Report No. 49281 - TG

Public Disclosure Authorized Republic of Development Policy Needs Review

April 16 2008

World Bank Group Public Disclosure Authorized Africa Region AFC15

Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank

CURRENCY EQUIVALENTS (As of April 15, 2008) Currency = CFA Franc (CFAF) Unit US$1 = 415 CFAF

WEIGHTS AND MEASURES Metric System

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AFD Agence Française de Développement CRT Caisse de Retraites du Togo (Togo AfDB African Development Bank Pension Fund) APG Accord Politique Global CSR Country Status Report BAD Banque Africaine de Développement CWIQ Core Welfare Indicators Questionnaire BADEA Banque Arabe pour le Développement DCF Direction du Contrôle Financier Economique de l’Afrique DGI Direction Générale des Impôts BCEAO Banque Centrale des Etats de l’Afrique DGSCN Direction Générale de la Statistique et de l’Ouest de la Comptabilité Nationale BM Banque Mondiale DGTCP Direction Générale du Trésor et de la BOAD Banque Ouest Africaine de Comptabilité Publique Développement DRAEP Directions Régionales de l’Agriculture, BPEC Banque Populaire pour l’Epargne et le de l’Elevage et de la Pêche Crédit DSRP Document de Stratégie de Réduction de BTCI Banque Togolaise pour le Commerce et la Pauvreté l’Industrie DSRP-I Document de Stratégie de Réduction de BTD Banque Togolaise de Développement la Pauvreté Intérimaire CCIT Chambre de Commerce et d’Industrie du ECOWAS Economic Community of West African Togo States CEB Compagnie Electrique du Bénin EDIL Ecoles d'Initiative Locale CAS-IMEC Cellule d’Appui et de Suivi des EFA/FTI Education for All/ Fast Track Institutions Mutualistes ou coopératives Initiative d’Epargne et de Crédit EMICoV Enquête Modulaire Intégrée sur les CBMT Cadre Budgétaire à Moyen Terme Conditions de Vie des Ménages CDMT Cadre de Dépenses à Moyen Terme EU CE Commission Européenne FAO Food and Agriculture Organization CEB Communauté Electrique du Bénin (Organisation des Nations Unies pour CET Caisse d’Epargne du Togo l’Alimentation et l’Agriculture) CEDEAO Communauté Economique Des Etats de FCFA Franc de la Communauté Financière l'Afrique de l'Ouest Africaine CEET Compagnie Energie Electrique du Togo FED Fonds Européen de Développement CFAF CFA Franc FENU Fonds d’Equipement des Nations CFE Centre de Formalité des Entreprises Unies CNM Comité National de Microfinance FER Fonds d’Entretien Routier CNSS Caisse Nationale de Sécurité Sociale FIDA Fonds International de (National Social Security Fund) Développement Agricole COGES Comités de Gestion de la Santé FMI Fonds Monétaire International

ii FRPC Facilité pour la Réduction de la OPA Organisations Professionnelles Pauvreté et la Croissance Agricoles FUCEC Fédération de l’Union des OSC Organisation de la Société Civile Coopératives d’Epargne et de Crédit OTP Office Togolais des Phosphates GAVI Global Alliance for Vaccines and OTP/IFG Office Togolais des Phosphates / Immunization International Fertilizer Group GDP Gross Domestic Product PAL Port Autonome de Lomé GIRE Gestion Intégrée des Ressources en PASEC Programme pour l’analyse des Eau systèmes éducatifs GPS Global Positionning System (Géo- PEFA Public Expenditure and Financial positionnement par satellite) Accountability (Dépenses Publiques et HIPC Highly Indebted Poor Countries Responsabilité Financière) HIV/AIDS Human Immunodeficiency PEMFAR Public Expenditure Management and Virus/Acquired Immune Deficiency Financial Accountability Review Syndrome (Revue des Dépenses Publiques et de IADM Initiative pour l’Allègement de la la Gestion Financière de l’Etat) Dette Multilatérale PIB Produit Intérieur Brut ICAT l’Institut de Conseil et d’Appui PIBA Produit Intérieur Brut Agricole Technique PME /PMI Petites et Moyennes ICT Information and Communication Entreprises/Petites et Moyennes Technology Industrie IDA International Development PNASA Projet National d’Appui aux Services Association Agricoles IFAD International Fund for Agricultural PNDS Plan National de Développement Development Sanitaire IFC International Finance Corporation PNUD Programme des Nations Unies pour le IFG International Fertilizer Group Développement IMF Institution de Micro-Finance PPTE Pays Pauvres Très Endettés IMF International Monetary Fund PRGF Poverty Reduction and Growth I-PPTE Initiative en faveur des Pays Pauvres Facility Très Endettés PRSP Poverty Reduction Strategy Paper I-PRSP Interim Poverty Reduction Strategy PTF Partenaires Techniques et Financiers Paper QUIBB Questionnaire Unifié des Indicateurs ITRA l’Institut Togolais de Recherche de Base du Bien-être Agronomique SAZOF Société d’Administration de la Zone LGA Local Government Administration Franche MDG Milleneum Development Goals SIDA Syndrome Immuno Déficitaire Acquis MDRI Multilateral Debt Reduction Initiative SIGFIP Système Intégré de Gestion des MFBP Ministère des Finances, du Budget et Finances Publiques de la Privatisation SMP Staff Monitored Program MTEF Medium Term Expenditure SNI Société Nationale d’Investissement Framework SNMF Stratégie Nationale de la NGO Non-Governmental Organizations Microfinance NPV Net Present Value SNPT Société Nouvelle des Phosphates du OCDE Organisation de Coopération et de Togo Développement Economique SNU Système des Nations Unies OECD Organization of Economic SOTOCO Société Togolaise de Coton Cooperation and Development SWAP Sector-Wide Approach OHADA Organisation pour l’Harmonisation en TBS Taux Brut de Scolarisation Afrique du Droit des Affaires TdE Togolaise des Eaux OMC Organisation Mondiale du Commerce TFR Total Fertility Rate OMD Objectifs du Millénaire pour le TIC Technologies de l’Information et de la Développement Communication OMS Organisation Mondiale de la Santé UEMOA Union Economique et Monétaire ONG Organisation Non Gouvernementale Ouest Africaine UMOA Union Monétaire Ouest Africaine UNESCO Organisation des Nations Unies pour UNDP Development Program l’Education, la Science et la Culture UNFPA Fonds des Nations Unies pour la UNFPA Fonds des Nations Unies pour la Population Population UNICEF United Nations Children’s Fund UNICEF Fonds des Nations Unies pour US United States l’Enfance WAEMU West Africa Economic and Monetary UTB Union Togolaise de Banque Union VIH Virus de l'Immuno-déficience WHO World Health Organization Humaine

IDA Actg. Vice President: Hartwig Scaefer (AFRVP) Actg. Country Director: Antonella Bassani (AFTP4) Task Team Leader: Joseph Baah-Dwomoh (AFMBJ)

The following staff contributed in various ways to the preparation of the DPNR: Joseph Baah-Dwomoh (TTL), Yvette Dan-Houngbo, Emile Finateau, Andre Ryba, Giuseppe Zampaglioni, Michael Drabble, Mathieu Brossard, Kwabena Amankwah-Ayeh, Ayi-Klouvi, Patrick Verissimo, Abdoul-Wahab Seyni, Achille S. Toto Same, Nancy Benjamin, Eric Nelson, Brendan Horton, Christina Wood, Homa-Zahra Fotouhi, Aline Cabal, Chantal Tiko, Sonia Gnon Josiane Nieri, and Kathy Li Tow Ngow. Table of Contents EXECUTIVE SUMMARY ...... IV I INTRODUCTION ...... 1 II. THE ECONOMIC AND SOCIOPOLITICAL DEVELOPMENT OF TOGO...... 5 A. Political and Socioeconomic Background of Togo ...... 5 A.1 - Political Background ...... 5 A.2 - Socio-economic Background of Togo and state of poverty...... 7 B. Macroeconomic Background and Economic Recent Developments...... 10 C. Prerequisites for Sustained and sustainable Growth in Togo...... 15 III. THE PROBLEM OF THE ECONOMIC AND FINANCIAL GOVERNANCE IN TOGO ...... 21 A. Defective Management of Public Finances ...... 21 A.1 - Weaknesses in Budget Formulation Process ...... 23 A.2 - Major problems encountered in cash management by the Public Treasury...... 24 A.3 - Inoperative Controls by the Department of Financial Control ...... 24 B. Consolidation of the Financial Sector...... 25 B. 1- Banking Sector ...... 26 B. 2- Microfinance and Insurance ...... 29 B. 3- Social Security...... 29 IV. PROMOTING GROWTH THROUGH SOCIAL AND HUMAN DEVELOPMENT 31 A. Rehabilitation and Consolidation of the Health Sector ...... 31 A.1 - National Health Policy and the MDGs ...... 31 A.2 - The Health system: Structure, Management, Challenges and Weaknesses ...... 31 A.3 - Problem of Financing the Health Sector...... 33 A.4 - Necessary Measures to Improve the Health Sector ...... 34 B. Rehabilitation and Promotion of the Education Sector...... 35 B. 1- Combining the challenge of Intensifying Access and Improvement of the Retention and Quality in Primary Education...... 37 B. 2- Improving the quality and externa efficiency in Post-Primary Education...... 39 V. PROMOTION OF PRIVATE SECTOR FOR SUSTAINED GROWTH AND SUSTAINABLE DEVELOPMENT...... 42 A. Promotion of the Private Sector...... 42 A.1 - Key Constraints to the Renewal of the Private Sector in Togo ...... 42 A.2 - Financing of the Private Sector ...... 47 B. The Mining Industry...... 48 B. 1- Oil Products and Natural Gas ...... 48 C. Infrastructure...... 49 C. 1- Electrical Energy ...... 49

ii

C. 2- Hydraulic Infrastructure...... 50 C. 3- Maritime Transport...... 51 C. 4- Air Transport ...... 51 C. 5- Road Transport ...... 52 D. Service Industries...... 52 D. 1- Posts and Telecommunications ...... 53 D. 2- Insurance Services...... 53 D. 3- Tourism ...... 53 E. Urban Development ...... 54 E. 1- Priority Reforms ...... 55 E. 2- Medium and Long Term Actions...... 56 F.Agriculture and Rural Development ...... 56 F. 1- Structural Impediments to the recovery of the Agricultural Sector ...... 58 VI. STRATEGIC APPROACH FOR REFORM AND ECONOMIC RECOVERY...... 65 A. Reform of the Key Growth Sectors ...... 66 A.1 - Economic and Financial Governance ...... 67 A.2 - Social Development and Human Resources Sector...... 70 A.3 - The Private Sector ...... 71 A.4 - The Rehabilitation and Development of Infrastructure and Services ...... 73 A.5 - Recovery of the Agricultural Sector...... 75 B. Accompanying Measures...... 77

iii

EXECUTIVE SUMMARY

1. Togo is in the process of reengaging with its development partners. The aim of the Development Policy Needs Review (DPNR ) therefore is to help the country prepare for arrears clearance with the World Bank as well as other multilateral institutions, to help define a medium- term economic recovery program that would lead to the necessary resumption of financial support of the development partner community in order to revive the

2. Since the early 1990s Togo has experienced a series of political crises that have seriously hampered the development process, increased poverty and caused a massive reduction in foreign aid. Overall, the crises have had a strong impact on the economic situation and resulted in a very low level of economic growth well below the natural population growth. The economic recession and problems of fiscal and budgetary governance have resulted in low tax revenues and relatively high levels of public expenditures with as major consequences a high public debt and an accumulation of internal and external arrears. This situation has also had a negative impact on the banking system, particularly with regard to public sector banks, most of whose assets are in a critical situation.

