ReportNo. 9686-BU PrivateSector Development in

January22, 1993 Public Disclosure Authorized AgricultureOperations Division South-Centraland IndianOcean Department Africa Region

FOR OFFICIALUSE ONLY

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Documentof theW1cd Bank

Public Disclosure Authorized This documenthas a restricteddistribution and may be usedby recipients only in the performanceof their official duties.Its contentsmay not otherwise be disclosedwithout World Bankauthorization. CURRENCYEQUIVALENTS

Currency unit = Burundi franc (FBu) Period Average: 1992 US$1 = FBu 200 (as of March 1992) 1991 US$1 = FBu 181.5 1990 US$1 - FBu 171

1989 US$1 - FBu 159 1988 US$1 = FBu 140 1987 US$1 - FBu 124 1985 US$1 FBu 121

Weights and Measures

Metris Inte nationalStandard System

ACRONYMSAND ABBREVIATIONS

ABEC AssociationBurundaise des Exportateursde Cafe AFDB African DevelopmentBank BCC Burundi Company BNDE Banque Nationalede DeveloppementEconomique BNR Banque Nationalede la Rdpublique CCCE Caisse Centrale de CooperationEconomique COGERCO Compagniede Gerance du Coton COTEBU Compagniedes Textiles du Burundi COOPEC Cooperative d'Epargne et de Credit (Savingand Credit Cooperatives) DGPAE Direction Gdneralede l'Agriculture et de l'Elevage EAP EnviromnentAction Plan EEC European EconomicCommunity FACAGRO Faculte d'Agronomie INECN Institut Nationalpour I'Environnementet Conservationde la Nature IPC InternationalPotato Center IRAZ Institut de Recherche Agronomiqueet Lootechnique ISABU Iri.-titutdes Sciences Agronomiquesdu Burundi ISTEEBU Institut Statistiqueset Etudes Economiques MOAL Ministry of Agricultureand Livestock MLDTE Ministry of Land Development,Tourism and Enviromnent MRD Ministry of Rural Development NSP NationalSeed Plan OCIBU Office des Cultures Industriellesdu Burundi OTB Office des Thes du Burundi RDC RegionalDevelopment Company SAC Structural AdjustmentCredit SODECO Societede Deparchargeet de Conditionnement SOGESTAL Societede Gestion des Usines de Lavage de Cafd SOSUMO SocidteSucriere du Mosso UNDP United Nations DevelopmentProgramme USAID United States Agency for InternationalDevelopment

GOVERNMENTOF BURUNDIFISCAL YEAR January 1 to December 31 FOR OFFICIALUSE ONLY

TABLE OF CONTENTS

EXECUTIVESUMMARY ...... i

CHAPTER I: INTRODUCnON AND BACKGROUND ...... 1 A. Introduction...... 1 B. The Role of Agriculture in the Economy ...... 1 C. AdjustmentPerformance and Sector Policy Background ...... 4 StructuralAdjustment ...... 4 Agricultural Policy Background ...... 4

CHAPTER II: SECTORPERFORMANCE IN THE 1980s . . 7 A. Food Production ...... 7 Food Crops. 7 Livestock. 9 Fisheries.11 Food Security .12 B. Agro-industrialCrops .17 Coffee .17 Tea .19 Cotton .21 Other Export Crops .22 Import SubstitutionCrops .24 Supplyand Demand Projections for Agro-industrialCrops .25 C. Forestry .27 D. InstitutionalPerformance .28 E. Private Sector Institutionsand Performance.30

CHAPTER HI: CONSTRAINTSTO AGRICULTURALGROWTH . .31 A. MacroeconomicConstraints .31 ExchangeRate Policy .31 GovernmentExpenditure Policy .32 Tax and Tariff Policies.32 B. MicroeconomicConstraints .33 Fixed Input and Output Prices .33 GovernmentControl of AgriculturalInputs .34 Labor .34 Credit .35 C. SociopoliticalConstraints .36 The Effect of GovernmentPolicies on Rural Initiative.36 The Oxymoron of Growing Poverty and a Dynamic Rural Sector .38 D. InstitutionalConstraints .39 GovernmentActivity in the Sector .39 Poorly Coordinatedand Defined Extension and Research Programs .40 Marketing Constraints .41 Education .42 E. EnvironmentalConstraints .42

This document has a restricted distribution and may be used by recipients only in the performance of their officialduties. Its contents may not otherwise be disclosed without World Bank authorization. CHAPTER IV: STRATEGYFOR AGRICULTURE-BASEDGROWTH ...... 44 A. Introduction ...... 44 B. Promotion of a Dynamic Private Sectr ...... 45 C. The EvolvingRole of the Government ...... 46 Research and Extension ...... 46 Creation of SupportiveRegulatory Environment ...... 47 Public Expenditures ...... 48 A NationalEnvironmental Policy ...... 48 InstitutionalReforms ...... 48 D. Conclusions ...... 49

TECHNICAL ANNEXES AND BACKGROUNDPAPERS

Annex 1. Proposed Policy Matrix ...... 50 Annex 2. ComparativeAdvantage Analysis of Burundi Agriculture ...... 58 Annex 3. Strategy for Private Agro-industrialEnterprise Development...... 74 Annex 4. StatisticalAppendix ...... 90

MAPS

1. Physical Map (Rainfall and Altitude) FOR OFFICIAL USE ONLY

PREFACE

This is one of two reports, written in parallel discussing the issues and prospects in developingthe private sector in Burundi. The other, entitled "Private Sector Development in the Industrial Sector," was issued on December 31, 1991. That report covers the enabling macroeconomicenvironment, legal and regulatory constraints, and institutional and promotional measures for the secondary and services sectors.

This report is based on the findingsof a missionthat visitedBurundi in October 1990. It was writtenby Jean-FrangoisBarres (missionleader), with key contributionsby Messrs. J. C. Fayd'Herbe and J. Rwamabuga (Resident Mission, Burundi), Mr. F. Julien (Caisse Centrale de Cooperation Economique, agro-industries), Mr. J. Meerman (AF3AG, macro-economicenvironment), Mr. A. Yates (AFTAG, research and extension), Mr. H. Andrews (consultant, seeds), Mr. Scott (internationalPotato Center, tuber crops), Mr. Manangwari(consultant, land tenure issues), Mr. A. Guichaoua (consultant, social and institutional constraints), and Mrs. Louise Cord (consultant, economicanalysis). Earlier drafts benefited from commentsby Mr. Peter Hazell, lead adviser, and from Mr. Michael Cernea, peer reviewer. The report was discussedwith the Burundian authorities in April 1992. EXECUTIVESUMMARY

1. Burundi is a small, landlockedcountry in East Central Africa. With a population estimated at 5.7 million (1992), Burundi has the second highest populationdensity in Africa (193 people per square kilometer). The country's populationis concentratedin its eastern highlands, and more than 50 percent of the country's availablearable land area located mainly in Burundi's southwestregions, remains unused or underused. Agriculture is the most important economic activity, accountingfor about 50 percent of gross domestic product (GDP), and 90 percent of exports (of which 80 percent is coffee). The secondary sector (mining and industry) generates only 14 percent of GDP and 5 percent of exports, arndthe services sector provides 25 percent of GDP.

2. Burundi is one of the few sub-SaharanAfrican countries where increases in food produc:ion during the last decade (at 3.1 percent per year) have kept pace with populationgrowth (also at 3.1 percent per year). This expansion reflects an increase in acreage rather than yields, and has been possible because the country is not as land scarce as its northern neighbor, Rwanda. However, marketedfood production has stagnatedas has the purchase of agriculturalinputs, and the production of cash crops has advanced only slowly, with the country unable to make important inroads in diversifying away from its main export, coffee. To achieve sustained agricultural growth in the future, production increases have to be attained through better productivity and a lower growth in land use; more emphasis needs to be placed on market expansion and the development of new markets; and to avoid a decline in soil fertility, the use of inputs will need to be increased.

3. 'IThereare good reasons to believe that Burundi's agriculturalgrowth could be acceleratedand well exceed population growth in the medium term. First, the country possesses relatively fertile soils, large areas of which are unused or under-utilized;even in densely cultivatedareas, yields of most crops are low and could be increased. Second, the Government has shown a willingness to follow sound macroeconomic policies, including exchange rate adjustments that maintain the competitiveness of the country's agricultural exports and facilitate export diversification. Comparative advantageanalyses have shownthat, despite Burundi's distance from markets, most of its agriculturaltradables, includingcoffee, are internationallycompetitive. Third, the country has a well developedtransport and communicationsinfrastructure, and a smallbut dynamicprivate trade and agro-processingsector that, under the right policy framework, is capable of rapid expansion.

4. To fully exploit the sector's potential, Burundimust overcomea number of constraints. Until recently, deep ethnic and political divisions in the country created an environment in which the Governmentfelt obligatedto intervene in the sector's ?rincipal activitiesat both the central level and in the field. This has severely linited the initiativeof private entrepreneursin production, trading, and .gro-processing.It has also led to managementand investmentinefficiencies in the public sector and to cost and price distortions in public enterprises in agro-processing. Also, the Government's top-down approach in its provision of agricultural services (extension and research) has led to inefficiencybecause the services have been responsiveto policy instructionsrather than to the needs of producers. In addition,although Burundi has adequateland tenure laws, the Governmenthas until recently lacked the political will and the administrativeand legal institutionsto implementthe laws. As a result, ownership and user rights remain in dispute for large tracts of land, precludingtheir full exploitation. Finally, agriculture is hamperedby physical constraints, particularly in the populated highlands, where erosion and declining soil fertility pose a threat to the continued growth of the il sector.1I 5. Thisreport identifies the developmentof a dynamnicprivate sectr, and a reductionin the role of Governmentas the main elementsnecessary for achievingagricultural growth. It focusseson two priority actions: the liberalizationof agriculturalproduction and agro-industrialprocessing and marketingactivities from excessiveregulation, and the restructuringand privatizationof pub!ic enterprises,as the main elementsto developmore dynamicmarketing as well as new marketsfor agriculturalproduce. For smallho'derfarmers, this meansthe abilityto behavelike entrepreneurs-to allocate resourcesaccording to undistortedmarket signals-and to organize into autonomous professionalgroups and cooperatives. For privatetraders and processors,it meansthe abilityto organizeinto professionalassociations and to organizecontractual arrangements that wouldbring closecontacts with farmers, facilitating the transferof technologyand the developmentof marketing channels. And for the Government,it wouldhave to changeits focusto (1) creatinga competitive environment;(2) eliminatinginput subsidiesand fixed producerprices for export crops, lifting regulationsdetailing input use, sourcesof input supply,and cultivationrequirements, and ending compulsorysales to public enterprises;(3) providingadequate support servicesin researchand extension; (4) developingand applyinga proper regulatoryframework for land tenure, forestry management,phytosanitary practices, animal health, and quality safeguards;(5) undertaking investmentswith significantexternalities, such as land development(erosion control, irrigation, drainaga),and better air transportlinks; and (6) developinga coherentenvironmental policy. 6. Governmentgradually began to movein the directionof a newagricultural policy some years ago. The new approachcalled for a shiftin the role of Governmentfrom producerand processor to regulatorand promotor,and for the developmentof the privatesector and cooperatives.In the 1988-91period, Governmentended its coffeeexport monopolyand establisheda coffeeauction system open to private traders, and openedup coffee processingto private investment;it also liberalizedthe marketingof , foodcrops and agricultural inputs (fertilizer). In 1992,Government (1)ended the obligationto cultivatecotton in the paysannats;(2) permitted producers to uprootcoffee in marginalproduction zones; (3) liberalized the marketingand processingof tea, cotton,sugar, palm oil and dairy products;and (4)began the processof privatizationof publicenterprises in tea, cotton and sugarprocessing. 7. A lot remainsto be done, however,to ensure that these changesin orientationare duly carriedout and satisfactorilycompleted. The Government would be muchstrengthened in its resolve to privatizeand allowfurther liberalization, if a broadresponse from the domesticprivate sector is forthcoming;if professionalorganizations of farmersand tradersalike wIllgather strength and take new initiativeswith positive results; and if privateinvestment, with the proper encouragement,wIll be expanding. Also, GovernmentwIll have to makefurther progress in creatingan environment favorableto privateinitiative, by clarifyingand properlyapplying its land tenurelaws, by executing a coherentenvironment policy, and by focussingon publicinvestments with significant externalities for the agriculturalsector, such as the developmentand propagationof new technologyand the improvementof rural infrastructureas wellas accessto internationalmarkets (road and air transport). It is on these actionsthat Burundi'smain aid donorswill have to focustheir assistanceand financing.

I/ Other consraints not specificto agiculture, suchas tax policie, labor laws, and the regulatoryand legal frameworkfor business,are addressedin 'Burandi: IndustrialPolicies and Private Setor Development(9422-BU)". I CHAPTER : INTRODUCTIONAND BACKGROUND

A. Introduction

1.1 Burundi is a small, landlocked country in East Central Africa, with an area of 27,834 square kilometers (km) and lying 1,200 km from the Indian Ocean and 2,300 km from the Atlantic. Witn an estimated population of 5.72 million (1992) and an annual population growth rate of 3.06 percent, Burundi has the second highest population density in Africa (193 people per square kilometer). Althoughdemographic pressure is high in rural areas, urban migrationhas been limited, and urban dwellers presently comprise only 7 percent of the total population(1992). Despfte acidic soils, Burundi is relativelywell suited for agriculture:86 percentof its land area is potentiallyarable, the climate permits two rainfed cropping seasons, and irrigation is possible in its bottomlands. Agriculture is Burundi's most importanteconomic activity, accountingfor approximatelyhalf of Its gross domesticproduct (GDP), 90 percent of its en.ployment,and 90 percent of its exports (of which 80 percent is coffee). The industrial sector generates only 14 percent of GDP and 5 percent of exports, and the services sector provides 25 percent of GDP (1989).

1.2 Burundi's GDP per capita, estimated at about US$215 (1991), ranks among the lowest on the continent. Its annual per capita GDP growth has been consistentlyabove average levels for Sub- Saharan Africa since the mid-1960showever, and followed the typical pattern of moderate growth in the 1970s and slow growth in the 1980s. The country's economicand financial situationhas been closely linked to the internationalprice for coffee, which has followed a constant downward trend over the past six years and is now at its lowest level ever in real terms.

1.3 Burundi's approximately1 million smaliholderfarmers play a major role in the production of its export and food crops. Manufacturing,energy, construction, and the processing and export of primary commoditiesare dominatedby the quasi-monopolisticpublic sector, which generateshalf of the country's formal employment.

1.4 Burundi has been plagued by repeated ethnic strife, which has slowed the developmentof a modern private sector. The ethnic conflict has reinforced the tendency, commonamong African countries, for the Governmentto intervenein the economy. In the 1970s and the early 1980sa large number of public enterprises with monopoly rights were created in key sectors, and complex administrativecontrols were introducedallowing the Governmentto retain substantialdiscretionary powers over business activity. Since the Third Republic came to power following a military coup in late 1987, the country has been gradually moving toward a more liberal economic and political regime. A national policy of reconciliationand unity among the country's major ethiic groups has been largely successful:peace has been restored, and a significantopening up of the political system is underway. A new constitution introducinga multipartypolitical system was adopted in March 1992, and national and local elections are expected in early 1993.

B. The Role of Agriculturein the Economy

1.5 Agriculture generates a large share of Burundi's GDP-one of the largest shares in the world-with 50 percent of GDP coming from the primary sector. Agriculturealso supplies most of the inputs for Burundi's small formal and informalindustrial sectors: more than half (55 percent) of its industrial production (not counting wood and paper industries) was based on agro-industrial 2 activitiesin 1989(table 1). !/ Agriculturalproduction is generated mainlyby the subsistencesector; food production (includinglivestock and fisheries) accounts for 86 percent of primary sector GDP, and cash crops and forestry account for 9 percent and 5 percent. Smallholderfarmers, working on small, hilly plots averaging 0.7 hectare (ha), cultivate 90 percent of Burundi's exploited, arable farmland. The rest is devoted to industrialplantations (1 percent) and artificial forests (9 percent).

Table 1: Coqpositionof Gross Domestic Product 1n Current Prices, 1991 NitLions Sharein Sharein GDP Sector of FBu Sector (percent) (percent)

PrimerySector 105,935 100 so FoodProduction Subtotal 97.518 92 46 FoodCrops 83,428 78 39 Livestock 8,144 8 4 Fisheries 564 1 .3 Forestry 5,382 5 2 ExportCrops 8,417 8 4 SecondarySector 30,382 100 14 Manufacturing 9,354 31 4 Agriculturebased manufac. 5s783 19 3 AgriculturalProcessing 601 2 .3 Food Industries 4,054 13 2 Textiles,Leatt-Itr production 1,128 4 .5 OtherSecondary 24,599 73 12 TertiarySector 55.213 100 26 IndirectTaxes, net of subsidies 22.370 100 11 GDP at MarketPrices 213,900 100 100

a. Indirecttaxes include import taxes minus subsidies.

Source: Ministiy of Plamning,Econonic Buruxdaise1990, Cadragemacroconomique, 1993-1997

1.6 Between 1980 and 1989, the share of agriculture in real factor GDP declined from 62 to 50 percent, reflecting the relativelyweak performance of the dominantfood crop sector and the faster growth rates in industry and, especially services sector (table 2). During the 1980s, food crops increasedan average 3.1 percent a year in volume, compared with 16 percent for export crops. The significantgrowth in export crops reflects increasedGovernment investment in the sector, the use of improved inputs, and, most important, an expansion in the area under cultivation. The relatively small increase in food crop output is due mainly to increased acreage, as cultivationtechniques and yields changed little during the past decade. Most food crop production is to satisfy on-farm consumptionneeds, as farmers are hesitantto rely on markets. Consequently,there is little incentive to expand food crop production faster than the populationgrowth rate of 3.06 percent.

1.7 Livestockproduction grew at an annual rate of only 1.4 percent in the 1980s, and fishery

2/ Agro-industriesuse thefollowing agricultual products:COTEBU uses COGERCO'scotton fiber, QUAIMIits cotton thrcid,and RAPINA its cotton seeds; BTC uses tobacco leaves; Bnrudi uses SOSUMO's sugar, MPEKEbrewety uses sorghum;and SAVONORuses palm oil. 3 productionactually declined. This productionrecord reflects traditionally low levelsof investment in livestockand the overexploitationof fish in Lake Tanganyika. In addition, the share of agriculturalexports in total exportshas declinedsince the mid-1980s,dropping from 95.6percent In 1982to 89.9 percentIn 1989. But this reflectsthe deteriorationin worldcoffee prices rather than significantchanges in the volumeor compositionof exports.

Table 2: Average GroWthRate for Real Factor GDP by Sector, 1980-90 (percwnt)

Sector Average Anrual Growth Rate

Primary 3.2 Food Cropti 3.1 Livestock 1.4 Fisheries -2.3 Forestry 2.9 ExportCrops 16.1 Industry 4.8 Services 5.7 Real FactorGDP 4.1

Source: Minisry of Planning. 1.8 Burundi'sagricultural sector is characterizedby traditionalpioduction methods, and few moderninputs are used (table3). This reflectspersistent weakness in researchand disseminationof improvedtechnology, high tariffs on capitalimports, and inadequate,Government-dominated input marketingand distributionchannels. Intermediategoods (improved seeds, fertilizers,implements) representabout 6 percentof the valueof food and exportcrop production, and less than 1 percent of the valueof livestockand forestryproduction. Only fishery production-especially in the modern sector-appearsto be relativelycapital-intensive. Fixed capitaland wages(hired labor) each account for lessthan 1 percentof the valueadded of food crops. The sector'slow capitaliz-tion provides a partialexplanation for its low sensitivityto the exchangerate adjustmentsof the late 1980s.

TabLe 3: Share of Inter mediateGoods in AgricuLtural Production, 1988 (Percent)

Subsector IntermediateGoods as Percentageof Valueof Production

Food Crops 5.5 Livestock 0.4 TraditionalFisheries 13.3 ExportCrops 6.1 Forestry 0.9 ModernFisheries 39.2 4 C. AdJunmentPerformance and Sector Poicy Background

Struur Ajustment

1.9 In 1986 Burundibegan a structural adjustmentprogram ained at stabilizingdomestic and external finances, liberalizingthe economy, improvingthe allocationof resources, and redefiningthe role of the state in the productive secto-. Performancehas been mixed and has suffered because of political instability, climatic variability, and the collapse of the internationalprice of coffee. The program's stabilizationcomponent. which emphasized short-run balance of paymentsequilibrium, was given priority in the conductof Burundi's economicreform policies. The greatest progress was made in institutingtrade (exchangerate and tariff) and monetarypolicy reforms, and restricting demand. 3/ Structuraladjustments have been minimal, however, and except for the restructuringof the coffee subsector (whichjust started) and the privatizationof the state-owneddairy farms, dairy processing plant, and flour mill, the Goverm-ent's direct role in productiveactivities through public enterprises has remained basically unchanged. This has inhibited the anticipated supply response to macroeconomicadjustments, as increased export earnings from devaluations were almost entirely absorbedby the agro-industrialpublic enterprises. The continuedimportance of the public enterprise sector has also precluded reform of the financial sector, which has been dominatedby government- guaranteed loans to public enterprises. The contraction in demand, coupled with the absence of a supply response, led to a decelerationin the rate of growth of real GDP during the adjustmentperiod from 5 percent in 1980-85to 3.8 percent in 1986-89;however, it is still slightlypositive in per capita terms and compares favorably to growth rates in low-incomeSub-Saharan Africa, where average GDP per capita declined by 0.4 percent in 1980-87. Despite the stated policy of export diversification,the economy remains hignly dependenton coffee. This dependence,combined with the decline in wocrldprices for the commodity, helps explain the decline in the ratio of exports to imports over the adjustmentperiod, from 54 percent in 1986 to 38 percent in 1989.

AgriculturalPolicy Background

1.10 Since 1968 the Government has adopted four five-year development plans that have consistentlyemphasized food-crop production for food self-sufficiency,and cash crop development for foreign exchange. The first two plans focusedon traditionalagro-industrial crops. The third plan had more diverse objectives,emphasizing import substitution, export diversification,the development of livestock and fishing, and control of erosion and deforestation. The fourth plan increased the Government's role in the agricultural sector through the public enterprises, and promoted the decentralizationof economic and social services through the creation of Regional Development Companies (RDCs) to "ordinate and implementdevelopment activities in their geographic areas. The RDCs figured prominently in the fourth plan, and were to absorb about 70 percent of all investmentsin the sector. But only 57 percent of funds allocatedunder the plan to the agricultural sector were disbursed, even though 82 percent of total plan funds were invested. The food crop sector has been the most affected by this weak implementation.

1.11 As part of its structural adjustmentprogram, the Governmentadopted a new agricultural

3/ Between1987 and 1989,the exchangerate was devaluedthree times, resultingin a 50 percentdevaluation in real terms. Quantitativerestrictions on Wipots were removed--exceptfor productscompeting with products of public enterprises--andreplaced by importduties, and the fist phase of a comprehensivetariff reform was introduced. The numberof tariff rates was cut, and the tariff rangefor non-luxurygoods was narrowedfrom 0-280to 15-50. 5 sector policy in 1988 In accordance with the AgriculturalPolicy Statementof the Second Structiral AdjustmentCredit. The policy was updated during the 1991 Agricultural Round Table. The new policy seeks a shift in the role of the Government from producer and processor to regulator and promoter, awd an increase in the role c private cooperativesand other farmers' organizations. To achieve these objectives, the Government agreed to liberalize the marketing of coffee, rice, food crops, and agricultural inputs (fertilizer). Environmentalissues have also become a high priority; these will be addressedby an EnvironmentAction Plan (EAP) under preparation by the new Ministry for Land Development,Tourism and Environment.

1.12 To support the Government's agricultural reform program, the World Bank is financing two agriculturalsector operationswith policy and investmentcomponents. The Coffee Sector Project (Cr. 2123-BU)promotes a package of inat!tutionaland financial reforms to improve the efficiency of the industry and open it up to private managementand capital. The project finaaces investments in coffee-washingstations and in research and training to increaseBurundi's output of the high-value, fully washed coffee (annex 2). And to assist the Government in liberalizing input marketing, eliminating subsidies, and developing improved technical packages, the Bank is financing an Agricultural Services Sector Project (Cr. 2024-BU). This project supports the restructuring of Buyenzi and Kirimiro RDCs, which will transfer responsibilityfor the agricultural services to the General Directorate for Extensionof the Ministry of Agricultureand Livestock(MOAL) and spin off the managementof the coffee-washingstations to autonomousenterprises, Societes de Gestion des Usines de Lavage de Cafe (SOGESTALs),open to private or cooperative ownership.

1.13 Despite these moves toward agriculturalsector reform, the Government, through public enterprises, remains the sole real economic agent for the principal export crops (except tobacco, although the BurundiTobacco Company is currentlyunder the Government's trusteeship)and import substitutioncrops (palm oil, sugar), and food productionhas not yet been stimulatedby the reforms. The absenceof a broader supply response amongBurundi's rural farmers can be explainedby several factors: (1) weak domestic demand for food crops; (2) low producer prices for cash crops; (3) inadequateaccess to land and agriculturalinputs; (4) capital constraints;(5) poor soil fertility due to erosion and overuse; (6) the reluctance of farmers to increase their dependence on a largely Government-controlledmraket economybecause of the country's politicaland social history; and (7) climatic variability. Nevertheless, in resi onse to the Government's more positive attitude toward the private sector and the adoption of macroeconomicreforms, new export diversificationinitiatives (green beans, passion fruit, flowers) have emerged. They reflect the dynamic response of a small group of export-orientedurban entrepreneurswho are well integrated in the modern economy and have relatively easy access to capital and good coLnectionsin Government circles. The average number of commercial and industrial enterprises created each year has doubled since 1986, as has the number of importers.

1.14 The continued expansion of exports (traditional and nontraditional)and agro-industrial activities will depend on the ability of the modern private sector to offer the necessary financial incentives to producers and on the ability of the Government to provide rural entrepreneurs with technical support to stimulateagricultural production. Only if rural incomes are increasedthrough more competitive prices for cash crops will farmers have the revenues to invest in food crop production and expand output to meet a growing domestic demand.

1.15 The objective of this report is to identify a strategy for implementingBurundi's new agricultural policy that will tap the potential of rural and modern agricultural entrepreneurs and permit the simultaneousexpansion of food and cash crop production. After reviewingthe agricultural 6 sector's performance and the principal constraintsto its growth, the report presents the steps needed to stimulatethe private sector, to permit it to respond to signals from a less distorted market and to filly exploit Burundi's agriculturalpotential. The report defines the new role of the Governmentas a promoter and regulator of private sector development,and concludes with a review of the Bank's efforts to support private sector developmentin Burundi. 7 CHAPTER HI: SECTOR PERFORMANCEIN THE 1980s

A.. Food Produgtion

Food CQoins

2.1 Agriculturaloutput in Burundi is dominatedby food production, and particularly by food crops. Food production accountedfor 87 percent, and food crops for 76 percent, of primary sector GDP in 1989. Food crops are cultivatedmostly by womenusing traditionalproduction methods and relatively few capital inputs. 4/ Food-cropproduction has, in most regions, a subsistenceorientation, with 90 percent for on-farm consumption. Food crop markets, with the exception of a few institutional(army, schools, hospitals)and urban markets, and some cross-border trade, are poorly developed. Thus, most regions in Burundi are self-sufficientin food and the principal incentive to increase production is population growth. That explains why food crop production grew at an average annual rate of 3.1 percent, closely approximatingthe estimated population growth rate of 3.06 percent.I/

2.2 The expansionof food crop production reflects mainly increases in acreage as yields are estimatedto have stagnatedduring the 1980s. The intensificationof food crop production has been constrainedby several factors:

(1) the weak market demand, and the ability to satisfy local demand through expansion in acreage because of the availabilityof unused land in the east and south of the country;

(2) the scarcityof cost effectivetechnical packagesfor food crops (in fact, the demand for most improved seeds has declined because the increasedoutput they offer does not cover the cost of the seeds and fertilizer I/ if all the componentsof the technicalpackage are not applied);

(3) the availabilityin some border regions of cheaper from Tanzania and cheaper beans from Zaire;

(4) the difficulty in obtairing access to inputs for food crops-most inputs are provided by parastatals and companiesinvolved in agro-industrialcrops, and the private input market is poorly developed;

(5) the fact that food crops are cultivatedmainly by women who, because of their work load, are often unable to attend sessions with extension workers, and receive inadequate attention from extension staff.

4/ The principalexceptions ar the uwoof fetlizer for bean and sorghm prodution in Kirimir and impmved varietiesof riceon the ImboPlain.

5/ Data on food cwps are sketchyand unrliable. The lastcorehsive analysisof the sector was done by the UNDP in 1986, and has since been updatedonly by regionalsurveys.

6/ The fiLaci profitty of improvedbean productionin the Mossoand Buy*=z regionsia approximatey10 percentlower thanthat of traitionalbean production(annex 6). 8 2.3 In the coming decade, increases in food production will occur in areas with unused agricultural land (Imbo and Mosso), and in regions with a comparative advantage in food crop production (mostlyBweru), where a small amountof intensificationis possible with existingtechnical packages. To meet their growing demand for food crops, highland regions, which have a significant comparativeadvantage in Burundi'shigh-value export crops, could specializein those crops and rely more on imports from neighboringregions and countries. But the perishable, high-bulk food crops, such as colocasse, , and bananas, that account for most of Burundi's food crop output are difficult to trade and will continueto be produced nationwide. Furthermore, in order for highland farmers to increase their specializationin cash crops and their reliance on food purchases, markets will have to supply them with relatively steady revenues from cash crops and a relatively stable supply of food.

