which resumed in 2008 after a 15-year hiatus, will continue. Togo's relations with fellow members of the Union économique et monétaire ouest-africaine and the Economic Community of West African States will widen and deepen during the forecast period, helped by the improved political situation. Togo will remain a significant contributor to peacekeeping operations on the continent and will maintain close relations with France, the former colonial power.

Economic policy during the forecast period will be guided by the requirements of Togo's three-year extended credit facility (ECF) with the IMF, which expires in August 2011. A successor programme is likely to be put in place before the end of the year. Togo remains broadly on track with the ECF, according to the fifth review of the programme, approved by the IMF's Executive Board in December 2010. Most fiscal and monetary benchmarks are being met, and structural reforms are advancing in state-owned enterprises in the banking, phosphate and cotton sectors, although there will be delays in meeting some targets, largely because of capacity constraints. It will therefore take time for the reforms to have an impact, and economic performance is likely to remain sluggish.

The policymaking environment will improve in 2011-12 as a dividend of the political settlement between the regime and the opposition, which will make it easier to attract strategic investors into parastatal enterprises. Structural reform is likely to speed up, helped by rising assistance from donors-especially the World Bank, which is supporting several major projects in the fields of infrastructure rehabilitation, public administration and the financial sector; these will continue throughout the forecast period. In a key development, the IMF and World Bank decided in December 2010 that Togo had reached completion point under the heavily indebted poor countries initiative, enabling a massive cancellation of debt by bilateral and multilateral lenders. Togo's debt burden has fallen by US$1.8bn within two years, and now stands at around US$400m with no outstanding arrears. Debt-servicing costs will fall sharply, freeing resources for more productive uses, although there is a risk that debt will rise again unless Togo maintains strict prudential controls.

Togo ran a budget deficit estimated at 2.8% of GDP in 2010, thereby maintaining a modest fiscal stimulus (with the approval of the IMF), including higher spending on capital projects and the repayment of domestic debt arrears in cash. Exceptional financing from donors covered most of the gap. The government will persist with a moderately expansionist budget in 2011 in order to support growth and investment, assisted by fresh donor funding and resources freed by the major debt cancellation in December 2010. However, the government will keep a fairly tight grip on current spending and push ahead with tax reforms (including broadening the tax base and cutting exemptions), which will help to lower the budget deficit by a small margin to a forecast 2.7% of GDP. The government envisages a sharp rise in capital spending (to 9.9% of GDP) in 2011, which is vital for medium-term growth, but it may miss the target because of capacity constraints, including inefficiencies in procurement and project execution. Fiscal prudence will continue when the current IMF programme ends in August 2011 and a successor programme is put in place, but there is a risk of some slippage in fiscal discipline in 2012, when the next legislative election takes place, leading to a small rise in the budget deficit to 3% of GDP. However, the government will be wary of alienating donors: it hopes the contribution of external grants will rise from 2.4% of GDP in 2010 to 3.3% of GDP in 2011 and 4.3% of GDP in 2012.

Togo's monetary policy will continue to be set by the regional central bank, Banque centrale des Etats de l'Afrique de l'ouest (BCEAO), whose priorities are to control inflation and maintain the CFA franc's peg to the euro. Policy will therefore continue to be influenced by that of the European Central Bank (ECB). Concerns about the fiscal sustainability and coherence of the euro area are set to persist in 2011 and the ECB will maintain low-though rising-interest rates over the forecast period. We expect the regional central bank to track this, raising its repurchase rate, taux des appels d'offres, by 25 basis points in 2011 and again in 2012. Injections of liquidity will remain the prime policy tool; the BCEAO has recently introduced two new liquidity offerings as demand has picked up.

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Togo's real GDP growth quickened slightly to an estimated 3.4% in 2010, helped by favourable rainfall, improved power supply (from a new electricity generating plant), a modest fiscal stimulus and the global rebound from recession, but serious flooding and long-standing structural constraints were a brake on growth. Growth is expected to accelerate a little to 3.6% in 2011, spurred by new investment in infrastructure, higher government spending (helped by lower debt-servicing costs following debt relief) and continuing structural reforms under the donor-backed programme: these include the overhaul and privatisation of inefficient state-owned enterprises, especially in the banking, phosphate and cotton sectors. An expected rise in cotton production coupled with strong world prices will underpin agriculture. However, growth in Europe, a key market, will remain weak owing to the euro-area debt crisis, while the benefits of reform and rising donor funding will take time to materialise after a long period of economic mismanagement and underinvestment.