The challenges of the Togolese economy

3. The analysis of the political, economic and social situation of Togo shows that, throughout the past fifteen years, problems of governance have posed by far the biggest constraint to economic development. The social and political unrests have also profoundly destabilized the national economy, thus aggravating the level of poverty of the population. It is also due to the political factors that caused this destabilization that the European Union and other key development partners suspended their cooperation with the country in the early part of the 1990s, depriving, at the same time, the national economy of its main sources of financing for public investment.

4. Togo’s GDP per capita fell steadily between 1990 and 2005 and the social upheavals of the 1990s have weakened the institutional capacity and have weakened the country’s capacity to formulate and implement viable and effective economic strategies.

5. The measures necessary for reforming and rehabilitating the largest state-owned enterprises have not been taken and where started, could not be completed, and the situation has therefore occasioned excessive economic losses for these enterprises.

6. The social sector has suffered from the social and political destabilization and mismanagement of the economy resulting in regular decreases in budgets allocated to human development and expenditures for socioeconomic infrastructure. This state of affairs has worsened the living conditions of populations.

7. If the Millennium Development Goals (MDGs) are to be achieved, this would require large amounts of external assistance. To obtain the required increase in the levels of external financing would demand a sustained effort in improved governance through sound management of public finances.

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8. The constraints to the development of the agricultural sector are numerous including unsuitable land tenure arrangements, inadequate water management and control, low access to funding, and low capacity of professional organizations, weak structure and organization of the rural population, and an inadequate extension and technical support for farmers. In addition, the low level of diversification of exports and dependence on a limited number of traditional products make economic activity very vulnerable to external shocks.

9. As for the industrial sector, it faces the problems of access to finance from a banking system that itself has an urgent need to be restructured, the problems of low investment, and the high cost of factors of production;

10. To improve productivity in the secondary sector and support industrial production, a speedy and lasting solution to energy problems must be found. While Togo is rightly concerned about high dependence on external energy and is seeking to diversify this, the solution needs to be sought as part of the overall regional power pool and its management in order to reduce the unit costs of energy produced.

11. In the management of public finances, human resources management remains one of the major challenges to the implementation of reforms of public financial system. In addition, it is difficult for the Treasury to establish a real situation of the net position of government in the banking system because payments by financial authorities were neither fully paid into the accounts of the Treasury nor paid on a regular basis. However, much progress has been made to correct this deficiency.

12. Financial controls over budgetary expenditure are not very effective in Togo. The financial controller has no tools to determine whether prices proposed by suppliers are reasonable or acceptable. The state budget is not prepared in a unified manner in Togo and there are no appropriate instruments such as Medium Term Expenditure Frameworks (MTEF) to facilitate the budget preparation,

13. A number of the commercial banks remain in difficulty and require financial and organizational restructuring. These banks have difficulties in meeting the prudential standards; several of them have negative equity. The large Togolese government internal debt and arrears to local suppliers and service providers have helped exacerbate the precarious situation of banks. The success of a restructuring of the banking sector of Togo, as described in this report, is essential and urgent for a return to an efficient, viable, and profitable banking sector. The withdrawal of the State from the management of banks and the privatization of these banks will strengthen their financial situation and resolve existing governance problems.

14. While the microfinance sector is relatively healthy in Togo and plays an important role in providing access to financial services, there is a need to strengthen the supervision and oversight structure for the sector. The crucial problem of the Post office is the weakness in financial accounting, which considers deposits from customers as its income. The Pensions Fund of Togo (CRT) and the National Social Security (CNSS) institutions are also facing financial difficulties.

15. The health system in Togo is characterized by a notable lack of staff; moreover, health coverage is only apparent. There are several challenges to be removed for a significant improvement in access to services. The health budget barely covers 1/3 of the cost of the minimum package of activity. The education sector is not better off with shares of budgets steadily declining.

v 16. Despite the reforms and measures taken to support private initiative, it is clear that this sector is hampered in its growth by many problems of institutional, regulatory, legal and judicial, market, production, marketing, access to financing, and competitiveness nature.

Priority reforms to revive the economy

17. Faced with the very bleak diagnosis described above, urgent actions must be carried out by the government to revive the economy:

18. The reconstitution of a stable macro-economic framework and restoring basic services would require Government to strengthen fiscal management and provision of resources for essential expenditures for health, education and agriculture support services as well as infrastructure, in order to rehabilitate and restore the productive capacity of the country.

19. One of the priorities of Togo is to improve the business environment to support private sector-led growth and attract foreign direct investment.

20. Regarding energy, varying supply sources and ensuring routine maintenance of thermal power will alleviate the crisis that the country has known these last two years. Similarly, urgent actions must be taken to meet the needs of the population for drinking water and water needed for production.

21. The main sources of growth in the country will also have to be revitalized. The restructuring of the phosphate sector is urgent to avoid total loss of the initial investment, and restructuring the cotton sector will help restore confidence among producers and stimulate production.

22. The State should provide incentives to accelerate the development of ICT (Information Technology and Communication) 23. A lot of attention must be paid to the road infrastructure to provide the base for a sustained investment. Likewise, land issues in urban areas need a lot of reforms to remove the major constraints which have become structural. The effective implementation of a decentralization for administration will strongly contribute to the success of certain types of reforms.

24. The establishment of an effective information system on the markets for agricultural products, and that of agricultural statistics will provide a better visibility of the situation in the sector.

25. The control and improvement in the quality of products would be necessary to avoid unnecessary losses and damage.

26. The strengthening of Agricultural and Producer Organizations and the review of the legislative framework will provide a remarkable advance that will allow strengthen the effectiveness of the actions of these associations.

27. The development of agricultural mechanization (especially through animal traction) and conservation and transformation will improve the competitiveness of the sector. This competitiveness will be further boosted with the opening up of agricultural areas. The appropriate development of the sectors of animal husbandry and fisheries will provide an alternative means of supporting growth in the agricultural sector and moving towards self sufficiency.

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Introduction 1. The objective of this report is to conduct a structural and macroeconomic assessment of the current situation in Togo in order to identify sectoral priorities, as the country prepares to once again reengage with the international financial community and with its development partners. The Development policy needs Review (DPNR)1 will seek to inform a strategy for the resolution of Togo’s arrears with the World Bank (International Development Association - IDA) and underline the necessary resumption of economic and financial support of the International community that would help a sustained and sustainable growth, aimed at reducing poverty.

2. Since the early 1990s Togo has experienced a series of political crisis which has seriously hampered the development process, increased poverty and caused a massive reduction in foreign aid. Overall, the crises have had a strong impact on the economic situation and resulted in a very low level of economic growth well below the natural population growth. The economic recession and problems of fiscal and budgetary governance resulted in low tax revenues and a relatively high level of public expenditures with as major consequences a high public debt and an accumulation of internal and external arrears. This situation has also had a negative impact on the banking system, particularly with regard to public sector banks, most of whose assets are in a critical situation2.

3. Since the beginning of the 1990s, the democratization process has been marked by socio- political unrest which culminated in 1992-1993, with a general strike which lasted nine months, leading to a deteriorating economic situation exacerbated by the suspension of cooperation between the European Union and other development partners because of the lack of democracy.

4. The analysis of the political, economic and social situation of Togo indicates that problems of governance have by far been the biggest bottleneck for economic development throughout the past fifteen years. Indeed, the process of democratization in the early 1990's, generating unprecedented social and political unrest, profoundly destabilized the national economy, thus aggravating the poverty of the population. It is also due to the political factors that caused this destabilization that the European Union and key development partners suspended their cooperation with the country in the early part of the 1990s, thus depriving, at the same time, the national economy of its main sources of financing public investment. The quest for peace, stability and security through dialogue and consultation instead of confrontation appears to be one of the most important prerequisites for the country's recovery3.

5. The macroeconomic situation in Togo in recent years has been characterized by instability due to its economic decline and suspension of financial assistance from its main development partners since the early years of the past decade. The decline also came from the serious difficulties in economic and financial management. After the multiparty political agreement of 20th August 2006, a new government was formed to organize the first free parliamentary elections that took place in October 2007. The government also pledged to take

1 Development Policy Needs Review 2 Interim Poverty Reduction Strategy Paper (IPRSP). 3To get out of this political, economic and social crisis, the Government has, since 2005, undertaken significant reforms designed to calm the political climate. It is within this context that we must place the signing in August 2006 of the APG, which has led to significant progress

1 appropriate measures in consultation with its development partners in order to launch economic reforms in the country.

6. Improved political and economic governance would have to derive from a process of national reconciliation and political reforms, strengthening of the rule of law and security of people and goods, administrative reform, justice reform, decentralization and land use planning, reorganization of the system of public finance management, public procurement reform and the recovery of productive activities which can lead to growth..

7. GDP per capita fell by almost 1 per cent per annum on average between 1990 and 2005. Political unrest, problems of governance and profligacy in the management of public enterprises were at the heart of the economic problems of Togo. The weaknesses noticed in the budget implementation procedures, in particular the lack of transparency in the use and monitoring of public finances, have negatively affected the economy as a whole. The political conflict and social upheaval of the 1990s have weakened the institutional capacity and prevented the adoption and implementation of any credible economic policy.

8. The weak economic performance in recent years is due to the sharp decline in agricultural production, particularly that of cotton which fell by almost 60% in two years due to strong disincentive among producers who were not paid for previous seasons by the Togolese Cotton Company (SOTOCO). The production of phosphate, another important export product, has also declined sharply. The economic crisis of 2005 had as its main consequence the drop in tax revenues compared to that of earlier years, while current expenditure rose to 135% of the estimated level. Capital expenditure - relatively increased in 2004, but not very significantly compared to the needs.

9. The weakness in expenditure management combined with the lack of financing, including development aid, have penalized the social sector and contributed to the chronic accumulation of arrears, and an incomplete implementation of the budget. Suspension of foreign aid has resulted in a reduction of expenditure in the areas of health, education, and basic economic and social infrastructure.

10. For Togo to rebuild a stable macro-economic framework it will have to strengthen fiscal management and provide secure funding for essential expenditure in health, and education, and provide support services to agriculture and infrastructure, in order to rehabilitate the productive capacity of the country. Fiscal management would require reforms that would help increase tax revenues and in the same vein, improve the budget process and cash management. The government will also need to stimulate the main sources of growth, including agriculture and mining sectors for higher growth and widen the tax base.

11. In 2006, in order to assist the government to improve management of public resources, the World Bank conducted a Review of public expenditure management and government financial management (PEMFAR4) and a review of the financial sector in Togo. Both reviews proposed a set of reforms aimed at restoring the economy, including improving governance and transparency in public expenditure management. In addition, the government implemented in 2006, a nine-month programme of macroeconomic reforms as part of an International Monetary Fund (IMF), Staff Monitored Program (SMP).

4 Public Expenditure Management and Fiduciary Assessment Review 2 12. The achievement of the Millennium Development Goals (MDGs) would require significant external aid. For example, just to reach the regional average of external financial assistance for funding social and capital expenditure, Togo must be able to obtain three times the level of foreign aid that it had in 2006. This would require the finalization of the interim Poverty Reduction Strategy Paper (I-PRSP) and a sustained effort to promote governance through sound management of public finances. The assurance of the reengagement of Togo’s development partners, and the successful implementation of the SMP5 with the IMF and the establishment of a mechanism for settling arrears with multilaterals would qualify Togo for a financial programme with the IMF through the Poverty Reduction and Growth Facility(PRGF), and in turn, would ensure its eligibility for the Highly Indebted Poor Countries Initiative (HIPC) debt reduction program, and a further reduction through the Multilateral debt Reduction Initiative (MDRI6).

13. Togo is today facing socio-economic difficulties for which there is an urgent need to provide appropriate solutions. After the introductory part, the study presents in the second part, the political and socio-economic developments in Togo. The third section describes the economic and financial problems inherent to major Togolese economy. As to the fourth part, it provides information on the weaknesses of social and human development in Togo as well as the necessary reforms in the sector. Part five reviews various policies and strategies implemented to promote the private sector, then propose reforms priority to revive the economy. The final section examines the institutional and regulatory issues, and makes recommendations for revitalizing the economy.