2.4 Bananas (of which 90 percent are for beer), followed by roots and tubers (cassava and sweet potatoes), account for most of Burundi's food crop production; cereals (mainly maize) and beans contribute a much smaller share of total output (figure 1). Production of bananas and root crops expanded in the 1980s (at an average annual growth rate of 4 percent), cereal production rose only slightly, and bean output declined. Legume production dipped in 1984 as a result of poor climatic conditions and its vulnerabilityto inadequate rainfall. The 1984 drought encouragedroot and tuber cultivation;because of the relativelyhigh yields of roots and tubers and their resistanceto

1.4-

1.2-

09 0~~~~~~~~~~~~~~~~# ~~0.09

0.8a R T Ba 0 oL 0.5 -'

0.4 - o1 01 01 0ol

0.2 -1 1 1

1980 1981 1982 1983 1984 1985 1988 1987 1989 1989

R B&T [rSq Bananas cerealis Legumes FIGURE 1: FOOD CROP PRODUCTION 1980-1989 (M) drought, their productionrepresents a low-risk investmentfor ensuringfood security. The popularity of banana cultivation stems from the cultural importance of banana beer in Burundi and from the 9

marketability of the crop, which ensures farmers a ready source of cash. 7/ Despite significant increases in rice production (due to Government investments in irrigated and rainfed rice, the introductionof high-yielding varieties, and a growing urban demand), cereal production grew at an average 2.3 percent a year; this growth rate reflected stagnation in the production of maize, the principal cereal in Burundi.!/ Legumeproduction declinedslightly during the 1980s, despite efforts to introduce improved bean cultivationmethods in Burundi. This reflected low crop yields--due to the sensitivityof beans to Burundi's increasinglypoor soils, the bean fly, and drought--relativelylow market prices, and difficulties in obtainingfertilizer for food crops.

Livestock

2.5 About 20 percent of Burundi's I million farmers raise cattle, about 450,000 head ;i total. Cattle provide the largest share of Burundi's meat (38 percent) and almost all its milk. Small ruminants, especiallygoats, are also an importantsource of meat in Burundi. About 45 percent of Burundi's farmers raise small ruminants, 3.3 on average, and about 5 percent raise pigs, 1.6 on average. Sheep production is relativelylimited because of the traditionalban against the consumption of lamb. Hog production, although limitedby the African porcine pest, accounts for 12 percent of Burundi's meat output. Livestockalso providesfarmers with manure and, in some cases, is used for traction. 9/

2.6 For most of the 1970s, Burundi's cattle populationwas large, numbering about 800,000, but since 1978 it has declined significantly,though irregularly, numbering about 431,000 in 1990 (figure 2). In contrast, the number of goats has increased fairly steadily from about 600,000 in the early 1970s to almost 920,000 in 1990. The number of sheep has fluctuated, but has increased from about 300,000 in the 1970s to 348,000 in 1990. The pig population has increased about fourfold since the early 1970s, to about 103,000 in 1988. These growth trends reflect goats' greater resistance to drought compared with sheep and cattle, and the rising popularity (mainly in urban areas) of pork. By 1979 goats had overtaken cattle as the most largest livestockherd in the country.

2.7 The livestock sector currently provides 5 percent of total factor GDP and 10 percent of primary sector GDP, and hide and skin exports account for 1.8 percent of agricultural exports. Burundi is not self-sufficientin meat and milk, which compriseabout 20 percent of all food imports. During the 1980s the sector grew at an annual rate of 1 percent. Given the increases in herd numbers, this low annual growth rate suggests that livestockproductivity declined during the 1980s. The relatively small contributionof livestock to the economy reflects the uncertainty of land tenure rights, which encourages pastoralists to engage in extensivelivestock production (which offers low yields), the lack of improved breeds and feed inputs (until recently), and the low priority given to the sector by the Government. Livestock received only 3.5 percent of total investmentand 6.3 of primary sector investment in the fifth Five-Year Plan. Nevertheless, the success of the small, but growing, intensive peri-urban dairy farms augurs well for decreasing dairy imports and increasing

7/ Bananas have other values: their stenmand leaves are useful as mulchins mterials, and, when plantedin an appropriatemanner, they are usefulin controllingerosion.

8/ The stagnationin maize productionand the declinein bean productionmay reflect their relativelylow financial profitability(annex 6), the lack of improvedmaize technicalpackages suitable for Bumndi,and the availability of cheapermaize fromTanzania.

9/ The use of animnltraction in Burundi is not widespreadbecause of the traditionalsepartion of livestockand agriculturalproduction. 10

0.9

0.8

0.7

0.8

b N 1 L0. .

0.4

0.3

0.2

0.1_ 1 |lLE h

0- t1972 |19 74 176 |1978 19S0 | 192 |19 1986 1988 1990 1973 1975 1977 1979 1981 1983 1985 1987 1989

Cattle E Goats S1eeP OM Swine

Figure 2: Burundi NationalLivestock Herd 1972-1990(heads) the sector's contributionto GDP.

2.8 The four principal objectives for the livestock sector in the coming decade are (1) to implement developmentpolicies targeting the different types of livestock (cattle, small ruminants, poultry); (2) to use intensive peri-urban entrepreneurs as catalysts in the modernization of the traditional and smallholder livestock production systems; (3) to focus and limit the role of the Governmentto regulatory(and, sanitation,and marketingcodes) and extensionand research activities (forage crops); and (4) to encourage the involvement of the private sector in distributing inputs (improved breeds, animal feed, prophylactics)and providing health services. 'I To achieve these objectives, professionalassociations, ad hoc groups, and private cooperativesshould be encouraged to develop. 1I/ By bringing modern and traditional producers together, modern producers could transmittechnology and inputs to rural herders. And, as the intensive,peri-urban producers become involved in the processing of livestockproducts (dairies, canneries, tanneries), they could provide

0/ Initially,the public sector couldprovide supportservices using costrecovery mechanisms.

/ In July 1991the Assocaon for Agro-PastoralDavelopmeat (ADAP) was stablished. The organizafionis open to all agro-pastoralist and will seek to expand the use of intensive livestock production nehods, improve the collection and marketng of livestock products, and aSist the produces in communmicating their needs to the Government (see annex 12 for the organiation's statutes). 11 rural producers in neighboring areas with the necessary marketing outlets to support the increased capital costs associatedwith the subsector. As the livestocksector graduallydevelops, both in terms of the complexityof both inputs (improvedbreeds, animal heath and feeding) and outputs (milk, milk products, meat), the need to regulate health, sanitation,and marketingconditions will becomecritical. The Governmentneeds to establishthe necessaryregulations and the means to implementthem. And because about a third of Burundi's unused arable land is pasture, the Governmentmust clarify land rights to pastoral areas to limit land tenure conflictsand facilitate exploitationof this land.

EFiseries

2.9 Fish production in Burundimakes only a smallcontribution to agriculturalGDP (1 percent) and to the diet of Burundians. Lake Tanganyikasupplies 95 percent of the country's output of fish. Fish productionstatistics, althoughhighly unreliable, showthat production rose steadilyuntil the mid- 1970s, but declined in the late 1970s and 1980s (figure 3). Artisanal production has picked up slightly since 1985, but industrial output has continuedto drop. LI/ This suggests that Burundi's southern territorial fishing waters in Lake Tanganyikaare overexploited. Other reasons for the fall in output are decliningprices in Bujumburadue to the cheaperimports from Tanzania, and inadequate regulationand taxationof industrialoutput. Industrialfishermen (mainlyGreeks) are required by law to unload their entire catch at the docks for sale at Bujumbura's central market. This leads to higher marketing costs for exports and rural sales of fish, subsidies for urban consumers, and fewer opportunitiesfor fish processing activities (smokingand drying). In addition, industrialproducers pay much higher taxes than artisanal fishermen, who pay only the communal tax. To ensure appropriate exploitation of Lake Tanganyika several measures should be taken: (1) the coastal countries should coordinate their fishing and marketing policies; (2) the Governmentof Burundi should administer this agreement by selling licenses to fishermen of all categories; and (3) better regulations, includingwith regard to the size of nets, should be designed and enforced. The sale of licenses would provide the Government with revenue, permit a reduction of the tax burden on industrial fishing, and provide a means for ensuring a more rational exploitation of Lake Tanganyika's fishery resources.

2.10 Aquacultureis gainingpopularity in Burundi, but its production (estimatedat 120 tons a year) is still less than 2 percent of Burundi's catch from Lake Tanganyika. Fish pond farming in Burundi, which became widespread only after independence, is based on tilapia niotica, a small fish that thrives in Burundi's climateand its altitude. It is estimatedthat there are now more than 4,000 ponds between one and two acres, producing, on average, 2,000 kilograms (kg) a year per hectare. Commercial-scalepond complexesare unknown in Burundi. In recent years many ponds have been built without benefit of technicalassistance, and many are poorly constructedand failing. Although an increase in fish production would have only a small effect on agricultural GDP, fish are rich in animal protein, and increases in tilapia harvests wouldmake an importantcontribution to improving nutrition in Burundi, which is deficient in animal protein. Aquaculture's potentialto contribute to national food security suggests that it merits more attentionthan it has received.

Food Security

2.11 Thanks to the ingenuityof its farmers, Burundihas for the most part been able to maintain self-sufficiencyin food in the 1980s. In 1989the average intake of calories was 105percent of the

12/ The an 40 to800 artisanal fishing tam, whichus caamans; eachindustia unituses to 6 fishingboats. Traditionslfishemen rernainclose to the dsoreand uw pirogues. 12

22 21 - 20- 1o

18

1s

14 13 12 11

4J 8 6 Is~~~~~~~tn

4

2

1972 1974 19'7S 19!79199 g 1994d'2T1941619999 1973 1975 1977 19Q 1991 1993 1995 1997 1 98 tons 0 Tota I + Industrial Artlsanat A Traditlonal

Figure 3: Fish Production by Category (1972-1990) norms set by the Food and Agriculture Organization(FAO) of 2,200 calories a day, and the average intake of protein was 123 percent of the FAO norm of 60 grams protein a day. Nevertheless, the quality of the diet is declining, for several reasons. First, root crops (cassava and sweet potatoes) are increasinglysubstituting for higher-proteincereals (maize) in the diet. Second, as a result of the low rates of growth in meat and diary production, the share of animal protein in the diet is only 5 percent, compared with the recommended 20 percent. And third, there is a deficit in the daily recommendedintake of fats and oils of about 50 percent.

2.12 Because of Burundi's relatively high food self-sufficiency,food imports represented less than 2 percent of the value of food production in 1990. Food aid averages a negligible 8,000 tons a year, although 20,000 tons was received in 1984because of the drought. The share of food imports in total imports declined from about 11 percent in 1980 to 7.7 percent in 1990, and their value dropped by 19 percent during the same period. flour and sugar are the most important food 13 imports(table 4). Relativelysmall amounts of dairy and meat products,prepared food, alcoholic beverages,and vegetableoil are also imported.

Tabte 4: Cap2osItfon of food 1qert, 1990

Value Percentage of Category (mIllions of FBu) Total Inports ...... e WheatFlour 943.4 2.3 Sugar 530.9 1.3 Dairy Products 432.3 1.1 Prepared Food 328.3 0.8 Alcoholic Beverages 218.1 0.5 Salt 190.3 0.5 Meat and Fish Products 112.0 0.3 OiL 56.5 0.1 Other Food Products 268.8 0.7 Total Food Inports 3,080.6 7.7 Total Imports 40,179.3 100.0

Sourc: BRB

2.13 Foodcrops provide almost all of the population'senergy and proteinintake (table 5). Cereals provideabout 25 percentof Burundi'sprotein and calorieintake, and beansprovide 27 percentof their calorie intake and more than half of their protein. Roots and tubers, which are becoming increasinglypopular (para 2.4), provide26 percent of Burundians'calorie intake, but make a relativelysmall contributionto their protein consumption.Sugar, oil, ,and especially animaland fish productsare consumedmainly in urbanareas; cereals(except wheat and rice) and roots and tubers(except potatoes) are the principalcomponents of the rural diet. Potatoes,cassava flour,wheat and rice are popularin both urban and rural areas. The averagediet is satisfactory,and couldlead to overoptimisticconclusions if regionaland seasonalvariations, or the situationof young children,who suffer from malnutrition during the weaningperiod, are not taken intoconsideration. 14

Table 5: Cmposition of Catoric an Protein Intake In 1990 Share of ContributIon Share of Contribution Source to Calorie Intake to Protein Intake

Food Crops 97.5 96.9 Roots and Tubers 26.4 8.8 Cereals 28.4 23.8 Legunes (beans) 26.6 51.1 Fruits (bananas) 7.7 7.7 Sugar and Honey 1.3 0 Vegetables 1 1.9 Nuts and Oil Crops 6.3 8 Animal Products 2.4 2.9 Meat 0.5 1.3 M1ilk 0.5 0.9 Eggs less than 1 teas than 1 Fish 0.1 0.6 Animal Fats and 1.2 0 Vegetable Ofis Alcoholic Beverages 0.1 0.0 Total (calories/grams) 2319.00 73.5 FAORequirements (calories/gram) 2200.00 60 Percent Coverage of Requirements (percent) 1.05 1.23

Source: UNDP

2.14 Projections of the future demand for food crops in Burundi suggest that, by 2000, per capita demand of beans, bananas, and roots and tubms (except potatoes) will decline, and consumptionof cereals (especially wheat), vegetables, sugar, fruits, and oils will rise (table 6)." Modem crops (sugar, vegetables, oil, fruit, potatoes, wheat), consumedmainly by urban dwellers, will likely experience an annual increase in demand of 8 percent or more.

2.15 Burundi should encounter no importantproblems in satisfying its rising demand for food crops-except potatoes, maize, wheat, fruit, and vegetables-if the growth rates of the 1980scontinue into the next decade. Burundi currently imports maize from Tanzania and wheat from international markets, and the data suggest that these imports are likely to increase during the next 10 years. A study by the InternationalPotato Center identifiedthe shortage of fertilizer and improved seeds as the principal constraint to the developmentof production in Burundi (annex 4). Fruit and vegetable production is currently carried out on a relatively small scale in Burundi, and the ability of farmers and traders to meet the projected increases in urban demand for these commoditiesis not yet clear.

2.16 To ensure that the growth rates of food crops achieved in the 1980s continue into the

3/ The estimateare based on incomeand priceelastcities for other Afiicancountris. As averae anmualtotal GDP growth ratwof 3.8 pecent is assuwd.The nual populaton is estimatedto reach6.5 million by 2000, and the urban population 0.83 million. Theunknown is price, especiallybecaue nmny of thegoods arenot now producedin large quantities in Burundi. Pricelovels will depend to a largeextet on thesupply rescp of the agiculturalsector and itsability to developcommercial links betwoenproducing and non-producingnrurl regions. 1S 1990s, Burundi will need to adopt a two-prongedstrategy. This strategy would include, first, the adoption and implementationof land tenure and environmentalpolicies that permit the sustainable exploitationof unused, disputed, or fragile arable lands and, second, the Intensificationof food crop productionthrough the use of improvedseeds, inputs, and extension services. To enable farmers to bear the financial costs of intensification, the profitability of food crop production will have to increase. This is likely to occur in areas with a comparativeadvantage in food crops, but only if, first, farmers' earnings from cash crops increaseas a result of the liberalizationof traditional export crop marketingand the expansionof private sector exports, and, second, regionalspecialization takes the place of the traditionalsubsistence-oriented garden farm and farmers become willingto rely on markets to satisfy their food needs. Agricultural policies should be evaluated according to their contributionthat makes these changespossible. 16 Table 6: ProJected Demand for Food Crops In 2000

Urban Demand Rural DemAnd Average Average Required 2000 2000 1988-89 arowth Growth Rate (thousands Rate 1990-2000 Food Crop Percentage Percentage of tors) 1980-89 (percent) of Total of Total (percent) Tons Demand Tons Demand___ _ _

|Roots and Tubers _ - _ _ Potatoes 16,860 31 38,388 69 37.500 1.5 4.6 Yams 253 4 6 398 96 6150 2.1 0.7

colocasse 5,058 5 95,970 95 106,300 -0.5 0 Cassava 57.324 9 575 820 91 632.950 5.5 1.6 Sweet Potatoes 10.748 2 601,412 98 652,150 3.2 0.8

Cereals = =_____ Sorghun 843 1 95,970 99 66,550 3.4 3.5 Rice 38,778 68 18,554 32 28,000 15.3 6.7 Maize 2,529 1 300.706 99 157,450 0.2 6.1 Wheat 25,290 38 40,947 62 16,900 5.4 13.2 Eleusine 506 4 12,7 96 13,150 4.7 0.1

Legumes _ _ Beans 29,505 9 287.910 91 262.400 3.8 1.8 Peas 3372 7 44786 93 31,300 4.9 4.0 PigeonPeas 169 4 3,839 96 6,750 0.1 4.6 VegetabLes 21,075 52 19.194 48 17,800 7.7 Fruits 12,645 18 57,582 82 34,300 18 6.7 Sugar 5,901 24 19,194 76 8,000 83 ' 10.3

Oi ls _b ______Palm Oil (edible) 1,030 12 19,194 23 24,600 17 12.3 Palm Oil (for industry) 1.500 100 19,194 97 16,500 n/a 10.5 CottonOil 1,190 100 0 88 550 8 Other Oils (soy, 680 12 4,870 0 550 n/a 23.4 sunflower) Bananas

BananaBeer 16.860 0.02 959,700 _ 0.98 1,015,500 4.41 -0.39 Other Banana 42 150 0.07 556,626 0.93 598,350 9.41 0.01

a. Growth rate for 1988-89. b. Demandbased on an averageconsumption of 5 grams per personper day. c. Includes450 tons of imports. Source: Baris/ZalawskyUNDP study (1986) for demand projections; ISTEEBUfor average for 1988-89. 17 B. Agro-industrialCrp

2.17 Burundi's soils and climatepermit the productionof high-qualityagro-industrial crops. A recent study LI/evaluating the competitivenessof Burundi'sprincipal agro-industrialcrops concluded that Burundihas a comparativeadvantage in the productionof cotton, tea, coffee and tobaccoexports, and in the production of sugar as an import substitute (annex 3). Although their contribution to primary sector GDP is relatively small (8 percent), agro-industrialcrops account for 90 percent of Burundi's export revenues, and s igar and edible oils also reduce Burundi's import tIl. Agro- industrial exportshave traditionallybeen dominatedby coffee, with tea, cotton, and hides accounting for smaller shares. In the 1980s tne compositionof Burundi's agro-industrial exports gradually changed. Coffee's share in exports d3clinedfrom 92 percent in 1979 to 80 percent in 1989, and the share of tea rose from 2 percent to 6 percent and that of hides from 1 percent to 3.4 percent. Similarly, the past few years have witnessedthe developmentof several nontraditionalexports that, although still a smallproportion of total agro-industrialexports (4.6 percent), are rapidly increasing. The 1980s also saw the introductionof domestic productionof sugar and edible oils in Burundi.

Coffee

2.18 Burundi's coffee exportsfollowed a generallyincreasing trend between 1980 and 1986, but since then they have declined (figure 4). The dips in coffee exports in 1980, 1983, and 1987 reflect mainly climaticvariation and, to a lesser extent, irregular use of inputs and variable unrecordedtrade with Rwanda and Zaire. Fluctuationsin productionand in world prices cause Burundi's coffee export receipts to vary annually by as much as 67 percent. Despite the general increase in exports during the 1980s, the development of other exports, coupled with declining international coffee prices (between 1987 and 1990 the average export price of coffee fell by 28 percent) has caused Burundi's coffee export revenuesto decline from 92 percent of its total revenues in 1979 to 80 percent in 1989.

2.19 Coffee cultivationcovers about 4 percent of the country's total land area, and involves about half of Burundi's 1 million farmers. About 85 percent of Burundi's coffee is arabica, which is grown in the highlands. The lower-qualityrobusta is grown on the Imbo Plain bordering Lake Tanganyika (map 5). The Government's traditional policy has been to promote coffee cultivation nationwide,and the qualityof plantationsvaries with yields ranging from 300 to 1,000 kg of export- grade coffee per hectare, depending on the potential of the area. Burundi enjoys a comparative advantagein washed and fully washed coffee, with domesticresource cost (DRC) coefficientsof 0.80 and 0.93 (annex 3). Ls/

2.20 Until recently, the Governmentwas the sole investor and the dominant actor in coffee processing and export and, to a large extent, in coffee production as well. LI/ Its principal

14/ SOOES.AIRD"Etude sur lee avantegescomparatifs entre divaes. culturesdam lea rdgin dtu Moomat du Buyenzi," AugUst1991.

15/ The DRCwas calculatedusing the exchangerate PBu 170 = SI and the 1990-91sliding coffee sale. It mes_ the cost in domesticresources of earning a urit of foroignexcha generad by coffeeexpoit. If the DRC for a good is less than one, the economiccoat of domesticresource used in producingit is le than tho econonki value addedcreated and the countryhas a comparativeadvantage in its production. Convendy, if the DRC is greatr than unity, the economic coat is grater than the vahlu added and th country hs no compaave advantage.

16/ Althoughcoffee is grown by smalUholdems,its cultivation has been highly subsidizedby the 0ovemmraL 18

48

244

40 la

t98019~ '1982 1S8 1964 113 '116 I 1 19089, 19190L 19B1 19B3 195 1987 19B9 19

a Product Ton + ExD4rtl

Figure 4: Coffee Production and Exports (tons of green coffee) objectives were to increase product output and quality. But recognizing the potential for higher retums from the sector, the Government has invested over the past 17 years, with the assistance of the Bank and other donors, in the production of the high-quality fully washed coffee, which receives a i0 to 15 percent premium on the international market. Semi-washed coffee is depulped manually by the producers, but fully washed coffee is depulped by washing stations, which purchase the coffee direcdy from the producers. The Goverrnment, the Bank, the Caisse Centrale de Cooperation Economique, and other donors invested in the construction of 88 such washing stations and two new hulling factories in the early 1980s.

2.21 The world coffee market has been deeply affected by the suspension of the economic clauses of the International Coffee Agreement (ICA). On July 3, 1989, following the breakdown of discussions on the agreement, quotas were suspended, leading to a 30 to 35 percent fall in world prices. The main issues surrounding the suspension were the insistence of consumer countries (and some producing countries) on easier access to the type of , especially higher quality coffees, that conisumers want, and a m,-.-/1anlimto ensure price equity between quota and nonquota markets. In Septe-nber 1989, ICA mem:bers renewed thie agreement with-jut the all-important economic provisions (quotas and price mech.onism), whtich have remained suspended.

2.22 Despite these cireu;mstances, Burundi is in a good position to benefit from the present world coffee situation. First, it produces the tjpe~ of hiighland arabica coffee for which there is a growing deirand. Second, the Goverimlienibps been -ursuing-a policy-, reflected in its investments,aimed at increasing the proportion of ful;- w.4siaedcoht;a. Butundi would also benefit from an eventual re!ntroduction of export quotas for higb -quality c-offee

2.23 The coffee sector is now being reformed wit! sI ippfv.t f,, m i-7)eBank (Coffeb Sectr Project 19 CR. 2123-BU,annexes 2 and 4). The reformprogram seeks to increasethe sector's efficiencyand the productionof fullywashed coffee, which is now 36 percentof totalproduction. And it aimsto reduceGovernment's involvement in the industry,limitirig it to mainlyregulatory functions, and to establishan incentivestructure that rewardsthe productionof high-qualitycoffee. 2.24 To achievethese objectives, the Officedes CulturesIndustrielles du Burundi(OCIBU) has givenup itsoperational activities and expandedits re'ulatoryfunctions. It is nowthe Officedu Cafe, responsiblefor policyformulation and supervisionoi the industry. Unlikethe OCIBU,which was a fully ownedand operatedGovernment parastatal, the Officedu Cafe is a joint venturecompany whoseshareholders are representativegroups from the industryand the Government.In addition, the legalownership of the sector's physicalassets (88 washingstations and three bullingfactories) has beentransferred from the RDCsand the OCIBUto the Servicedu Patrimoine,under the control of the Officedu Cafe. The managementof the washingstations has been contractedout to fivejoint venture companies,Societes de Gestiondes Usinesde Lavagede Cafe (SOGESTALs)and the managementof the hullingfactories to anotherjoint venturecompany, Societe de Deparchageet de Conditionnement(SODECO). The reformprogram also endedthe BCC's monopolyover coffee exports;private entrepreneurs are nowable to purchasecoffee for exportthrough an auctionsystem administeredby the Officedu Cafe (30 percentin 1991and 50 percentin 1992).1L/ 2.25 Anotherkey elementof the industry'sreform program is the replacementof the cost-based remunerationsystem by one linkedto marketresults with built-in incentives to rewardquality. In addition,the new paymentsystem seeks to clearlydelineate government revenues from the sector. Earlier, the Governmentreceived all positivebalances; now it receivesonly a set exportduty (12 percent). The new payment system will reward value added rather than cost added for intermediariesand producers. Upondelivery, producers are to receivea preestablishedprice, and later in the seasonthey will receivea premiumfrom the SOGESTALbased on the qualityof their cherriesand on worldprices. The new paymentmechanism will be administeredby the Officedu Cafe. 2.26 In the 1990-91campaign about 30 percentof productionwas exported by the privatesector, and the value addedsystem had been set up for the washingstations, the coffeetraders, and the hullingfactories. Although the legalownership of the washingstations and hulling factories has been transferredto the Service du Patrimoine,the SOGESTALsand SODECOare not leasing the equipment;rather, theypay a user fee basedon the volumeof their production. Privateinvestment in the joint venture companiesreached 23 percer,tin 1992, and is more than 50 percentin one SOGESTAL.Moreover, the privatesector has expressedinterest in investingin verticallyintegrated firms.

TM 2.27 Tea production,introduced in Burundiin 1962,is well suitedto its high-altituderegions and is foundmainly in the Zaire-NileDivide. A tea DRC of 0.98 for tea indicatesthat Burundi's exportsare competitiveon internationalmarkets (annex 3). The shareof tea in Burundi'sexports rose from2 percentin 1979to 6 percentin 1989. Thevolume of tea exportsalso rose between1980 and 1985, but has since tendedto stagnate(figure 5). This reflectsthe poor managementof tea factories,insufficient producer incentives, and fertilizersupply problems. In 1991tea plantations

17, An associationof exporters(ABEC) has bwenfonned, and more than 50 candidates have registerd to participate in the auctions. 20

covered 6,400 ha, or about 7 percentof the area devoted to coffee. Initially, tea was cultivatedonly on industrialplantations, but they account for only 26 percent of the area under cultivationtoday; the remainder is cultivated by about 60,000 smallholders (map 5). Green leaf yields are higher on industrial plantations, which occupy the more productive soils, than on smallholder plantations, especiallythe older ones. But actual yields on industrialplantations are only 60 percent of potential yields (1,850 kg of black tea per hectare), comparedwith 70 percent for smal1holderfarms (1,100 kg per hectare). The relatively low yields reflect poor management of industrial tea plucking, inadequate smallholder collection systems, and poor price incentives for tea pluckers and for smallholderfarmers, which discouragethem from fully harvesting their output.

2.28 Tea processingand export were, until 1990,under a de facto monopolyof the public sector in Burundi. Now, a small private firm produces tea bags for the local market, and another private firm exports bulk tea to Oman. Farmers sell their harvested green leaves for a fixed price to Burundi's five tea factories, for processing. The Office du The du Burundi (OTB) is responsible for management of the tea factories, and OTB's commercial services, assisted by foreign experts, competentlyhandle the marketing of black tea on the world market. Because of its high quality, Burundi's tea receives top prices at the London auction.

2.29 The tea sector has received substantialsupport from the European Economic Community (EEC), which financeda rehabilitationprogram in the early 1980s designed to improve the quality of tea. In 1987 the EEC helped prepare a comprehensivemedium-term tea developmentplan that is now being implemented. The plan proposes to (1) increase the efficiency of the managementof existing factories and expand their capacity; (2) strengthen the OTB's financial management;(3) increase the area cultivated by sma1lholdersto 10,000 ha; and (4) improve extension services and marketing and export activities. In addition, the CCCE has financed a new tea factory that started operation in 1992'(Buhoro factory).

2.30 Recently, as part of the structural adjustment program, the Government initiated cost recovery on fertilizers. In the past, the free fertilizer suppliedto smallholders(400 kg per hectare) was often diverte4 to other crops or sold to other farmers in neighboring regions, thus providing smallholderswith -a indirect incomesubsidy. In 1991fertilizer subsidies were substantiallyreduced, and the producer price for green leaf tea was raised from FBu 18 to FBu 26 a kilogram. But despite the increase in the: roducer price and the Government's continued subsidization of other inputs (plantings,small equii;ment),tea production in Burundi is taxed: because the producer price is still low, the financial value added of the product is only 31 percent of its economicvalue added (annex 3). With the higher tea and fertilizer prices, the break-even yield is 4,286 kg green leaves per hectare, a yield achieved by only 38 percent of the smallholders. Consequently,the new price structure is expectedto lead to increasedproductivity and output on farms in high-potentialareas and to the abandonmentof tea cultivationby farmers on marginal lands. This combinationof input subsidiesund low, fixed output prices-which discouragesincreases in prices and the efficient use of resources-is a commonconstraint in Burundi's agriculturalexport sector. Under the Third Structural AdjustmentCredit (SAC Im), the Govermmenthas eased regulationsprohibiting the uprootingof tea plants and will facilitate the reconversionof marginal land to other crops.

2.31 In the next stage of reforms, which could be supported.by the Bank's agro-industry restructuringproject now under preparationand by SAC m, input subsidiesto producers are to be eliminatedand the OTB is to be reorganized. The reforms will seek to improve the tea processing factories' efficiency, production capacity, and quality of output by increasingtheir financial and managerial autonomy. The factories will eventually be able to sell their output to 0TB marketing services, to a private contractor, or directly on the internationalmarket, and thus to receive better 21

4.5

4

35

3

2.5

2

0. 5 1980 1982 194 | 9isas 1 1 1 i9ga l 1981 1983 1985 ,87 1989 1991

0 ProductXon + Exports

Figure 5: Volume of Tea Production and Exports (tons of dry tea) prices for higher-qualityoutput. This will help phase out the Government's cost-pluspricing system, which provides no incentiveto the factoriesto produce high quality tea.

Cotton

2.32 Cotton is a smallholdercrop in Burundi,cultivated in the plains borderingLake Tanganyika and in the Mosso region (map 5). It presently covers about 6,600 ha, divided among some 20,000 farms. The production of high-qualitylong-fiber cotton increasedin the early 1980s, reflecting an acreage expansionin the area under cultivation,but it has declined since 1986(figure 6). The decline is due to noncompetitiveproducer prices, whichhave remainedconstant in nominalterms since 1987, low and stagnating yields (about 1 ton per hectare), and irregular supplies of inputs from the managingparastatal Compagniede Gerance du Coton (COGERCO). The parastatal buys the cotton from producers at fixed prices and transforms it into fiber. It sells almost all of the fiber to Compagniedes Textiles du Burundi (COTEBU)for textile production and exports the remainder.