Growth throughout the forecast period will continue to be weather-dependent because of the importance of agriculture, which accounts for more than one-third of GDP. However, provided that Togo stays on track with reforms and avoids political upheaval, growth is forecast to accelerate to 3.9% in 2012 (the fastest for several years), the main threat to this being further financial and economic disturbance in Europe.

Inflation declined to 1.4% in 2010, helped by plentiful, cheaper food following favourable rains; food accounts for 29% of Togo's price basket. Inflation, however, is expected to rise again in 2011, to 3.2%, driven by higher world oil and food prices and the depreciation of the CFA franc, which will push up import costs. Rising domestic demand associated with faster GDP growth and higher electricity tariffs will also put pressure on prices. Inflation is forecast to drop back to 2.5% in 2012, helped by lower world oil and food prices as well as efficiency gains arising from structural reforms, although inflation will be higher in both forecast years if the harvest is poor.

The CFA franc-pegged to the euro at CFAfr655.96:EUR1-will fluctuate against the US dollar in line with the euro:dollar exchange rate. The dollar strengthened against the euro in 2010, spurred by the sovereign debt crisis in the euro area, and we expect this trend to continue throughout the forecast period as the US economy recovers from recession more quickly than the euro area and investors seek safety in the US currency. In line with these trends, the CFA franc is forecast to depreciate against the US dollar, from CFAfr495:US$1 in 2010 to CFAfr502:US$1 in 2011 and CFAfr525:US$1 in 2012.

Togo's current-account deficit-after widening to an estimated 7.7% of GDP in 2010 as import growth outstripped export growth-will remain large during the forecast period, as demand for foreign goods and services will outstrip the country's earning potential. Exports will benefit in 2011 from the highest cotton prices for 15 years and an expected increase in production, but the sector will take years to rebuild after a long period of neglect. Earnings from phosphates will increase towards the end of the forecast period, provided new investment is forthcoming. Re-exports (which account for about one-fifth of total exports) will benefit from ongoing investment in the port and road infrastructure, as well as the diversion of traffic from Côte d'Ivoire. Import demand will remain robust in 2011-12, spurred by economic growth and donor-funded capital projects, putting pressure on the trade deficit. Earnings from remittances and servicing regional trade will remain a vital part of the balance of payments, and tourism also has medium-term potential, but the current-account will remain under strain. We expect the deficit to remain around 8% of GDP in 2011, before declining to 7% of GDP in 2012 as import growth slows.

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New opposition protests against proposed laws to govern public demonstrations, accompanied by a police crackdown, have increased political tension, although serious trouble is unlikely. Leading the protests is the Alliance nationale pour le changement (ANC), which broke away last year from the main opposition party, Union des forces de changement (UFC), after the UFC joined a unity government with the long-term ruling party, Rassemblement du peuple togolais (RPT). Although ANC protests have been a weekly event in the capital, Lomé, since last year's disputed presidential election, most have been relatively low-key. However, on March 17th several hundred demonstrators clashed with police, who responded by using tear gas and rubber bullets in a series of running battles. The ANC, part of the broader Front républicain pour l'alternance et le changement (FRAC) alliance, is particularly angered by new draft laws regulating public demonstrations, which the party claims are too restrictive and intended to stifle legitimate protests. Whether or not the ANC has a case, it is certainly exploiting the issue in order to stay in the spotlight. The party, led by Jean-Pierre Fabre, has also dismissed a call for multiparty dialogue from the president, Faure Gnassingbé, until certain conditions are met, including the restoration to parliament of the nine former UFC deputies who were expelled after defecting to the ANC (January 2011, The political scene).

The proposed new law is receiving closer examination, although it has been drafted with the help of the Office of the UN High Commissioner for Human Rights and replaces colonial-era legislation, which governments have frequently used to clamp down on opponents. The legislation is compatible with international democratic standards, and although it has been approved by the cabinet, it may still be amended. The full details are still uncertain, but the new law liberalises the system by removing the obligation to seek a licence before holding a demonstration, while also tightening it by making the organisers liable for any damage and prescribing heavy penalties. However, whatever the merits (or otherwise) of the new law, the timing is certainly inopportune, given the spread of pro-democracy protests throughout North Africa and the Middle East, which is inspiring an opposition addicted to protest to accuse the government of restricting political freedom.

Mr Gnassingbé carried out a minor cabinet reshuffle in February, appointing Dokissima Gnama Latta, a colonel in the army, as minister of security after his predecessor, Atcha Mohamed Titikpina (now a general), was promoted to be chief of staff of the Togolese armed forces in December 2010. The president also named the outgoing chief of staff, General Ayéva Essofa, as minister of water and sanitation, replacing Zakari Nandja, another former chief of staff, who left the cabinet. These appointments followed Mr Gnassingbé's usual practice of moving round top military officers as a coup prevention strategy). The appointment of Mr Latta-a former head of the civil aviation authority-will have little impact on security policy.