5 Staff Monitored Program 6 Multilateral Debt Reduction Initiative 3

The Economic and Sociopolitical Development of Togo 14. Because of the long political crisis that affected the country for over a decade, the development of Togo has registered a significant decline. In 2004, the Human Development Index (HDI) of the United Nations Development Programme (UNDP) had experienced a significant decline reaching 0.495, a level lower than that achieved in 1990 which was 0.5.

A. Political and Socioeconomic Background of Togo

A.1 - Political Background 15. The political history of Togo has been punctuated right from independence by periods of major upheavals, with the assassination in 1963 of President in a coup d’etat carried out by the army. His successor, , was also overthrown in 1967. A National Reconciliation Commission was set up only to be ended quickly by a military government with as President, Colonel Etienne Gnassingbe Eyadema in April 1967. The latter established a single party state from 1971, the Rassemblement du Peuple Togolais (RPT). With the advent of democracy in Africa however, and a following long period of socio-political crisis, General Gnassingbé Eyadéma organized in 1991, a national Conference which should have paved the way for democratic change and the establishment of a transition government with the participation of opposition parties. Unfortunately this conference did not yield the expected solutions and the situation deteriorated resulting in riots, social unrest and widening political differences.

16. Following presidential elections in August 1993, General Eyadema was re-elected President of the Republic. These elections were boycotted by the opposition and only 30% of the electorate voted. Legislative elections were held in 1994 after several postponements and this led to the victory of opposition parties which won more than half of the seats, despite the boycott of the country’s main opposition party led by , who considered the elections to be neither free nor transparent. President Eyadema’s party was however able to maintain a parliamentary majority favorable to him by forming a coalition with one of the opposition parties where he named the leader, , head of a government largely dominated by RPT party members.

17. In 2004, under Article 96 of the Convention between the European Union (EU) and the African/Caribbean/Pacific, and to ensure the resumption of its financial relations with Togo, the European Commission (EC) concluded an agreement with the Government of Togo aimed at facilitating a more satisfactory functioning of democratic institutions in the country. While according to the EC Togo had made significant progress at the end of 2004, it conditioned the full normalization of its relations, on the one hand on the establishment of a national political dialogue with the participation of all political parties and, on the otherhand , the holding of credible and transparent legislative elections.

18. Following the death of President Gnassingbé Eyadéma in February 2005, his son Faure Essozimna Gnassingbe succeeded him after the presidential election held on April 24, 2005. The skirmishes that followed these elections saw a resurgence of tensions. To comply with the terms of the 22 commitments of the agreement with the EC, a political dialogue was launched with the signing on August 20, 2006, of a "Global Political Agreement” (APG) between the presidential

5 party, opposition parties, and civil society. The agreement called for the establishment of a transitional Government and an independent national electoral commission that would facilitate the holding of free, fair and transparent legislative elections.

19. The Agreement provided for: the establishment of a new after a transparent, fair and democratic electoral process; measures ensure security, human rights, and the rights of refugees and displaced persons; and the pursuit of institutional and constitutional reforms necessary for the consolidation of democracy, the rule of law and good governance, and the formation of a government of national unity.

Political Stability

1996

1998

2000

2002

2003

2004

2005

2006

0 5 10 15 20 25 30 35 40 45 50

Political stability (percentile rank 0-100)

Source: 2007 Worldwide Governance Indicators

20. Similarly, economic performance in Togo has been very uneven from the 90’s and has followed a similar trend as the country's political trajectory. The period of strong activity (1994- 1997) which recorded an annual growth rate of 8% on average coincided with the improvement of political conditions, the establishment of an important programme of stabilisation and a partial resumption of foreign aid. In contrast, periods of decline corresponded with periods of political disturbance, mismanagement of the economy and suspension of financial aid by donors. These include: the 1991-1993 period which saw an average negative growth of -6.6%; the 1998-2001, which was also a phase of recession, albeit to a lesser extent (-.75% ); and finally the years 2005- 2006 during which there was a low-growth, of around 1.3%.

6 Togo: Taux de croissance reelle (1991 - 2007) 20

15

10

5

0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -5 T

a -10 u x d

e -15 c r o i s -20 s a n

c Taux de crissance e

Source: World Bank, IMF Staff and Togolese Authorities

A.2 - Socio-economic Background of Togo and state of poverty 21. Given that poverty data that dated back to 1987-89 for Household Budget Survey (HBS) and to 1995 for qualitative data on poverty, a survey on the perception of poverty conducted by the University of Lomé and a CWIQ-type survey (Core Welfare Indicators Questionnaire) was conducted in 2006, with the objective of providing recent indicators, reliable and sufficiently disaggregated for analysis.

Table: Evolution of Human Development Indicator (HDI)

0.540 0.520 0.519 I 0.51 0.512

D 0.5 0.500 0.495 H 0.480 0.474 0.460 0.440

Years

HDI

22. According to the CWIQ survey results, poverty affects a large number of Togolese people. The incidence7 of poverty is estimated at 61.7%. In addition, 79.9% of the poor are found in rural areas. In geographical terms, the poor population is concentrated particularly in the seaside and Plateaux regions which bear alone have a little less than half the poor population (44.6%). The incidence is particularly high in Central and Kara regions. The region of Savanes has the highest incidence at 90.5%.

7 The number of persons living below the poverty line. 7 Incidence de la Pauvreté par Localisation

100 90 80 70 60 Incidence de la 50 Pauvreté par 40 Localisation (en %) 30 20 10 0

L o M m P E a l M é r a M n it te il s im a il ie e ie m e u u C x u r b u u l e r e n rb a Source: 2006 CWIQ Survey.tr a l a in le

K a r S a a v a n e s

8 Togo: Social and Poverty Indicators (in percentage terms, unless otherwise indicated, and according to the latest year for which data are available)) Indicator Togo Sub-Saharan Africa Population (in millions; 2006) 5,34 702,6 Population Growth (2006) 2,4 2,1 GDP per Capita (in US$; 2006) 340 490 Life expectancy at birth (age; 2006) 57,5 45,8 Infant mortality rate (per thousand; 2006) 77 102 Infant and child mortality rates (per thousand ; 2006) 123 173,9 Maternal mortality rate (per 100.000/live births; 1998 - 2003) 478 920 Prevalence rate of HIV / AIDS (percentage of the sexually 3,2 7.2 active population; 2006) Literacy rate (percentage of the population, 2003 59,6 64,9 Enrolment rate in schools (percentage by age group; 2004) 97,1 87 Male 101,5 94 Female 92,3 80 Population density (number of persons/km2 94,3 29,2 Sources : World Bank ; African Development Indicators ; World Development Report ; UNESCO database ; and Togolese Authorities

23. The surveys show that in the health sector, mortality is higher among women than among men. The vulnerability to poverty of a sick person is greater in rural than in urban areas outside Lomé. Access to health facilities varies widely depending on the region and the state of poverty; 3/4 of the people in urban areas have easy access to a health facility, against only half of the people in rural areas. The infant mortality rate8 stands at 77 %o 9 , while the child mortality rate is 123 %o 10. The probability of death before the age of five is about two times higher in rural than in urban centres.

24. Employment status also has a strong relationship with the probability of being poor because of the economic dependency that it implies. Even though the surveys point to a relatively low unemployment rate in the country, underemployment or disguised unemployment is a fairly widespread phenomenon (26.1%), tending to hide the true face of unemployment in Togo. Unemployment has been on the rise in cities and especially among young people.

25. The fundamental constraint to reducing poverty in Togo is primarily the lack of wealth creation. Over the past ten years, economic growth has been higher than the population growth rate of 2.4% in only two years11. A previous report of the World Bank on poverty assessment had reported other major difficulties in reducing poverty which are still valid: these are high population growth rates compared to the pace of economic activity, significant budgetary constraints resulting from weak economic performance, an uneven budgetary allocation vis-à-vis the rural sector, very weak infrastructure in rural areas and lack of jobs in urban areas. The people themselves define the constraints to reducing poverty as the lack of social protection for the elderly, lack of access roads in production regions, land insecurity, uncertainty in agricultural

8 Having 1 year 9 77 per thousand 10 Chances of dying before the age of 5. 11 In 1977 : 3.8% and 2003 : 5.2% 9 production, and high vulnerability to the vagaries of climate12. For the Togolese people, several reasons, both external and intrinsic, explain the deterioration of their living conditions and poverty. The chart below shows some of these reasons that came out during the study on the perception of poverty in 2006.

Togo: Raison de Dégradation des Conditions de vie entre 2000 et 2006

Problèmes économiques

Problèmes de santé

Problèmes de gouvernance (politique et économique)

Taille de la f amille

Problèmes familiaux

Autres raisons

Pas d’autres raisons

0 5 10 15 20 25 30 35 40 45 50

Première raison Deuxième raison Source: Study on the poverty perception in Togo, URD-2006

B. Macroeconomic Background and Economic Recent Developments

26. Togo, a low-income country is classified by the World Bank as being a fragile state, because of the precariousness of its development regularly interrupted by socio-political unrest. Primary agricultural production occupies an important place in the economy making up 40% of GDP. The sector uses about 70% of the workforce and is dominated by food crops and characterized by small farms. The main crops are cotton, coffee and cocoa whose yields are largely dependent on the weather, on fluctuations of international market prices, the presence of parasites and the question of internal management of the sectors. The secondary sector seems relatively more balanced unlike many Sub-saharan African countries with about 20% of GDP.

27. The formal industrial fabric is composed mostly of small businesses. Manufacturing and mining are reasonable, supported by a fair transport system and dynamic services. The institution of the free zone encouraged investment in the industrial sector and increased exports. The informal sector is well developed as in all countries of the subregion.

28. For over a decade, the Togolese economy is at a standstill and is struggling to find a way to grow. The relative good years during which the improvement of the political situation, combined with gains of the devaluation of 1994 propelled economic growth to over 7% on average, were only very short-lived. On average, the annual growth rate in the 1990’s was only 1% and this trend can only be reversed if bold actions are carried out in the near future.

12 World Bank, Lomé : Sortir de la Crise, sortir de la pauvreté, 1996. 10

29. The low dynamism of the economy and the persistence of socio-political crises have undermined the finances of the Government. The suspension of international aid made it difficult to finance government deficits, resulting in the accumulation of important domestic and external arrears and non-renewal of investments in public sectors. The social and political unrest led to the contraction of formal activity and encouraged the expansion of the informal sector, which has led to a significant fall in government revenues and deterioration of the internal deficit. In order to ensure minimum public service, large state-owned enterprises were asked to make advances to the Treasury. Governement banks were also obliged to contribute to public financing. As a consequence and also as result of poor management, the difficulty of companies to meet their financial obligations contributed to the accumulation of arrears on suppliers and the banking system. This resulted in a contraction of the activities of these companies, resulting in substantial shortfalls in their contributions to government revenue. Similarly, large companies have become loss-making and instead of paying taxes on profits, they are now subject to the payment of minimum lump sums, which accentuates losses vis-à- vis government revenue.

Gouvernment efficiency

1996

1998

2000

2002

2003

2004

2005

2006

051015 20 25 30

Gouvernment efficiency (percentile rank 0-100) Source: 2007 Worldwide Governance Indicators

30. In addition, the Governement was unable to carry out in-depth reforms in its larger companies in the areas of cotton, phosphates and the Port Authority of Lomé. Most of these companies representing the mainstay of the economy have found themselves in difficulty as the Togolese economy went through a series of recessions, which deepened with the continuing deterioration of the economic fabric and the difficulties of renewing investments

31. In terms of public expenditure in the last ten years, investment and expenditure allocated to social sectors have experienced small increases, on average one percentage point each year. Education expenditure has followed a downward trend; those of health were just maintained. Investment costs have been more severely compressed due to budgetary adjustments. In 1998,

11 investment expenditures accounted for 18% of public expenditure. In 2004, only 10% of expenditure was devoted to investment

32. The country is a WAEMU member and, as such, should strive to reach the convergence indicators agreed on for the zone. Since 1998 when the Union started carrying out multilateral surveillance, Togo has generally complied with one or two of the eight criteria. Inflation was usually controlled within the limits of 3%13, thanks to a common monetary policy. The basic budget balance was positive from 2001, but this result is only apparent, given that interest payable on debt were almost no more honored by the budget.