2.33 Burundihas good potentialfor increasingboth cotton yields and the area under cultivation. But these increases cannot be achievedunder present price and productionarrangements. Fixed price and volume contracts have favored a regular supply of cotton fiber to COTEBU at relatively low prices that are shielded from world market prices. In 1990 COGERCO's sale price to COTEBU (FBu 216 per kilogram) was 22 percent below its export price, but only 4 percent of COGERCO's 22 production was exported. LI/ Further, managementand production inefficienciesat COGERCOand COTEBUlead to high productioncosts. Together,these policieshave led to low producer prices for farmers. As othei crops have offered more attractivereturns, the farmers have become increasingly unmotivatedto grow cotton. As a result, the area under cultivationdeclined in the late 1980s (from 7,532 ha in 1988 to 6,608 ha in 1990), mainly on the Imbo Plain, despite COGERCO's imposition of a required minimum cotton acreage on farmers settled in paysannas.

2.34 As part of the SAC m conditionality,the Governmentis committedto consideringseveral reforms in the sector: (1) granting COGERCOthe right to sell its cotton fiber on world markets and basing COGERCO's sale price to COTEBUon world prices; (2) permittingproducers in the Imbo paysa'nats not to grow cotton; and (3) establishinga paymentmechanism for the participants in the sector based on quality and value added.

Other Export CrOps

2.35 In additionto tea, coffee, and cotton, Burundihas traditionallyexported small amounts of animal hides and aquarium fish. In the mid-1980s, in response to the Government's more positive attitudetoward the private sector, entrepreneursbegan to export tobacco, fresh produce (passionfruit, green beans), flowers, plants, rice, quinquina and small amounts of animals and animal feed. Burundi's export promotionpolicy, adopted in 1988, signaled the Government's intent to establish a favorable environmentto r private sector development. Since then, several fiscal incentives have been introduced, such as rebates of import duties for inputs and the turnover tax for exported products, and a preferential tax on export profits. In addition, exporters have benefited from the Government's efforts to devalue the Burundifranc to keep exports competitive.

2.36 Althoughthe contributionof nontraditionalexports to total export revenues remains small, at 8 percent, includinghides and tobacco, their high average annual growth rates since 1985 (table 7) underscore the dynamismof the emerging private sector and its ability to respond to profitable incentives. The significant increases in hide and rice exports are due to the Government's deregulation of these products in 1988. The increase in rice exports also reflects the temporary increase in Rwandese demand due to the war. Tobacco exports increase in response to price incentivesand the technical and input support offered by the Burundi Tobacco Company (BTC) to farmers under contract. The BTC was Burundi's most important private agro-industrialfirm until it was placed u.lder governmenttrusteeship in 1989.

lS/ COGERCO'ssale priceto CaOTBUis from 'Compagniede Grance du Coton, Rapport Amnual,Canyagn 1989/1990." 23

3.4 3.2

2.8 2.8 2.4 2.2 2 1.8 1. 6 1.4 1.2 I-~~~

0. 8 0. 6 0.4 0.2

0 1979 19281 1983 19aS 1987 19189 1991i 1980 1982 1984 1986 1988 1990 a Exports + Product. Ctlber)

Figure 6: Cotton Fiber Production and Exports of Cotton Lint

Source: BRB

Table 7: Average Annuat mainal Grouth Rates of T Other Exports (1985-1989) (1) Average Annual Shareof Nontraditional Shareof Total Export Good Growth Rate Export Revenues1989 Export Revenues1989 Rice 239 a 15 1.24 Fruitsand Vegetables 106 b 2 .14 Flowersand Plants 56 3 .22 Hides 46 43 3.44 4uinquina 64 3 .26 AquariumFish 37 4 .35 Tobacco 24 b 16 1.32 Textiles -14 0 0.98 Feed Inputs -82 b 1

Total 100 8.07

Note: Nontraditionalexports excluded from this listbecause they were a very small share of total exports, or were not exported in 1989 are, live animals, beeswax, and cottonseed cakes. a. Average growth rate for 1987-89. b. Average growth rate for 1988-89. 24 2.37 Demandis not likelyto be a constraintfor mostof Burundi'sexports, at least in the short term, giventheir relativelysmall share in worldsupply and their highpotential quality. Burundi's high-qualitycoffee and tea representa growingshare of worldmarkets and commandhigh price premiumseven in the presentlydepressed markets. In addition,significant potential exists for further export diversification. Burundi has a wide variety of fruits and vegetables(mangoes, wild raspberries,black currants,papayas, endive, avocados)that couldbe exportedonce its exporters acquirethe necessarymarket skills. Silk production,not now carriedout in Burundi,could be developedas it is labor-intensiveand well suitedto Burundi'sclimate and soils. Finally, such products as jam, concentratedjuices, and canned fruit also offer export potential. If these nontraditionalexports continue their rapid growth,tripling in valueby the year 2000, they could increaseto 30 percentof the projectedvalue of coffeeexports compared with their current 13percent (assumingconstant 1990 coffeeprices). Tlhusthey offer Burundithe possibilityof reducingits dependenceon coffeerevenues and increasingis supplyof foreignexchange. For this to occur, however,private exporters will need to improvetheir marketingskills and workwith producers and extensionworkers to developproduction and harvestingtechniques that satisfy the demandsof importingmarkets. In addition,credit, labor, andtax constraints(discussed in chapterEll) will need to be addressed. ImportSubstitution Crops

2.38 Sugar productionwas introducedm Burundiin the mid-1980s,primarily for :mport substitution.This decision was not economicallyjustified, however, as Burundi'ssugar, with a DRC of 2.43 (assumingthat the full investmentcosts are taken into account),is not competitivewith importsin the domesticmarket. L9/ Sugar is producedand processedin Burundiby a Government agro-industrialfirm, SocieteSucriere du Mosso(SOSUMO), which then sells the productto local wholesalersand downstreamagro-industrial enterprises, mainly BRARUDI. To date, all of the sugarcanemilled by SOSUMOhas beengrown by the company,using hired labor, on its ownpartly irrigatedplantations, but sugarcanegrown in the first large-scaleexperiment involving non-irrigated smallholderproduction is now due to be harvestedfor the first time. Both forms of production appearto be financiallyand economicallyattractive as long as existinginvestment expenditures (in the factoryand other infrastructure)are regardedas sunk costs. Sugarproduction has expanded rapidly since 1988 (table 8), mainlyas a result of SOSUMO'spolicy to expandthe area under cultivation.Sugar recovery within the factoryhas improvedbecause of good managementpractices, but yieldsof cane per hectarehave fallenslightly, reflecting the lowerproductivity of rationcrops and the poorer soils of the new areas broughtunder cultivation. On a sunk cost basis, sugar productionis financiallyprofitable; SOSUMO earns FBu 25 per kilogramof sugarproduced, and sugarwholesale.rs receive a net profitof FBu 19 per kilogram. The saleprice of sugaris basedon the import-equivalentprice, whichincorporates a 40 percentimport tax.

19/ However,to sugartefinev imesbnacoœs we ovrsad beeaus,of sommoverbifling problems. 25 Table 8: Sugar Production Indicators, 1988-91

Indicator 1988 1 1989 1990 1991 Total area (ha) 1,104 1,529 1,735 2.184 Area harvested 320 669 896 1 338 (ha) ______Sugar (tons) 4,657 8.517 10,310 14.385 Agricultural 14.5 12.7 11.5 10.8 yield(ts/ha) . . . Industriat yietd 10.40 11.23 11.91 11.7 (ts/t cane) .

Source: SOSUMO.

2.39 Oil seed production also experienced rapid growth in the 1980s, estimated at an average of 16 percent a year. Palm fruit is the main source of edible oils; other sources are cottonseedand groundnuts. Oil production was stimulatedby a rising market demand, as well as by investmentsby the Rumonge RDC in improved palm trees, and by a joint venture company, L'Huilerie de Palme de Lumonge, in oil refineries.

2.40 Rice is grown mainly in irrigated perimeters in the Imbo RDC and, increasingly, in small plots in high-altitudeswamps. Production from the Imbo Plains is sold in Bujumbura, and non- irrigated rice is grown for on-farm consumption. In the 1980sproduction grew at an averageannual rate of 15 percent. This rapid growth reflected increases in acreage and yields in response to a relatively high fixed Governmentproducer price. But the RDCs were unable to recover all of their harvesting, processing, and marketing costs because of the presence of cheaper rice imports in Bujumbura, and as a result they required state assistance to cover their budgetary deficits. As part of the structural adjustmentprogram, the Governmentabandoned fixed producer prices in 1990 and began permitting private entrepreneursto hull rice in 1988, eliminatingthe RDC's monopoly. On the Imbo Plain producers are now free to sell their paddy to the RDC or to the many private hullers that have appeared. The liberalizationof rice prices and the authorizationof private hullers have led prices to rise as high as FBu 42 per kilogram from the official 1989 price of FBu 35 per kIlogram of paddy. In addition, the margin of the RDC has declined further, forcing it to reduce costs and accelerate the transfer of some maintenance and input distribution tasks to a growing number of producer associations.

Supply and Demand Projections for Agro-industrialCrops

2.41 Burundi's principal agro-industrialcrops are projected to grow an average 8 percent a year between 1990 and 2000 (table 9). These projections, except that for fruit, appear conservative, especially for tea and sugar, given the average annual growth rates for these crops in the 1980s. Burundi's production of the higher quality fully washed coffee is expectedto rise 9 percent a year, while its production of washed coffee will decline. The projected increase in output of fully washed coffee is expected to result from improved cultivation practices and the addition to the country's network of washingstations the 100 stationsto be built under the Bank-financedcoffee sector project. The introduction of a quality-basedpricing system will also encourage farmers to produce higher- quality coffee, yieldinghigher per unit values. An increasein the productionof fully washed coffee 26 will permit Burundito respond to the industrialcountries' demand for high-qualitycoffee, which is expectedto grow despite the anticipatedshrinkage in overall world demand, and should be seen as an importantstep in export diversification.

2.42 Tea production is expected to rise by 9 percent a year as a result of improved cultivation (assuming higher production incentives), the extension of smallholder cultivation, and the more efficient factory tea processingthat should result from the anticipatedrestructuring of the industry. The improved quality of tea will also leaa to higher per unit revenues. Althoughthe world demand for tea is expected to rise by only 2 percent annually over the next decade, Burundi's small market share and the high quality of its product should prevent any difficulties in selling its output if its exporters master adequate marketingpractices.

Table 9: Projected Growth in Production of Agro-industrial Crops, 1990-2000

Annual Average Estimated Annual ActualProduction Estimated Growth Growth 1990 Production2000 Xate, Rate, (tons) (tons) 1990/91 1980/81- 1999/2000 1989/90 ______(percent) (percent) Coffee,Washed 24,000 17,000 .3 8 Coffee,fully Washed 14,000 33,000 9 Tea 4.300 10.000 9 14 Cotton(Lint) 2,800 8,000 8 6 Sugar 11,000 23,000 8 42

Tobacco 900 _ 26 58 PalmOil (Rumonge) 1,300 6,400 17 PalmOil (Nyanza) 800 1,400 6 OtherPalm Oils 100 100 0 16

Soja/Groundnut/ 10 5,100 b 48 sunflowerOils

CottonOiL 550 1.190 4 TotalEdible Oils 2,760 8,700 12 Fruit 35,000 70,000 7 0.18 a. The hlghgrowth rate for sugarreflects the fact thatsugar production started on a smallscale in 1988 and has expandedrapidly in itsdevelopment phase since then. b. Supply necessaryto meet projecteddemand with same level of imports (450 tons).

2.43 Cotton lint production is expected to grow 8 percent a year during the next decade, as a result of an increase in production incentivesas the sector is liberalized and an expansion in cotton cultivation in the Mosso area. The demand for COGERCO's fiber is limited by world demand, which is expected to increase only marginally during the next decade. But because of its high quality, Burundi's fiber is less affected by fluctuationsin world prices and obtains a premium of 5 to 10 percent on world markets. COGERCO is currently the only source of raw material for COTEBU, the textile companythat supplies local and regional markets. As clothing manufacturers 27 continueto appear in Burundi in responseto the improvedclimate for the private sector, the demand for COGJERCO'sfiber and COTEBU's textiles will increase.

2.44 Edible oil output is expected to rise at an annual rate of 12 percent over the 1990s, reflecting increases in production, mainly of palm oil, due to the maturity of improved palm tree species, and rising prices stemmingfrom a growing urban demand. Diversification(soja, sunflower, groundnut)is also expectedto permit an increase in output. The private sector is expectedto expand the industry's processing facilities.

2.45 Increases in acreage, an intensificationof the cultivationof existing fields, and a small expansion of SOSUMO's refinery are expected to lead to an increase of sugar production of 8 percent . To produce a parallel increase in local demand, SOSUMO needs to adopt a more consumer-orientedmarketing strategy.

C. Forestry

2.46 Production statisticson Burundi's forestrysector are poor, but it is estimatedthat the sector contributes3 percent of the country's GDP. Wood provides 80 percent of household energy and is used by the construction industry. About half of Burundi's wood is from plantations, and the remainder is from public and private forests. Forest resources are estimatedto cover about 220,000 ha, or nearly 7 percent of Burundi's total land area. About 160,000 ha are plantations, and 60,000 ha are protected, natural forests. Half of the plantations are owned by the central or local goverments (communes), and the other half are scatteredin farmers' fields, mainly in the Buyenzi and Kirimiro regions. The Ministry of Land Development,Tourism and Environment (MLDTE) manages the natural ,)rests and public plantations and carries out policy directives. Since the late 1970s the forestry sector has received significant support from the Bank, the United Nations DevelopmentProgramme (UNDP), France, the EEC, and the Governmentaimed at the development of basic forestry services and public and private plantations. The effect of these efforts was limited for many of the plantations,however, because of their location in relatively inaccessiblemountainous regions, which raised their marketing costs.

2.47 Local shortagesof wood can be observed in Burundi, but the fact that Government-owned plantations have difficulty selling their wood indicates that on average demand is largely met by private plantatior,.. The current system of harvesting and marketing wood encourages its overuse. In theory, a small fee is collected on wood harvested in governmentplantations, but no charge is levied on wood harvested in natural forests and private plantations. As a result, the financial cost of production is underestimated,and the current market price of wood is estimated at 62 percent of its economicvalue Oong-termmarginal cost of production). This low price undermines incentives to use wood efficiently and to develop alternative sources of energy. Although the Government collects a stumpage fee (about 40 percent of the current market price of FBu 1,000 per cord), only 25 to 30 percent of wood is sold commercially.

2.48 Clearly, the nat,onal management and marketing strategies for the sector need to be reviewed. In addition to meet the increaseddemand for wood, the Governmentshould continue to emphasize agro-forestry and afforestationprograms, which are cheaper and offer more ecological advantages than densely planted plantations. To ensure their sustained implementation, these programs must provide farmers with the necessary financial incentives, and technical support and private managementof public plantationsshould be considered. 28 D. Instiuoal Permance

2.49 Since the partition of the Ministry of Agriculture and Livestock in 1988, three ministries have become involvedin the agriculturalsector: the Ministry of Agriculture and Livestock, the new Ministry of Land Development,Tourism and Environment,and the Ministryof Rural Development (MRD). The MOAL is in charge of policy planning and the coordination of all activities in the sector. It has authority over the provincial services, projects, RDCs, the OTB, and the Office du Cafe. Since 1988four General Directorateshave reported directly to the Minister of Agricultureand Livestock: Planning, Agriculture, Livestock, and Extension.

2.50 The NationalDirectorate for Extension(DGV) is a new directorate. Before it was created, extensionwas channeledthrough 70 projects executedby about 50 implementationunits (agricultural development projects, RDCs, and ministry departments), and there was little coordination and supervisionof the projects. Local extensionactivities were decentralizedand managedat the regional level by autonomousRDCs and projects. With the reorganization,the head of extension services in each province will have overall responsibilityfor the execution of the MOAL's program and report directly to the Director General for Extension. The extensionservice has been ineffectual,suffering from a lack of appropriatetechnical packages, especiallyfor food crops. Extensiveefforts have often been limited to ensuring compliancewith Goverment-decreed national objectives (requirementsto grow coffee or tea, or to apply fertilizer), and, as a result, the service has followed a top-down approach that does not incorporate the input of farmers into its programs. In addition, extension efforts have been diluted by heavy burdens of unrelated duties. The number of staff has been adequate, but their educational background has often been insufficient. Furthermore, because of budget constraints, transportation and training programs have been inadequate, hampering contact with farmers and the developmentof the service.

2.51 The RDCs were established to promote integrated rural development. In addition to extension services, the RDCs were (and some, including the Imbo and Runoy RCDs, still are) responsible for commercial and industrial activities, construction, and even social services. And because of their mandateto promote integratedrural development,the RDCs took on many activities, which led to questionsof sustainability. A 1986IDA study of the financial and managerialproblems of the RDCs proposed the separation of commercialand industrial activities from support service activities. Implementationof the study's recommendationsbegan in the late 1980s, with a new generation of projects that departed from the integrated rural development approach. Several of these, the IDA-financed Muyingaproject and the EEC-financedRutana and Cankuzo projects, aim to strengthen agricultural services (extension, adaptive research) at the provincial level. And agricultural services in the five provinces under the Buyenzi and Kirimiro RDCs are being restructured with the support of the Coffee Sector Project and the Agricultural Services Sector Project.

2.52 Agricultural research is carried out by the Institute for Agronomic Science of Burundi (ISABU). The Faculty of Agronomy (FACAGRO) of the University of Burundi, under the supervision of ISABU, also implements research programs on fertilizers and small ruminants. Researchprograms are generally well balancedand of high quality. Coordinationwith international researchprograms is adequate,but coordinationefforts withinthe CommunauteEconomique des Pays des Grands Lacs (CEPGL) region (Burundi, Rwanda, and Zaire) should be reinforced though the 29

regional Institut de Recherche Agronomiqueet Zootechnique (IRAZ). 2/ The research program suffers from an overreliance on expatriate researchers: ISABU has 38 expatriate and 80 local researchers. Anotherproblem in the past was weak link between research and extension, due in part to the academic orientation of the research. Agricultural research is currently being re-organized around Regional Multi-disciplinaryResearch Units (Ateliers), which work directly with a network of farmers in addition to conductingmore traditionalon-station research programs. Agricultural research has had a more noticeableeffect on export crops than on food crops, mainly because more resources have been allocatedto export crops and because of the difficultyin Sub-SaharanAfrica in developingcost-effective technical packages for food crops. High yielding varieties of coffee, tea and cotton have been selected for the technicalpackages, but except for cotton, product quality was not given enough attention. Food crop research has focusedon varietal selectionwith some success for rice, potatoand maize, but disappointingresults for cassava, sweetpotatoes, beans, sorghum, and groundnuts. Little research has been done on plant protection against disease and on fertilizer use for food crops.

2.53 The role of the MOAL's agriculturaldirectorate in input marketing and production is evolving from direct implementationto coordination, as these activities will be progressively transferred to the private sector. All subsidieson inputs are to be eliminatedunder the third phase of the structural adjustment program. Fertilizer subsidies were reduced in 1991, a step that is expected to (1) terminate artificial demand in areas in which applicationis not technically feasible; (2) redirect fertilizer to areas in which it has demonstratedusefulness, at prices lower than parallel market prices; and (3) facilitate private sector involvement.21/ A national committeefor fertilizer has been created to oversee the liberalizationprocess.

2.54 Seed production, previouslycarried out in 45 seed centers, has been reorganizedunder a National Seed Plan supported by Belgium and the U.S. Agency for International Developmcnt (USAID). Under the plan, seed production is the function of the NationalSeed Company, using the existingfacilities. The seed company is now only to produce foundation and improved seeds on its own farms or purchasethem from farmers. The company's long-run objectiveis to becomea private enterprise. The NationalSeed Service of the MOAL will conduct quality control and certification, and ISABU, which will no longer produce foundation seeds, will provide the pre-basic (breeder) seeds.

2.55 Forestry, fisheries, erosion control, and land tenure management are now the responsibilityof the new Ministryof Land Development,Tourism and Environment(MLDTE), which also has authority over the National Institute for Environmentand Nature Conservation (INECN). The Ministry is responsible for the developmentof a land tenure code and a rural cadastre. The Ministry has few staff at the provincial and communallevels, althoughthe forestry projects financed by foreign aid are better staffed. Discussionsare under way with the MOAL to coordinateregional

ao/ The beanprogmm receivesassistance from the CenIntenmationl d'AgiicultureTropicale (CIAT), programs receive assitancefrom the IntemationalPotato Center, maize and wheat are coordinated with CIMMYT,and the bananaprogram is integrated with the regional research institutionInstitut de Recherche Agwonomiqueet Zootechnique(IRAZ) and the InternationalNetwork for the hprovemcnt of Bananaand Plantains (IIAB).

21/ Por fertilizer, the MOALis still involvedin the managementof grants, mainly the Japaneuegrant (FBu 350 millionin 1989).These inputsare then sold to RDCs and projects. The privatesector will import fertilizersfor the first time, in 1992. 30 activitiesbetween the two ministries.

2.56 The Ministry of Rural Developmentand Handicrafts was reorganizedin 1990and charged with responsibilityfor cooperatives,handicrafts, and rural housing. The cooperatives,whose main purpose is to supply basic consumer goods and assist in the marketingof food crops, were initiated by churches. In the early 1980s, however, the Government took over the management and supervisionof the cooperatives' independentfederation (FECOBU),and placed the federation under the Ministry of Rural Development. Managementof the cooperativeshas been controlledmainly by local civil servants, with little participation by farmers. Now, however, the Government is committedto withdrawingfrom direct involvementand facilitatingthe privatizationof the cooperative movement.

E. Private Sector Institutionsand Performance

2.57 Savings and Credit Cooperatives (COOPECs)have been establishedthrough a national project supported by French bilateral assistance and the Centre International du Credit Mutuel (CICM). Each COOPEC accepts savings deposits from its members and offers them credit (annex 2). The COOPECs have become the most important nongovernmentalorganization (NGO) in Burundi. Between March 1984 and October 1990,70 COOPECswere establishedwith membership numbering almost 100,000. The COOPECshave been very successful in mobilizingrural savings because they permit the safekeepingof monetaryassets, an importantneed in rural areas. Much of the success of the COOPEC movementreflects the strict standardsimposed by the centwalCOOPEC office and the Government's willingnessnot to become involvedin the operations or contol of the movement. With the exceptionof housingloans in Gitega, COOPECsoffer credit without col0ateral and the loan repayment rate is 89 percent. Managementhas a flexible credit policy, with no lower limits on the amount of a loan.

2.58 As the COOPEC movement expands to cover the entire country, it needs to develop recruiting and personnel proceduresto permit the hiring of Burundiansto replacetechnical assistance staff. Training programs are needed to provide branch managers, board members, and supervisors with the accountingand managementskills needed to perform their duties. And, as the rapid growth of the movement increases its exposure to political pressure from both central and local authorities, legal steps need to be taken to ensure the movement's autonomousstatus, whichthe Governmenthas agreed to in principle. Finally, both men and women, need to be made aware of the availabilityof credit through COOPECsand how to use it.

2.59 Until recently, private sector organizations, such as the Chamber of Commerce and the Associationto Promote Exports, were set up by the Governmentand treated more as a department of the Ministryof Industry and Commercethan as independentorganizations. Althoughthe Chamber of Commerce is becomingincreasingly involved in policy issues, it still does not represent a dynamic organization of private entrepreneurs. In 1990 however, several new organizationswere formed (Associationof Fruit and VegetableExporters, Associationof Coffee Exporters, and Associationfor Agro-PastoralDevelopment), suggesting that the private sector is becomingmore organizedand will be able to strengthen its negotiatingposition with the Government. But these organizationsconsist mainly of urban entrepreneurs and modem farmers. Their challenge, one that they recognize, will ba to incorporate the rural farmer and entrepreneur in the coming decade and to stimulatetheir productive capabilities. 31 CHAPTER 111: CONSTRAIS TO AGRICUILTURALGROW1T 3.1 Thischapter reviews the constraintsto the expalsionof agriculturalproduction in lBurundi and the developmentof a dynamicprivate rural sector. The chapterfirst examinesmacroeconomic and microeconomicconstraints, and then by institutionaland socialbarriers. It concludeswith a reviewof environmentalproblems facing the sector.

A. MacroeconomicConstraints

ExchangeRate Policy 3.2 The Burundifranc (FRu) is peggedto the SDR at a rate that is periodicallyadjusted, primarilyin responseto fluctuationsin the worldmarket for coffee,its principalexport. Between mid-1986and end-1989,the exchangerate was adjustedthree times, resulting in a nominal devaluationof 50 percent and a real devaluationof 40 percentbetween 1985 and 1990. More recently,in August1991 the Burundifranc was devaluedby 15 percentin foreigncurrency terms. The effectsof the devaluationson agriculturaloutput have varied, dependingprimarily on the extent to whichthey are felt by rural producers.The sectorappears to be constrainedless by an overvalued exchangerate than by Government-controlledprice systemsthat do not transmit the periodic adjustmentsto rural producers. 3.3 For coffeethe devaluationshave permitted nominal producer prices to remainconstant and the coffeesubsector to export,until recently, at a profit. At the FOBDar es Salaamprice of 85 cents per poundin 1991,however, the Governmentwould have run a deficitfor the sectorof Fbu 614 maillion22/; this was the main reasonfor the mid-1991devaluation. In addition,producer prices in real terms have declined,causing farmers to shift out of coffeeand, thus, productionto fall. The exchangerate policyhas had differenteffects on tea and cotton. Worldmarket prices for tea and cottonfiber haveeither remained stable or improved,thus the devaluationsshould have increasedthe profitabilityof thesecrops, permitting higher producer prices. Butthe OTBand COGERCO,the tea and cottonparastatals, maintained fixed producer prices despite the devaluations.The larger margins fcr the OTB compensatedfor inefficientproduction and management,and COGERCOtransmitted mostof the windfallprofits to COTEBUthrough compulsory sales at lowerthan world market prices until the end of 1991. Thus, producerprices for both tea and cottondid not benefitfrom the devaluationsuntil recently. 3.4 For tobacco,rice and mostother nontraditionalexports (fish, fruit, vegetables,flowers, quinquina),the devaluationshad clearlybeneficial effects. Forthese exports, for whichthe producer pricesare market-determined,or the benefitsof the devaluationswere passed on to the producer,the devaluationsled to higherproducer prices and increasedproduction and exports. Thisdemonstrates the abilityof Burundi'sagricultural sector to respondto exchangerate adjustmentsby increasing exportswhen producers feel the effectsof the adjustmentsthrough higher producer prices.

22/ The FOBprice is the weightedavenge for washedand fully washedcoffee for July 1991,and the exchangerate used in the calculationis Fbu 172 = USS 1. The losses reflect total export receipts minue total production, maieting, and processingcosts. 32 GovernmentExpenditure Policy

3.5 The developmentof agriculture in Burundi Is constraineOlnot by insufficient investment, but by poor allocationof funds within the sector. The 1991-93Public ExpenditureProgram (which includes operational and investment expenditures as well as donor assistance) favors large-scale investmentprojects for agro-industrialcrops at the expense of basic agricitural s;upportservices, extensionand research. Between 1984and 1989, agriculture's share in the OrdinaryBudget declined from 3.4 percent to 2.6 percent while its share in the Extraordinary Investment Budget rose from 17.4 percent to 30.4 percent. Thirty-eightpercent of the 199l Public InvestmentProgram (PIP) for the agriculturalsector was allocatedto agro-industryand export crops, and 40 percent of the 1991-93 PEP is directed to export crops. And despite efforts since 1991 to limit the Government's role In agro-processing, 88 percent of the public enterprise sector invemnientsin the 1989-91 PIP were allocatedto agro-industries,with a large share of the budget programmedfor the tea subsector. The Public InvestmentProgram's emphasison large agro-industr.alinvestments stems from the fact that it is still largely supply-driven, and based more on the availability of funding and on donors' preferences than on economicand financialpriorities. !/ Within the 1991-93agricultural PEP only 0.8 percent is allocatedto forestry, a small commitmentgiven tbe sector's critical role in preventing further environmentaldegradation and erosion. The agriculturalPIP and PEP also reveal that the Government's budget overstates expenses for the agricultural sector, as they sometimes include expenditureson rural infrastructure,health, and education .

3.6 The poor performanceof state enterprises, to which most large-scaleinvestments have been allocated, suggests that the overallreturn on these investmentswill be poor. Between 1986and 1988 net Governmentfinancial subsidiesto public enterprisesincreased by a factor of more than 200, from Fbu 14 million to Fbu 3.2 billion. Public enterprises owed 58 percent of Burundi's external debt service in 1988, but paid less than one-third, with the remainder financed by the Government. Almost three-quartersof the debt service is owed by six public enterprises, includingOCIBU. The Government also provides significantindirect subsidiesto OCIBU, to the OTB (through the coffee and tea payment systems), and to COTEBU (through cotton fiber prices set below the international price).

3.7 These findings suggest that some far-reaching changes are needed in the managementof Burundi's public resources for the agricultural sector. The state-owned agricultural processing industriesneed to be managedmore autonomouslyand to be accountablefor their performance. They also need to be weanedfrom Governmentsubsidies, both direct and indirect, which requires that they be opened up to private investmentand ownership. In addition, PEP resources need to be shifted away from public enterprisestoward operating budgets for agriculturalservices. Finally, donors need to reach a consensuson eliminatingthe investmentbias in their commitmentsand reducing the share of aid funds directed to parastatals.

Tax and Tariff Policies

3.8 The differential applicationof taxes and tariffs places the formal private sector and, in particular, livestockentrepreneurs at a disadvantagewith respect to public enterprises, the productive

23I In 1989 gmnt funds finanecdmore than SOpercent and conceuuionalloans 23 percent of the investmeatin the sector. 33 activitiesof NGOs,and the informalagricultural sector. 24/ Since February1989 neither private nor publicfirms in the agriculturalsector have beensubject to importduties or turnovertaxes on inputs,except for livestockinputs. !/ Butprivate companies, unlike public enterprises must initially pay the taxes and thenare reimbursedthrough lengthy and cumbersomeprocedures. This raises the capitalcosts of privatefirms by tying up workingcapital and increasingthe need for short-term loans.!!/

3.9 In theory,all registeredbusinesses pay corporatetaxes (45percent of profits),a transaction tax on outputs(15 percent),a statisticaltax (4 percent)and propertytaxes. But publicenterprises are in realityexempt from paying taxes, and informalenterprises largely evade taxes. !/ Likewise, the NGOsin Burundithat earnincome from the productionand marketing of livestockproducts (beef, poultry,cheese) are not taxedfor that incomebecause of theirnonprofit status. With the exception of coffeeexporters, all privatecompanies pay a 5 percentexport tax, whilepublic enterprises export duty free. SinceJune 1991there has been a 12 percentexport tax on coffeefor both privatoand publicenterprises. But the paymentregulations for the coffeeexport tax placeprivate exporters at a disadvange: while the Governmentcoffee exporting company (BCC) does not pay the tax until it receivesits exportreceipts, private firms are obligedto pay when they purchasecoffee at the auction.