More controversially, in early March the president sacked the minister of trade and the private sector, Kokou Gozan (an independent), replacing him with Arthème Ahoomey-Zunu, secretary-general in the President's Office. No reason was given, but Mr Gozan's downfall stems from a row that erupted in February about his allocation of exclusive food import licences to two well-connected firms, accompanied by offers of cheap credit and easier customs procedures. Mr Gozan said that the arrangement would reduce food prices, but anger among small traders and threats of protest led to his sacking and the suspension of the licences. The final part of the reshuffle was the appointment of the minister of justice, Kokou Tozoun, to head the media regulatory authority, and his replacement in cabinet by a prominent lawyer, Tchitchao Tchalim.

In a development that may lead to fairer and more peaceful elections (including local elections in 2011, at a date still to be determined), 14 political parties, including the RPT and UFC, signed a new electoral code of conduct in March, following months of negotiations overseen by the National Democratic Institute (a US-based non-governmental organisation) and the UN Development Programme. Although the code is not a legal document, it sets out guidelines for election campaigning drawn from international best practice, and will help to guide the formal review of election laws currently being undertaken by the government. However, the ANC and its FRAC allies did not take part in negotiations or sign the code.

Togo's economic reform programme is making solid progress, according to the IMF's latest assessment in January 2011. Most targets and benchmarks under the three-year extended credit facility (ECF) have been met to date, especially in the fiscal sphere, although some wider structural reforms, in particular bank privatisation, have encountered delays. As a consequence, the IMF agreed in December to extend the ECF by four months until August 2011. A successor programme will probably follow, given the need to sustain reform momentum into the medium term.

Fiscal performance in 2010 was very close to target. Revenue rose to 19.6% of GDP, according to the latest IMF estimate, compared with 18.5% of GDP in 2009, helped by an increase in grants and non-tax revenue, although tax revenue fell slightly to 15% of GDP because of tax cuts. Spending rose to 22.4% of GDP, compared with 21.3% of GDP in 2009, because of an increase in capital expenditure on infrastructure projects. The result was a budget deficit (on a commitments basis) of 2.8% of GDP in 2010, the same as in 2009, thereby providing a modest fiscal stimulus. The deficit on a cash basis was much higher, at 5.8% of GDP, owing to the clearance of domestic debt arrears worth 3% of GDP, which provided a timely stimulus to business. Foreign and domestic borrowing financed the main deficit and exceptional donor financing covered arrears clearance.

However, domestic arrears clearance has advanced more slowly than expected. Repayment should have been completed by March 2010, according to the ECF, but by August 2010-a year after the programme started-only 65% of the outstanding sums (and 37% of creditors) had been repaid. The main problem is that many creditors (especially small creditors) have not come forward, because of both the scheme's complexity and their refusal to accept a 20% reduction. Moreover, some of the debts are very old and owed to creditors who have left the country or died. The government now says that the scheme will continue until the end of 2011, but claims made after that will not be met.

Despite missing the arrears target, Togo complied with other fiscal benchmarks such as rationalising Treasury accounts, reducing delays in the spending chain and overhauling the pension fund. In addition, the authorities adopted a new fuel pricing mechanism in December 2010 (the target date), which will relieve pressure on the budget by linking domestic prices to world prices, albeit with a built-in stabiliser to smooth fluctuations and cushion the effect of price rises on consumers. Fuel prices dropped a little in January as the new scheme started up, but this may prove temporary given global oil price trends.

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The IMF projects a sharp rise in both spending and revenue in 2011, but a small decline in the budget deficit to 2.7% of GDP, and a much bigger fall in the cash-basis deficit to 3.5% of GDP, as the bulk of arrears (over two-thirds) were repaid in 2010 despite delays. Revenue is expected to jump to 22.6% of GDP, helped by a rise in grants (to 3.3% of GDP) and taxes (to 16.3% of GDP), owing to stable tax rates (after earlier cuts), faster GDP growth, administrative reforms and fewer import duty exemptions. Non-tax revenue will also rise briskly (to 3.1% of GDP) because of the planned sale of a third mobile phone licence (possibly worth 1.2% of GDP), although this will be a one-off gain. Similarly, spending is set to rise to 25.3% of GDP because of an increase in capital expenditure, to 9.9% of GDP, which will boost the prospects for medium-term growth. The IMF believes that this is feasible, given the progress made in 2010 on project planning and execution, but will nevertheless be challenging, given the weaknesses in public-sector capacity. Current spending, however, is expected to edge down to 15.5% of GDP, despite wage rises, because of the much tougher spending controls now in place. Other fiscal reforms scheduled for 2011 include a new framework for Treasury cash management and further progress towards a single Treasury account (a benchmark set for the end of March).