33. Some minor economic recovery seems to be underway, with a growth rate of 4.1 per cent of GDP in 2006 and estimated at 2.1 per cent for 2007. Following the economic crisis of 2005, growth in 2006 was supported by the trade and services which limited the negative impact caused by the crisis in the cotton sector and daily cuts in electricity. In 2007, the expected rebound in cotton production following the payment of arrears to the producers did not materialize because of late payment of the last installment. The production decline in cotton, combined with the continuing energy crisis for more than half of the year, explains the decline in real economic growth in 2007. After the inflationary trend in 2005, inflation fell to 2¼ per cent in 2006 and 1.0 percent in 2007.

Togo: Taux de croissance reel (2003 - 2007)

6

5

4

3

2

1

0 2003 2004 2005 2006 2007 Annees TX % PIB Source: Worl Bank and IMF Staff

34. The balance on current account was in deficit by about 6 percent of GDP in 2006, due to the increase in oil prices coupled with a decline in exports, particularly cotton. The deficit on current account was expected to stabilize however at the same level in 2007. The external competitiveness has been hampered by the continuing appreciation of the euro (and hence the CFA franc) against the US dollar, the abnormally high level of oil prices and lower export prices. The resumption of sustained growth and reducing external imbalances will require strong measures to restore external competitiveness. The collapse of both traditional export sectors, namely cotton and phosphate is due to deteriorating terms of trade, poor sectoral policies, poor governance and losses and accumulated arrears in the public monopolies. The real competitiveness has also been hampered by the deteriorating infrastructure and poor business climate.

13 Exception in 2005, particularly with the increase in petrol prices. 12

Togo : Current account balance

0 -1 -2 -3 Current account balance -4 GDP % -5 -6 -7 -8 2003 2004 2005 2006 2007

Source: World Bank, IMF Staff andTogolese Authorities.

35. Togo has been also in a state of non-accrual with the International Development Association (IDA14) since May 2002, which resulted in a substantial accumulation of arrears amounting to about 135 million U.S. dollars as of the beginning January 2008.

36. The public debt of Togo, including arrears, was estimated at 2.3 billion U.S. dollars at the end of 2006, corresponding to 103 percent of GDP. The external debt was estimated at 1.8 billion U.S. dollars (or 81 per cent of GDP) and is due mainly to the World Bank and Paris Club creditors (about 0.7 billion dollars). The arrears so far represent almost one third of the total external debt. The debt of Togo to IMF is relatively modest (8.5 million at the end of 2006), since Togo has remained current on its debt to the IMF.

37. Togo is clearly in a situation characterized by excessive debt and is unable to honor its commitments with most multilateral creditors to the exclusion of the IMF, as well as with several bilateral creditors. At the end of 2006, the ratio of net present value (NPV) of external debt relative to exports was estimated at 163 percent and the ratio of the NPV of debt relative to income is estimated at 388 percent, in both cases well above applicable indicative thresholds.

38. One of the priorities of Togo is to improve the business environment to support private sector-led growth and attract foreign direct investment. Even in considering all the regional standards which are relatively low, international studies show that the business environment in Togo remains below regional standards, particularly in respect of governance indicators.15.

14 International Development Association (a branch of the World Bank Group that gives loans to poor countries) 15 The recent publication of good governance performance indicators:: Governance Matters 2007 of the World Bank Group confirms that governance in Togo remains a challenge. With the exception of political stability that has demonstrated modest improvement since 2005, all other indicators have been on the decline since 1996. They include in particular, the rule of law, the perception of corruption, government efficiency and effectiveness as well as impunity and the notion of accountability. From the good governance indicators, it is clear that accountability is very weak in Togo.. 13

Source : IMF article IV 2007.

39. Substantial external assistance and an overall reduction of debt under the HIPC initiative will be needed to support the strategy of economic recovery and reform in Togo. The suspension of foreign aid and disengagement of the international community over the past ten years have weakened the government institutional capacity, exacerbated the provision of basic services in education and health, and severely eroded the quality of public infrastructure.

14

Togo : Selected Economic Indicators (2003-2007) 2003 2004 2005 2006 2007 (In percentage terms, unless otherwise indicated) Actual GDP 5,2 2,3 1,2 4,1 2,1 Actual GDP per capita 2,4 -0,3 -1,3 1,5 -0,4 GDP Deflator -9,9 2,8 7,4 0,2 0,9 Index of consumer prices (annual -0,9 0,4 6,8 2,2 1,0 average) GDP (in billion FCFA) 972,7 1.023,3 1.112,7 1.159,9 1.194,9 (percentage of GDP, unless otherwise indicated) Gross domestic investment 10,8 11,1 12,4 16,8 12,5 Gross National Savings 7,2 9,6 6,6 10,8 6,1 Total revenues, including grants 17,6 17,5 16,9 18,3 18,7 Total income, excluding donations 17,0 16,8 15,7 16,9 17,1 Expenditure internal primary 12,5 13,6 16,2 15,6 16,9 Overall balance (cash basis) 2,4 1,0 -3,6 -3,9 -3,5 Primary Balance 4,5 3,2 -0,5 -1,1 0,0 Current Balance 16 -3,7 -1,5 -5,3 -6,0 -7,3 Exports (goods and services) 43,3 41,2 40,3 42,3 42,0 Imports (goods and services) 57,3 56,2 57,6 61,8 62,4 Sources: Togolese authorities; estimates and projections of the staffs of the World Bank and IMF 2006 and 2007 reflect the objectives of the SMP; scenario of reforms and 2007 budget

C. Prerequisites for Sustained and sustainable Growth in Togo

40. The continuing problems of the Togolese economy result largely from the poorly diversified export structure and dependence on a limited number of products that make the economy highly vulnerable to external shocks. The dynamism of the years 1980, which gave the export sector considerable weight, about 45% of GDP, was snuffed and exports accounted for no more than 30% of GDP in 2001. In 1998, phosphate, cotton and coffee and cocoa accounted for 80% of total exports. In 2003, data from the BCEAO show that these accounted for less than a third of export values.

41. In addition to the issue of economic and financial governance as well as social and human development, Togo should also confront other major challenges before it can sustainably boost its economy. In this regard, it would be necessary to modernize the economy as well as the factors of production in the key sectors of the Togolese economy. This includes mainly: (i) improving the business environment for private sector development, (ii) the implementation of structural reforms in public enterprises and in banking and financial sector; (iii) the reorganization of the growth-inducing sectors (energy, land transport, port and telecommunications), and (iv) the revival of the agricultural sector.

42. Phosphate Sector: Togo produces good quality phosphate, but difficulties of outdated operating equipment and problems of poor management of the company have resulted in sharp contractions in output. In 2001, production fell to its 1966 production level. The joint-venture agreement which was signed between the Office Togolais des Phosphates (OTP) and

16 Current account Balance 15

International Fertilizer Group (IFG), the private partner in September 2001, lasted only two years and proved to be a failure. During the period, investments were put in place for urgent rehabilitation of the operating equipment, but the resources seemed to be less than the needs of the sector. In addition, weak international prices of phosphate, especially between 2003-2006, contributed to a considerable reduction in export earnings. During 2005, receipts from phosphate exports represented just about a third of export receipts in 1998. While phosphate receipts also contributed to 37% of export earnings in 1998, in 2003, it accounted for only 8%. The sector has thus accumulated continued operating losses since 1999. This situation is exacerbated since 2006 because of the persistent energy crisis and the inability of the company to finance regular maintenance of its equipment.

43. Attempts at financial restructuring in the phosphate sector have led to debts to the banking system, contributing significantly to the deterioration of the situation of local banks. However, the phosphate industry has had satisfactory performances in the past and remains a potentially important source of export revenue and growth.

44. Cotton Sector. After reaching a record of 187,700 T in 1998, the cotton sector has experienced difficult times since 2005 with a collapse of production of around 60%. The problems of governance of SOTOCO, added to the volatility of international prices of fiber and the late payment or even sometimes the non-payment of the purchase of cotton seed to producers, have led to a lack of interest in the crop and oriented producers to other crops. Between 2001 and 2005, revenues in the sector declined by 50% overall. The state floated bonds on the regional market in order to raise funds to pay the outstanding debt of SOTOCO to farmers amounting to about 23 billion CFA francs, but the partial settlement of CFAF 18 billion that had been made to farmers as of the beginning of the 2007/2008 season date was still not enough to restore farmers’ confidence and revive the sector. Yet the cotton sector is one of the main sources of income for the rural area and has been very effective in reducing poverty especially in rural areas.

Togo: Evolution de la Production du Coton 1996 - 2006

200 180 160 140 120 100 80 60 40

P 20 r

o 0 d

u 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 c t i

o Coton (milliers de tones) n e Sourcen : World Bank Staff and Togolese Authorities m i l

l i e r s d e t o

45.n Coffee/Cocoa sector. The liberalization of the coffee/cocoa sector has not had the e expecteds positive impact on the production of these cash crops and their contribution in export earnings has eroded. Far from reaching their relative high levels of production of 1998, these crops have registered a very steep decline since 2001. Cocoa has lost more than 50% of its production between 2001 and 2005, devastated by a new parasitic disease. However, thanks to high prices on the international market, cocoa revenue improved by 25% over the period. Coffee prices have not been as favorable and hence revenues have been reduced by 90% over the period.

16

Tableau: Evolutionof other main export Cultures

Productions35 (Milliers T)

30

25

20

15

10

5

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Années

Cafe Cacao Palmiste Source: Bank staff and Togolese Authorities.

46. The mining industry has witnessed a remarkable rise because of the exploitation of clinker. Its production reached more than 50% of the mining industry in 2005. However, difficulties in energy supply contributed to a decline of approximately 25% of production in 2006.

47.It would be important to cope with the persistent constraints to agricultural development. These include inadequate land tenure arrangements, lack of water control, low funding and low capacity of agricultural professional organizations, the weak institutional organization of rural areas, inadequate support services capable of inducing changes in farming methods, and lack of basic statistics.

48. The growth of the industrial sector also faces problems of financing from a banking system poorly adapted to the financing needs of the economy, high cost of credit, low investment levels, and high cost of factors of production; in other words productivity in the industrial sector would have to be improved. Togolese industry is also poorly integrated with the rest of the economy, the main raw materials used are imported and in terms of capacities, industries are not operating at full capacity.

e Compared Exports revenue Structure

m (1998 et 2003) o c n i 40 37.4 36 n i 35 s t

c 30 29.1 u d

o 25 r p

f 20 16.7 Structure des o Recettes d’Exportation e 15

r en 1998 a

h 10 8.4

S Structure des 5 2.7 Recettes d’Exportation 0 en 2003 Phosphate Ciment et Coton clinker Produits à l'Exportation

Source: World Bank and Togolese Authorities

17

49. To improve productivity in the secondary sector and support industrial production, a speedy and lasting solution should be found to energy problems. The importation of electricity supply remains very high in Togo. In 2005, the country depended on external electric importations for ¾ of the consumption provided by and Cote d'Ivoire. Access to electricity in the cities is estimated at 50%, while it remains negligible in rural areas17. The impact of the recent repeated power outages that occurred in 2006 and 2007 on the economy is still not identified although industrial production has fallen by 12% during the period.