B. MicrQeconomigConstraints Fixed inMutand )utputPrices 3.10 AlthoughGovernment intervention in th" productionand marketingof food crops is minimal,the Government'sprice policy distortsinput and output prices for agro-industrialcrop productionand leadsto an inefficientallocation of resourcesin the sentor.!I For sugar,production inputs are taxed slightly,but producerprices are highly subsidized,reflecting the Government's policy to developsugar production in Burundi. By contrast,prices for tradableand non-tradable inputs (fertilizerseeds, small equipment,plantings) for cotton, coffee, and tea productionare subsidized70 to 95 percent,and producerprices for these crops are 10 to 60 percentbelow the equivalentinternational reference price. Thenet effectof the Government'sprice policyfor cotton, tea and tobacco,but not fullywashed coffee, is that subsidieson non-tradableinputs permit a small !evel of protection. Ironically,the Government'sinterventicn in the fMI'-washed coffee market actuallypenalizes the productionof Buruadi'smost important export, reducing the country'sforeign exchangeearnings. In all cases, the low producerprices, coupledwith subsidizedinput prices, encouragethe inefficientuse of inputs. In addition,the Government'stax structurefavors public

24/ Sce the sector report 'Private SectorDevelopment in bIdustry'for completocoverage of tax and taiff policie.

25/ Unlikefertilizer, imnortedveteaiary produW and iLcing animalsa subjectto a15 pacnt transactiontax, a 10 percent import tax, and a -4perct statieal tar.

26/ Accordingto the BRB,the need ro piy tlh tnwaction tax was a chief factor F-,hindthe 39 pecent ris in short- tenn borrowingby Bunandianfurm in 1959 over the pevious year.

As of June 1991, the BCCwas legallyexempt from the twrnovextax on coffee expwtag.

28/ Fcr a fuler discussionof tih effet of the Ouvemmen's price policyfor the prcipal food arid ago-indutial orps, see anmex5. 34 processing and export parastatals over private firms. H1gbtaxes for the BTC's exports and tradable inputs cause the financial value added of tobacco exports to be 13 percent lower than their economic value added. Production costs in the Mosso region led the BTC to experiment with contra-ting out extension activitiesin tobacco to a private operator.

3.11 Controlledprices lead to losses in economicefficiency but they also lead to advantagesfor small farmers through the low-risk environmentthat they guarantee. A two-phase payment system (such as the one under preparation in Burundi's coffee sector), under which farmers are first paid a guaranteed fixed price and then later in the year receive a second, variable paymentthat reflects the actual export price (annex 2), would have a stabilizingeffect on farmers' income and would reward quality.

GovernmentControl of AgriculturalInputs

3.12 Burundi's input suipplysystem is unable to satisfy the growing demand for modem inputs. The import and marketing of agricultural inputs is controlled, directly or indirectly (through externally financed projects), by the MOAL and parastatals . Their bureaucratic procurement procedures, cash managementdifficulties, and lack of credit worthiness, coupled with below market input prices, have led to an unpredictablesupply of modem inputs, which has discouraged their use. In Kirimiro, the RDC cannot satisfy a growing demand for food crop fertilizers. Similarly, because of COGERCO's inability to procure inputs in a timely fashion and to advance their marketing and distr.butioncosts, it deliveredno fertilizers and pesticidesin 1988and 1989. This failure is estimated to have reduced production by 1,200 tons in 1988 and 1,450 tons in 1989.

3.13 Burundi's input marketing was liberalized in 1991 as part of the Agricultural Services Sector Project. The Governmentraised fertilizer prices in March 1991 by 33 percent in the Kirimiro RDC, to reflect its financial costs and to permit the RDC to import fertilizer, but shortages persist because the imports have not yet arrived. As a result, the black market price is twice the previous official price (FBu 75 per kilogram). Fertilizer is still subsidizedfor cotton producers, to whom it is sold at aboult30 percent below cost. The tea factories also sell fertilizer below cost (they exclude marketing costs). The National Fertilizer Policy Committee should assume a more active role to further advanceliberalization and to coordinatethe use of inputsfinanced by grants. The committee, which was established under the Agricultural Services Sectcr Project, comprises members from ministries, regional departments,and parastatals (annex 1-B).

Labor

3.14 Until recently, Burundi's excessivelystrict labor laws, appliedmainly in the formal private sector, discouragedthe use of hired labor and the developmentof modern farming and agribusiness activities. Complexlabor laws regulated entry and exit in the labor marketand establishedminimum wages for different categories of permanent workers. The laws also mandated automatic wage increases. As a result, labor costs were up to three times higher in the formal sector than in the informal sector, encouraging capital-intensive activities. 29/ Consequently, the significant employmentpotential of the agriculturalsector remained only partially exploitedand agro-industrial exporters were forced to pay noncompetitivewages. In addition, Burundi's labor laws prohibited paymentby task (the most commonform of paymentfor harvesting),and temporaryemployment was

29t Except for the minimt:mwage requirement,Burundi's labor laws do not apply to the informal sector, which includesfamily-owned modem farms. 35 legally limitedto no more than 12 days a month for a three-monthperiod. These restrictionsled to losses for fruit and vegetable exporters, who had to hire permanentworkers for seasonal harvesting and packaging. Increased employmentwill depend upon greater labor mobility and labor costs that are in line with internationalnorms. Without these changes, the transformationof farming systems and the developmentof regional specializationwill not be possible.

Credit

3.15 Rural Credit. Traditionally, rural credit in Burundi has been provided by public enterprises, RDCs, and development projects. Loan recovery rates have generally been low, reflecting poor managementof credit componentsand the forced use of fertilizer credit. In addition, credit activitieshave focusedalmost exclusively on agro-industrialcrops, at the expenseof other rural production activities (artisanry, cottage industries). For example, the BTC has provided credit and related services to encourage small farmers to grow tobacco. Despite the success of COO('ECs in mobilizingthe savings of rural farmers, their credit services in rural areas have thus far been limited (only 13 percent of total savings), and have been provided mainly for housing. Recently, however, the COOPECshave started to provide preharvest credit to coffee growers for consumer goods, an effort that should be extendedto other producers. Preharvest consumer credit is very popular, and, because farmers need this type of loan regularly, its repaymentrates tend to be high. Burundistill needs a specializedinstitution, similar to the well-knownGrameen Bank in Bangladesh,to provide small amounts of credit to rural entrepreneurswith no credit history who are seeking to invest in small scale production activities.

3.16 Agribusiness Credit. One of the main constraints to the developmentof private agro- industrialfirms in Burundi is access to credit. With the notable exceptionsof fisheries and tobacco, most of the past investmentin the sector has been public, financedby external funds, and channeled through public enterprises. The largest share of credit has gone to OCIBU, which receivedFBu 2.05 billion in short-term credit in 1990, at a subsidizedinterest rate of 6 percent, for coffee purchases. This was about 70 percent of total short-term credit to parastatals. Despite the potential for private sector activities in agriculture, the share of agricultural loans by the Banque Nationale de D3veloppementEconomique (BNDE), the public bank that traditionallyhas focusedon assistingnew entrepreneurs,is small and declining. On December31, 1989, agriculturalcredit, excludingcoffee sector operations, comprised 18 percent of the BNDE's loan portfolio, comparedwith 29 percent for housingand 24 percent for industry(table 10). Althoughthe BNDE's portfoliogrew by 8.83 percent in 1990-91, agriculture's share declined in all categories of lending, by 2.02 percent for long-term, 16.53 percent for medium-term,and 11.10 percent for short-term.

3.17 The principal problem constraining access to credit for small new agro-industral entrepreneursis not a lack of liquidity in Burundi's financial system, but the following procedural, institutional,and social constraints:

(1) Smallentrepreneurs have insufficientsources of the equitycapital that they need to meet bank loan requirements.

(2) Strictly defined bank collateral and guaranty requirementsallow only a narrow range of physical, assets and no nonphysicalassets-such as crops in the field-to be used as collateral. The Fonds Nationalde Garantiewas establishedto help guaranteeloans for entrepreneurs,but it supports only a limited range of loans, and few borrowers have benefited.

(3) The low level of technical skills among entrepreneurs makes it difficult for them to 36 provide the necessaryfeasibility studies and businessaccounts required by the banks for loan approval. (4)The creditapproval process is lengthy,especially for loansfinanced from external lines of credit, such as APEX. BNDEloans may take up to two years to process. (5) Private banks tend to providecredit to well-known,wealthy entrepreneurs, and to restricttheir loanoperations to short-and medium-term financing of buildingsand productive assets. (6) Banksprefer to providelow-risk, Government-guaranteed loans to publicenterprises. (7) Smallloans are unavailableto entrepreneurswith no credithistory.

Table 10: 8reakdau of SE La Portfotio, by Sector Decber 1989

Share in Loan Sector Portfotio (percent)

Housirg 29.2 Industry 24.4 AgricuLture 17.9 Cottage industrIes/comerce 14.2 Domestic equipment 10.2 Tourism 4.2

Source:BNDE

C. SociopoliticalConstraints The Effectof GovernmentPolicies on RuralInitiative 3.18 Until the recent politicalchanges in Burundi,the Governmenthas soughtto controlthe productiveand commercialactivities of the country's1 millionfarmers, both to generatethe foreign exchangevital for maintainingand developingGovernment institutions and to exert controlover the rural population.30/ This interventionistgoverning style, the economicstagnation among Burundi's farmers, and their physicaldispersion have led to a disillusionedrural population,one that is not alwayswilling or ableto modernizeagricultural production. Interaction between the Governmentand the farmershas beenlopsided; there has beenno officialchannels of communicationallowing farmers to participatein localgovernment and to expresstheir goalsand problems,and all communication and organizationalstructures flowed from the top down. These conditionscreated formidable constraintsto agriculturaldevelopment. In addition,although tapping the resourcesof the agricultural

30/ Baed on Xh findingpof tihe1991 study:'Lee contraintessociales et institutionnellesdu d6veloppemenl agricole appr4hnddesau niveso des communes." 37 sector to support development of the rest of the economy is not unique to Burundi, the ethnic imbalance that has until recently characterized Government institutionshas given a special social dimensionto the rural economy. Four of the most important vehicles used by the Governmentto control the farmer have been (1) extension and marketing institutions; (2) the local commune government; (3) the cooperative movement;and (4) unclear land tenure policies.

3.19 Extension and Marketing Institutions. The top-down structure of the extension service was inherited from the colonial era, when the cultivationof coffee, tea, and cotton was mandatory. Although not systematicallyenforced, the legal frameworkregulating cotton cultivation,prohibiting the uprooting of perennial crops (coffee and tea), and directing coffee production (mulchingand pruning)has never been formally abolished,but it will be easedunder the third phase of the structural adjustmentprogram. Extensionworkers have tended to rely more on authority than on conviction based on successfuldemonstrations in order to imposeuniform-and sometimesill-designed-technical packages. In this top-down approach to extension, the farmer was treated as a laborer rather than an independententrepreneur.

3.20 The creation of RDCs in the early 1960s enhanced the Government's control over the cultivation of export crops, especially coffee. Nationwide campaigns, rigid, uniform technical packagjes,and local governments' involvementin coffee 'campaigns' helped convincethe farmer that coffee production is prinarily 'for the Government." This perception was further bolstered by Government-fixedproducer prices and the free supplyof coffee seedlings,pesticides, and, sometimes, fertilizers. A farmer's revenues came to represent merely a wage based on the productivityof his labor, and he had little incentive to exploit the comparative advantages of different crops and to respond to market signals.

3.21 Commune. In Burundithe communeis the lowest level of governmentauthority, and the one most relevant to rural society. It has a critical influenceover the distributionof land, the main factor of agriculturalproduction, and it controls the developmentof off-farm activities(trade, cottage industries)through marketing regulationsand taxes and, in some instances, through the imposition of communitywork. The communeofficials receive their instructionsfrom the national level, and farmers lack channels at the local level through which to express their needs. For example, there are no procedures for the participationin decision making with regard to the distributionof public land, the regulation of local trade (market days, ambulatory trade), or the managementof communal property (forests, roadside plantations). The one-sidedrelationship between the farmer and the local governmentrepresentatives has createdtension between the two, and the events of August 1988drew public attention to the critical role of the local government in maintaining social peace and overcoming ethnic tension. The new constitution adopted in 1992 addresses these issues by establishingdemocratic institutions at the communelevel that are likely to improverelations between the rural populationand the central administration.

3.22 Land. Burundi has no lack of land policies, but those that exist are poorly implemented, often because of the Government'sindifference. The Government'svague land tenure policieshave helped to preserve the rights of Burundi's traditional landowners to unused land, contributingto a situation in which a relatively high proportion of pastures, swamps, and arable land that is not exploited to its full potential (map 4). And insecurity over land rights has encoturagedmany pastoraliststo engage in extensivelivestock production to maintaintheir rights over pastoral lands.

3.23 A coherent legal frameworkhas nullified arbitrary land allocation decisions made by the communes and the traditionalrights of rural landowners,and proviclesguidelines for the distribution 38 of land at the provincial and national levels. LI/ But even the best legal and regulatory framework designed in Bujumburahas little significancein the farmer's life until it is correctly interpreted and implementedat the provincial and communal levels. In Burundi the rule of man (the commune administrator) has too often prevailed over the rule of law. Although the commune's authority should be limitedto communallands (mainlyartificial forest) concededby the central Government, the communes interfere with the allocationof public lands, allocating swampy valley bottoms and pastures with little knowledgeand respect for the land law. Althoughland concessionsare supposed to be subjectto a developmentcontract, valuableand sometimesirrigable land on the Imbo Plain and along the shores of Tanganyika Lake has nevertheless been allocated to civil servants and entrepreneurs without development contracts. Local administrations' allocation of land to nonresiderts has increased farmers' suspicionsthat they are partisan.

3.24 The precariousnessof Burundi's land tenure system has led to conflictsbetween the local population and migrants in the Imbo and Nyanza Lac regions, and to tension when usufructuary farmers have been askedto pay rent on land they consider their own. Lack of access to land and the insecurityof land tenure have impededthe developmentof agriculturalsettlements in the Imbo Plain, Rumonge, and Nyanza Lac regions. And uncertain rights over pastureland, which constitutes 34 percent of Burundi's arable but uncultivatedland, are a major constraint to the development of extensive livestockand mixed farming systems, particularlyin the Mugambaand Bututsi regions.

3.25 Cooperatives. The arbitrary power of the local administrationis not counterbalancedby credible farmers' organizations. In the early 1980s, when the Government took control over the cooperative movement(FECOBU), it establisheLiofficial cooperativesto procure and sell consumer goods and assist in agriculturalmarketing. The Governmentconsidered the cooperative movement an instrument for implementingits development strategy. It established a cooperative in each commune,and local governmentrepresentatives and civil servants often dominatedthe management. As a result, the cooperativesdo not reflect traditional forms of communitycooperation (informal credit activities and work parties). The official cooperatives have performed rather poorly. In offering credit for goods purchased at the cooperatives,they have extended more credit-mainly to advisors, civil servants, and traders-than they have capital. Poor managementand inefficientsupport services led to the bankruptcy of 41 cooperativesbetween 1985 and 1989. Foreign assistance has been used to support the cooperatives,but a recent study suggests that their financial performance is better when they have minimalexternal financial support. The protected environmentprovided by the donors encourages mismanagementand benefits primarily the non-farmer members of the cooperatives. Cooperativesshould be treated as private businesses with no special privileges.

The Oxymoron of Growing Povert and a Dynamic Rural Sector

3.26 Rapid population growth, limited land, and low mobility in rural areas has led to a

31/ Decree-Law No. 1/191 of December 30, 1976 nullifie the traditional allocation of land, the collection of rent, and other land rights prviously conceded by the communes. Decree-Law No. 1/19 of June 30, 1977, abolished the pmctice of ubufererwa the traditional rights of landlords, and grnted the land to the fanners who cultivate it. Law No. 1/008, of September 1, 1986 confrmnedthe above laws and established guidelines for the allocation of public lands. The authority to allocate land rests with the governor of the province for mraltracts smaller than 4 ha, with the MLDTE for tract smaler than 50 ha, and with the President of the Republic for tracts larger than 53 ha. 39

reductionin the size of farms, and growing rural poverty. 32/ As a result, there is an increasingloss of faith in the ability of the rural sector to ensure economicand subsistencesecurity. Althoughthe older generationhas becomesomewhat resigned to its situation,the younger, educatedfarmers (three out of four farmers will have a primary educationby 2000) have becomedisillusioned with rural life and have sought to migrate to urban areas or to find work in the off-farm informal sector. But emigrationand off-farm activities,have traditionallybeen limitedby the Government. Until recently, petty trade was forbidden, and when the Third Republiccame to power, populatioamovements were controlled.

3.27 Emigrationand part-time, off-farm employmentundermines the productivityof the sector. First, one result of emigration has been an increase in the number of women who are the de facto head of household. This affects productivity becausethe demandson women's time are too great to permit them to adopt the more labor-intensivepractices of modern agriculture, and because women receive less attentionthan men from local extension services. Second, farmers who have off-farm employment,but continueto farm part-time, are less able to specialize,and their farms' productivity is lower. There are several signs of low agriculturalproductivity and rising poverty in Burundi: (1) increasingpreharvest sales of standing crops, which reduces the incentive for careful farming; (2) increasingsales of mulchingmaterial for fertilizer; and (3) the developmentof labor and land rental arrangements. Growing poverty, together with the compliance of the older generation and the disenchantmentof many younger farmers, undermines the initiative of the rural population and its willingness to intensify and modernize agricultural production. Until the farmers' productive environment (and allocation, input use, prices and crop allocation decisions) is liberalized and community-basedsystems of rural participationare created, farmers will be unwillingand unable to assume ownership of agriculturalproduction and to transform agriculture into a dynamic sector.

D. InstitutionalConstraints

Poor Coordinationof GovernmentActivity in the Sector

3.28 Burundi is presently reshufflingthe institutionsinvolved in rural developmentat both the national and the local level. Still lacking, however, is a formal mechanism to coordinate the interventionsof the three ministries concerned with rural development. And only the MOAL has adequate local staff and external support to engage in policy analysis and budgetary planning. In addition, the agricultural statistical system has suffered from restructuring. The Service National d'Etudes Statistiques has been replaced by a new institute, Institut de Statistiques et Etudes Economiques(ISTEEBU), causing delays in the constructionof a national data base of the regional agricultural surveys (implemented with assistance from Technical Assistance II and Technical AssistanceIHo.

3.29 At provincial and communallevels the restructuringof agriculturalservices in the Kirimiro and Buyenzi RDCs has left agriculturalstaff confused. For the past two decades RDCs have served as the foundation for public agro-industrialactivities and the provision of agriculturalservices. But because of their high costs and inefficiency,the Government,with the support of the Bank and other

32/ In 1991 the averagesiz of afann for a family(S to 10 people) ws 0.7 ha, and it is expectedto drop to 0.S by 2000. Near urbanand denselypopulated areas, up to 40 pet of thc householdsalready own plots smallerthan 0.4 ha. 40 donors, separatedservices from commercialand industrialprocessing activities and shifted the processingactivities to the private sector. The Bank's Coffee SectorProject is assistingthe Governmentin creatingindependent management companies for the washingstations (SOGESTALs). And the Government,with the assistanceof the Bank's AgriculturalServices Sector Project, is shiftingextension activities from the RDCs to the MOAL. One consequenceof the incrcasing privatizationof the sector, however,has been a loss of qualifiedagricultural personnel from the Governmentas experiencedofficials leave to join the privatesector. PoorlyCoordinated and DefinedExtension and ResearchPrograms

3.30 The extensionsystem suffers from several weaknesses. First, it has beencharacterized by a top-downapproach and basedon pre-independencetechnical packages, and, until recently,has not solicitedinput from the farmers or from the end users of agriculturaloutput (agro-processing industries,consumers). As a result,the systemis notyet responsiveto the needsof farmers,market demand,or the sector's currentproblems, and technicalpackages too often have to be imposedon farmers,often withthe help of localcommune officials. Becauseof the lack of farmers' input,the extensionservice can hardly keep up withfarmers' own initiatives-for example, the selectionof pest- resistantbeans by Buyenz,'sfarmers, and the spontaneousdevelopment of tuber cultivationas a responseto recurrentdrought. Second,extension services have focusedon promotingrapid increases in productionwithout adequately evaluating their long-termimplications for the sector. Despite evidenceof increasingsoil acidity, for example,there has bcenno changein the formulafor fertilizer used on beans. Third, extensionand researchactivities have concentrated on maximizingthe yield of exportcrops, but have ignoredthe qualityrequirements of internationalmarkets, thus precluding the sectorfrom maximizing export revenues. Fourth, extension services are aimedalmost exclusively at men, eventhough women are primarilyresponsible for cultivatingfood crops, and, increasingly, cashcrops as well. Finally,although the servicehas sufficientstaff, including2,200 field extension workers and 200 techniciansand agronomists,!/ the educationalbackground and technicalskills of the field extensionworkers are ofteninadequate. 3.31 The overallquality of agricultural research in Burundiis high, but the researchservice has been underminedby distortionsin the allocationof research funds, excessivereliance on expatriatestaff, and insufficientcoordination with research programs of similarcountries. Although excellentuse is madeof internationalresearch organizations, contacts with other Africancountries, particularlyRwanda, need to be strengthened. 3.32 The allocationof researchfunds has traditionallyfavored the improvementof seedsover issuesrelating to soil fertility,but in recent years this imbalancehas been corrected. The most significantremaining distortion has been overexpenditure on rice research,which receives 40 percent of all funds allocatedto food crop research,and about the same amountis allocatedto all export crops combined. In contrast,research in the livestocksector has been poorly directed and of insufficientquantity. For the past 50 years livestock research activities have focused on crossbreedingthe local Ankolecattle with the Swahiwalto improveextensive pastoral production systems,but onlylimited results have been achieved. Research to improveintensive milk production systemsbegun more than 10 years ago, remainsdiffuse and uncoordinated;the researchis testing exoticbreeds at differentlocations without conducting any carefulcomparison of results. In forage cropresearch considerable attention has been given to forageplant species, and ISABU is distributing seed to farmers, but there has been little assessmentof the palatabilityof the species. Forage

33/ Annualsalary cost in 1991was PBu858 million,or 40 peroat of oxtansioncots. 41 research has also ignored the need to develop leguminousfallow crops that produce forage during the dry season and nrovide protectionfrom erosionduring the rainy season. Finally, there has been almost no research aimed at improvingthe productivity of small mixed farming systems and small ruminantproduction-two areas with significantgrowth potential.

3.33 Other areas of research that have been neglectedand that should receive more attention are quality improvements-rather than yield maximization-for export crops; better integration of meteorologicaldata in crop research and production; and the developmentof appropriate crops for edible oil production. Research on edible oils has focused only on palm oil; no research has been initiatedon groundnuts, sunflowers, and soybeans, which might be better adapted to the ecology of Burundi. The introduction in Burundi of s;.rflower cultivation,which has been very successful in Malawi under conditions similar to those in Burundi, has been delayed by the lack of suitable varieties.

Marketing Constraints

3.34 How Burundi's marketing networkhas affected its agriculturaldevelopment is a matter of controversy. The general wisdom has been that Burundi has a weak marketing network that has constrained agriculturaldevelopment and precluded regional specializationin food crops. Recent studies have suggested,however, that Burundi's markets are relatively wee integrated except in the Mosso region. *'raditionally, Burundian farmers' production has been oriented toward self- sufficiency,and trading has been socially and administrativelydiscouraged. Althoughlocal taxes on trade are small, they are numerous (commune,market presentation, transport) and, combinedwith the national transactiontax and regular road blocks, they create financial and administrativebarriers to trade. It is difficult for food traders to obtain informationon prices and markets, and formal credit, 34/and they face onerous legal licensingrequirements. In addition, traders' marketing costs are relatively high because they must gather small amounts of production in dispersed areas. Although -rundi's road infrastructure is well developed, access to hillside farms is often difficult. Furthermore, rural markets also occur on the same day, making it difficult to develop an integrated marketing chain. And because of the relatively small quantities traded and the absence of vertic2l and spatial integration, prices fluctuate significantly,which discouragesfarmers from relying on the market to meat their consumptionneeds.

3.35 The inadequacyof the regional and domesticmarkets is a significantconstraint. If demand and prices were sufficiently high, the barriers to effective markets could be overcome. !3/ But demand for marketed food crops will increase only when farmers have sufficient incentives to specializein cash crop production. Significantfood crop marketingin Burundi is unlikely to occur until the agro-industrialsector is liberalized and further developed. Regional marketing activities, although poorly documented, appear to be gradually expanding, primarily in response to growing demand from urban consumers(for potatoes from Rwanda, and rice and cattle from Tanzania). The IDA's Kagera Basin and Kivu marketing study is currently evaluatingoptions for the expansionof regional marketing.

I4/ Informalcredit is availableat an annualinteest ratcof morethan 120 permat.

35/ The relative sucoc of institutionalmarkt arangewnts for procuringrce (ImboPlain) and beans(Muyinga) for the army, hospitals and schools, and the success of maracujaexporters in mobilizingnual production, demontatmtht wf do respondto profitableand orgnzed marketngopportnitie. 42 Educatior

3.36 Burundi's technical education system is oriented more toward producing government officials than training private entrepreneurs or modern agricultural farmers. Courses need to be developedin accounting, management,and small business development. Burundi's primary school programs focus solely on preparing students for the country's rigorous secondary school exams, which only a small percentage pass. Those who fail the exams, having built up high expectations, quickly become disillusioned with farm life. Because there is little chance that sufficient job opportunitieswill develop in the non-farm sectors in the immediate future, it is recommendedthat primary school programs start to focus on the needs of small farmers and on rural off-farm activities (cottage industries, commerce).

3.37 Public services and public enterprises lack a comprehensivehuman resources policy. Vocationaland on-the-jobtraining is poor, and its financingis heavily dependenton foreign aid. The poor training programs, combined with an uncompetitivesalary structure, leads to a reliance on technical assistance and a high turnover in the staff of public enterprises and, more recently, in the administration. A UNDP project is currently addressingpublic administrationreform, and human resources development is receiving high priority in the ongoing restructuring and privatization of public enterprises.

E. EnvironmentalConstraints

3.38 Erosion. Erosion is becoming a serious problem in Burundi, and unless action is taken quickly, the decline in soil fertility that it is causing is likely to limit the ability of the rural sector to meet the country's food and foreign exchangerequirements in the future. Burundi is confronting two types of erosion. The first type, progressive erosion, is caused as rising populationpressure leads to the expansion of agriculture onto marginal and fragile land (includingswamps and valley floors), and to overgrazing and deforestation, which are gradually reducing the land's productive potential. The secondtype, dramatic erosion, is caused by storms, floods, and landslides; it destroys road networks and river beds and leads to expensive damageto rural and urban infrastructure.

3.39 Progressive erosion is slow, but pervasive, and therefore the more difficult type to check. Marginal and fragile soils constitutemore than 50 percent of Burundi's cultivatedland, and erosion is often cited as a main constraintto the sustainabilityof the farming system. The most affectedareas are the steep slopes of Mumirwa and the fragile soils of Mosso, the densely populated central highlands, and the swampy areas. Earlier erosion control effortswere uniform strategiesfor the entire country, imposed from the top down, that emphasizedinfrastructure development. Implementedin some cases by communitywork programs, the erosion control activitiesoffered no apparentgain to farmers. As a result, they did not gain farmers' support and were not properly maintained. 3/ A land managementprogram must be centered on the farmer and his community. Because only they can manage their land, and based on a continual dialogue among farmers, extension staff, and researchers. And the program must use techniquesthat can be easily and inexpensivelyimplemented. Intensificationof production, conservation of water, and maintenance of soil fertility should be emphasizedas means to control erosion. Soil management(organic fertilization, mulching), slope reduction, crop diversification(perennial tree and forage crops, planting hedges along with food

36/ Forexample, the labor-intensivecontour ditches, promoted during the past SOyears were neither witedto nmo of the stcepslopes of Bunindinor acceptedby the farmers. 43 crops), agro-pastoralism,and agro-forestrytechniques should be promoted as means to preserve soil quality and intensify production. And because environmentalproblems reflect regional differences in soil composition,crop cultivationpatterns, topography,population density, and climate, a flexible national strategy should be developedthat recognizesthe needs of each region.

3.40 Burundi's 120,000 hectares of swampy valley floors (often with peaty soils) are a special concern. Swamps are part of a delicate ecologicaland hydrologicalsystem that plays an important role in the country's food security, because it permits the cultivationof a third crop (of paddy, maize, beans, and tubers) during the dry season. Most swamps are developed by farmers without preliminary study and guidanceand using traditionaltechniques, which can have devastatingeffects on peaty soils. Even developmentsusing modem techniques are not always carried out with tbc necessary care. Burundi currently has no master plan providing an inventory of swampy areas to be protected and guidelinesfor their development. This problem will be addressedby a UNDP-flnanced and FAO-executedstudy on the design of a master plan for swamp development.37/

3.41 The destruction of rural and urban infrastructure by dramatic erosion is expensive to correct, and repairs require direct state intervention and financing. Regional and national governments need to develop a land use plan that identifieshigh-risk areas for comm ies, swamps, forest regions, pastoral zones, and arabie areas. And the Government needs to emphasize environmentalprotection not only in technical schools, but in elementary and secondary programs and in the broadcast and print media.

3.42 Irrigation. The presence of several rivers (Gikoma, Murago, Muzazi, Musenyi, Gifurwe and Mpanda) on the Imbo Plain and along Lake Tanganyika offers the potential of expanding cultivation (especially cotton and rice) through irrigation (map 3). There are about 25,000 ha of potentially irrigable land on the Imbo Plain, and 20,000 ha in Bururi and Makamba Provinces. If constructed,the irrigation systemsmust managetheir water flows so as to minimizeevaporation, and appropriate drainage networks must be incorporatedto avoid problems of salinizationof the land, which has already started in the irrigation schemes controlled by the hnbo RDC.