To help cover financing needs in 2011, especially for infrastructure projects (but also for tourism, agriculture, urban planning and education), the government launched its second-ever bond on the regional market (Union économique et monétaire ouest-africaine) in January 2011, following an initial issue in 2006. The five-year bond, worth CFAfr47bn (US$94m), is larger than the 2006 issue (of CFAfr30bn), but offers the same 6.5% annual rate of return, which is comfortably ahead of inflation. The issue had been scheduled to close on February 28th but the two-week suspension of the Abidjan-based Bourse régionale ouest-africaine des valeurs mobilières in mid-February, because of the crisis in Côte d'Ivoire, and its reopening on March 1st in Bamako, Mali, appear to have disrupted the process. By the closing date of this report there had been no information about the outcome.

Whereas the government has met most of its fiscal targets, it has made slower progress with structural reforms, especially the privatisation of the four state-owned banks. The ECF initially targeted a final call for bids by December 2009, which was later extended to September 2010. However, these deadlines were missed because of the lack of a suitable legal framework. The National Assembly remedied this in October 2010 by enacting a new privatisation law that provided for a privatisation commission, which is currently being formed. The deadline for final bids has been extended until April 2011, although this may still be too ambitious.

Togo's state banks were recapitalised in 2008 (at a cost of 6.2% of GDP) and the banking system is now much stronger. Deposits rose by 10% and credit allocation to the private sector increased by 20% in the first seven months of 2010, but problems remain. Non-performing loans (NPLs) have fallen, but remain high at 14.6% of gross loans. However, credit to parastatals is rising faster than credit to the private sector-an ominous sign. Moreover, six banks do not meet the newly raised minimum capital requirement of CFAfr5bn (US$10m) and "one large bank" (according to the IMF) fails to meet the prescribed capital-to-assets ratio of 8%. In addition, financial intermediation remains inefficient, as marked by wide interest rate spreads, which is costly for borrowers. Privatisation is seen as essential to improving the operational efficiency of state banks.

However, Togo met its 2010 ECF benchmark of establishing a new recovery mechanism for NPLs, and progress has been made in reforms affecting the business environment. The government remains on track to establish a one-stop shop for importers at the Port of Lomé-to speed trade and cut costs-and was due to finalise the plans for this by the end of March. The cabinet has also approved a new investment code, which offers tax incentives for labour-intensive projects and the processing of raw materials, and reduces land taxes by 30%, although the final details are still awaited. In addition, the government is close to establishing a new commercial arbitration system to resolve business disputes outside of the main judicial framework, which should considerably reduce delays. An overhaul of free-zone legislation has also been mooted.

Inflation was subdued in 2010, averaging just 1.4%, as favourable rainfall kept food prices (which account for 29% of Togo's consumer price index) in check. However, inflation picked up strongly in December 2010, to 3.7% year on year, because of global food and fuel price trends, and it continued to rise in January, to 4.6% year on year, its highest level for 21 months, spurred by a steep rise in electricity tariffs. Prices rose by 3% in the month of December alone, driven by more expensive food and energy, and rose by a further 1.1% in January as electricity charges were increased by 25% in line with a new policy to allow the state-run distributor, Compagnie énergie électrique du Togo, to start making profits and stop relying on subsidies. The tariff increase for poor households was limited to 10%, but dearer electricity will lead to higher prices for a range of goods in the months ahead. Fuel prices were cut in January, with petrol declining from CFAfr560 (US$1.14)/litre to CFAfr540/litre, following the adoption of a new pricing mechanism, but the price was still 7% higher than a year earlier and is likely to rise again in line with world oil prices. Adding to inflation is the depreciation of the CFA franc, which was 7% weaker year on year against the US dollar in January. Inflation is therefore likely to rise in 2011 to more than 3%, although the increase will be larger if oil prices rise higher than currently expected or if poor weather affects food production.