50. In order to deal with their energy difficulties, some companies have resorted to other sources such as petroleum products. But oil supply is still very expensive and attracts huge outflows of foreign exchange compared to export earnings. By 2005, nearly 50% of export revenues were used to import petroleum products. The oil bill seemed to have increased from 41 billion CFA in 2002 to 258 billion in 2006.

51. Improving the business environment in Togo is a fundamental prerequisite for promoting investment and a robust private sector. One of the major problems that hinder the development of investment is the country's inability to ensure an attractive business environment to foreign investors. According to the World Bank report on the practice of doing business in the world ("Doing Business 2007"), creating a company in Togo, requires many procedures (13 in total), while in neighboring , there are 7. Regarding the protection of investors, Togo is rated 4 out of 10 and Mauritius, 7.7 out of 10.

52. Domestic debt is also a bottleneck for the revival and development of the private sector. The difficulties encountered by the Government because of poorly performing economy have led to structural deficits in the budget. Since these deficits are not adequately funded, it has resulted in the accumulation of a large domestic debt, which was estimated at over 300 billion CFA francs in 2006. The private sector has particularly suffered from this situation which has affected the country’s economic development. The Government has commissioned an audit of the domestic debt, but the development of a credible strategy for its clearance is still awaited. The implementation of the liquidation of this debt will inject renewed dynamism for private investment.

Togo: Overview of Environment Affairs Indicators Togo Regional OECD Average Average Creating businesses Number of procedures 13 10,8 6,0 Time (days) 53 56,3 14,9 Cost (% of income per capita) 245,7 148,1 5,1 Minimum capital (% of income per capita) 564,4 188,8 32,5 Licensing Number of procedures 15 18,1 14,0 Time (days) 277 262,5 153,3 Cost (% of income per capita) 1366,3 2549,2 62,2 Hiring of workers Index of difficulty to recruit (0-100) 61 41,7 25,2 Index of rigidity of hours (0-100) 60 43,9 39,2

17 Where it is 3% 18

Index of difficulty to dismiss (0-100) 40 42,2 27,9 Index of rigidity of employment (0-100) 54 42,6 30,8 Cost of dismissal (weeks of salary) 36 68,3 25,7 Transfer of ownership Number of procedures 5 7,0 4,9 Time (days) 295 104,6 28,0 Cost (% of the property value) 13,9 11,1 4,6 Loan Procurement Scope of of credit information (0-6) 1 1,3 4,8 Coverage of public record (% of adults) 2,7 2,1 8,6 Coverage register private (% of adults) 0,0 4,5 59,3 Protecting investors Index information disclosure (0-10) 6 4,7 6,4 Index of responsibility of leaders (0-10) 1 3,1 5,1 Ease of prosecution by the shareholders (0-10) 4 5,0 6,5 Index of investor protection (0-10) 3,7 4,3 6,0 Payment of fees and taxes Payments (number per year) 53 38,7 15,1 Delay (hours per year) 270 321,2 183,3 Total to pay (% gross profit) 48,2 68,0 46,2 Cross-Border Trade Exports Documents (number) 6 8,1 4,5 Deadline for export (days) 24 35,6 9,8 Cost to export (U.S. dollars per container) 872 1985,9 986,1 Imports Documents (number) 8 9,0 5,0 Deadline for import (days) 29 43,7 10,4 Cost to import (U.S. dollars per container) 894 1660,1 905,0 Execution of contracts Number of procedures 41 39,4 31,3 Time (Days) 588 643,0 443,3 Cost (% of debt) 47,5 48,7 17,7 Closing of company Time (years) 3,0 3,4 1,3 Cost (% of the value of assets) 15 20,0 7,5 Recovery rate (cents per dollar) 26,3 17,1 74,1 Source: World Bank, Doing Business 2008.

Progress made in the implementation of reforms

53. It should be stressed that the Government has undertaken significant reforms and initiated several others over the past two years, both on public finance and expenditure management and in regard to Government banks and enterprises.

54. Under public finance management, measures include: (i) replacement in 2006 of officers who were in charge of department of taxes and customs, the closure of bank accounts used for extra-budgetary operations, and the consequent rise in Government revenues well above the regional average and also well above WAEMU norms; (ii) the reorganization of the department of taxes with the creation of internal and external audit units; this has contributed to a very high level of recovery of tax arrears; (iii) the gradual implementation of Sydonia + + which has further boosted customs revenues; (iv) a medium term action plan (5 years) for customs activities approved by the World Customs Organization and the preparation of the draft of a new customs code, and positive collaboration with COTECNA, the import control Agent, (v) a greatly improved expenditure control with virtual elimination of payment orders without T/L, better budget discipline, and the cessation of commitments at the latest by the end of the year, (vi) an

19 almost balanced primary balance in 2007, (vii) the complete audit of domestic debt and arrears, (and viii) a net reduction in arrears on domestic expenditures in 2006 and 2007.

55. Regarding the state-owned banks and public enterprises, the following actions have been taken: payment for producers of cotton, 23 billion of arrears owed to them, (ii) the financial and strategic audit of SOTOCO (iii) replacement of SOTOCO finance director and Director General and the introduction of a new procedure for the purchase of inputs and supplies and sales of cotton , (iv) the liquidation of OTP/IFG and the creation of a new legal entity in the phosphate Sector (SNPT) (v) a better monitoring of the liquidity of state-owned banks, (vi) agreements for the restructuring of BTCI and UTB based on the recommendations of the WAEMU Banking Commission, as well as technical assistance from the IMF/World Bank.

20

The Problem of the Economic and Financial Governance in Togo 56. The Togolese Constitution provides sound principles for organizing the nation’s affairs and ensuring transparency in economic and financial management of the Governement in a spirit of protection of public funds. Indeed, the public financial management in Togo is based on a set of legal rules that originate from the provisions set by the Constitution. But the translation of these legal provisions and their observation in the daily management of public finances remain a major challenge in Togo. The problems of governance are usually due to the failure to apply the legal rules or to the fact that they are deliberately circumvented. After years of social and political crisis which have weakened and damaged the relationship between the political leaders and the population, transparency and accountability for actions taken are of the utmost importance to promote a new social pact and establish a degree of confidence necessary for the economic recovery and the development of the private sector.

A. Defective Management of Public Finances

57. The Organic Law 89/09 of 5 May 1989 on Finance Laws constitutes a central law on the management of public finances in Togo. This law defines the area covered by Finance Laws, providing for an initial Finance Law, a Modified Finance Law and a Settlement Act18. The organic law also determines the revenues and expenditures of the Governement, organizes the budget preparation process, its content and execution, and defines the relations between the Government and Parliament concerning the latter’s oversight over public finance management. However, this organic law does not define the functions of authorising officer and manager, or their responsibilities, but it provides administrative, judicial and parliamentary controls19. It does not define either financial rules applicable to the management of local authorities.

58. The legal and regulatory framework for the management of Togolese public finances is therefore overall consistent. But there is a noticeable gap between the framework and the rules effectively enforced20. As a reference, and only with regard to the provisions of the Constitution:

• the principle of regional integration is affirmed, but no WAEMU financial guideline is in practice truly being implemented; • a Revenue Court has been established, but no judge has been appointed to exercise judicial review on the accounts of the Governement ; • the internal and external controls on public finances are indicated as fundamental, but none of these controls is efficiently exercised today.

59. Despite the adoption of new rules and procedures in recent years concerning public financial management, the recent Public Expenditure Review21 noted that financial management

18 Loi de Règlement 19 The roles of funds appropraitor and payer are however defined in the General Regulations of Government Accounting. The texts wull be revised when the new organic law pertaining to finance laws is adopted in line with WAEMU guidelines. 20 Cf, study conducted by Mr. Yaya Moussa, « Analyse comparative de la gestion des dépenses publiques en Afrique francophone » (IMF, March 2004). 21 is facing difficulties in many areas. Today, urgent measures are still needed to improve the management of public finances; they relate to the following four basic areas: (i) the institutional and regulatory framework, (ii) the preparation of Governement budget and the use of exceptional expenditure procedures, (iii) a system of public accounting describing execution of the state budget, and finally (v) financial control on public expenditures.

60. First, the institutional and regulatory framework in which Togolese public finances are being implemented corresponds only partially to the current organization of services. As an example, the Constitution provides for Revenue Court which is not working in practice, and only two of six financial WAEMU directives, adopted at the regional level, have been implemented in the Togolese law22. Similarly, the Ministry of Finance, Budget and Privatization (MFBP), has no organizational chart. The adopted institutional chart should therefore be implemented as soon as possible and financial services should be organized according to need.

61. The unification of the budget preparation process is a fundamental element of good management of public finances. In Togo, the operating and investment budgets are prepared separately and put together at the end of the process in a single document before submitting the draft budget to the Government and to Parliament. Furthermore, the preparation of the Finance Law allows certainly for the publication of the Finance Law without necessarily taking into account all expenses, notably those related to external debt servicing.

62. The exceptional or dispensatory procedures of public expenditure, including expenditure without prior authorisation (prepayments), are still frequently used. They disrupt the budgetary execution and weigh on treasury management of the Governement. This situation creates a high financial risk on public finances and gives a perception of lack of transparency. Currently, an effort to reduce the use of these exceptional procedures is being carried out in line with the recommendations of the IMF.

63. The system of public accounting is currently weak. It no longer allows tracing the execution of financial operations of the Governement and must be urgently restored. The accounting balances are not produced on time and in a reliable manner and comprehensively. Consequently neither the ordnance officers nor public accountants are able to respect the obligation to report on the implementation of the Governement budget. The restoration of the public accounting system is a prerequisite for the control of the legislature, which has approved by the annual Finance Laws, authorizations for revenue and public expenditures; it is also essential for the Government to monitor budget implementation, and the Ministry of Finance to ensure the funding of financial operations of the state.

64. Financial controls on the execution of public expenditure are also a major challenge for the management of Togolese public finances. The recent Public Expenditure Review found weaknesses in a priori control over budgetary expenditure, but also in ex-post internal and external controls. To protect public funds and ensure proper management of budgetary allocations, it is essential as a first step to restore the authority of internal financial control; this important action should be integrated into the strategy for the clearance of domestic debt of which it is one of the components. Then, the procedures for exercising financial control will have to evolve towards risk-based controls. It is equally important to restore external controls by focusing the activities of the Inspectorate General of State over the controls, by establishing a General

21 Review of Public Expenditure and Financial Management by the Goverrnent, produced by the World Bank, the African Development Bank, UNDP and the French Cooperation (June 2006). 22 These are the guidelines on budgetary and accounting specifications. 22

Inspectorate of Finance in the Ministry of Finance to supervise closely the management of public finances, and by appointing and installing judges to the Revenue Court and restoring parliamentary control over state budget execution.

65. The management of domestic debt is not done in accordance with a comprehensive and coherent strategy. The Government has recently taken the initiative to have an inventory done of the debts, but has not yet adopted a credible strategy for its clearance, which would allow it to seek the support of external donors for the clearance.

66. A sixth field, equally important but not discussed in the PEMFAR is the management of human resources. Throughout the exercise, it was noted how the management of these resources was a major challenges for the implementation of reforms in the public financial system. Indeed, many services today do not have the quality and sufficient numbers of staff to ensure the implementation of measures recommended above. The solution to this problem does not lie in the systematic recruitment of additional personnel, but in an evaluation of an optimal organic framework that is adapted to the management of Togo’s public finance system. Following this assessment only, which would propose the adequate organic framework of each structure and estimate its cost, could the strengthening of human resources be undertaken.

A.1 - Weaknesses in Budget Formulation Process 67. The existence of a formal budget schedule is a positive element that gives financial services of the Governement visibility on the organization of their work. But in fact, the budget timetable is not respected; the technical preparation of the Governement budget being essentially concentrated on the second part of the year. The result is poor quality of the preparatory work for both revenue and expenditure and low involvement of Governement services.