37/ 'Eaboaton d'un schEmadirectour d'am6nagemat do mision valour dos maais' (BDI/87/011). 44 CHAPrER IV: STRATEGYFOR AGRICULTURE-BASEDGROWTH

A. Introduin

4.1 A new strategy for agricultural development in Burundi has evolved out of the current dialogue between the Governmentand donors. This chapter highlightsthe principal features of that strategy. The central theme is the need for the Governmentto shift agriculturalproduction, processing and marketing activitiesfrom the public to the private sector, and to structure its agriculturalservices and institutionsso that they respond to the needs of their users-rural producers and agro-industrial entrepreneurs-and support protectionof the environment. The principal objective of the strategy is to create the economic, sociopolitical, and legal environment, and the technical opportunities, includingconservation of natural resources,that will stimulatethe productivecapabilities of Burundi's farmers.

4.2 Burundipossesses significantagricultural growth potential-despite its erosion problems- sufficientto permit output to increaseat a rate faster than the country's populationgrowth rate in th medium term. Aithoughsome parts of Burundi are densely populated, 60 percent of the land that is potentiallyusable for agriculture or livestockis not cultivated. Accordingto contestedestimates, about a third of that land is pastureland. Thus, the expansionof the land under cultivationor under pasture remainspossible, althoughthe qualityof the availableland is uneven. Also promisinggrowth are the bigh quality and international competitivenessof Burundi's export crops, and its we:l- developedtransport and agro-industrialinfrastructure. And there is potential to exploitthe country's comparative advantages through regional specializationand the development of interregionaland internationaltrade networks. The Government's willingnessto adjust the exchangerate to maintain the competitiveness of Burundi's primarily agricultural exports will support their sustained development and diversification. In addition, the Government's recent efforts to open up the country's political and economic structures to all Burundians is creating an environment more conducive to economic and social development; this in turn will stimulate productivity among Burundi's 1 million smallholderfarmers. Finally, th6 past decade has witnessedthe emergenceof a small, but dynamic,modern sector, particularlyin livestockand nontraditionalexports, that is likely to expand rapidly if the macroeconomicenvironment remains favorable.

4.3 There are, however, several constraints preventing the full exploitation of Burundi's agricultural potential. First, until recentiy, the state's interventionistattitude and the deep political divisions in the country have led the Governmentto exercise strong oversight and control over the sector's principal economic activities at the national and communal levels. This has led to inefficienciesin managementand investment,poor allocationof resource at the farm level, and the inhibitionof producers' initiative. Second,the Government'stop-down management style has created agriculturalservice (extensionand research) institutionsthat do not respond to the needs of producers. Third, although Burundi has satisfactory land tenure laws, the Government has lacked adequate administrativeand legal institutionsto enforce the laws at the communelevel. As a result, ownership and user rights remain in dispute for large tracts of land, particularly pastures, and this land is not fully exploited. Fourth, Burundi's high populationdensity, particularly in the northern highlands, has pushed cultivationonto marginal lands, which has led to erosion and the degradation of soil fertility. Fifth, the small size of the domesticeconomy leads to natural monopoliesand oligopolies, which raise the sector's costs and the prices of its products while reducing its output. So far, this has happened mainly in the public sector, but it could happen in the private sector as well if free competidve entry is not ensured from the beginning and anti-trustlegislation is not adopted. Finally, although Bumndi's regional markets are spatially integrated, weak domestic demand and the inefficiencyof storage technologiesleads to significantprice variations. This discouragesBurundi's 45 risk-aversefarmers from specializingand taking full advantageof the country's regional comparative advantages(map 5). This chapterpresents a blueprintfor action to enable Burundito overcomethese constraintsand fully exploitthe potentialof the agriculturalsector. It first describes actions necessary to turn the sector's productiveactivities over to pri --te entrepreneurs,and then proposes a new, more limited role for the Governmentin agriculture.

B. Promotion of a Dynamic Private Sector

4.4 Burundi's 1 million smallholderfarmers and its with a small numberof urban entrepreneurs are the source of its agricultural growth. The issue the Government and donors face is how to prwvideagricultural producers, especiallythose in rural areas, with the socioeconomicand political environmentand the te;chnicaltools that will enable them to behave like private entrepreneurs. In the late 1980s the Government did adopt a more positive attitude toward the modern, urban entrepreneur. This was evidencedby (1) the opening of coffee exports to the private sector and the subsequent creation of an Association of Exporters- (2) the participation of the Chamber of Commerce in policy discussions;(3) the appointmentof a livestock entrepreneur to the board of ISABU; (4) the privatizationof public livestockfarms; (5) fiscal and foreign exchange reforms to support exportersof nontraditionalcrops; (6) the liberalizationof rice marketing; and (7) the decision to privatize cooperative services. This positive attitude has been extended mainly to the modern, urban-educatedentrepreneurs, however, and the smallholderfarmer is not yet fully recognizedas a private entrepreneur.

4.5 Burundi's rural private sector will not develop until several aspects of farmers' lives change. First, in order for farmers to behave like entrepreneurs, they need to be able to allocate resources accordingto market signals. The Government,well aware of this, has taken a number of policy measures toward freeing farmers to do so as part of the third phase of the structural adjustment program. It has eliminated input subsidies and fixed producer prices for export crops; abolished regulations on input use (applicationof fertilizer on tea), sources of input supply, and cultivation requirements; and undertaken liberalization measures that have had positive effects on the rice subsector (para 2.40). It has lifted the regulationsprohibiting the uprootingof coffee and tea plants and those requiring cotton cultivationin Imbo. And it is undertakingthe liberalizationof the coffee market, supported by the Coffee Sector Project. To ensure fair competitionand efficient use of inputs, prices have been liberalizedand subsidieson inputssupplied by publicenterprises eliminated, and inputs financedby grants (JapaneseFund) will be sold at publicauction. Additionalchanges that are needed are to make tariffs and taxes on inputs identicalfor all users and subsectors, and to make farmers' participationin communityworks voluntary, not mandatory,so that they are free to allocate their labor.

4.6 Second, to intensify production and increase their reliance on markets, farmers need a reliable source of credit, particularlyduring the difficultpreharvest season. The independenceof the COOPECmovement should be preserved, and to protect its financialviability protected by subjecting it to the regulations of the banking system. Burundianprofessionals should gradually assume the responsibilityfor technical assistanceto the COOPECs,and the Gitega Central Office shouldretain full control and accountabilitywith regard to recruitment,training, and compensation. In addition, a financial institution devoted exclusivelyto providing rural entrepreneurs with small amounts of credit should be established.

4.7 Third, farmers need freedom to organizethemselves into autonomousprofessional groups and cooperatives. These organizationswould help farmers articulatetheir needs to the Government 46 in an organizedfashion, which is critical to ensuringthe two-way flow of informationthat should be incorporated in the Government's extension and research services. Professionalgroups would also bring the modern, urban farmer into contact with the rural farmer, permitting technologytransfers and marketing contacts between them. The Government'spresent policy is to promote professional associationsand NGOs, and it is limitingthe role of the cooperativedepartment in the Ministry of Rural Deveiopmentto the regulatory functionsspecified in the law on cooperatives.

4.8 Also necessary to promote the developmentof the agricultural sector is intensificationof effortsto privatize the public enterprises. Public enterprises' assets shouldbe sold at publicauction, or leased to or placed under managementcontracts with private entrepreneurs. This privatization strategy is being implementedunder the Coffee Sector Project, and will be extendedto other agro- industries with the support of thieAgribusiness Promotion Project (Cr. 2419-BU). Commercialand industrial investmentin agro-industrialenterprises should be left to the private sector and financed through normal financial intermediation. In addition, to further encourage the development of fishing, already controlledby the private sector, the requirement to sell all fish in Bujumburashould be abolished, tax rates revised, and a regional conference held to discuss fishing rights, market access, and appropriate exploitationlevels.

C. The EvolvingRole of the Government

4.9 In line with the above strategy, the Governmentneeds to shift its focus to the creation of an enabling environmentthat supports private initiative. First, it should limit its involvementin the agricultural sector to five areas: (1) the provision of support services (research and extension); (2) the development and applicationof a regulatory framework for land tenure, forestry management, phytosanitary practices, animal health and sanitation, and quality control of exports; (3) sector investmentswith significantpublic externalities; (4) the deveiopmentof a coherent environmental policy, and (5) institutionalreforms to improvethe MOAL's planningand policyanalysis capabilities. Second, the Government needs to change its attitude toward the consumers of these services; Government offilcialsmust recognize that agricultural entrepreneurs are fully equal and rational decision-makingpartners in the country's development. This recognitionshould lead to, for example, less impositionof services and more seekingout of feedback; broader critical examinationof results and a willingnessto adjust actions and policies; and better links between research and extension. Research and Extension

4.10 Research and extension services have been criticized by both farmers and Government officials for poor performance and lack of relevance. To regain credibility, research and extension services should become responsiveto farmers' needs, both those currently perceived by the farmers and those expectedto becomecritical withinthe long time frame of research; this requires developing a dialogue with farmers and a sensitivity to the feedbackreceived in this dialogue. The extension service shoulddevelop regular contactswith specialists,provided by agro-industries,who wouldwork with it to ensure thal;agricultural products satisfy market demand. ISABU's new policy of organizing agricultural researcl around Regional Multi-disciplinaryResearch Units that work directly with farmers should be enforced. The extension service should disengage itself from input marketing, which should be carried out by the private sector, including agro-industrial firms. Finally, the extension service shouldhire female extensionworkers and direct more activitiestoward womenand young farmers, and it should inform producers of relevant regulations (forestry and land tenure, phytosanitary). 47

4.11 The three main lnsuuimenLsd.at the research a^xdextension services should use tr' achleve these objectives are (1) the trainia-r:-and&i-itmethod, empha;..7ngfarmers' feedback and a critical examinationof results; (2) farming system.assessments that collev.:data on soil fertility, land tenure, production practices, food security, and socioe;onomicconditions in order to assess the constraints and objectivesof farmers, identifypromising cultivation practices, and design on-farm testingof new practices; and (3) network organizations that link Government extension, planning, and research officials with private professionals (farmers and agro-industrialists)and professionalorganizations, facilitate the transmissionof information,and help identify sectoral constraints and problem-solving techniques.38

4.12 Extension services should be administeredby the MOAL's regional staff, and no longer provided independentlyby dispersedand uncoordinatedprojects and RDCs. In addition,the technical efficiency and financial profitabilityof extension packages should be demonstrated, so that there is no longer a need for local governments to impose them on farmers. To help farmers distinguish between the public and private sectors and make a transition from dependence and submissionto autonomyand initiative, the local administrationmust avoid interfering with agriculturalextension activities.

4.13 Agronomic research by ISABU and FACAGRO should emphasize integrating farming systemsresearch with anti-erosionand soil fertilityprograms; improvingthe qualityof export crops; developing oil seeds; supporting livestock research; and developingnational research capabilities. The ongoing farming systems research should develop models based on regional spec.alizationand comparativeadvantages, as alternativesto the current subsistence-orientedgarden farm. The farming systemsresearch should also incorporatean integratedapproach to promotinganti-erosion techniques and soil fertility, an approacn that involves all crops cultivatedby the farmer. Agronomicresearch shouldfocus on improvingthe quality of traditionaland nontraditionalexport crops, and researchers should work with agro-processors and exporters to ensure that the requirements of international markets will be met. Finally, to help Burwidiachieve self-sufficiencyin edible olls, ISABUshould develop crops to complementpalm oil (which is not well adapted to Burundi's iemaining unused arable land) which offer a high oil content, such as groundnuts,soybeans and sunflowers.

4.14 Livestock research must reflect the diversityof the sector, which includesthree production systems: (1) extensive pastoralism; (2) mixed farming, which includes cattle and small livestock (goats, sheep, poultry, rabbits); and (3) the newer intensive,peri-urban production. For each system research is needed on differentbreeds, forage crops, feed supplies, and marketing technologies,and on the integration of livestock with soil fertility maintenance activities The research institutions should reduce their excessive dependence on expatriate researchers, and increase the number of Burundian researchers with planningand managerialabilities. Few national researchers have been given the opportunityto pursue higher degrees.

Creation of SupportiveReguiatory Environment

4.15 As the Government shifts out of productive activities, it needs to focus on creating and implementing a regulatory framework that would make the rule of law transparent to all private entrepreneursin agriculture. The Governmentneeds to develop and implementfair procedures for the distributionof undevelopedcommunal areas, and to reinforcethe land ownershiprights of farmers cultivatingdisputed lands in the South Imbo Plain. These procedures could be communicatedand

38/ A network for cattle was created in May 1991. 48 enforced by appropriatetechnical and inspectionservices of the MOAL and MLDTE. In addition, the Government needs to revise and clarify marketing(quality control) and sanitary (animal health) regulations, and it should permit professionalassociations to propose regulationsthat support their production and marketingactivities. Finally, the Governmentshould evaluate and simplify its labor laws to promote use of the most importantresource in Burundi's rural sector-labor.

Public Expenditures

4.16 T'he adoption of a private sector-oriented agricultural strategy would entail profound changesin public expenditurepatterns. Fiist, public expenditurewould decreasesubstantially, as new investmentin agro-industriesis left to the private sectoror discontinued(public forestry and perennial crop plantations). Second,it would shifttoward investmentswith significantpublic externalities,such as land development and protection (irrigation, watershed protection and management, swamp developmentand protection, erosion control), and some seed production, and toward support for the private sector in the form of research and developmentgrants and marketing services. Third, the share of Government spending allocated to the operating expensesof agricultural services and the newly created regulatory framework would increase. Finally, cost-recoverymechanisms would be introducedfor animal health services, seed distribution, and irrigation maintenance. Public sector expendituresprograms undertaken by the MOAL in 1992 will provide better knowledge of actual resource allocationand contribute to the implementationof the new public expenditurepolicy.

A National EnvironmentalPolicy

4.17 The NationalInstitute for the Environmentand Nature Conservation (INECN), which is part of the Ministry for Land Development, Tourism and Environment, is currently preparing a national environmentalpolicy with the support of the UNDP, the NorwegianFund, and the Bank. The policy will center on (1) identifyingand conserving endangered and marginal lands (natural forests, swamps, watersheds);(2) developingregional soil fertility programs that integrate livestock and agro-forestryanti-erosion techniques and use chemicaland lime fertilizers; (3) increasingprivate sector irvolvement in the forestry sector, with the phasing out of state control and ownership of planted forests and tree nurseries; and (4) protecting Lake Tanganyika's fish and water resources through improved regulatoryand tax codes and internationalagreements. The INECN would be the executive secretariat for Burundi's national enviromnentalpolicy, which will be implementedby Governmentministries, professionalorganizations, and NGOs.

InstitutionalReforms

4.18 The MOAL's Agricultureand Livestock PlanningDirectorate, which is supportedby the IDA AgriculturalServices Sector Project, Germany,and the UNDP shouldcontinue to be responsible for planning and policy analysis. Subsector working groups (forestry, fishery, soil and water management) should be formed of representatives from the modern private sector and farmers' organizations. In addition, an InterministerialCoordination Committee (ICC) has been proposed to review proposals and monitor and evaluatetheir implementation.To support the MOAL's policy and planning capabilities, the Agricultural Statistics Service should be reinforced and take over the responsibility for agricultural statistics from ISTEEBU, which should focus on methodological support. The AgriculturalStatistics Services should collaborateclosely with the Early Warning and InformationManagement system supportedby the FAO. 49 D. Cnclusins

4.19 This memorandumpresents a relatively reassuring scenario for food self-sufficiencyin Burundi and argues that there will be significant growth potential in the agricultural sector for the next decade. The growth potential reflects mainly Burundi's unexploited arable land, the quality premiumsfor its industrialcrops, and agriculturalyields that will increase, as rural producersbecome more motivated with privatizationof the sector and the garden farm by increasedspecialization. In the long-run, however, growth is more likely to stem from the development of small-scale manufacturing, agro-industry, and services, and Burundi is likely to become less self-sufficientin food production.

4.20 Therefore, during the next decade, when Burundi can still enjoy significant agricultural growth, it must lay the foundationsfor the developmentof its industrial and services sectors and for an economy less dependent on agriculture. It must produce a high-quality labor force, which will have to be one of Burundi's principal assets in the development of manufacturing and service industries. A critical role in creating a dynamic, skilled labor force will be played by the modernizationand privatization of the agricultural sector. And the Government must create an economic and political environment suitable to the development of manufacturing and service industries in the 1990s. 39/ This it can do by addressing the constraints to the development of nontraditionalexports and the private sector reviewed in this report.

39/ Consains to the developmentof am privat sector,paficumlary for the manufacun and ervicesinduies, arnaddresed in 'Bunindi - IndusrialPolicies and PrivateSector Developmment (Reoit No. 9422-BU). BURUIDI AGRIBUSINESSPROMOTION PROJECT ProposedPolicy MatrixM Area objectives Neasures Tinetabte 1. Agricultural Production Liberalize sector in order to Circular Letter confirming the stimulate contractual and luplemented productlon according votwltary character of cotton farming for to comparative advantage seitLholders.

Circular Letter specifying the modalftles of the leplemented reconversion of tea and coffee plantationscarried out with pubilc fumis.

Policy note on the programming and financing of new Iiplemented coffee and tea plantations.

Producer price liberalization for agro-fnrdstrfes lqplemented itole respecting the price ceilings currently in place.

Price liberalizationof Inputs. lempl-wnted

Liberatization of the purchasing. marketing and ptlemented processing of agricultural products including coffee, cotton, tea, palm oil, sugar.

Disseamination of the land taw for allocating lpltemented pasture, Irrigated and saup lands to smallholders wnd aogribusinesses.

" SAC m-ll Third StructuralAdjustment Credit PSD = PrivateSector Development Project APP= Agniusinr Pvmotio Project 0 Area oblectives Measures Timetable It. Pubtic Enterprise Reform Reduce fiscal burden of PEs and Signatureof the CircularLetter applyinga loplemented the role of the state In the moratoriumon new investmentsIn non-financialPEs productive sectors to enhance to be privatized. ecorafmicefficiency through competition. issue Invitations to bids for the privatizationof September1992 the capital of all PEs slated for privattzatfonan (sAC 111) 1992 and signature of privatemwnagement contracts for those PEs whose managementIs slated to be privatized In 1992 equivalent to 14X of assets In the state's portfolio. Timetablefor reform of the 26 PEs recently reclassified.

Restructuring of SCEPand putting in place of the September 1992 Monitoring Mechanism for thosePEs to be privatized (SAC fit) or liquidated. Finalizatfon of the liquidation of SCEP's Intervention Fund.

Approval of bidding docutents for the recruitment September 1992 of TA for preparationof privatizatfon (APP)

Introduction of a producer price fixing mechanism Moveer 1992 based on cotton quality (APP)

Completion of the privatization of the equivalent Doceber 1993 of 6X of the statessportfolio (In asset term) for (SAC 111) thosePEs whose capitalwill be privatizedand the equivalentof 49X of the state'sportfolio for thosePEs whosemanagemnt wfil be prfvatized. Goverrent decisions regarding the next steps for unsuccessful cases of PE privatizatfon (e.g., restructuring, liquidation, private _wagementor leasing). I~~~~~~~~~~I

*s Area Oblectives Neasures Timetable 31!. Privatitationof P"bticAgro- Reckacetu mrer of localstaff Studynd designof an lncenticepackage that Decebr 1992 Industries stluulatesproduction nd resolves ambiguities In (APP) improve financials anagementond tendtenure practices In resettled lands t. Privatization of COGERCO marketing performances Selectlon of consulting fir for preparation of January1993 Increae farmeras Incse. and privatization (APP) prodictivity

Improvethe coqiecitiveness of Restructurirg of COGERCOaccouting system to Jaruary1993 cotton on the local and insulate acconUtsof the MasscOevetopment Project (APP) International markets Socio-economicstudy, technical wndfinancial February1993/May Aedectfonof extemnsioncosts valuation,humen resources study, 193 asaets/l)abillitles verffication CAPP) Repl cesent of axpetriate tecnimcat assistance br local Promotionof pilotcotton-growors assoihtions for Narch1993 *xportisa purchasing of cotton (APP) ICPreview of consultant report and propatsls for September1993 privatitation (APP)

Approval of bidding docmmmntsfor the recruitment Sept?aer 1993 of TA to the TIC (APP) Selection of the consulting firm for the TEC Deceetr 1993 (APP) fSetabilohmntof theTechnical Evaluation Ciseeson (TEC)for COGEICO Jawasry1994 (APP) Audit, technical wid financial evaluatiom. financiat projections asmt and liabiltties February19941June valuation.restructuring of the accounts, 1994 preparation of bidding docasentsfor privatination (APP) ICP review of consultant report andpripoals and Invitation for bids Auguat1994 (APP) Selection of the core fnvestor MovoWbr1994 (APP) Area Ob]ectve Measures TJmetable 2. Privatization of OTB increasethe shareof private Approvatof managementcontracts between each tea blpteented investmentin the tea sector factory and07B central mnragement Reduceinvestment costs and Approvalof marenementcontract between0TB and the Ilepmmnted Increaseprofitabilfty of ta Govermment (APP) productfenIn Bururndi Invifte private investmentproposals for the erm Septomber1992 Redoceturnover of local stoff tea factory (APP) Iqxwe financial maagementand Introduction of a producerprice fixing *echanim September1992 marketingperformances basedon tea quatity (APP) Increasefarmer's incomeand Irplexentation of a newstaff benefit systembased September1992 productivity on technical andfifnacial performance (APP) Increaseexport earningsfrom Designand implementatfonof measureto Icprove Septecber1992 tea smalt holder tea yietds andquality (APP) Red4ctionof extensioncosts Approvalof bidding documentsfor the recrultment September1992 of TAfor preparationof privatization (APP) Replacementof expatriate technical assistanceby local Studyon the impactof suppresslonof sutaidies on September1992 expertise fertilizers (APP) Promotionof pitot tea-gromersassociations for Decr 1992 purchasingof tealeaves (APP) L Selectianof consultingfirm for prepration of Jwmry 199 privatization CAPP) Soclo-economicstudy, technical andfinancfal February1993/July valuation, humnresources study, 193 assetse/labilities verificeation (APP) ICPreview of consultant report andproposal for lNaneber1993 preparationof privatfzation (APP) Approvalof bidding documentsfor the recruitment Novber 1993 of TA to the TEC (APP) Selectionof the consulting ffrm February1994 (APP) Establishmentof the TechnicalEvalustion Narch1994 Commission(TEC) for OTO (APP) Ii Area oblectives Measures Timetable Privatizationof OTB Audit,technical (cont.) and financialevaluations, March1994/Augmt financial projections, assets and llabilIties 1994 valuatfon,restructuring of the accouts, (APP) preparation of bidding doctuents for privatization

ICP reviet of consultant report and proposals and November1994 inwitation for bids (APP) Selection of the core investor for Butioro tea February 1995 factory (APP) Transformation of OTB Into a Nixed-Capital corpmW March1995 (APP Offering of shares to privatlze firms and other 1995 factorfes (APP) Sale of shares to the'eployees, the farmers and 1995 the general pubtic (APP) Privatization of the other tea factories (core 1996 investoror managementcofpanies) (APP)

Ln5I

Goo Area Oblectives Measures Timetable 3. Preparation of Reductionof sugar production Establishment of the Technical Evaluation privatization Septerber 1992 of SOSuio costs Comission (TEC) for SOSUO (APP) Reduceturnover of local staff Approval of bidding documnts for the recruitment September1992 of TA for preparation of privatization (APP) Ioprove financial managementand marketing performnces Selection of consulting firm for preparation of Jamry 1993 privatization (APP) Increase farmer's Incomeand productivity Soc1o-ecormic study, technical and financial February1993/ valuation, humanresources study, May1993 Replacementof expatriate assets/liabilities verification (APP) technical assistance by local expertise ICP reviewof TECreport and proposals and April 1993 invitation for bids (APP) Increase SOSUI0'smarket share in the region Selection of core fnyestor July 1993 (APP) Transformation of SOS06MInto a Mixed-Capital August 1993 company (APP) ICP review of consultant report and proposals for Septeaber1993 prfvatization (APP) Approval of bfdding documentsfor the recruItment September1993 of TA to the TECfor secondphase of privatization (APP) Selection of the consulting firm for TEC December1993 (APP) Audit, technical and financifl evaluations, February 1994/June financial projectionsr assets and liabilities 1994 valuation, restructuring of the accounts, (APP) preparation of bidding documentsfor privatization ICP revfew of consultant report and proposals and August1994 Inwitation for bfds for secondphase of (APP) privatIzation

Secondsale of shares Nloveber 1994 iAPP) Thfrd offering of shares 1995 (APP) Sale of shares to the etployees, the farmers and 1996 I ______the_generalgenerat pubpublic lic_ _the o0% Aret oblectives Measures Timetable 4. Restructuring of SROIand loproe the coopetitivness privatization of the rice lmbo of Study on the restructuring of SRDI September1992 rice on naktionaland (APP) mill regional markets Approval of bidding documentsfor the recruitment Septeer 1992 nrnemse farmers fcm and of TA for preparation productivity of privatization (APP) Selection of consulting firm for Reductionof preparation of Jawusry1993 extensioncosts privatization (APP) Reduction of maintenancecosts Socio-economicstudy. technical andfinancial of irrigation February1993/July nd drainge works valuatfon, humanresources atudy, 1993 assets/liabilities verification (APP) Replacementof technicat Approval of bidding assistence docueents for the recrultment Septber 1993 by local expertfie of TA to the TEC (APP)

ICP revfew of consuttant report and propoSalsfor November1993 privatination (APP) Selection of the consulting firm for TEC Deceber 1993 (APP) Establishment of the Technical Evaluation JaIary 1994 Comlsulon (TEC) for SoDl (APP) Audit, technical and financial evaluationsr Februry financaloprojections assets and liabilities 1994/April1994 valuation. restructuring of the accounts. preparation of bidding documentsfor privatization

ICP review of consultant report nd proposals nd Jun. 1994 invitation for bids (APP) Privatizatfonof the ricemill and restructuringof September1994 SODI (APP)

01 57 Annex page8 of 8

lIL 0u

0-~~ 58 Annex 2 page 1 of 16

A COMPARATIVEADVANTAGE ANALYSIS OF BURUNDIAGRICULTUREM

I. Introduction

This annex examinesthe compartive advantageand the economicand financial profitability of producing, processing and marketing the principal food crops grown in Mosso and Buyenzi, as well as several of Burundi's main agro-industrialcrops. The objectiveis to identifythe regional and internationalexport (or importsubstitution) potential, as well as the profitabilityand efficiencyof the current incentive structure. The analysis providesa tramework to evaluatethe impact of government pricing, investmentand exchangerate policieson the agriculturalsector. The exchangerate used in the modelling is 170 FBu = US$1.00.

E. Afro-Industrial Crops A. Qffee

Burundienjoys a comparativeexport advantagein washedand especiallyfully washedcoffee, with domesticresource cost (DRC) coefficientsof 0.80 and 0.93, respectively, as indicated in table L1y Under the current pricing structure, coffee production is profitable for the farmer, with fully washed coffee offering a slightlyhigher return per kg (39 FBu/Kg)than washed coffee (22 FBulKg). The farmer's return to labor for both types of coffee production are similar and equal the estimated cost of family labor (105 FBu/day). The washing stations (currently SOGESTALSformerly the RIDCs)earn a smallprofit of 6 FBu/kgfor depulpingthe cherries, while SODECO(formerly OCIBU) achieves 24 FBu/Kg) to hull fully washed coffee, and only 9 FBu/Kg to hull washed coffee. Given the world prices used in the model, coffee exports are subject to losses especially in the case of washed coffee (5 and 15 FBu/Kg for fully washed and w&i.hedcoffee respectively). This suggests that the Governmentof Burundi would have to subsidize coffee exports, especially washed coffee, assuming the exchangerate is not adjusted in 1991.

liThisannex Is basedon: SOGES/AIRD.Etude sur tesAvantases Cgmaratifs Entre Diverses Cuttures Dans les d Vots. I & Ii (VersionProvisoire), Ministere de L'Agricuttureet de lEtevage* euJtbure, INY91.

iThe coffee ode' Is basedon the 1990/91 slidingscale. The FOB CAR pricefor futtywashed coffee is S 2318/ton and for washedcoffee It fs S 2021/ton 59 Annex 2 page 2 of 16

TABLEIA: FULLYWASHED COFFEE

Farm Ex-Factory Uhotessle Exoort | (FBu/Kg) (Flu/ha) (FBu/day) (Flu/Kg? (Flu/Kg) (Flu/KF)

ORC ___ 0.80 Economic Profits 68 FinancialProfits 39 49729 104 45 69 64 NPC - Inputs 0.12 1.04 1.03

NPC - outputs 0.82 1.01 1.00

EPC 0.85 1.00 1.00 ESC 0.89

TABLE1B: WASHEDCOFFEF

|______.____ Farm Ex-Factory Wholesale Export l (FBu/Kg)(FBu/ha) (FBu/day) (FBu/Kg) (Flu/Kg) (FBu/Kg)

DRC _ 0.93

Economic Profits . . 19

FinancialProfits 22 40884 102 31 16

NPC - nu;ts 0.13 1.05 _. _ 1.04

NPC - outputs 0.93 1.04 1.00

EPC 0.97 1.04 1.00 ESC 1.01

An evaluationof the Government'sprice policiessuggests that they simultaneously subsidize the producer'sinput costs(seedlings, pesticides, extension, poudreuse), while taxing output prices, particularlyfor fully washedcoffee. The nominalprotectien coefficients for inputsand outputs, shownin table 1, indicatethat producers of fullywashed coffee pay only12 % of the economicvalue of their tradeableinputs, while they receive only 82 % of the economicvalue of their coffee production. The net effect, whensubsidies on non-tradeablesare taken into accountis that the financialvalue added is only89 % of the economicvalue added. Thissuggests that coffeeproducer pricesare too low andthat the Government'sprice policydiscourages the productionof fullywashed coffee. Theprice of washedsvffee reflects 93 % of its economicvalue, while the farmerpays only 13 % of the economicvalue of his inputs. However,the effectivesubsidy coefficient of 1.01 suggeststhat washedcoffee producers are more adequatelyremunerated, as the producerprice more accuratelyreflects its economicworth. Consequently,the Government'sprice policiesundervalue 60 Annex I page 3 of 16 the productionof filly washedcoffee, where Burundi has a strongcomparative advantage, whereas they are relativelyneutral for the productionofwashed coffee, where Burundihas less to gain. Nominalprotection coefficients for OCIBUand BCC indicatethat they purchaseinputs at the equivalentworld price, as theseindictors are relativelyclose to unityfor bothof these enterprises.