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In a boost to Lomé's status as a key regional port, Bolloré, a French logistics firm, began the construction of a third quay in March, as part of a CFAfr300bn (US$600m) investment programme that also includes the modernisation of the container terminal. The aim is to double container-handling capacity, currently around 350,000 units a year, within five years. The need for expansion has been highlighted by the latest crisis in Côte d'Ivoire, which has diverted regional cargo away from that country's capital, Abidjan, towards other regional ports, including Lomé. However, port infrastructure is struggling to cope with the increased traffic, leading to lengthy delays and long queues of inbound and outbound trucks. To help address the short-term problems, Bolloré, whose subsidiaries SE2M and SE3M share port-handling duties in Lomé, alongside Manuport, a subsidiary of the French Getma group, has moved some heavy lifting equipment to Lomé, but congestion will remain a problem. Overall port traffic increased by 1m tonnes to 8m tonnes in 2010, and could reach 9m tonnes in 2011, according to the port's commercial director, Kwame Willi Néné; this estimate is feasible given forecasts of reasonable growth both domestically and among Togo's neighbours.

Apart from expansion at the existing port, a second major project is also in the pipeline, led by Getma and the Swiss-based Mediterranean Shipping Company. They plan to invest US$420m in a second harbour, the Lomé Container Terminal (LCT), west of the existing docks, and secured US$170m in funding from the International Finance Corporation (the World Bank's private-sector arm) in February. Work is due to start in July for completion by mid-2013. LCT won a 35-year concession in 2008 to build and operate the terminal, which will have an annual capacity of 500,000 containers. However, deficiencies in the regional road network will need to be addressed for Togo to reap the full benefits of investment in the port.

According to revised balance-of-payments figures from IMF staff, the current-account deficit widened to 7.7% of GDP in 2010, from 7.1% of GDP in 2009, as exports stagnated and imports rose. Exports were flat in US dollar terms at US$825m, with a 5% rise in CFA franc terms being offset by a 5% depreciation of the currency. Cement and clinker remained the largest single export, followed by re-exports, phosphates and cotton. Revised figures for re-exports bring these estimates more into line with those in the Fund's International Financial Statistics. Imports rose by 7% to US$1.29bn in 2010, spurred by faster economic growth and donor-funded capital projects, which pushed up the trade deficit to US$467m (14.8% of GDP). Invisible earnings climbed sharply in 2010, by 44% to US$223m, mainly because of a 14% rise in current transfers to US$327m (reflecting a rebound in remittances following the recession and higher official transfers) and a decline in net income outflows owing to debt restructuring. However, this was insufficient to cover the wider trade gap, hence the rise in the current-account deficit. An increase in the capital and financial account surplus (including foreign direct investment of US$32m, the same as in 2009) plugged some of the shortfall to leave an overall balance-of-payments deficit of US$126m, which was mainly covered by exceptional donor financing.

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In a move to facilitate inter-regional trade, work started in February on two new joint border posts, at Noépé, between Ghana and Togo (10 km north of Lomé), and at Seme-Krake, between Benin and Nigeria. A third post will be built at Melanville, between Benin and Niger, to be followed by four others, with the aim of reducing formalities, shortening transit time and cutting trade costs throughout the West African region. The whole scheme, being sponsored by the European Union, the Economic Community of West African States and the Union économique et monétaire ouest-africaine, is to be funded from a EUR63m (US$82m) grant under the Ninth European Development Fund, part of which will also support the development of railway infrastructure and capacity building. The first three border posts are scheduled for completion by mid-2012. At a ceremony to launch the project at Noépé, the EU's ambassador to Ghana, Claude Maerten, said that the new crossing would cut transit costs by 25%.

In a separate development, Ghana and Togo opened a border post for pedestrians in December at the Lomé-Aflao frontier, to ease congestion at the main crossing. Pedestrians will just require an identity document rather than a passport, although use of the crossing is restricted to citizens of Togo and Ghana. Officials also pledged to reduce the harassment of travellers by border officials.

Donor support for Togo remains solid and several new grants and cheap loans were approved during the past quarter.

• The International Fund for Agricultural Development (a UN agency) and the Steering Committee of the Global Agriculture and Food Security Programme (a multilateral mechanism set up after a request from the G20 in 2009) are to give US$20m for a project to boost food security and rural incomes. The project will focus on the production and marketing of three food staples-cassava, maize and rice-and aims to help more than 100,000 (mainly subsistence) farmers to make the transition to commercial farming.
• The Global Fund to Fight AIDS, Tuberculosis and Malaria is to make a grant of US$26m for a three-year anti-malaria programme to be handled by Plan USA, an international children's charity.
• The regional development bank, Banque ouest-africaine de développement, is making a loan of US$10m towards the rehabilitation of infrastructure at the Port of Lomé, including power and water supplies.
• The French development agency, Agence française de développement, has made a grant of US$8m for the clearance of domestic arrears, particularly those owed by the drug-purchasing authority, Centrale d'achat des médicaments essentiels et génériques.