68. The Governement budget is not prepared in a unified manner in Togo. Its development is ensured by two ministries (MFBP for the Operating Budget and the Ministry of Economy and Development [MED] for the investment budget. These two Ministries in practice have not been working together. The result is often an absence of links between investment expenditure and their recurring costs, and a risk of duplication of public expenditure (salaries, operating costs of services).

69. Revenue forecasts cannot often be regarded as credible because of very important variances recorded in recent years between expectations and revenues realized, with the exception of 2006 when this was done in very close collaboration with the IMF. The projected budget revenues are set according to a “base-floor” strategy without a rational method. The Directorate General of Taxes (DGT) and the Directorate General of Customs (DGD) often deliberately estimated expected revenues at a lower level with the objective of showing better results than projected. However, these forecasts are carried out satisfactorily since 2006, following a closer collaboration with the IMF.

70. The estimates of budgetary expenditures are not made on the basis of medium-term objectives. There are neither a Medium Term Expenditure Framework (MTEF), nor programme budgets. The separation of the preparation of the Investment and Operating budgets will in no way facilitate the harmonization and consistency of the budget. The sectoral ministries do not make their annual forecasts on the basis of a multi-year programme, but they know the exercise, however, for having made it several years ago. The abandonment of this practice leads naturally to a risk of loss of knowledge.

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71. The effective implementation of the rules contained in the Manual of budgetary procedures of the Governement is also very low. On the form, certain names are borrowed directly from the financial guidelines of the WAEMU. Furthermore, the manual is not integrated into the regulatory framework: it has therefore no legal value; a phenomenon aggravated by its stated transitional nature which removes any binding nature. Finally, it is not appropriated by the various services nor is it disseminated within sectoral ministries.

A.2 - Major problems encountered in cash management by the Public Treasury 72. Since 1998, the government Treasury was no longer managed by the Directorate General of Treasury and Public Accounting (DGTCP), but by a treasury committee comprising the Secretary General and all the Departments of the MFBP, the BCEAO and the Cabinet Director of the Minister of Finance.

73. Togo’s treasury management thus was atypical, in contradiction with the legal and institutional framework. The Directorate General of Taxes (DGT) and the Directorate General of Customs (DGC) did not make daily deposits of revenue collected into the Treasury Account at the BCEAO. A transfer of funds was made periodically, especially to cover the major budgetary expenses (mainly salaries). This situation changed in 2007. Now the Taxes and Customs revenue boards pay directly to the Treasury tax and customs revenues that they collect. This situation has significantly improved the cash situation of the Togolese Treasury which can now ensure regular monthly payment of salaries. This new situation has even allowed to restore partially the normal budget cicuit by paying for services when rendered, which was not previously the case.

74. The number of bank accounts opened in the name of Government is not yet fully controlled; it was estimated at more than 200 in 2006. The Treasury has therefore not a precise knowledge of financial flows generated by the Government. For this reason, the Treasury can only establish a partial situation of the net position of government towards the banking system, while that of BCEAO seems more complete although not absolutely certain. Nevertheless, an effort has been made to close a number of these accounts as part of the recommendations of the SMP of the IMF.

A.3 - Inoperative Controls by the Department of Financial Control

75. The Department of Financial Control (DCF) exercises within the Ministry of Finance a priori control on public expenditures. All acts that affect commitment of budgetary expenditures are subject to its prior approval, including government procurement, decrees, measures or decisions with financial implications.

76. The financial control over budget expenditure should be exercised in principle as soon as these are committed, but in practice a good portion of these expenses escapes the a priori control of the DCF because of the widespread use of exceptional procedures. The visa of the DCF is therefore normally given as regularization after payment of expenses. The delays in processing files are estimated at approximately one week outside of periods of budgetary control. The improvement of the treasury situation, which allowed the Treasury to find ways of paying public services, is gradually changing this situation. The normal system of expenditure (payment after

24 service) is being restored, although the use of exceptional procedures of payment is not yet sufficiently reduced.

77. Financial control over budget expenditure is not very effective in Togo. It has no tools to ensure whether prices proposed by suppliers are at acceptable levels or not. A fragile computer system informs on the situation of budgetary allocations, but the expenditure made by order of payment and paid directly at the Treasury (payment procedure without prior commitment) are not taken into account in real time, and it happens often that these expenses run in excess of available appropriations. Similarly, the conditions for exercise of financial control (quality, comprehensiveness, credibility) are also an indication of the difficult situation of Togolese public finances. In the medium term, it is expected that the procedures for exercising financial control would evolve towards result-based controls, rather than an exhaustive control of all budget expenditures.

78. The size of the DCF is particularly small (24 agents) in terms of the responsibilities assigned to it. Most of these staff are nearing retirement. The non-renewal of the staff is an element of concern for maintaining the control function. If no action is taken soon to strengthen the workforce and improve the quality of controls, the a priori control over budget expenditure may eventually disappear completely. Moreover, such personnel do not receive training on professional development, nor adequate facilities to properly perform its mission.

B. Consolidation of the Financial Sector23

79. Togo’s financial sector is dominated by 10 commercial banks and three financial institutions that hold 62 per cent of total assets. The microfinance sector with 145 institutions accounts for 6 percent of assets in the financial sector. The ten insurance companies account for 3.7 percent of total assets in the sector, and the two social security institutions 23.5 per cent. There is a money market and a bond and equities market. Both operate throughout the subregion. Togo shares with the other seven countries of WAEMU a Central Bank, a banking supervisory body and a financial market control body. It shares with the 13 countries in the franc zone a regulator/supervisor of insurance and social security institutions24. While M2/GDP ratio of 28.6 percent is higher than the average of 25 per cent in sub-Saharan Africa, credits to the private sector is only 7.3 percent of GDP.

80. The financial sector, particularly the banking sector has been in a precarious situation for several years. Commercial banks have had difficulties in meeting the prudential norms, several of them have negative equity; doubtful claims are very important to a large extent due to government enterprises and the arrears of the Governement ; operating charges are high resulting in high operating norms while corporate governance is weak. The two social security institutions normally report deficits in pension payments and one of them depends on continuous grants from the Governement to provide payments. The insurance sector is far from having reached its potential. The microfinance, albeit in a better position than other sub-sectors, needs to be strengthened.

23 This chapter is based in a review of the financial sector that was conducted bt a World Bank team and finalised in November 2006. 24 CIMA supervises insurance companies from Libreville and CIPRES, is charged with overseing social securty institutions from Lomé. 25

B. 1- Banking Sector 81. The Togolese banking sector is small, with a significant presence of the Governement. It is not diversified and is facing serious financial difficulties. In 2006, the Government of Togo held directly and indirectly (through public enterprises), shares in the capital of six of the nine credit institutions2526. The assets of these institutions accounted for 54.8% of total assets of banks and financial institutions of Togo in 2004. The three commercial banks where the government owns significant shares represented 55% of the total assets of commercial banks27. The regional Central Bank, BCEAO, has a share capital in a national bank while it is the regulatory agency for banks, thus creating a conflict of interest.

82. In general, government participation in the capital of financial institutions, particularly when it is large as is the case in Togo, has proven to be a handicap for the development of these institutions and their viability. Management decisions in these cases may indeed not be based on sound business practices. This has been experienced in many African countries and has almost always ended with the Governement withdrawing from the banks and financial institutions. Thus, it is noteworthy that the largest banks in Togo have lent mainly to public enterprises. More than 58% of the outstanding loans from the largest Governement bank are owed by government enterprises, mainly SOTOCO, the State cotton company. One of the State banks has also been a major lender to public enterprises, particularly OTP, the Governement phosphate company.

83. The banking sector of Togo seems highly concentrated. At the end of December 2006, the largest bank accounted for 24.7% of total banking assets, and the three largest banks accounted for 63%. In general, a highly concentrated banking sector is a sign of a lack of competition which may negatively affect the quality of and access to financial services.

84. The banking sector of Togo is in a critical situation. Thus, the three commercial banks which in 2006 account for 56% of total assets of commercial banks show a negative net value of 66 billion CFA francs, despite and after the measures taken by the Governement and described below. To capitalize them once again under the new prudential standard of a minimum capital of 5 billion FCFA, it would be necessary to have 81 billion CFA francs. In addition, six of the ten commercial banks and a financial institution are under close surveillance of the Banking Commission; five other institutions have also been under surveillance since 1994. This shows that the banking sector of Togo has been having problems for a long time and little effort (at least until recently) was made to correct this situation. In most cases, the reasons for placing it under close surveillance related to information systems and accounting, to the quality of management, to insufficient net assets, and to lack of respect of prudential standards.

85. To a large extent this situation is due to the high level of compromised debt. At the end of December 2006, the average ratio of gross non-performing loans to aggregate outstanding loans stood for Togolese banks at 29.1%, the highest level of the WAMU countries (average 19.5% ), Despite a slight decrease in the level of 33.5%, reached a year ago. Individually, the ratios of non- performing loans range from 23.7% to 83.9%. The lowest ratio of 23.7% is high compared to international banking standards, and even the regional WAMU standards. The level of provisions for non-performing loans was insufficient for several institutions leading to an overestimation of

25 Credit institutions include commmencial and financial institutions that are governed by the Banking Act .. Financial institutions generally offer specialised products, such as financial leases and do not accept deposits. 26 In 2007, the Togo Savings Society (CET) was the subject of privatisation through a public issue. 27 The reference sharehlder of a bifg private bank indicated his intention to withdraw and it is possible that the bank will continue to be state-run for a transitional period. 26 annual profits of these institutions (or an underestimation of their losses), and hence to an overestimation of capital strength. On average, provisions are at 52.7% at the end of December 2006, down from their 2005 level (54%) and 2004 level (64.1%)

86. Two major public enterprises (SOTOCO, the cotton company, and OTP, the company phosphates) are responsible for most of these non-performing loans28. IFG who had replaced OTP has also been put into liquidation, leaving important debts.

87. On the other hand, the government acknowledged significant delays in the repayment of its debts and arrears to telecommunications companies, electricity and water companies29 which so far are in good standing vis-à-vis commercial banks. However, if the arrears of the government should be maintained and even increase, these companies could accumulate arrears vis-à-vis banks and would contribute to a deepening of the banking crisis.

88. In general, domestic debt and arrears of the Togolese government have impacted on the situation of banks and helped increase the number of their non-performing loans. Indeed, providers of government service and public enterprises whose contracts had not been paid were unable to fulfil their obligations vis-à-vis banks.

89. In addition, Togolese banks have very high operating costs. The operating ratio, which measures the internal efficiency of a bank by dividing administrative expenses (operating costs) by the net banking income (income from banking operations less expenditures for banking) averaged more than 55% between 2003 and 200530.

90. A bank posted operating expenses twice higher than its net banking income. In the absence of corrective measures, this bank even if recapitalized, could exhaust all of its capital. Other banks and financial institutions have operating costs equal to their net banking income, which means that in 2003, they did not have any resources to cover their costs of depreciation, taxes and provisions, much less to pay shareholders.

91. Faced with these difficulties, the Government initiated in 2003, albeit with limited resources, restructuring of banks and financial institutions in difficulty. However, despite this operation in the past three years, restructuring and strengthening of credit are still only half done.

92. A bank has been recapitalised by its shareholder, a foreign public bank that has not only paid its shares, but also the government’s shares injecting 2 billion FCFA in the capital of the bank. The foreign shareholder is holding the government shares until it sells at the appropriate time to private Togolese. The restructuring of the bank was limited to the recapitalisation. There was no internal strengthening of this institution which continues to have operating expenses much larger than the net income it derives from its banking operations.