B. The analysisfor tea revealsthat Burundipossesses a comparativeexport advantage with a smal)holderDRC of approximately0.98 y The data suggeststhat tea productionis quite profitable for the small farmer,yielding a returnto labor of 140 FBulday,which is higherthan for coffee. Likewise,table 2 indicatesthat tea processingis not financiallyprofitable for OTB,which experiences lossesof S FBu/kgof smallholdertea. However,0TB compensatesfor its processinglosses through exports(reflecting the highquality of Burundi'stea), whichearn OTB a net profit of 12 FBu/kgon smallholdertea exports.

TABLE2: TEA (TRADITIONALPRODUCTION NETNOD)*

Farm Ex-Factor2a iholesale ExPort (FBuKg) (FluIha) (FBuldaY) (FBu/K)EFBuM) ORC_ 0.98

EconormicProfits _ 6

FinancOilProfits 24 265040 140 - 5 _ 17 NPC- Irnputs 0.a8 1.08 1.09

NPC- outcuts 0.76 0.76 _ 1.00

EPC 0.24 0.60 1 _ 0.93 ESC 0.31

* Datebased entfrely on secondarysources and model results are preliminary.

As for coffee, the incentivestructre facing tea producerssubsidizs inputs and taxes prod:ction. Smal1holdertea producerspay only 88 % of the economicvalue of their inputs, reflectingsubsidies on tea plantsand equipment,while they receive only 26 % of the economicvalue of production.The net result of governmentprice policyon farm levelincentives is to discourage tea producdon,as shownby the effectivesubsidy coefficient of 0.31. Similarto coffeeproduction, the incentivestructure facing OTB for exportsis fairlyundistorted.

kh. FOBprice I. $ 24471tonof dried toe. Themodat aouse that producerspay part of the ferti ltfer costs. 61 Annex page 4 of 16

C. CQ=

Witha DRCof 0.88, Burundicotton is competitiveon the internationalmarket.4' Given the currentpricing struture, cottonproduction appears to be a financiallyviable crop, offeringthe producersa profit marginof 35 FBu/kgfor fibre equivalentand returnsto labo. of 161 FBu/day, which is the highestfor all of the cash cropswith the exceptionof tobacco. Giventhe price and exchangerate assumptionsof the model, COGERCOloses 15 FBu/kgon cotton fibre sold to COTEBU,while it loses only 6 FBu/kg for exporis. This highlightsthe fact that COGERCO subsidizesCOTEBU's textile production, and suggeststhat COGERCOneeds to reduceits coststo achievefinancial stability.

TABLE3: COTTON

| fanslarm Ex-Facto!X Wholesate Export

| (Flu/Kg)(F8u/ha) (Flu/day) I (FBu/Kg) FlBu/Kg)I Flu/Kg) ORC 0.88 Economic Profits 23 FinancialProfits 35 13662 161 10 29 NPC - In4_uts 0 32 0.96 NPC - outPuts 0.70 1.00 EPC 0.87 1.02 ESC 1.10

As for coffeeand tea, the Governmentappears to subsidizethe use of inputs(seeds, fertilizer, insecticide,COGERCO's infrastructure support, extension) in cottongrain productionand to tax cottonproduction. Farmers pay roughly32 % of the economicvalue of their inputs,and receive70 % of the economicvalue of their product. However,the combinationof the Governmentprice policiesproduces an effectiveprotection coefficient of 0.87 for cotton, which rises to 1.1 when subsidieson non-tradeablesare taken int account. Consequently,the financialvalued addedis slightlyhigher than the economicvalue added, suggesting that cottongrain producersbenefit from a small amountof protectionunder COGERCO'scurrent inputpricing policies. The protection coefficienton the parastatal'sexports indicate that there is relativelylittle price distortion at this level, as the financialvalue addedclosely approximates the economicvalue added.

5t oiton far budgets based on Prolet de DdveloauMentde la Culture Cotomlfre dans ta RdaionNeturelte Om MP80. uritten in January1989 by COGERLJ. Currentty, cotton is not grownin noso, dO data reftects only expectations.Average estifated yield: 1,000 kg/ha. Transformation rate of grafn to fibre, average COGERCOrate: 39 S. The FOB price(Bujumbura) is S 1587/ton.No exporttaxes are charged on cotton. 62 Annex2 page 5 of 16

D. Sugar

AssumingSOSUMO's investmentexpenses are treated as a sunk cost, Burundi possesses a comparativeadvantage for sugar production up to the wholesale (Bujumbura) level. However, Burundi sugar is not competitive with the area's regional exporters (Zambia and Malawi), as the export DRC (see table 4) indicatesthat It requires Burundi 11 FBu/kg more than its trading partners to export sugar. When SOSUMO's investmentcosts are incorporated,Burundi has no comparative advantage in sugar production, and the DRC rises to 2.43 at the local wholesale level. Recent efforts to develop sugar cane production on small private plots using family labor may offer a relativelymore efficientmethod to produce sugar in Burundi,given the tentativelylower DRC export value of 1.16.

TABLE4A: SUGAR(REFINERY INVESTMENT COSTS INCLWED)

.______.Fam _ Ex-factory Wholesale Export .____. (FBu/Kg) (Flu/ho) (FBu/day) (Flu/Kg) (FBu/Kg) (FSu/Kg)

DRC 1.36 2.43 ative Economfc Profits ._-10 -Z3 -_50

|Financiat Proffts -294 Z5 44 36

rNPC - Inputs .0.62 BuJumburs , UPC - outputs 5.31 Bululabura |EPC.. . Bujumbura

TABLE48: SUGAR(REFINERY INVESTMENT COSTS EXCLUDED)

- ______j (R Farm Ex-Factory Wholesale Export (_Fu__K_)(Flu/ha) (Flu/day) (FBu/Kg) (Flu/Kg) (Flu/Kg) I DRC L 0.55 0.70 1.36 Economic Profits 30 16 -1t FInancial Profits 13 25 -34 UPC - inputs 1.15 Bulubura NPC- outputs 1.36 Bujumbura . . EPC 1.54 Bujumbdura -__

&ftsedon esttmtes from SOSUMOfor Its own fIelds nd forsmalt fanrer outgrowr production based upon recent trials. The CIF price for Bujumbura is 77 Flufkgand the FOB at MpultunguZambia is S 525/ton. 63 Annex 2 page 6 of 16

TABLE 4C: SUGAR (PRIVATERAINFED PRODUCTION)

ntoe Ex-Factory Uholesale Export

______(FBu/Kg) (FBu/ha) (FBu/day) (FBu/Kg) (FBu/Kg) (Flu/Kg)

DRC 0.46 0.63 1.16

Economic Profits 39 22 6-6

Financiat°rofits 67683 29 47 -31

NPC - inputs 1.19 Bulumburae

NPC - outputs 1.34 Bujumbura______

EPC 1.46 Bujumbura ._.______.

The sugar production and processing parastatal, SOSUMO, currently gains '5 FBu/kg on sales of processed sugar, whereas privately cultivatedsugar cane is estimated to be more efficient, yielding 29 FBu/kg ex-factory. The sale of sugar in Bujumburais financiallyinteresting, providing wholesalerswith 19 FBu/kg of profits, as shown in table 4. However, no financial incentive exists for SOSUMOor wholesalersto export sugar as they wouldincur losses of 78 FBu/kg and the country has a whole would lose 34 FBu/kg, as indicated in table 4. Clearly, under the current price structure, there is no export potentialfor sugar, but it is economicalas an import substitute.

Sugar appears to be the only industrial crop under analysis where the wholesale price is high., ;ubsidizedby the Government (assuming investment costs are treated as sunk). Table 4 reveals that the financial price of sugar in Bujumburais approximately35 % above its economic value, indicating that the sector is protected. Furthermore, if the Government's payment of SOSUMO's investmentcosts is included,the parastatal pays only 62 % of the economicvalue of its tradeable inputs. As a result of import taxes and the subsidy on its investment costs, SOSUMO benefits from extremely high rate of protection, as the effective protection coefficientindicates that the financial value added is 5.31 times greater than its economicworth. If the Governmentsubsidy is excluded, the analysis indicatesa less distorted pricing system for sugar, as tradeable inputs are taxed an averageof 15 %. Consequently,without the Governmentsubsidy, the financialvalue added of sugar production is only 54 % above the economic value added, reflecting the Government's efforts to protect local sugar production with restrictive import taxes.

The evaluation of sugar production indicatesthat investment in new sugar refining capacity is inefficient,while the expansionof current production to meet existingrefinery capacityshould be encouraged. The SOSUMOrefinery is currently operating at about 69 % of its capacity, meaning that another 5,000 tons/year of sugar could be produced (on approximately1,000 ha). The analysis of producing sugar cane on small privatefarms suggeststhis may be preferable to industrialirrigated production. While the data on sugar production is limited, it appears that it is only financially profitable for the individual farmer on rainfed plots. 64 Annex 2 page 7 of 16

E. Tobacco

The economicanalysis of tobaccoproduction, based on the price received for burley tobacco at the port in Mpulungu, Zambia, indicatesthat Burundi has a significantcomparative advantage in burley tobacco production, with a DRC of 0.88.'

The analysis also reveals that tobacco production is the most profitable cash crop, offering farmers about 34 FBu per kilo of dried tobacco leaves or about 221 FBu/day, as indicated in table 5. However, the export of tobacco produced in Mosso would not be profitable for the BTC, which would experienc. losses of 36 FBu/kg on tobacco delivered to Mpulungu. The financial unprofitabilityof tobacco exports may reflect the higher costs of collecting tobacco in the Mosso region (comparedto IMBO), the relativelyhigh cost of BTC's extensionservices (estimatedat 45,217 FBu/ha), associatedwith the introductionof tobacco in the Mosso region, and the relatively high taxes imposed on BTC, which are not imposed on the above parastatals (turnover, export taxes)

TABLE5: TOBACCO(OSSO)

Gate IEx-Fatory Iholesate Exprt tFSu/Kg) (Flu)(F tFBu/day)l (FBu/K9) (FBu/Kg) (FSu/Kg)

DRC L_. _ .. 0.88

Econrnic Profits 22 FinancialProfits 32 60591 221 .-2

NPC - inPuts 0.21 _ . 1.19

NPC - outDuts 0.42 1.00

EPC 0.57 0.87 ESC 1.08

The BTC's (tobaccoproducer price) and the Government's(input prices) incentivestructures appear to support tobacco production, while discouraging exports. While the producer price represents 42 % of its economicvalue, high subsidies on tradeables (fertilizer, pesticides, plants, extension, and BTC overhead) and non-tradeablescreate an effective subsidy coefficientof 1.08. This suggests that tobacco farmers are protected, as their financialprofits exceed those gained by the economy. In contrast, BTC's input costs exceedtheir economicvalue by 19 %, while its export price obviouslyreflects the world price. The net result is that the BTC receives only 87 % of its economic value added.

The above analysis reveals that Burundi has a comparativeadvantage in tea, coffee, cotton and tobacco exports, while sugar is competitiveonly on local markets as an import substitutionicrop. With the exceptionof sugar, the analysis also highlightscontradictory strategies of

IThe FOBprice for tobacco in Nputungu, zambis is t 1.81/kg. 6S Annex2 page 8 of 16

governmentintervention for agro-industrialcrops. At the farm level,input prices are subsidizedby roughly9S % to 70 %,while product prices are taxed by approximaely10 % to 60 %. However, with the exceptionof fully washedcoffee, subsidies on non-tradeableinputs permit a smalllevel of protection, especiallyfor tobacco. Nevertheless,by distortinginput and output prices, the Governmentdoes not promotean efficientallocation of resources. Ironically,the Govement's interventionin the fullywashed coffee market, actuly discouragesthe productionof Burundi'smost importantexport, reducing the country'sforeign exchange earnings. Finally, the low producerprices subsidizethe processing/exportparastatals at the expenseof the producers. Financialincentives to processand marketexport crops do not appearto be very different from their economicvalue. This is not surprisingsince in all three cases, exportsare monopolized by governmentagencies, which for the mostpart are neitherdirectly subsidized nor heavilytaxed. Tobaccopresents an exception,as the taxespaid by the BTCsignificantly reduces profits to the point whereexporting burley tobacco from Mossomay not be financiallyprofitable. Farmer's earn financialprofks on all of the exportcrops. The lowestfinancial returns to labor are for fully washed coffee, suggestinglittle incentivefor the farmer to expand coffee production. Whileoverall Burundi earns financial profits fromits agro-industrialexports, the net marginsof the processingand exportparastatals are negativewith the exceptionof fully washed coffeeand sugar. This suggeststhat the processingand marketingcosts of the tea, tobaccoand washedcoffee factories are toohigh to permita financialprofits and that they are currenly receiving governmentsubsidies. Privadzationor at least a greaterdegree of financialindependence would likelypromote a greaterdegree of efficiency.In contrast,SOSUMO and OCIBU receive high profits marginsfor sugar and fidlywashed coffee exports, at the expenseof the producer. HLFood The folowing sectionexamines the economicand financialprofitability of the impactof Governmentiterventon on food crop productionand marketing. The analysisfocusses on crop productionin Buyenziand Mossoand evaluatestrade opporunidesfor regionaland iternational markets. A. o-.ebe Colocase,banana and sorghumbeer, banana legume, and bananas are treated as non- tradeables,implying that no reasonableimport substitute exists for the product. The empirical analysis,summarized in table6, suggeststhat all five are financiallyand economically profitable for the firmer, offeringa returnto laborexceeding the estimatedfamily labor wage rate.1 The low per unit value and perishabilityof these crops (especiallycolocase and bananalegume) combined with a relativelylow urbandemand makes Inter-regional trade unprofitableand inefficient.The nominal andeffectve protection coefficients indicate minimal government intvenidon in the markets,as input and outputprices are relativelyundistorted.

Zfecausethey aretreated as non-tradubles, the finaciat profits slso retlect emmic profits. 66

Annx 2 page 9 of 16

TABLE 6. NON-TRADEABLES(SORGHUI BEER, BANANA(MOSSO); BANANALEGUME (BANANABEER, COLOCASSE(BUYENZI)

Local Market Urban Market

______(FBu/Kg) (FBu/Ha) (FBu/day) (FBu/Kg) Financifl Profits

Sorghum Beer 6

Banana 2 20597 142 Banana Legume 4 61857 173 -4

Banana Beer 3 46808 112 -6

Colocase 2 46191 179 .3

NPC- inputs 1.12 *_|| NPC - outputs 1.00 EPC 1.00

TABLE 6A. BAUA LEGUME(BUYENZI)

Local Market Urban Market Export (Bujumbura)

(FBu/Ka) (FBu/Ha) (FBu/day) (FBu/Kg) CFBu/Kp)

Financial profits 4 61857 173 -4 n/a NPC - inputs 1.12

NPC- outputs 1.00

EPC 1.00

TABLE68. BANANABEER (BUYENZI)

Local Market Urban Market Export (Buiumbura)

(FBu/Kg) (FBu/Ha) CFBu/day) CFBu/Kg) (FBu/Kg)

Financial profits 3 46808 112 -6 n/a NPC- inputs 1.12

NPC- outputs 1.00

EPC 1.00 67

p ge 10 of 16

TABLE6C. COLOCASE(BUYENZI)

Local Narket Urban Market Export _Buluibura)

(Flu/Kg) (FSu/Ha)(Flu/day) (Flu/Kg) (FluK Financal profits 2 46191 179 -3

NPC- nuts 1.12 _ .

NPC- outouts 1.00 __ _ EPC 1.00

TABLE60. BANANA (NOSSO)

Local Market Urban Narket Export (Oujumbura) _ (Flu/Kg) (Flu/Ha)(Flu/day) (Flu/Kg) (Flu/Kg) Financial profits 2 20597 142 n a NPC- inputs 1.12

NPC - outPuts 1.00 EPC 1.00

TABLE6E. SOROHIL8UER (MOSSO)

Local Market Urban Market Export ______(lulLabura)

______tFSu/KS"FltgHa) (FSu/day) (Flu/Kg) (Flu/Kg) Finacfal profits 6 . /. n/a NPC- fruts _ 1.12

NPC - outPuts 1.00 _ _ EPC 1.00

B. Beans

Table 7 reveals that both Buyenzi and Mosso have a comparativeadvantage in satisfying local and regional consumption (Bujumburaand Gitega), while beans from Mosso requires approximately 10 FBu/kg fewer resources than Zaire beans to arrive CIF BujumburaE

mhelatter should be fnterpreted with caution, however, as Rosso currently does not export bean. 68 Annex2 page 11 of 16

TABLE ?A. BEANS(TRADITIONAL NETHOD)

Local Market Urban Market Export

(fluFug ) (FBu/Ha) (FluLd r .....(FBu/Kg)

DRC (Zaire) BuvenzJ 0.73 0.94 1.12 Nosso 0.43 0.65 0.80

Econmic Profits

Buyenzi 20 5 .8 Mosso 44 24 13

FinancialProfits _

BUY nzi 1 15369 102 6 -SO (wortd)

Nooso 0 5045 100 11 10 (Zaire) NPC - inputs

Buyu _ 1.23 __

Nosso______1.38 _ _ _ _ _

NPC - outputs |

i uyenzi 1.03 Rosso 0.84

EPC =l______

Buawnzi |_| 1.02 _

Nosso 0.79 . 69 Anex 2 page 12 of 16

TABLE 7P. BEANS (IPROVED METHOD)

Locat Narket Urban Market Excort .______. CFBu/Co) (Flu/Hs)(FBu/day (FBu/Kg) (FBu/Kg)

DRC(Zatre) l BWOnz' 0.74 0.97 1.18 MOssO 0.45 0.69 0.88 EconomicProfits l luyenZi 18 2 11 Mosso 39 19 7

Financial Profits l Buvenzi -2 .1719 93 4 -11 Rosso -3 1m 87 7 6

NPC - Inputs______

BSuenz 1.08 _ Mosso 1.16

NPC- outputs ______!BuYenz 1.03 Css . 0.84

lue i i ______1.06 _ _ _ _ _

Mosso ______0.77 - Financially,the analysisreveals that under traditionalproduction systems, farmers barely marketbeans for a profit, while improvedbean productionoffers themlittle financialgain. In botlh regions,the reurns to labor for traditionaland improvedbeans are belowthe estimatedfamily wage rate of 105FBu/day. Buyenzifarmers receive a slightlyhigher return to beanpro.action than Mosso farmers. In contrast,the marketingof beansby tradersin regionalmarkets (Gitega and Bujumbura) is financiallyprofitable, particularly in Mossowhere traders earn 11 FBu/KGsold for traditional beans.1 Bean exportsfrom Buyenzito Zaire are not financiallyprofitable, however, there Is a small potentialprofit for bean exportsfrom Mossoto Zaire (via Bujumbura).

nhe protectioncoefficients evaluate incentives to produceand marketBuyenzi and Mosso beans in their respectivelocal markets(Bujumbura and Gitega). The analysisindicates that bean inputs are taxed, reflectingdirect taxes on irported tools, and implicittaxes on transportation. Outputprices are sinilar to Zaire referenceprices in Bujumbura,indicating that importscould

5 bespite the apparentprofitabilfty of bean trade between uyenzi arnd Bujumabura,no trade actually occurs, suggesting that fnterregional trade betwen Ngozi wid PuJudrw 18 not well Integrated. 70 Awn2 page 13 of 16 occur. Bean prices are below the reference price in Gitega, indicatingthat they are too low to atract imports (CPNp of 0.84) in Mosso. In general, the impact of govemment price policy appears does not to have a strong influenceon the production and marketingof beans. The data suggests that bean productionin Buyenzi is profitableand efficientfor local and regionalmarkets, while bean production in Mosso also appears to offer a potential for export revenue.

C. Maize

The economicanalysis suggests that the productionand marketingof maize in Buyenzi's local and regional markets is not efficient, as local maize production uses the equivalent of I1 FBu/lkg more in resourcesthan imports from Tanzania, as shown in table 8. This suggests that the production of maize for other than on-farm consumptionis not an efficient use of resources. The financial analysis highlights that maize production is not profitable, as the farmers' return to labor in this activity is only 45 FBu/day, significandybelow their return in other crops. The analysis of the protection coefficients indicate that maize growers face relatively undistorted prices, and that governmentintervention is minimal.

TABLE8: MAIZE(IU'fEMRI)

______LEocat Market Urban MOrket Exoort (Flu/Ka) (Flu/Ha) (FLu/d) (Flu/Ka) (Flu/Kg) DRC 1.35 1.86 1.5 Econanmcprofits -11 -23 -20 Ffnancial profits -13 4594 45 64 NPC- inouts 1.08 - _. NPC- outPUts O."5 __ _ EPC 0.95

D. Sorghum

The economicanalysis of sorghum productionbases the referenceprice on U.S. imports, and reveals that local production is economicallyefficient in both urban (Gitega) and local (Kinyinya) markedswith DRCs of 0.79 and in of 0.52, respectively. Sorghumproduction and marketing is also profitable financially, as farmers ear a return to labor of 144 FBu/day. Traders selling Kinyinya sorghum in Gitega receive a modest financial gain of 10 FBuAkg,as depicted in table 9. Dcspite a 47 % tax on tradeable inputs (mainly seeds), prices in Gitega are above the equivalent import substitutionprice, producing an effectiveprotection coefficientof 1.11. Thissuggests that sorghum production and marketing is protected, and that consumerspay high prices for beans. 71 Annex 2 page 14 of 16

TABLE9: SORGUM(MOSSO)

I______Local Market Urban Market Export

l______(FBu/Kg) (FBusHa) (FBu/daY) (Flu/Kg) (Flu/K) DRC 0.52 0.7-9 nye Economic profits 24 9 n/a Financialprofits 3 11840 144 13 n/a

NPC - liouts 1.47

NPC- outputs ___ _ 1.15

EPC . 1.11 _.

E. Peanuts

The economicanalysis of peanut productionin Kinyinyaexamines the comparativeadvantage of local production versus importing peanuts from Tanzania. Table 10 demonstrates that Mosso peanuts, are economically competitive with imports in both local and urban markets. In export markets, assumedhere to be world markets, peanutsdo not enjoy a comparativeadvantage (DRC of 1.64). Ihis indicates that peanuts should be produced for local production but should not be exported.

TABLE1OA: PEANUTS(TRADITIONAL METHOD: NOSSO)

Local Market Urban Market Export

|______. (Flu/Kg) (Flu/Ha) (Flu/day) (Flu/Kg) (Flu/Kg) DRC 0.64 0.99 1.64 Economic profits 20 1 -26 Financial profits 14 15764 158 26 -40

NPC - Inputs . 1.48U

NPC- outputs _ 1.52

EPC ._ .. L___ 1.53 72 Annex2 page 15 of 16

TABLE109: PEAWTS (IMPROVEDMETHOD: MOSSO)

Local Market Urban Market Exort

(FBu/Ko) tFBguHa) e FludaY) (Flu/Ku) CFBu/KCp)

DRC 0.45 0.65 1.64

Economic oroftts 39 24 -26

Ffnancil Drofits 18 27026 188 31 -35

MPC- inputs _ 119

NPC- outputs _ 1.52 1 EPC I 1.64

The financialanalysis suggests, that the productionand marketingin Gitegaof peanutsis a profitableactivity. Improved peanut cultivation provides the highestreturn to laborof all of the food cropsof 188FBu/kg. Marketingpeanuts in Gitegaalso providestrader with the highestreturn of all food cropsof 13 FBulkg.

The analysisindicates that peanutprices in Gitega are higher than equivalentTanzanian importedpeanuts (NPCp of 1.52). Inputprices are highlytaxed (NPCi of 1.48),reflecting indirect taxeson fueland constructionat the wholesalelevel. As a result,the effectiveprotection on peanuts in Gitegais relativelyhigh, and the financialvalue added is 53 % abovethe economicvalue added. The relativelyhigh rate of taxationreflects indirect taxes on the wholesaler,while the relativelyhigh price of peanutsin Gitegareflects the small likelihoodof Tanzanianimports (given the lack of a strongtrading network), rather than explicitbarriers to trade.

Theproduction and marketingof non-tradeablefood crops (banana and sorghum beer, banana legume,colocase and bananas)for localconsumption is economicallyand financiallyprofitable and appearsto receivelittle governmentintervention. Tradeable food crops analyzedin the studyall enjoya comparativeadvantage in localand regionalmarkets (Bujumbura for Buyenziand Gitegafor Mosso)with the exceptionof maizecultivation which is efficientonly for on-farmconsumption. Furthermore,bean production in Mossoalso appearsto be competitiveon regionalexport markets withZaire beans.

Peanutsappear to offer the highestreturn to labor for the tradeablefood crops,followed by sorghum,beans and maize. Financialincentives for regionaltrade in Buyenziare limitedwith the exceptionof bean salesin Bujumbura.In contrast,regional trade appearsmore lucrative in Mosso, withprofitable opportunities for salesof peanuts,sorghum and beans. In addition,some financal incentivesappears to existto exportMosso beans to Zaire. In general,food crop production operat in an unrestrictedenvironment and the Governmenthas no direct role in establishingfood prices. Governmentintervention appears limited to indirecttaxes on inputs.

Improvedpeanut productionappears to be more efficientand financiallyprofitable than traditionalproduction methods and meritsfurther analysis as the data is stillpreliminary. In 73

Annx 2 page 16 of 16

contrast, improved bean production does not appear to offer any efficiency gain over the traditional method and is less financiallyprofitable for the farmer.

m. Summary and Conclusions

Burundipossesses a comparativeexport advantagefor all the agro-industrialcrops evaluated except sugar. Aside from a hypotheticalcomparative export advantage in beans grown in Mosso, the food crops analyzed in the study are competidve only for sale in Burundi's local and regional markets. The exception is maize cultivation,which is only efficient for on-farm consumption.

While governmentintervention in the production and marketing of food crops is minimal, governmentprice policy distorts input and output prices for agro-industrialcrop production. With the exception of sugar, tradeable and non-tradeable input prices are heavily subsidized, while producer prices are set below the equivalent internationalreference price. The net effect of the Government's price policies is to provide a small subsidy for cotton and tobacco production. For coffee, government interventiontaxes producers of the fully washed variety, while leaves washed coffee producersunaffected. In all cases, governmentprice policiesprovide producers with distorted signals, which leads to an inefficientuse of inputs and factors of proW.uction.In the case of coffee, government policy depresses production of the country's most important export. Excluding the Government'sinvestment in SOSUMO's refinery, inputs in sugar production are slightiytaxed while producer prices are highly subsidized,reflecting the Government'spolicy to develop sugar production in Burundi. Government involvementin the processing and export of agro-industrialproducts is minimal, with the exceptionof BTC, whose tradeable inputs are taxed, causing the financial value added of exports to be 13 % less than the economicvalue added.

From the producer's perspective,tobacco, followedby peanuts, tea, colocase, legume, cotton and bananas in descendingorder all offer reurns to labor around 150 FBu/kg. However, tobacco cultivationoffers by far the greatestprofit with a return to labor of 221 FBu/day. Coffee and beans have a return to labor around 100 FBu/day, while maize yields only 43 FBu/day. 74 Annex, page 1 of 16

Strategy for Private Agro-industrial Enterprise Development

J. Constraints and Prospects

A. Constrant

1. Apart from whatever constraints may be associated with the country's macroeconomic policies, its legislative and regulatory environment, and its institutions,there are also obstacles at companylevel whichhamper the growth and developmentof the domesticprivate sector in Burundi. Up until now, these factors have not been sufficientlytaken into accountwhen developmentpolicies and programs were being formulated. The most importantof these factors are discussed below:

(a) Narrownessof th,edomestic market and difficulties gf access to the regional market, Burundi's smallsize and low per capita incomelimit the potential demandfor manufacturedproducts. Low prices on cash crops to rural producers (90 percent of the population)have exacerbatedthis situation. Attempts to expand demand by resorting to the regional market are handicapped by numerousobstacles, in particular, tariff and nontariff barriers and the fact that neighboringcountries produce a similar range of goods. Nevertheless, trade obstacles have been partially circumvented through reliance on informaltrading.

(b) Burundi's landlockedposition adds greatly to the costs of transporting goods. In addition, the unreliability of access routes obliges companies to keep large inventories of goods, inputs and spare parts, which increases their working capital needs. However, the fact that the country is landlocked also provides natural protection that works to the advantage of certain manufacturedproducts that use local raw materials.

(c) Shortageof capital. The low level of savings in Burundi undermines the ability of potendal businesspromoters to mobilize investmentfunds. This is a major obstacle which hurts the new generationof businessmenwith more innovativeideas. There is also resentmenttoward the few businessmen who have succeeded in Burundi, since in most cases they have utilized their own governmentposition, or connectionsas a means of accumulatingsavings that have ultimatelyenabled them to commencea businessventure. Burundipossesses no institutionor mechanismthrough which risk-capital financingcan be obtained.

(d) Difficultyof accessto credit: Except for a smallgroup of companiesand individuals, it is generally difficult to obtain credit, and more so if long-term financing is being sought. The commercialbanks devote a major part of their credit to financingimport and export activities,which are very profitable and involve a relativelylow degree of risk. As to the developmentbanks, BND and SPF, the majorityof their medium-and long-termlending activitiesfinance purchases of durable goods (vehicles, household appliances)and real estate. A very small 75 AwnaI page 2 of 16

proportion of lending goes to productive investments with longer maturation periods. Furthermore, banks require prohibitive guarantees (generally in the form of mortgages on existing buildings) equivalent to two or three times the value of the loan itself. This is not a situation that can be explained simply as the result of normal bank conservatism, but rather it reflects some fundamental structural reasons, namely:

(i) The history of the banks themselves: The two oldest and largest banks in the country, created during the colonial period, were merely the local agents for their head offices in Belgium; they had no authority to decide important questions such as the types of business they would engage in. Tbeir key mission was to facilitate commercial transactions between the colony and the metropolis and to maximize earnings in the process (commission on payments, interest and commissions on letters of credit and documentary remittances). It appears that the same low risk business attitude prevails today. The banks have no objective reason to finance risky operations and clients (e.g. industrial investmentsby SMEs), despite potential short-term profits and the limited risk involved.

(ii) The predominanceof public enterprises where the most important products - coffee, tea, cotton and textiles, tobacco, and rice - are concerned means that bank credits during the seasons for picking, storage, processing and export are concentrated among six public enterprises: OCIBU, BCC, OTB, COGERCO, BTC and SRD-Imbo. As a single group, they are respo. lible for 82 percent of all products exported by Burundi, they are guaranteed by the Government and present almost no risk for the banks. It is therefore understandable that the banks, which reap excellent profits on these sectors, manifest little interest in fields of activity in which numerous small - and riskier - operators are engaged.

(iii) The banks have not developed either modern project evaluation techniques or the capacity to supervise and monitor the projects they finance. In Burundi, it is rare, to find a banker who pays any attention to cash flow projections beyond two years.

(e) Industrial infrastructure and support services: Although basic infrastructure services (water, power, roads and telecommunications)are quite good, access to them for new businesses is difficult and costly. No adequately equipped industrial zones or buildings exist ". New industries are obliged to provide their own access to infrastructureservices and to put up their own buildings, factors which increase start-up investment costs and make the launching of a new business a lengthy affair. In the case of most small- and medium-scale manufactring projects, and even commercial service projects (i.e., NAB Confection, Poissonerie, Folyclinique - financed by APEX), building costs alone account for 50% of required investment. Maintenance and repair services either do not exist or leave much to be desired where certain types of even quite simple equipment are concerned. This means that additional capital costs are incurred, since each company tries to ensure that it has its own repair shop, or else equipment wears out before it; time and the production process is frequently interrupted by breakdowns.

U This will be eddressed by the recently approvedPrivate Sector DevelopmentProject. 76 Annex3 page 3 of 16

() Mn g T ere are few bushss executives,promoters and managerswho have provedtheir worthin Burundi. Mostenterprises - whethersmall, medium or large in size - do not use modernmanagement techniques. It is Srequentto find that no managementand cost countingsystems are maintained,which means that prices are set arbitrarilyabove or belowreal cost prices. The use of marketingplans as a mangement and growth tool is still unkmown,with businessesbeing contentsimply to produceand wait for buyersto cometo them. Few managers developrevenue and expenditureprojections, and are not ableto anticipatetheir casbhflow needs and preparethe jtmancingfor themin advance. Evenprofitable companies often find themselvesin cash flow difficultiesbecause of the inabilityto preparebudgets. Few heads of enterpriseshave been exposedto efficientbusiness management practices. Furthermore, high protective barriers, that have benefittedthe nascentmanufacturing industry, have allowed them no opportunityto learn to standon their own feet in situationswhere competition is stiff.

(g) Shortageof skille manpower. SinceBurundi is an agriculturalcountry, where industrialdevelopment is still in its very earliest stages, skilled workers with experience manufacturingexperience are not abundant,and the capacityto productsrequiring sophisticated technologyis limited. Nevertheless,the existingtechnical schools are trainingstudents who, with appropriateon-the-job training programs, could learn the missingskills rapidly.

%-h) Utiizatim gfincsalld i;. Despite an increaseover the last few yeas in capacity utilizationrates, under-utilizationproblems persist. The shortageof foreignexchange at certain periodshas beenone of the chiefcauses of under-utlization.But the chronicproblem it suggestsin mostcast', particularlypublic enterprises, is the overscalingof plantsize and machinery.For most privateenterprises, under-utilization is due to the very advarcet stateof obsolescenceof theirplant and equipment,which breaks downfrequently. Becuse of unctainties in the past, and the high degreeof effectiveprotecton afforded them, these enterprises have preferred to fbllowa strategyof "milkingthe cow' since their plant and equipmentwere long ago amortzed, they continueto earn rofitsdespite the low utilizatonof their installedcapacity as mostof their costsconsist of variable Jsts.

(i) Productivity,factor in iy unit postsand efficiency. The problemof declining productivityis seriousin publicenterprises. In additiont,rigorous quality control has not yet become part of Burundi'sapproach to manufaturing. 'Me result of this overal situation is that unit productioncosts are very high whilethe poor qualityof the country'sm:nufactured goods renders them uncompetitivein comparisonto importedgoods and stfi more so on external markets. Furthermore,earlier government policies placed no presse on manfacturers to be competitive. Higheffective protection rates, prohibitionson importing,restrictions surrounding competition, and administeredprice systembased on costsdo not inducemanufactrers to lowertheir costs.

O) A large blicset In the past, the Governmenthas attemptedto acceleratethe country'sindustrial development by creatingpublic enterprises to engagein importsubstitution. In some isances, it has nationalized(the coffeesector), or has taken equity positionsin existing privatelyowned corporations (brewery and commercialbanks), to gain controlof industries 77 Annex 3 page 4 of 16 regarded as strategic and/or highly profitable. Protectivemeasures, designedto benefitthe PEs create : tate-run monopolies,prevent private enterprises from breaking into the major productive sectors of ' le economy. One of the justificationsfor direct governmentintervention in the sector was the lack of initiativeon the part of Burundi's private citizens. But public expenditureshave been biased in favor of large scale investments(despite the narrownessof the domestic market), which are highly capital-intensiveand dependenton importedinputs. This prevents small entrepreneursfrom gaining access to available resources and markets. A public sector omnipresentthroughout the productive segment of the economy, that is inefficientand overprotected,has crowded out small- and medium- scale enterprises that might have been able to play a complementaryrole.

2. Continuationof the present situation cannot ensure sustained economic growth in Burundi, which can only come from the private sector. However, the recent experienceof the two Bank SALs shows that macroeconomicmeasures are not sufficientto induce rapid and positivesupply responses. Althougha propitious businessenvironment and attractiveincentives are required, it is also necessary to devise specific measures aimed at enterprises if tangible results are to be achieved within a reasonableperiod. There is a risk that growth will stagnateor decline if the authoritiescontinue to rely on the public enterprise sector; nor will there be any broadening of the economicfabric or any diversificationin the range of export product-. This last factor is an especially crucial one, given Burundi's heavy dependenceon coffee and the rather gloomy outlook for this commodity.

3. Recent initiatives in the privat. secto. involving nontraditional exports (e.g., fruit and vegetables, flowers, hides, apparel) dem istrate that private enterprises are more innovative and possess the flexibilityindispensable to the conquestof external markets. In the future, it is therefore private enterprises which will have the job of diversifyingexports and mobilizingresources.

4. Despite the constraintsand obstaclesenumersed abov.3,there is a way to develop the private sector, namely by capitalizingon what already exists and introducingcertain innovations. Private sector developmentshould be founded on the premise that Burundi is a small, open economy in a world where interdependenceis increasing. Burundi is not in a position to opt for inward-oriented development or to isolate itself. The goods it produces, whether for domestic consumptionor external markets, have to compete with similar goods produced elsewhere. The strategy should therefore be to develop products that are competitiveon cost and qualitygrounds, rather than to trust in protectionistpolicies whose failurewould be almostcertain. Burundishould identifythose spheres where it possesses a comparative advantage, and from there to d,';neate potential avenues of development for the private sector. The next step will involve u- .ing what resources can be brought into play to circumvent the constraints and obstacles alrc4Aydiscussed, so that existing opportunitiescan be seized. 78 Annex3 page 5 of 16

Comparativeadvanga and strategicDositioning 5. The agriculturalsector has alreadydemonstrated that Burundiholds a comparativeadvantage in the productionof high-qualityagri-foodstuffs for whichpremiums are paid not onlyon external marketsbut also on the domesticmarket, as is the casewith coffee, tea, cotton,tobacco, , fruits and vegetables. 6. The economicliberalization programs introduced in recentyears appear to haveput Burundi aheadof other countriesin the region. This, in combinationwith its geographiclocation, gives Burundian advantageit could exploitprofitably provided, of course, the liberalizationcan be acceleratedand consolidatedconvincingly. I. OpportunitiesAnd Avenues of Development A. ExportMarkets

7. Commoditiesafford realizable opportunities for increasing and diversifying Burundi's exports over the short or mediumterm. Rapid-impactprojects can be undertakenin agricultureand stockraising.These spheres of activitypresent a numberof key advantages:(a) the productscan be obtainedin their naturalstate, with a minimumof preliminaryprocessing; (b) theylend themselves to the creation of rural, small-scaleenterprises; (c) once a certain volumeof these productsis reached,commodity processing activities can be started,adding value to the productsthemselves and contributingto industrialdevelopment. Although more detailed studies may generate other findings, a preliminaryanalysis indicates that commoditydevelopment should focus on the followingproducts:

(a) Traditionalexport crops (coffee.tea. cotton): Althoughthese products are of excellentquality and absorb a considerableshare of public resources, land, and agricultural manpower,output appears to have leveledoff becauseof inefficienciesin the varioussubsectors (controlledby publicenterprises) and of pricingpolicies biased in favorof the enterprisesthemselves and the Treasury,to the detrimentof producers. Radicalrestructuring of each of thesesubsectors so that they are more open to private entrepreneursis clearly indispensableif they are to be revitalized. (b) Non-traditionalexport crops provide an opportunityto increaseexport volume and revenuewhile at the sametime diversifying the country'sproducts and potentialmarkets. Therapid expansionin cropsof this type,entirely on privateinitiative, has demonstratedthe innovativecapacity of privatebusinessmen, their abilityto work in harmonywith producers, and their efficiency.Such initiativesare worthsupporting and encouraging.Potentially interesting products include tobacco, rice, flowers,ornamental tropical plants, exotic fruits, vegetables,mulberry trees, spices. (i) Tobacco: AlthoughBumndi farmers have alwaysgrown tobaccofor their own consumption,it wasnever regardedas a manufacturinginput until 1982,when a privatecigarette 79 Annex 3 page 6 of 16

manufacturing concern, the Burundi Tobacco Company, formed in 1979, began implementing expansionplans. BTC reached an agreementwith farmers in two regions (Cibitokeand Kirundo) to provide them with seed, fertilizer, pesticides, crop extension services, drying and processing, and to purchase their output at a price agreed upon in advance. Since this arrangement was mutually profitable to both companyand farmers, the response from the latter was exceptional. At Cibitoke, where 'Burley' tobacco is grown, total output rose from 14 metric tons in 1983 to 900 tons in 1990, while the number of planters increasedfrom 50 to 2,429 over the same period, and the area under tobacco from 10 ha to 575 ha. Similardevelopments took place at Kirundo, where another type of tobacco, "Flue Cured," is produced. Total output in this district rose from 2 tons in 1983 to 518 tons in 1990; the number of planters rose from 10 to 708 over the same period, and the area under tobacco from 2 ha to 507 ha. The tables below provide details of this change:

Table1: Produetionof BurleyTobacco in Cibitoke

_82/83 83/84 8485 85/86 86/ 8788 8/89 §890 No. of pilnters 50 161 525 1,064 1,500 1,770 2,257 2,429 Area (ha) 10 44 87 200 273 433 570 575 Outputlt) 14 57 187 295 478 764 844 900 Yield (kg/ha) 1,429 1,310 2,152 i,473 1,750 1,764 1,480 1,565 Avg. area/planter(are) 20 27 17 19 18 24 25 24 Avg. output/planter(kg) 280 354 356 277 319 432 374 371

Production of Burley Tobaccoin Cibitoke (t)

1000 O O 800 0 600 O 400 a 200 0

o aO ______82/83 83/84 84/85 85/86 86/87 87/58 88/89 89/90 Sourge: Burundi Tobacco Cowpany,internal report, August 1990 80 Annex 3 page 7 of 16

Table2: Productionof FlueCured Tobacco in Kfrwndo

_ _ 82/83 __83/84 _ 841885 85/8_ 86/87 87/88 88/89 89/90 No. of ptlnters 10 67 164 514 642 699 671 708 Area (ha) 2 22 97 214 430 508 300 507 Output(t) 2 16 128 225 545 594 437 518 Yield (kg/ha) 870 719 1.322 1,050 1,268 1.168 1,454 1.022 Avg. area/planter(are) 20 33 59 42 67 73 45 72 Avg. output/plenter(kg) 200 239 780 438 849 850 651 732

0 Productfonof Flue CuredTobacco fn Kirurido(t)

600 0 400 0 200 a O 00

82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90

Almostall (90%) of the Burley product is exportedas leaf tobaccoto Zimbabwe,80% of the Flue Cured product is used for domesticcigarette production, and the rest is exported to Zaire as cut tobacco. Trends on internationaltobacco markets favor the two types of tobacco produced in Burundi. This is reflected in the high demand for Burundi tobacco and the quality premium buyers are prepared to pay. For instance, a buyer in Zimbabwepays US$1.75/kg fob Mpulungufor BurundiBurley (comparablewith the price paid for the best African Burley, from Malawi, namely, US$1.80/kg), while Burley from Zimbabwe(Africa's biggestproducer) sells at US$1.69/kgon the Harare Auctionfloor. This same buyer (one of the 15 largest "internationalleaf merchants")is willingto sign a five-year contract to buy 5,000 tons per annum. Barundi Burley, which is partially re-exported under the Burundi label to western countries such as Switzerland,Germany, Mexico and South Africa, has attracted attention from buyers, several of whom have already contacted the Burundi Tobacco Company, offering to negotiate arrangementsfor cooperation. In view of these contacts, BTC managementestimates a potential annual demand of 10,000 tons, not an unrealistic figure, considering that Malawi, with an annual output of 100,000 tons, currently sells almost all of it while it is still in the ground.

Despite potentiallyhigh demand, BTC is producing and exportingonly 1,000 tons a year. The question, then, is whether output can be increased to take advantage of the opportunitiesoffered on extemal markets. Several regions of the country have already been identified as suitable for tobacco growing; and even the potential of those areas already within the BTC network have not been fully exploited. The companyplans to increase its output of Burley by 500 tous a year, to reach 3,500 tons in 1995, and of Flue Cured by 100 tons a year, to reach 1,000 tons in 1995. Similar efforts in other 81 Annex 3 page 8 of 16 parts of the country would accelerate this type of increase in output. Furthermore, with very liberal policies and a carefully devised systemof producer incentives,Burundi could profit from its geographic location as regards the output potential of neighboring countries. It could adopt the same type of organization as similar countries (Malawi, for example), which have succeededin raising their output from 12,000 to 101,000 tons over a 20-year period, achievingan annual growth rate of 16% over the first 10 years. Since the growing cycle of tobacco is short (four months), and given the availability of suitable land as well as considerableinterest on the part of farmers, Burundir ssesses the wherewithal for a production drive.

Additionalinvestment will be needed to expand drying facilities, resolve warehousingproblems (which have already arisen, even with the present level of production), and improve pre-export processing. On the basis of its current production program, BTC estimates its investmentsat FBu 250 million, or approximatelyUS$1.5 million. However, accordingto studies it has carried out, as soon as output reaches 2,500 tons a year, it will be essential to start intermediate processing of the tobacco (mechanicalthreshing). This would make it possible to: store the product for more than 2.5 months; resolve warehousingproblems while it is in transit through the port of Bujumbura;justify increasingthe transportationc'pacity of Lake Tanganyikabarges; and ensure proper handling in the port of Mpulungu in Zambia. Preliminary estimates put the necesswy investment at US$7.5 million. Although likely financial rates of return still have to be analyzed more thoroughly, preliminary data indicate a potential for profit. The intermediateprocessing or treatment referred to would, of course, add value: stripped tobacco, with its moisture content reduced to 14 percent, easily sells for US$3/kg. Assuming a 20 percent mark-up and annual export of 2,500 tons, the investmentwould amortize itself in less than four years.

(ii) Rio: Large-scale rice growing was introducedin Burundiin the early 1970s. At that time, the country consumedmore of this commoditythan it produced and importedto close the gap. After major investmentsin the Imbo plain, roughly30,000 tons of rice a year is now produced, leaving a surplus over and above domestic consumption. The steps taken in 1989 to liberalize paddy marketing led to an increase in exports of hulled rice by private companies. The value of exports rose from FBu 53 million in 1988 to FBu 182.9 million in 1989. Althoughthere is potential for export to neighboring countries like Rwanda and Zaire, the complexity of distributionnetworks means that only private companies are capableof exploitingit. Outputprojections for the areas now under rice indicatethat it wou'd be possible to triple exports.

(iii) Ornamental flowers and plant: A recent study (COLEACP) has concluded that Burundi possesses a potential for producing ornamental flowers and plants for export to Europe. Flowers are already exported, but on a very small scale. This type of business could be increasedwithin a relatively short period, providedprivate entrepreneursare allowed the necessaryflexibility, given access to the right logistical facilities and the benefit of simpler and more flexible administrativeprocedures (especially customs).

One private enterprise which is already exporting successfully,forming part of an international network, has a well-advancedproject ready for implementation. An appropriate location has been identified near Bujumbura (where the country's internationalairport is located) for growing 82 Annex 3 page 9 of 16

spray carnations. Accordingto the feasibilitystudy, a five-hectarefluwer farm would require investment of US$620,000 and involve annual operating costs of US$413,000. Yield per hectare is estimated at 2,050,000 stems. The average price for carnationsover the last three years on the Netherlands auction market (VBA Auction, Aalsmeer) has been NLG 0.27 per stem. Assuming this price continues to be obtained, expected revenue per hectare planted would be NLG 553,500 per season, or NLG 2,767,500 per five-hectare plot. From this figure, it would be necessary to deduct air freight charges (NLG 840,000) and marketing costs (commissionto an agent in the Netherlands and fees for use of auction system) estimated at NLG 609,000. This would give a cash flow of NLG 1,318,500, equivalent to roughly US$732,500. After deductionof annual operating costs estimatedat US$413,000,the net profit margin would be US$319,500 per five-hectareplot, or US$63,000 per hectare. This is a yield per hectare which none of Burundi's traditional export crops is able to provide. Obviously, a more detailed study of the proposed project's likely financial rate of r,tu will be essential, although this brief preliminary analysis shows a very high potential for financial and economicbenefits. There will be no difficulty in finding at least 50 hectares suited to this type of product. Export revenues of approximately US$7.3 millioncould be expected,which is 1.2 timesthe revenue generatedby tea exports (US$6million in 1989).

Success depends on two key factors: faultless managementof the flower farn itself and access to flower marketing networks. Managementshould be in the hands of an individual who is a specialist in flower farming, has an excellentknowledge of Africa, and is stationedpermanently on the farm. Since no such specialistsare to be found in Burundi, the services of an expatriatewill be indispensable. In the immediate and medium-termfuture, access to marketing networks will be obtainable only through an accredited agent who possesses excellent connectionswith the systems through which flowers are sold at auction. The services of such specialistsare costly and will have to be paid for in foreign currencies. In the case of the marketingagent, remunerationwill be paid in the form of commissions. At the present time, Burundi's foreign exchange regulations prohibit a Burundi businessman from paying a freely negotiatedcommission to a foreign agent in foreign exchange, an obstaclethat will have to be eliminated if export business of this type is to be promoted.

(iv) Vegetables and exotic fruits. Exports of fruit (in particular the Maracuja r ission fruit) and vegetables(green beans) was begun several years ago on private sector initiative. Even if volume is still only low, these exports have grown rapidly and illustrate how a successful initiative taken by an individual or group of individuals can serve as a catalyst. At the moment, there is a rush among entrepreneurs to produce green beans and passion fruit for export, and there is certainly room for increasingoutput here. As withtobacco, an approachbased on mutuallyprofitable collaborationbetween exporter and producer is the most effective, and paves the way for a better sharing of export revenue between exporter, producer and the Government. Burundi possesses a wide variety of fruits and vegetables-for instance, wild raspberries, black currants, mangoes, papayas, endives, mushrooms, pineapples, certain rare species of banana, spices (pilipili, types of pepper), etc. By looking at the seasonal availabilitiesof different products, conducting market studies that focus particularly on the practical realities of life in Burundi, and working up long-term projections, it is possible to identify particular market niches. What was true in the case of flowers is also true here-bureaucratic red tape and strict foreign exchangecontrols will need to be mitigatedif potential 83 A=3 page 10 of 16

exporters are to have the necessaryfreedom of movementand so be in a position to play by the rules of competitionthat govern their intendedmarkets.

(v) Silk is another example of a product that could prove interesting on various counts. Exports could begin within a relatively short period, since silk has a brief production cycle, and would-be partners, with connectionsto external markets, are readily available. The world demand for silk exceeds supply; it is a commodityfor which the soils and climateof Burundi are eminently suitable; it requires intensive rural manpower, which is certainly plentifil in Burundi; and it is a commodity that affords potential for industrial developmentin a subsequentphase.

The annual world demand for silk is estimated at 80,000 mn, while supply at present is in the vicinityof 60,000 mi, the major producers being China (36,000 m3),India (10,000 in) and Japan (6,500 m3),with the balance offered by Thailand, Brazil and various smallproducers. Brazil is a good example of a country which, with no tradition of silkworm breeding, began from scratch and in very few years succeeded in obtaining a high-qualityproduct. China, the largest producer and exporter, has recently restricted exports, thereby only reinforcingtrends already favorable to producers. Producing raw silk involves three key activities: (i) cultivation of the mulberry trees to produce the leaves on which silk-wormsfeed; (ii) breeding of the silk-wormswhich secrete the silk thread: and (iii) unwindingof the siUkthread from the cocoons. A study conductedby a team of experts from India (the second largest producer after China) indicates that, with the right kind of technical assistance, Burundi could produce raw silk on an advantageousbasis.

Silk can be sold: in the primary state, that of the dried cocoon, at US$4/kg; in the raw state, on spools, at US$50/kg; or as silk fabric or garments (at a price two or three times higher). Initially, Burundi should limit itself to the first two phases. With 400 hectares of carefully selected land and an investmentof US$3.2 million to establish the necessarymulberry tree plantations and to build and equip the facilities for unwinding/spoolingoperations, it would be possible to produce 32,000 kg of spool silk a year. At US$50per kg, this would generaterevenue of US$1.6 million annually,from which operating expenses of US$0.6 million would have to be deducted, resulting in net revenue of US$1 million annually. Once again, here is an illustrationof a new type of comtdoditypossibly worth malcingpart of the country's development strategy. In other words, it is one of a series of commoditieswhich is exportable in a raw state but affords processingpotential at a later stage, calls for little land or physical capital, requires the intensive input of agricultural, artisanal or semi-qualifiedlabor, offers the prospect of high yields, and affords potential for the integration of other processes at both the pre- and post- production stages.

(vi) Sgtckraising: This is another sphere which affords real potential for increasingor diversifying the country's exports. More intensivebreeding of cattle in certain areas of the Imbo plain and of small ruminants (goats) in densely populated zones would increase the output of milk and its exportableby- products such as cheeses (in which border trade is alreadysubstantial). It would also result in increased production of meat for domestic consumptionand for export to regional markets (e.g. Zaire). Among the livestock by-products which are already exported successfullyare raw hides - especially since the hide trade was deregulated in 1988. Exports of raw hides, which had declined during the period of the monopolygranted to SNP (Socite Nationaledes Peaux), rose again in 1988 and 1989, increasingfrom 84

page 11 of 16

666 tons in 1987 to 783tons in 1988 and 1,000 tons in 1989, producing revenues of FBu 181.8 million, FBu 295.5 million and FBu 509.4 million, respectively. Thi example Ulustratesthe benefits of free competition,not only for such economicagents as breeders, fteers and bide traders, who earn better profits, but also for exporters, who obtain accessto a part of the market and a proportion of profits,.and for the Government, which sees Its foreign exchangerevenue rise. Rehabilitationand reopening of the existing tannery by private investors would add value to hides exported - for example, by getting them to the -wet blueNstage, which Is intermediatebetween that of the raw hide and leather. In the case of this commodityalso, Bumundicould take profitable advantageof its geographiclocation as regards other zones of production In the region and the main avenuesof inational trsportion.

Proessing fox wr

14. Once a production level has been attained that allowsfor economiesof scale, agriculturaloutput could be processed instead of beig exported in its crude state. Tbis would increase value added and, consequently,export revenues, while at the same time creating new industries. Sucoess in this attempt will depend on: (a) the ability of farmes/stockbreeders to produce the necessary inputs in sufficient quantity to sustain industrialprocessing ventures; and (b)the ability of industrialentrepreneurs to reach joint-ventureagreements with foreignpartners, whichwill not only bring them the necessarytechnological and managerl know-how, but also access to internationalmarketing networks. The examples looked at briefly already - tobacco, flowers, silk, hides - indicatethat this is feasible, and within the short term. Potential also exists as regards other products not yet mentioned- for instance, canned fit, vegetables, concentratedjuices, jams, etc. - whose viabilityhas been demonsed by recent experience inother countries similar to Burundi.

15. The production of some manufacturedgoods for export is also a possibility. For the moment, apparel is the area where potential could be taken advantageof soonest. Althoughcompetition is very strong, the experience of a few existing private enterprises such as tIAB, for example, and other minformal exorters has shownthat it is posstbleto find niches in cean segmentsof western markets. These niches, which are too smallto upset the major marketingnetworks, are however sufficiendylarge to absorb the output of several enterpriseson the scale found in Burundi. Here too, the setting up of joint ventures between Burundi enterprises and foreign partners appears to be the most promising method of exploitingthis potential. Severalprojects currentlyon the drawingboard could reach the implementation stage soon if a way can be found around various obstes, some of them regulatory and others entrepreneurial(access to bank credit, teical support with project preparation, etc.).

16. By way of example, one promoter has contac with a French firm engaged in garment manufacturingand the wholesaledistribution of articles of apparel. The representativesof this firm have already visited Burundito test COTEBU's textile products. They would be prepared to: (a) provide the plant and equipmentneeded to turn out 600-800 pieces a day, for an approximateprice of US$100,000; (b) provide necessary technicalsupport with the design, making up and finishingof models; and (c) sign a long-term contract guaranteeingan outlet for at least 60 percent of the Butundi firm's annual output. 85 Annex 3 page 12 of 16

Estimates put the likely export revenues from this project at at least US$1 million. Thws far, the promoter has been unable to assemble the necessary financing.

B. Domestic MparkeProduction

17. The domestic market, although small and with limited buying power, also affords potential for the emergenceand developmentof the private sector, particularlyin the followingspheres: oilseeds, crop and agro-industrialresidues.

18. Analysis of the structure of major imported products and products currently manufactured ia Burundishows that, given the extent of effective domesticdemand, there is still room for certain import substitutes. However, any import-substitutionstrategy needs to be very selective and to avoid the mittakes made between 1970 and 1980, since the existence of a certain demand does not necessarily guarantee financial and economicfeasibility. The numerouswhite elephantscreated in the public sector attest to this eloquently, for instance: SOSUMO (sugar), the Muramvya flour mills, VERRUNDI (bottleworks),ONAPHA (pharmaceuticalproducts), etc. Earlier policies have favored mega-projects, despite the narrowness of the domestic market. In the case of Burundi, it is absolutely essential to rememberthis basic fact when any industrialinvestment strategy or project is being formulated. It is the ldnd of case to which the slogan 'Small is beautiful' clearly applies.

19. Likewise, priority should go to those which are intensive in unskilled labor and use relatively simpletechnologies. Various opportunitiesexist for products of this type, for instance:

(a) Current and projected oil-palm, cottonseed, soybean, groundnut, maize and sunflower crops would support the establishmentof small industrial units for the manufactureof vegetable oils. There is already effectivedemand for them and it would increasefurther if production costs could be lowered enough to make their prices accessible to a wider segment of the low-income population. This branch of activity also affords the possibilityof by-productsthat are much in demand - for example, soap and detergent, animal feed, soil fertilizers and the like produced from residues.

(b) Certain crop or agroindustrial residues such as coffee pulp, coffee parchment, paddy hills, sugarcane debris, etc., could be used by small manufactring units to produce organic fertilizers at prices in keeping with farmers' low incomes. Likewise, limestone and phosphate deposits could be used to produce fertilizers to take the place of the imported chemicalvarieties. A study carried out in 1987 (World Bank, "Burundi: Fertilizer Usage and Potential for Local Production") demonstrated that it would be agronomicallyand economically advantageousto produce limestone in Burundi itself (through BIOCARTHand BERM), relying mainly on local inputs, very limited capital investment, and technology that is relatively simple but has been proven in countries comparableto Burundi. 86 Annex3 page 13 of 16

mI. Means of Circumenting Obstaclesand St.ingy OQportunities

20. The avenuesto developmentdiscussed in the previoussections of this paper and the opportunities they may afford will remain unexploited unless appropriatemeasures are taken to create an c, -"omic, legislativeand regulatory climatethat favors private enterprise. However, by themselves,such measures cannot be sufficient, given the still embryonic state of the industrialsector and the numerous obstacles at the microeconomiclevel which interfere with the emergenceand growth of new enterprises.

At the macroeconomiclevel

21. Measures intended to create the right kind of climate were introduced as part of the social and policy ref' -ms and structural adjustmentprograms the Governmenthas brought into place over the last few years. These efforts shouldbe continuedwith the idea of consolidatingand strengtheningincentive systems that favor private enterprise. They should focus principally on: (a) dismantling government monopolieswhich inhibitcompetition and stifle the emergenceof private enterprises in the most dynamic sectors; (b) establishingexchange rate policiesthat are sensitiveto market forces; (c) introducinga single, low tax-rate structure, so as to encourage economic agents to operate openly within formal structures; (d) revising labor legislationso as to reduce manpower costs and enable entrepreneursto change their staffing in accordancewith the inevitablefluctuations in levels of activity; (e) adopting modern business legislation,as well as rapid, simplifiedand transparent regulationsand proceduresgoverning the setting up of businessenterprises; (f) softeningthe regulationsgoverning imports and exports; and (g) eliminating price controls.

At the microeconomiclevel

22. A series of specific steps are needed to overcome the numerousobstacles that now hamper the expansion and blossomingof the private sector.