93. A new private bank has been established from the 2005 acquisition by a foreign bank of part of the assets of the NIS (National Investment Company). The operation was de facto performed using a variant of the scheme of split-up/liquidation31 and was accompanied by an assignment of claims by the INS on the treasury (2.7 billion FCFA) to the new bank. Ultimately,

28 SOTOCO’s debt to the baning system was 44 billion CFA F whereas OTP’s deb twas 26 billion CFA F. 29 The debt owed to the telecommunications firm (TOGOTELECOM) was estimated to be billion CFA F. 30 A ratio lower than 55 % is what is desirable since it would indicate that banks are genertaing enough income to cover costs for provisions, depreciation and taxes and leave profit for thir shareholders. 31 Cf. Definition of a split-up / liquidaton in the section on recommendations 27 this newly created bank has signed an agreement whereby it takes over assets and liabilities of the former INS, which had experienced difficulties over many years. The former INS has been put into liquidation.

94. The restructuring of the Savings Bank of Togo (CET) is quite advanced. It has been under temporary administration since November 22, 1999, following a decision by the Banking Commission. Under the direction of the second provisional administrator appointed on February 25, 2004, restructuring measures were taken. For example, 20 agencies were closed and staff was reduced to 239 employees.

95. The government provided a balancing grant of 3.6 billion CFA francs to the CET, pledging to make quarterly payments of 150 million CFA francs for 7 years. This grant was included in the balance sheet of the CET as financial claim on the Government. In exchange, the CET has transferred to the government FCFA 2168 billion of fully provisioned doubtful loans. This has allowed the CET to make a provision of equivalent amount. In addition, the CET mobilized in 2006, 1.8 billion CFA francs on the regional financial market. These two operations have helped to eliminate the negative net value. The CET obtained on December 4, 2007 its licence to become the People’s Bank for Savings and Credit (BPEC).

96. Despite this progress, problems persist. Claims against the Governement now represent 50% of the portfolio of the CET; imposing rigidities in the management of CET portfolio and creating a mismatch between assets and liabilities, accentuated by the absence of a secondary market for this claim. The operating ratio of the CET remains high.

97. Another publicly-owned bank that has experienced considerable difficulties for at least the past five years was restructured in 2004, the same way as the CET. To recapitalize the bank and improve its liquidity, the Government gave a balance grant of 15.5 billion FCFA payable by quarterly payments of 600 million CFA francs over 7 years. The total amount of subsidy has been included in the balance sheet as claims on the Governement. In exchange, the bank has transferred to the Government a portfolio of fully provisioned non-performing loans the total amount of which reached nearly 21 billion CFA francs. The operating account has been adjusted by recording as income, the provision for the full amount of the transferred portfolio, and an exceptional expenditure of 5 billion CFA francs for the discount applied to the purchase of portfolio (gross value of the portfolio less the value of the grant). The financial claim on Government now represents 40% of the portfolio of the bank, which has introduced the same rigidities as those discussed above. This operation has reduced the negative net worth of the bank but there are still compromised debts and other claims to be settled and beccause of this, the bank’s net worth remains negative.

98. There was the beginning of a restructuring with another bank. The Governement granted it a subsidy of 23 billion CFA francs along the same lines as the previous bank. However its net worth still remains highly negative and its governance is weak; which led the Banking Commission to request a change of administration.

99. Finally negotiations were undertaken with the shareholder from a private bank which is experiencing severe difficulties with a negative net value.

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B. 2- Microfinance and Insurance 100. As in the rest of the WAEMU region, microfinance institutions (MFIs) in Togo fall into three main categories: (i) the cooperative savings and credit institutions (FUCEC), (ii) institutions doing only credit, and (iii ) projects of donors with a microfinance component. The FUCEC remains the principal actor in the microfinance sector in Togo, not only by the size of its network, but also for its role in the refinancing of other istitutions of microfinance (IMF).

101. Non-performing loans for the largesst IMFs, as measured by the portfolio at risk at 90 days (PAR), are lower than 5% which is the acceptable international limit. Significant progress has been made, especially by FUCEC to stop the deterioration of the quality of its portfolio. During the period 2000 to 2004, FUCEC was able to significantly reduce its portfolio at risk from 22.2% to only 3.9%.

102. Although FUCEC has been able to achieve self-sufficiency at the operational level, the institution is not financially viable and yet still depends on lines of credit at concessional rates to achieve its results and be able to refinance other IMFs. The main problem in the microfinance sector is the weak supervision by the Support and Monitoring Unit of the Ministry of Finance responsible for supervising Mutualist Savings and Credit Institutions (CAS-IMEC) due to a lack of human and financial resources of the Unit given the large number of IMFs in Togo.

103. The postal system provides financial services with current accounts and savings accounts. With customers with savings averaging 117 thousand CFA francs (U.S. $ 235), financial services rendered by the postal system can be described as microfinance.

104. The crucial problem of the Post Office is the lack of distinction in financial accounting between general postal services and operations related to the provision of financial services (postal check account and savings deposit services). In their accounting, deposits are treated as income. There are therefore no assets that would cover deposits received from customers. The postal service has suffered successive significant losses notably in 2003 and 2004, which has continually jeopardised customers’ deposits.

105. The Togolese insurance market is small. As at 31 December 2004, the penetration of insurance accounted for 1.2% of GDP and the insurance density was also very low with 4.56 U.S. dollars per capita. The weaknesses in the insurance market are due to the unstable political situation and low economic growth that have hampered the development of the sector.

B. 3- Social Security 106. The pension system consists of two institutions: the Caisse des Retraites du Togo (CRT) (the Pension Fund of Togo) for civil service employees and the National Social Security (CNSS) for private sector employees and other categories of Government-employed staff. These two systems are non-capitalized schemes, where active employees' contributions fund payments of pensions. Both institutions are public bodies facing financial difficulties and structural challenges, which sooner or later will threaten their survival.

107. The CNSS manages a social security scheme that provides retirement, disability and death allowances to its policyholders. It offers protection against occupational hazards to workers in the private sector and employees of State agencies. It also pays child benefits.

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108. Considering the weakness of formal economic activity in Togo in recent years, new registrations in the scheme of the CNSS rose by only 3%, while the number of pensioners increased by 10% between 2000 and 2004.

109. The consolidated statement of income of the CNSS showed a surplus of 5.5 billion CFA francs in 2004. But this positive result hides the fact that the technical activities related to old age, (which represent two thirds of technical operations) showed a deficit. This situation can be explained by the low number of registered employers (the formal sector remains marginal in the economy of Togo), but also by the fact that compulsory registration is not always observed

110. The CNSS has invested in public and private enterprises, which accounted for one fifth of its total income. However, certain investments including the majority of CNSS loans to the Government are non-performing and have been provisioned32. In total, the debt burden of the government weighing on the CNSS is close to 100 billion CFA francs (loans, arrears of contributions, and their interests), a situation which has eroded the cash position of the company.

111. The CNSS seems to be a well-managed institution. It has skilled and well-trained staff and rigorous procedures. Benefit payments by the CNSS are up to date. But the continuing inability of government to meet its obligations vis-à-vis this institution may, in the long term, affect the financial viability of the institution.

112. The CRT manages a social security scheme providing retirement, disability and death benefits, and a limited health insurance regime (limited to services rendered in public hospitals). The current deficit of nearly 7 billion CFA francs due to: (a) arrears of contribution of the government, (b) a level of benefits which represents twice the amount of contributions, (c) a total disbursements which increased by 34% during the period 2000 to 2004, while revenues decreased by 10% during the same period, and (d) interest earned on financial assets which have decreased by 35% because since 2000, the CRT begun to use its reserves to pay benefits. Therefore, reserves of the CRT fell from 24.5 billion CFA francs in 1998 to zero in 2005. It depends on Governement subsidies to perform its services (7 billion CFA francs in 2006, 8 billion in 2007).

32 A total of 80% of the financial assets of CNSS is composed of debts that the management was forced to give to the Goverment. An agreement on loan rescheduling was signed by both parties in 2001, with a due date of 12 years and an interest rate of 6% per annum. However, the CNSS has not yer received any reimbursment and, consequently its management began a regular provisioning process. Approximately 72% of funds held in the form of shares in companies were invested in State companies. Its investments have been fully provisioned in several public companies, given their current weakness and financial situation.. 30

Promoting Growth through Social and Human Development 113. The development of human resources is one of the essential pillars in the development process. The development and exploitation of economic potential are realized through a human capital that could support and maintain economic dynamism. In this regard, a public health policy is fundamental in the same way as a national education policy for promoting sustainable growth.

C. Rehabilitation and Consolidation of the Health Sector33

A.4 - National Health Policy and the MDGs 114. The public health system of Togo has been developed based on international strategies and general principles such as the Health for All initiative, the movement on primary health care (PHC), the Bamako initiative, the adoption of the concept of "operational district," the policy of essential generic drugs and, more recently, the Millennium Development Goals.

115. The national health policy adopted in 1998 revolves around three main areas of intervention including: (i) the reduction of mortality and morbidity and improving the well being of the population through preventive, promotional and curative care, (ii ) extending health coverage to the entire population, and (iii) having an impact on the determinants of health and ensuring the viability and performance of the system.

116. The National Health Development Plan (PNDS 2002-2006), currently under evaluation, is built on three strategic directions and a series of priority actions. The three guidelines are: 1) to achieve reform of the system in order to address new challenges, 2) to develop the system to better meet the needs of the poor and to address the vulnerable situation of a large portion of the population; 3) to promote a physical, economic and political environment favorable to the health and well being of populations.

117. According to a recent assessment of progress made in pursuit of the millennium goals, the following goals of halving extreme poverty and hunger as well as child mortality will be difficult to achieve because of the extent of poverty and poor living conditions, while those relating to universal primary education, gender equality and empowerment of women will be met if additional resources are available.

A.5 - The Health system: Structure, Management, Challenges and Weaknesses 118. The health facilities that operate legally with the permission of the Ministry of Health are inventoried and are deemed to provide quality care. The profit making private sector covers probably more than two thirds of private providers in the country. It is beyond the control of the Governement and includes qualified health care providers who operate from houses or in clinics which are not empowered to provide such services. It also includes services provided by personnel that may not be qualified and represents a threat to public health. To these health actors, we must add traditional sector providers such as healers, herbalists and medecine man.

33 This report was prepared by Paola Ciardi (International Consultant) and Giuseppe Zampaglione (Project Leader– social sectors – Togo). 31

119. The public health system includes the central level (the ministry), the regional level and district level. The central level is composed of the cabinet, the general directorate and central directorates. It is responsible for developing policies and standards of health, resource mobilization, management control and evaluation of performance.

120. The central level has difficulty to function normally and in fulfilling its missions, because of the economic crisis in the country, of insufficient staffing and inadequate qualification to address the needs of health services. Some partners and staff of the Ministry believe that the organizational structure of the Department needs to be revised.

121. The intermediate level covers the Health Regions. It is responsible for enforcing national policy, coordinating and supporting the districts. The latter, being the operational level of the system, are called to organize and deliver care through the district hospitals and peripheral health units (USP) in their territory.

122. The health system includes 6 regions and 35 districts34. Most of the 26 district hospitals have performance problems because of the lack of qualified personnel, lack of equipment and adequate facilities. And sometimes the existing equipment is obsolete or broken down. In practice, some district hospitals are only large health centres. Only 7 district hospitals are able to provide additional services (beyond the minimum package of activities).

123. In the districts, the reference system is generally very weak while the quantity and quality of staff are poor. In some districts, there is only one doctor who must both perform medical procedures and manage the district. Many USP35 are not managed by qualified personnel.

124. From the foregoing, we can say that because of the crisis in the country, of inadequate financial, technical and human resources and the decrease in international cooperation support, the public health system suffers from multiple dysfunctions and from a reduced productivity at all levels. A recent study by the WHO on the management of health systems confirms most of these challenges and failures of the system of Togo36.

125. As in many low-income countries, the national health information system does not allow to know who performs the functions of management, or where managers are or what their rate of mutation is. Health staff is registered only according to their base skills (doctor, medical assistant, nurse, technician, etc.) but not according to the functions they are performing.