23. ostering entrereneurship: Contrary to the widely held view, the entrepreneurialspirit does flourish in Burundi, as may be seen from the constantlyincreasing number of new enterprises. It could prove even more dynamic if more importance were given to programs designed to foster entre- preneurship and targeted on the numerous potential business promoters who meanwhile remain in the wings, contendingalone with the numerous obstacles confronting them. A good many of the ideas for new business ventures mentioned in the previous sections of this report were put forward by members of this group. With greater efforts and a systematic approach, it would be possible to pinpointa much larger number of projects, whichwould then have to be scrutinizedso that attentioncould be concentrated on the most promising. Entrepreneurshipdevelopment programs that have already proved successful elsewhere could be adapted to the Burundi context, so as to alert potential business promoters to unexploitedmarket opportunities. In particular, it is essentialto inculcatein them the habit of remaining attentive to the tone of the business climate, since it is composed not only of constraints but also of potential for profit. 87

Annex 3 page 14 of 16

24. TechnicalAssistance. At the present time, there are no managementassistance programs focused specificallyon private businessmen. Practical programs of this type should deal with the key functions of the modem manager: (a) preparationof business and operatingplans; (b) design and implementation of viable general and cost accounting systems that permit the accurate measurement of production, operating costs, and revenue generated by each activity; (c) establishment of production systems compatible with prevailing technical standards; (d) introduction of modem personnel management systems: recruitment, training, keeping turnover rates low, incentives to encourage productivity and improve all aspects of performance, etc.; and (e) implementationof studies and devising marketing strategiesappropriate to each product and the market segment being targeted.

25. This assistanceshould be channeleddirectly toward each businessenterprise, so that bureaucratic institutionsassociated with the authorities, or for that matter, with donors are avoided. The role of the authoritiesand donors should be limitedto providing general informationand the subsidiesfor acquiring specific information and technical assistance. The enterprise or its private promoters would request themselvesthe assistanceand woulduse it to seek from other private entitiesthey themselvesselect (e.g., private consultingfirms, individual consultants, or other foreign or local private enterprises). In this whole area, it is essentialthat both the Governmentand donors change their approach, since efforts made in the past by public organizationsto support private enterprises have failed completely. One concern of this assistance should be to foster and facilitate the establish-mentof direct financial links between interestedprivate-sector business promoters, either in the form of joint venturesor of marketingnetworks or other private arrangements. The latter proves to be the most effective channels for the transfer of technical or managerial know-how - rather than the conventional approach of technical assistance channeledthrough public institutions, NGOs or governmentagencies. All known instances of success in Burundibear this out: e.g. BTCF (tobacco), FRUITO(fruit juices and fruit exports), NAB (apparel), vegetable exports, etc.

26. Practical training courses shouldbe designed and made avaiiableto businessmenin short sessions. A well-balancedcurriculum, dealing succinctly with basic managementconcepts and supported by case history work, should cover at least three key concerns of modem management: financial management (with emphasis on accounting and its uses and on cash flow management);marketing (with particular emphasis on projuct/market-segment targeting and how to devise the right wrarketingmix of r- . lCt, price, pipelines and promotion); and production and operations management. Concurrently, the instructionin managementand its techniquesgiven in formal training institutionsshould be strengthened by being orientedmore toward practicalapplications and not onlytoward exclusivelytheoretical concerns.

27. Access to creKi: Since access to bank credit is the major stumblingblock as far as the emergence and developmentof new small- and medium-scaledomestic enterprises is concerned, some way has to be found to make existing financial institutions shake off their lethargy. Injunctions in the form of regulationsor governmentcoercion are certainly not the best means of doing that. In fact, they are even dangerous and likely to bring abuses in their wake that would endanger the viability of the banking system. On the other hand, there would be advantagesin fostering greater competitionby opening the doors to new private-sector financial institutions with wider fields of activity. For instance, the Government might attempt to cut back the almost complete exclusivity of the banking oligopoly by authorizing the introductionof new, more modern and more aggressivedeposit and lending instruments outside the existing bank structures. Private investmentand brokerage houses 88

Annex 3 page 15 of 16

could he opened. Tbis wouldassist in the creation and transfer of instrumentssuch as bonds, preferred stock, dcbentures, and other types of commercialpaper currentlynonexistent In Burundi. Even without a stock exchange,these instrumentscould be bought and sold on a smallscale over the counter until such time as a stock exchangefinally develops, a process that wIll certainly take longer. Factoringoperations, which are common in many parts of the world, cannot be engaged in officially in Burundi by any economic agents other than banks, which manifestvirtually no interest in them.

28. Risk apital: IThevirtual impossibilityfor the new generation of entrepreneurs to assemble sufficient capital of their own to undertake an activity of any real scope is the other major stumbling block. The commercialbanks cannot be counted upon to finance risk capital. This is not one of the missionsof commercialbanks and is a type of operation which is very risky, matures only slowly, and dependsnot just on very expert appraisal/selectionof new projects but also on very close supervisionof any projects financed. The country's present financial institutionshave neither the required expertisenor the necessarypersonnel resources with which to monitorthe managementof new projects.

29. On the other hand, there can be no real hope of promotinga still embryon;cprivate sector in a country in which the level of saving is low, and where bank intermediationis still in a clearly elementary state, without setting up a mechanism for the financing of venture capital needs. Althoughthere is an obviousneed to fill the void and gaps in the banking system as it now stands, the basic rules governing such a mechanismshould be those of a market economy. Certain basic criteria which need to be met if such an institutionis to be able to sustain itself are:

(a) Tbis institution should function on a strictly for-profit basis, not as a charitable or philanthropic organization. Even if public funds or the proceeds of external aid are channelled into this institution, it should not be a new public-sector enterprise or be managed as such. Its decision-makingand managementorgans should be completely independent of the public authorities. Its management staff should consist of professionalswho have experienceof the private sector and modem financial institutions. Expert knowledgeand experienceof a high order will be indispensableif the institutien is to be launchedsuccessfilly. Specializedentities in the more developedcountries can assist in identifyingand contracting for the services of the kinds of expert who will be needed.

(b) Rigorousselection of projects to be financed. This means involvementsolely in projects with high rates of return. The minimumanticipated rate of return should be 30 percent. Projects should be in sectors with high growth potential (15 percent annual growth in turnover).

(c) The institutionwould operate by takingan equityholding in the new couapanyor lending to it for the long term, preferably in conjunctionwith other bankers. The shares held by the promoters of the business themselveswould be gven to the institution as coilateral, up to the amountfinanced, with the possibilityof the institution's becomingthe majority shareholdershould the promoters themselvesdefault. The underlyingagreement between 89 Anex3 page 16 of 16

the institutionand the promoters should make provision for the case where the business prospers; here, the promoters should be required to gradually buy up the ordinary or preferred stock held by the institution.

(d) As a matter of course, the institutionshould occupy one or several seats on the Board of Directors of te new company, and have the option of nominatingmanagers of its own choice should the managerialcapacities shown by the promoters be likely to jeopardize the viability of the enterprise. Nawhn GOm DomedwProditc by Sw 0rsgtor 6-01 %6oFU stcura.wprca 1905 ING6 19807 1tH8 569 1900 1901 P.*OySe:w TM6 72n057 Foodeops 70.T7W 73270 86.153 0,979 t05s.s 63,12 56,056 53.03 LU 55,373 67.921 77,66 63.428 kk 5.384 FW" 5,519 5,716 .13 0,168 6,o75 S.144 210 342 Fomay 350 434 473 522 564 3.273 3,40e 3,650 EXpotCmps 3.031 4.118 4,816 s.32 5.0 Ml671 7,014 73se 7T47S 8.128 8.417 x sryS.do 16.407 16.604 UJ _WKAWLffv hD5,07 21,668 22,514 232M4 2.1097 30.2 8.139 7222 6e049 Agf*uJ I g 6A36 730 9.354 70 309 365 Z 'F Fsxxod 493 514 526 601 tdm 1,060 2.55 Teilwmaditwpodxwt1 3,336 2,806 2.7tl s, 4.064 707 Ohrwisiss 1n40 I 05O 1.012 1047 s6 1,128 2.179 2,t33 w.kmft 2.449 2.639 2,5 3,122 371 OM2 4.653 ConsZuctim 720 7.26 8224 9.2t0 10.534 s59 4.02 s5.B 6,170 0.630 7,09 6.703 rtiroIg dEIUU 63 o06 1,456 1,482 1535 1se6 1.791 T.swSedor 32.129 34.426 35.03 30.280 43.422 40.726 55213 P hafh'so 1664 T1'qmpdai 17,066 M.S67T 02 22SD0 20.041 28.627 mmx1ww 2,94 3540 Trde 3.719 3.762 4.147 4.S44 4,066 M0,750 11,072 11n1o 13.tO 13,64 15.009 17s C ohur 1,781 16a6 2.217 2.500 2636 3.32 3,843 OP at card1 126.10 123,123 12793 135.073 152,609 172,2 11t530 KITIMMI,s4g Lskif 12.597 14,078 1I55 5 16,01 2tses 10*04 22.370 0Pdaraptbse 136.79D 137301 13D5 1504 174,3W 180.7ce 21319W acklosstm%) t17.5 (1.1) 1.7 8.9 14.6 8.5 12.7 Samw.sEcrs Buiandu 1OM Ckdrmg Mro-mwmi$I. 1002-1005 a 1003--f7or,Ide ul*uPin

1065 1066 1067 ee6 1o06 1000 1900 PduwySar 55152s76 52510206 50.66413 462153M 4040;05 St1 O6 49s2479 Foodemps 4ss2342 40856845 36022203 36.36235 3.4607 40.642 30s072 Uvestwk 3792420 FiS 40924 4.007344 4s37se4 35366112 3.s516030 .073866 01577923 02402603 02551879 0265630 Fosby 02712202 0275021 '3.23746 2.356230D 2.5264072 2.610303 Eqo 2Mf6e 23612791 2.S31367 2516100 GCrcps 4.034123 4.2294 s7949 4.666421 4266t175 42624027 3s50163 SeowdrySector I.21456 12M1289 1553259 14.61As1 13.22476 1302714 142036 Min1nia 4.0NO964 44744571 5.767S3 4S.727s3 3.107921 4n27939 4373071s Ag*tp*,a p-*sAo 0.076 02006142 627sOM7 0.3244189 02047206 02771306 020w24 Foodkkim1d 1.4122DS4 1.64176 23927457 1.4049 1s73602 1J312251 1.s6s276 Text6mw6 wpodz.a 0.52M34 0.784s7s 0.752661 o0 071 00343 O.s51050 0.5273402 klbs 1.560078 1.546833 1.7s5420 1.73esss 1.473417 1J440240 1.66917 3265600 3.331746 52256101 5215706 4.7ISs4 46256 4.247811 can3towtim, 4.0341523 3.020145 4.0641 4.0641204 3S06S 415224S5 4.067237 Uning-WdEn 0.46076 o63o 104s5238 oa20oN OMIM75e 0250984 0.37371 Twtiyecstr 23.149362 25.091653 25-52004 25s54149 24Jee3e4 26.10700 2581220 Pul s s 11a6360 13.086738 1373714 13.0472' 13.0753 1.720520 13S60 Tsuo*madcctwxmbkima 2.1572150 2SSO50t 2.6oes2 2.4755863 2.377s076 2.6041405 2t310030 Trade 7.7455140 6.0600120 7MON2 s620427 7.324750 8621570 8.40e471 Oewm we*i 12632336 1*542175 1.591006 1.7102734 I.s126406 1.726809 1.7031302 (OPatimwoos 00125607 e96.73141 91.717142 6668467 6.21346 901.0064 a0.54141 FllctTwMn ddsjdis .07602 10258 62e2ss72 11.115132 1235S 8S101359 10458A15 MOPatu= pdmt1 0a0 109 100 100 too 103 8IAusuOl Re Gra DosomesPsctbV Secsq Orion 06s5-s1 (Mlo Ftu at 190 pIcbes w1s 166 1967 196 l06 106 1991 PM"F e w 57.2 50.64 6e65 63.652 a2wl 6s.735 67.106 Food aops 45.115 47.651 49.747m 0o.6 4060 s5s5 53.757 Lh..Iock 5.873 3.927 3,979 4.032 4,067 4.445 Fksin*t 60 66 72 04 go 101 CM F ery .060 3.142 .210 3.30 3.410 as32 EXPOdcO 6S,065 4.756 se5.0 52 4566 3100 5.27t U Soon 8.cw 13_251 113427 14.423 U4.503 1466 s.702 17.115 z * Z A a t _9 5 x I- 4.0 453 3 5 4 4.0 530 604 AWku1 mI proe-Mng 435 456 542 5s2 612 467 Food Ih eses660 66 66s 34 6s7 703 Tzeridassespodualon 0 1.18t S.= 1.126 11.2 1.170 Otleblamm 2.190 2.213 2a77 2A4 L451 2.00 Heodneib a456 3.570 3.a66 3.77 3sm 4Sft31, 4,734 Constudon 4.756 4.56 4.246 4.03 4.0 4.706 5M2 WntandEawW 744 631 1.6 1.37 1.361 1.311 16s1 Tud" Seow 25.060 2963 23.514 30.844 31.612 8.so1 3S3S64 ftb kteft 14.0 14.947 Mme6 ut467 1&.430 20506 21.17 TrW mlsnDcOamAWiaSt_2 Z696 Zs520 z514 zs1s ?An6 Trad 036 0.505 0.S20 04 so"77 0.065 Otha_ 1146 1,6 1.762 1,700 1.56 .11

GoPal clrCost 66L612 101.644 15 M40e40 106*6990 116.1857 t120.16

gdse. nltol subsde 6.150 6236 906 13.A4 Is0. 111.46 1w7n

GODPgmuImIpiIo 100.671 110.130 116.221 1 136 ae016.022 134.310 -'4 GIOW6.am bEI) 11.46 S1.53 4.0 1.6 as 40 GDPd(1s06 -1002 130.1 1240 12DD 1327 1410 147.7 1S55

Source: E _ h6e_IOudBw Nr. CedgeMClQ _ _o-econon102-10M

------_------.------___------_------_---- Gronl b psout

1065 10 1097 low 1060 1900 10

PImmI S.cbq 4.1202262 19044127 1.666360 -Z16960 5027620 z090210 Food,o 5525201 4.8646s 2.4065 -a2.2060 540o00o2 2.W53s Lkv*ck 1.4726682 1.3241660 1.*310920 1.864073 5.7504812 FbNt 4ns66666 -1516161 S30555 5.3191460 Z2.96020 F ao"30163934 .1642266 30620605 3.063440 3S.77712 E& Cot -011926 11.7973061 -7.8007 -70642 4.00647 .1706740

ScAnv Seob 1.3262016 7.41178600 e.ss460 e7101971 7.5037655 1.0066516 MenaMA-kwnobl3064062 15.67SY46 0.2375640 -s77s62s 72228348 1Z5201 Arua prooesat 46e275662 1550640 -7.360073 1.902018 -4.626112 Foodkm*nMs -C.44S430 2.652652 7.153264 -1.2152S 10.38106 T _sendl b _espoducon 10637462 3te1eess1 -ass s 19.271756 -1161608 OUkwh,Stle oe624365 25576140 .7763375 -15.01366 1s0o1040 Handcb 32906111 210644 8.0650345 10447445 1Zz1621 &026SS Conawu"on -8105 -736-a700 403607 7.15160611 72437357 7.1011603 Wft and w0E 11.4035 54.031267 9.14062S-1 .45311 -5.0687f00 &a31625

Teu5u ft., 72.1205152.20022 .12224z7 &840I956 1t1.44106 44s57605 PubNose.g 6.2104730 49240650 4.s000435 11.075466 1,.2045l2 14060510 Trupqod xo.urnllon 317667d -2535-2s0351190 -0030777 11416635 Trade -1.$7G04 0.157010 07773100 -&431102 11.005004 o3 "Axw -2166647 -1.32600 -0729517 -10s1441 14403032

GoPattscbolot 33200 46640778 1.7860 -0101830 7.5634961 s4317719 kndred Texs ne od tssdes .1.670M 16.051o 39s04009 14J30643 -=27120 20

GoPd inmpdic 321511170 5S221120 417520 1.468369 3014673 401165 4NNEX4 92 Table 3

we *11 !I #*j,, ,,S fI,

I's|I. ¢i XP * Ci XT § 2X r a

0

ri~~~~~~~SC~ ~~ 2o#|ih tea

@iOub!~S t-lgi 11Z}

wX

tUl0 I ds"§iiX I~ BURUNDI

FOODCROP PRODICTION ('000 TONS)AND ANNUAL COWTH RATE x Go 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989average z a z q ______% dtange ______Rootsand Tubers 1030 1091 1073 108 1174 1218 1336 1381 1448 Cassava 1423 42096 400 451 444 444 511 504 554 580 624 642 5.50% Sweet Potatoes 500 497 490 502 517 555 611 624 643 Cdocass 662 4.40% 95 100 98 100 103 112 122 127 130 potatoes 62 -1.10% 30 36 35 36 37 40 42 43 43 32 Yans -0.60% 5 7 6 6 6 7 7 7 8 5 -0.90% Cereals 208 216 211 216 214 244 256 274 280 241 Maize 2.30% 140 146 144 148 139 157 164 174 160 135 -0.20% Sor0lum 52 53 52 53 49 59 61 64 64 Rice 69 4.40% 10 10 9 9 18 20 23 26 28 28 21.10% Wheat- 6 7 6 6 8 8 6 6 a Eeusine 9 5.50% 9 11 10 11 10 12 12 13 13 13 Legumes 328 339 334 326 175 ^aO 364 380 358 Beans 287 -1.90% 290 294 290 280 141 301 313 327 304 221 -2.60% Peas 26 30 29 30 18 32 33 34 33 Soja 29 4.60% 12 15 15 16 16 17 18 19 19 17 200%

NSbods 25 27 26 27 26 29 30 32 31 69 20.20% EBaana 1100 762 1220 1160 1197 1384 1436 1504 1501 Fmt 1638 4.40% 400 782 450 428 441 510 S38 557 S90 60? Beor 4.50% 700 770 732 758 874 900 947 lo01 1091 4.40% Leaves 39 42 41 4. 43 47 50 52 51 CXxgs 94 44 53 52 53 55 S9 6a 67 53 55 Fnut 30 31 30 31 32 35 36 372 39.8 2L. FLE NAMEFOODPER.WI -X tn

z.oZ-DZ X

BURUNDI LIVESTOCK(000 heads)

1980 1981 1982 1983 1984 1985 ------1986 1987 1988 1989 1990 __------__------Cattle 600 548 600 nla 415 378 479 422 429 423 430 Goats 731 737 750 n/a 798 747 723 762 778 838 920 Sheeps 330 304 n/a n/a 369 316 329 313 350 327 348 --T Swine 54 48 70 n/a n/a 60 77 80 115 91 110 Source: Ministryof Planning -It la BURUtNDI x '- FISHPRODUCTION Z0 z to ------______IC I- 1974 1975 1976 1977 1978 1979 1990 1981 1962 1983 1984 1965 1986 1967 1988 1989 1990 VOUME bndustlal 6.211 6.144 8,717 6.642 4.017 4.?40 6.202 4.118 3,641 3.199 3.454 2.591 2,333 1.963 1.545 1.784 1.769 A&Esarf 3.127 4.746 7,649 12jS53 10.017 4.756 8.565 5.687 4,461 3.147 2.879 2.691 4.176 2.925 4.946 10.336 14.498 TradikkxW 1.568 1,765 4.526 3.665 627 4.540 1.754 117 43 29 18 29 a6 125 121 186 173

TOW(tams) 10.906 12,655 21.092 23.160 14.661 14,036 16.521 9.922 8,145 6.375 6.351 5.311 6.55 5.013 6.612 12.306 16.440 VAWUE Indusal t06. 128 171 177 195 214 192 202 209 233 197 154 189 202 143 143 142 Arfbhan 45 52 101 181 150 208 110 4 236 209 171 182 275 273 419 600 1,318 Tr#iadonld 25 60 45 13 121 77 2 3 2 1 2 5 10 9 14 15 97

ToW (WmFBu) 176 240 317 371 466 499 304 209 447 443 370 341 474 484 576 956 1557 Saic. DGPA.EwFumion du PlanOunquwmal

an 96 A~~~~NNEX4 Table 7

I I 21l

I I

I I8

I I

*~ i i

I I

I lip I I

I I! I oo o oI

I i I

I I _

I _I

1IS a IZ 9URUNM EKPORTS(CURRB4T PRICES)

1979 t960 1961 1962 1963 1984 1965 low 1971 1966 1969 1990 1991 COFFEE (1) Vdakn M 27.137 18652S 27,106 30.461 24.85 29.001 34,401 28.281 30,578 35.052 32.225 32,196 36. UnitVaJimFB 317 283 219 232 263 342 337 430 284 416 371 286 342 - co Vdus uiao) &6.12 5.237 5.944 7.061 6.542 9.930 11.491 12.053 8.623 14.459 11.874 8A67 13.170 X .# TEA (2) Z D Vokau 1545 1.073 1.729 1,702 2.101 3.073 8,795 3.788 3.770 3.541 3.101 3.741 4M94 Ft1 U nitVakusQT g) 121 128 124 151 109 263 167 146 170 220 268 382 324 VaIu(F,u&6lw t65 136 212 255 226 864 630 550 642 779 69 1.426 1.610 COTTON VolmU ( 1.70 737 781 2.063 1,923 404 221 140 23 509 15 100 0 Lk*tVaku(FBukg) 113 139 144 106 130 203 192 144 157 216 209 240 0 ValusBuMio) 198 102 113 223 249 62 44 20 502 110 31 26 0 HDES Vakas 363 181 245 192 649 425 588 6S9 666 76 10 1106 766 U*LtVaki (Ffk 260 296 143 45 106 192 198 225 273 377 504 560 565 VakusFUuMio) 94 54 35 9 69 82 125 .151 182 296 509 581 434 OTMPFRAARY VokN. (I 1.,25 831 1.051 327 463 464 712 1.109 t1 3.681 4.467 2,875 2.0t1 U1Vdu( F9uAg) 155 296 247 238 420 669 705 437 376 116 132 202 286 VdusFlu) 206 246 260 78 203 311 502 482 397 427 591 560 576

vamn@ 963 136 139 2,79 2.066 427 .759 S 13.942 11.234 4.467 3.331 2,107 o ALMV&%(f&*o 5? 75 13 so 99 139. 191 125 114 91 146 213 305 Vak FlMb) aS 1 IS602 271 205 a6 716 1AS1 16 1.021 6M 711 639 OlHE AND RE-EPORr 207 407 217 688 234 t10 176 TOTAL VMfibMD) 9,950 5.'i16 6.744 7,697 7.495 11.626 13.715 14.744 12,161 17,460 14.795 12,424 16800

FBLsJSSfaNaj so 90 90 0 9Q96 119.71 120.69 114.17 1235 140.4 1w 171.8 1t6.S Sowc ftiu.ds Is PApubiqumdu, &uxm I1 FOBDw.S&1n 21 FOB Mcmbn 98 ANNEX4 BURUNDI TabLe 9 AgriculturalExports (Other than coffee, tea and cotton) 'TONNES)

1985 1986 1987 1988 1989 1990

Fish 1.0 1.0 1.0 2.0 2.0 2.0 Flowersand ornmental plants 221.0 323.0 229.0 366.0 548.0 403.0 Animals - - 5.0 - 2.0 4.0 Fruits and vegetables - 6.0 - 38.0 90.0 Rice - - - 855.0 2710.0 563.0 Pepper - - - - Palm oil - - - - - 175.0 Tobacco 154.0 - 531.0 924.0 824.0 724.0 Fabric 419.0 564.4 155.0 210.0 101.0 Cigarettes - - - - Cotton oil cake - 20.0 105.0 180.0 - Vegetable oils - - - - - Timber - - - - - Medecinal plants - - - - - Ecorce de quinquinna 18.0 64.0 47.0 69.0 248.0 30.0 Uvestock feed - - - 1077.0 205.0 Bee wax - - - - 4.0

Total 813.0 978.4 1073.0 3721.0 4734.0 source:(*) DGPAE:Evaluation du Ve Plan Quinquennal. BRB:Rapport annuel 1990(Declaration en douanes) Fielname:Nontradv.wk1 99 ANNEX4 Table 10

a 1 - a

a F

-ca _ - _, asg f

I I

I I

o j-

i ,

I~~, a i ! ! 100 ANNEX4 T&ble 11

ii

I *,

i o W3@ o @ 02boU *@ *

I~~~~~~~ c

I ! U-o@M-*i0- MEN I C 4 40 4 bF

*; ... 2 awi M4i hh4 , " ,

* C" 'a.@N o s0wi t k S0

|^; e S X| . X 5i ig {0 I -

I~ _i-3~~

*o ° -Wo*g2'iil

iON W!i0 403 :i5

ii ~ ~~~~ w 4 !f a.!XSe BUFUB Coon Ar. Production Yied. Prim

19s8 t981 tm 1963 1984 19S5 t986 1987 ts88 1989 1990 1991

Arm #A) 6.372 6.714 6.149 4.8S4 6.493 6.596 6.664 6.760 7.532 7.149 6.608 7,189 kibo- Nkx1h 2.144 2;290 2,319 t.467 2.071 2.143 2.019 11908 2,119 1.978 1596m 2.040 Ciwt 1.241 1;203 1.87 1.095 1,320 1290 1273 1.248 1.628 13'm 1.307 1S364 N Sbxdh 2.9J7 3.221 2743 2.272 3.031 2862 - 2J157 _844 2,877 2.724 2Z949 3.180 s - N,_m-Lc 20 71 192 326 412 519 553 289 338 X O k4mmID t t1089I9 346 369 524 467 257

Z D Nb^tbfidFmu 15.742 14.913 1408 127 14j501 1561 16.5i9 16.921 19.347 18.947 19.773 20.8X9

Pmdudsion(r 5.614 S6.39 5.701 4.738 6.56= 7.155 7.694 7.907 7J508 7.200 5.475 7,212 FiOu2f U5.33 6.422 5.412 4.577 6.446 7.024 7.756 7.834 7.458 7.200 5.458 7,179 SsmiQ_m 591 217 269 161 67 131 139 70 S0 0 17 4S

Ymfttqo* 68i on 927 97 1,006 1.085 1.1S 1.170 99 1,0D7 629 1.003

PFaAcon (A 2M015 2.341 2077 1.6 25t22 2.5es 3.115 3.070 2,959 29 2,182 2,906 FhdGufta th806 22800 9 1.6 22 2A532 8.04 3.08 2.99 2655 2165 2.668 So _dudly 09 81 100 S5 31 51 51 32 0 14 7 16

Gm gUca 35 35 AIS 3S 8 85 39 3 31 40 40 40

LoadSd 500 677 733 1.117 2,512 725 IM 2355 2.416 2.407 2.069 rmIas 737 781 2.069 112S 404 221 140 S203 110oI 100 0

Lawd cs(RuQi ) 143 112 t6S 200 177 168 173 165 195 240 1* EVMtpI=Fbilq s8 93 120 200 192 124 tS2 1S 273 :73 WA

FhOGuA 26 29 aS 35 35 35 35 35 40 40 40 a 8wiiQuNI 10 tO 10 10 10 10 10 10 10 10 10 10 RoduamprimaIdmnirw *nqAku4 Fkdua_y 7 8 82 so 8 8 8 8 97 a s9 101 100 100 124 SecndOu.% 26 28 27 28 28 28 25 2B 25 25 25 25 Soa FtoducdIm S,43S 4.126 S,479 2.90 4.043 4,997 4092 4.79S 47 4.202 8.184 4.201 4.572 4.779 4.637 4.54 4.331 CcnmAslaaipUicma I I I II PAM t FVwy 3W.974 4.262 4.205 4.0t2 8J739 2,a7 3.786 Book 311 328 452 368 414 305 403 AWiuFu.d 112 12 75 0 20 15 40 * Rdndss&nb AFE 6 6 6 6 a 9 9

Sawcs GdUw- aCdmfX3GBW% BURUNDI Tobacco: Area, Producticn,Yield, Egport

XC0

.Z X 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Bweyqtobaoc Area 0 10 44 87 200 273 4.33 Produdion (tonw) 0 570 5-,5 14 57 187 295 478 764 844 900 Yiddx 1,429 1,310 2,152 1,475 1,751 1,764 1,481 1,565 Plue cured tobacco Area 0 2 22 97 214 430 S08 300 507 Production 0 2 16 Ywilds 128 225 545 594 437 S18 1,000 1,310 2,152 1,051 1,267 1.169 1,457 1,022

Eaport (1eaves) Voluwvr(tmos) Vulue(Mio Fbu) 44 530 924 824 724 11 133 203 195 223 O Source BurundiTobacco Ompany '- x 0 BURUNDI z.o U- ~~~~~~~~~~~~~~~FEFMUZERS z s

1980 1981 1962 1983 1984 1986 1987 188 1989 1990 1991

Mtogen W500 900 3C0 737 421 Phosphate 67 5 4.701 300 100 400 87 87 80 877 2,771 46 5.455 Polasiw 100 100 400 219 293 82 16 147 1,964 379 CONeKs 2686 555 892 2,102 5.521 1,828 6.728 1.498 3.015 39 Tvdi Pts) 3.586 1.655 1,992 3.937 6.701 1,990 8.042 4.483 5.030 10.574 5.029 7.898 VALUE Nitogen 0.7 36.7 Phosp 18.4 2.8 0.6 31.5 10.7 5.0 44.8 34.3 36.2 3.6 62.0 137.8 136.0 0.3 Polasium 10.1 2.0 4.4 137.1 180.8 2.8 1.1 Oft"s 4.0 79.6 4.6 972 15.4 47.4 51.1 42.9 102.9 4102 67.6 103.6 641.6 T1 (Oft Flu) 118.0 22.4 97.3 259.2 259.9 109.3 491.7 212.2 319.8 678.0 35.0 272.0 en Soco: Mni*y dAWbAure6 DIR 0

-i~~. BURUNDI 104 Tbe1ANNEX4 Tabte 15 POPULATION 1990

Population Density

PROVINCE Bubanza 225,800 208 Bujumbura 596,200 300 Bururi 392,900 160 Cancuzo 142,200 73 Cibitoke 282,600 173 Gitega 564,100 286 Karuzi 301,700 207 Kayanza 443,700 360 Kirundo 404,600 238 Makamba 240,700 123 Muramvya 440,300 287 Muyinga 385,500 210 Ngozi 483,800 329 Rutana 198,000 102 Ruyigi 254,100 109 Total 5,356,200 207

Source: Ministre de l'Interieur '0 XG)X

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LOWIM AliWe _my Feb" Mawl APit may jut July Alm Sqpekber Ocu&. tb_inb (U) D_8., Yew Mmm mMor 3luUS&(B*Iubm) 8es 94 109 121 125 57 1t SsbEfaLomlmaimo) t250 5 11 37 64 lto 114 847 168 152 182 202 94 8 t H8bo&(K1sml) 2155 3 38 85 1Ut IS 1244 6 16 64 1t 174 189 1447

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