126. There are disparities in the way the districts function. In particular, districts of Central and Plateaux regions can be considered more efficient because they have received extensive support from the GTZ and the French Cooperation37. In some selective areas where there are resources (see TB and Malaria components of the Global Fund), the system has been able to develop strategies and implement mechanisms of intervention that gave conclusive results.

127. Indeed, the prolonged crisis that has plagued the country has been felt in the health system and has resulted in an inadequate number and quality of staff: the number of doctors and nurses working in the public sector fell by half between 1988 and 2001.

34 The districts correspond to 30 administrative prefectures in the country and five communes in Lomé. 35 Unit of Peripheral Health 36 Strengthening of Health Management in Togo : what lessons can be drawn ? Ministry of Public Health, Togo, WHO, 2006, Egger et al. 37 Cf. the aforementioned WHO document, p. 5-7. 32

128. Currently Togo has one doctor for 14,682 inhabitants, a medical assistant (intermediary figure between a doctor and a nurse) for 20,520 people and one nurse for every 3,696 inhabitants (the ratio is obtained combining the number of graduate nurses and auxiliary nurses).

129. The SSP coverage, as measured by the number of people who have access to health facility (FS) in a radius of 2.5km38, is 62% in 2006 while access in a radius of 5 km is of 88%. The theoretical coverage is therefore satisfactory, but it does not take into account the number of FS39 that are not functional for lack of staff and FS whose premises are seriously degraded. In addition, coverage data conceal important geographical disparities and an irrational distribution due to the presence of several FS on the main roads, which are sometimes very close to each other.

130. Access measured by the rate of use of curative services dropped dramatically during the 1990s to resume slowly from 2000. The constraints most cited as a barrier to the use of curative services include the low household incomes, poor reception at health facilities, the length of waiting times for health care, the unavailability of health agents (absenteeism), the lack of qualified staff and the parallel sale of medicines by heads of posts.

131. The maternal and child care are provided by all FS, but family planning is offered only by 70% of FS. However, it must be stressed that Togo has quite satisfactory post-natal consultation coverage (CPN). The attendance rate of the CPN was 81.2% in 2005, but it is geographically quite variable40. The number of births attended was 61% in 2005, but the analysis of the situation in Reproductive Health (RH) in 2003 identified significant geographical disparities with rural areas and in this case the Savannah Region.

132. The rate of immunization increased and settled around 87% in 2006. It should be noted that the results achieved in reproductive health and immunization, reflect the efforts made by the funds of the GAVI41 initiative, the government and donors.

133. The system of co-management between the Governement and community representatives involved in the planning, in public awareness and in financial management of cost recovery through the Health management committees (COGES), need to be reformed as indicated by the study conducted in 2000.

A.6 - Problem of Financing the Health Sector 134. The diagnosis of the status of the health system in 2006 and available data provide data on the health budget, the various categories of expenditure, the contribution of partners and the share of cost recovery. There is however some opacity concerning the rate of budget execution for certain categories of expenditure allocated to operating costs (including maintenance services and supplies), to investment and to equipment.

135. Staff salaries have been paid regularly since 2004 and on time since 2005. The expenses that are not assured concern supplies of equipment and services such as maintenance

38 30 minutes on foot 39 Health structures 40 In 2003, the rate of monitoring pregnancy (at least 3 CPN) was 63.9% in the Savanes 41 GAVI – Global Alliance for Vaccines and Immunization - is an international alliance between public and private partners funding large scale immunisation. 33 services/maintenance of equipment and infrastructure. The allocations for investment and equipment and a portion of operating funds are not fully assured. According to an overall estimate made by the Directorate of Planning and Training, 30 to 50% of these operating allocations would not be paid42.

136. During the period 2000-2003, total expenditure on health is at 1.5% of GDP below the average of countries in the sub-region which is 2%. In 2006 the ratio had dropped to a level of 1%. In 2005, the budget allocation for public health was 13 billion CFA francs (6.4% of total public expenditure), in 2006 they were 14.4 billion (5.5 %) and fell to 12.7 billion in 2007 (projected). For 2007, the forecast was that 37% of total health expenditure funded from domestic resources would be for staff, 17.5% for materials, 39% for subventions and 5.5% for investments. In 2007, 50% of total expenditure on health in Togo, was to be funded by the Governement, 20% by communities and 30% by the partners. In terms of annual public expenditure per capita, the average is FCFA 2400, well below the cost basis of a minimum package of activities of FCFA 7000

137. The contributions of partners include funding from the Global Fund, WHO, the European Union, , UNICEF, UNAIDS, UNFPA, Plan Togo, Togolese Red Cross, the Embassy of USA, PSI and GTZ. For the moment, coordination is assured by WHO through the thematic group, but it needs to be strengthened.

138. Cost recovery, introduced since 1991 with the Bamako Initiative, has been implemented gradually and extended throughout the country. All care and health services are to be paid for by the patient except immunization and family planning advice. The largest recovery of these costs comes from the purchase of medicines in Community HF pharmacies. According to data from the diagnosis held in 2006, cost recovery accounted for 41.5% of the health budget of the Governement. The cost recovery funds have enabled the Togolese health system to function in the years of crisis. However, there are major weaknesses in the management and control of these funds.

A.7 - Necessary Measures to Improve the Health Sector Improving the health sector would require the adoption of priority measures including:

139. Priority actions for institutional reform covering: the completion of long-term plan (2008- 2012); adoption by the National Assembly of the Health Code; the establishment of financial management tools to improve the rate of budget execution and their effectiveness; a plan for human resource development; finalizing other strategy documents (PNDS 2008-2013) and hospital and pharmaceutical policies and an institutional audit of the ministry. For the development, adoption and implementation of these tools, training will be needed as well as technical assistance.

140. Other institutional measures include: (i) a better definition of powers and duties of the various levels (central, regional, district and USP), (ii) a clarification of the legal status of

42 Concerning the lack of funds in the Government and the expenditure of funds allocated in the budget, we cite the study on the management of the Togolese health system conducted by the WHO in 2005 to 2006 in partnership with the Ministry of Health: « It seems that the funds from the public treasury only cover the salaries of health personnel, electricity and water costs. For the last 5 years, at least the operational appropriation allocated to health regions was never realised. The same applies to capital expenditure vote» ref: Egger et al, 2006, p.3. 34

COGES iii) a clarification of the prerogatives and missions of municipalities in Health services and (iv) the effective participation of representatives of civil society involved in community health in all instances of the system which affect the issue of right to health.

141. Measures aiming at a reclassification of supply include: i) improving the provision of health services at all three levels through the strengthening of human resources by putting in place a plan for human resource development in the medium and long-term (10-15 years). ii) an allocation of staff according to health needs and for rebalancing the levels of sanitary services in the country; iii) upgrading the technical programs in hospitals; and iv) providing equipment and basic health supplies in the health centers. Furthermore, it is important to improve the regulatory framework and the rules governing and the operations of the private sector, and the organization of traditional care. Finally, it would be important to develop the model for contracting health care (the contractual approach) and strengthen community health support also with get the COGES system going again.

142. On the demand side, the measures include: i) structuring social marketing actions and advocacy to promote public care arrangements ii) improving the quality of services and welcome services in health centers in order to increase demand and service attendance; iii) linking the country health map to a demand analysis, to allow an effective linkage between demand and supply; in particular for the poorest, underserved, and most vulnerable areas of the country, and to balance regional disparities iv) reviewing service costs by category and level of care.

143. A significant increase in expenditures for health financed from domestic resources, particularly for staff (even above 10 billion CFA francs in 2010) and for materials (7 billion) is a prerequisite for any resumption of the sector and for implementing the proposed measures. Direct subsidies to hospitals should experience a more moderate increase (up to 7 billion CFA francs in 2010), while the increase in investment spending could be at level which is double of what it is currently. An increase in public spending financed from domestic resources of 12.7 billion CFA francs in 2007 (forecast data) up to 25 billion in 2010 represents a realistic target for public finances which would be accompanied by sustained growth of partners funding, a reduction of community participation, and a certain autonomy of expenditure at the level of all regions.

144. The issue of governance should be addressed at all levels of the system. The governance of the health system is part of a wider problem that concerns the public system in Togo as a whole. After years of social and political crisis which has weakened and damaged the relationship between rulers and ruled, transparency and accountability of actions taken are of paramount importance for promoting the establishment of a new social pact, restore better living conditions and create a degree of confidence necessary for the country to build its future.

D. Rehabilitation and Promotion of the Education Sector

145. The objective here is to present sector priority actions arising from the recommendations of the diagnosis of the education sector presented in the CSR (Country Status Report of the National Educational System), which was updated and validated by the Government of Togo in May 2007 . The study reveals several important trends.

146. In budgetary terms, there has been a very significant decline in the priority of education. While current expenditure on education accounted for 30% of all current public expenditure in 1990, they account for only 21% today.

35

147. At the preschool level, the current situation is that the coverage is both low (8%) and predominantly urban with a significant proportion of services offered in the private sector. At the primary level, the completion rate43 is estimated at 70%, representing a value greater than the regional average but it is still far from the OMD (100%). Access to CP1 is universal, but still 30% of children drop out before the end of primary school. The internal efficiency has also deteriorated in recent years. For example, the survival rate in primary education44 went from 86.3% in 2000/01 to 70% in 2004. Therefore, the completion rate is also likely to decline and could come down to 59% in 2008/09 if nothing is done to reverse this trend. This would mean a major setback in achieving the MDGs in education. The primary education is also characterized by: (i) a very important private financing (33% of teachers are untrained parents, recruited and paid by communities; thus school fees impede the schooling of the very poor ), (ii) a very high frequency of repetition (23%), (iii) the weakness of non-wage expenditure to ensure the educational quality of offered educational services. These costs represent only 6.5% of total current expenditure (against 20% for the regional average), and (iv) the presence in the system of majority of untrained teachers (parent teachers and pupil teachers).

148. In general secondary education, the quality of services seems to have improved. The supervision of students is characterized by a too high pupil-teacher ratios and big class sizes, especially during the first cycle. In Technical and Vocational Education and Higher Education, arbitrations implicitly made 15 years ago, have been in favour of quantity rather than quality and external effectiveness. Accordingly, the two main findings are: (i) low matching between training offered and the job market; the unemployment rate for recent graduates leaving these institutions is as high as 30% and in addition, there is a significant proportion of “underemployment" among these same outgoing graduates; and (ii) the conditions of education and inadequate infrastructure with respect to the number of students and learners.

149. Adult literacy is very little incorporated in the education policy of the country, although there is a willingness to do so. In the current situation, the proportion of illiterate adults is around 47% (31% for men, 62% for women).

150. Finally, the dimension of system management involves the whole sector and there are possible areas for improvement. Despite slight progress over the recent period, the distribution of primary school teachers in reference to the needs of each school remains largely inconsistent and needs to be improved. It is estimated tha 60% of teachers are allocated according to the criteria of the number of pupils in schools, against an average of 80% in other African countries. At the technical/vocational and higher education level, the lack of a programme for an effective integration into the labor market of school leavers also needs to be addressed

151. Despite a mixed performance of its education system, Togo has clearly chosen to achieve the Millennium Development Goals (MDGs) 45 in education and the objectives of Education for All46 (EFA47) by 2015. While this objective is not out of reach for Togo, it will require that the

43 Percentage of children completing primary school. 44 The survival rate in primary school is the percentage of pupils that entered the first grade in primary school and who finished the last class of primary school, expressed in percentage. 45 By 2015, give all children, boys and girls throughout the world the means to complete their primary education. 46 (1) Expand and improve care and complete education from early childhood. (2) By 2015, ensure that all children have access to and complete free primary education that is compulsory and of good quality. (3) Ensure that the learning needs of all youth and adults are met. (4) By 2015, attain an improvement of 50% of adult literacy levels, especialy women, equitable access to basic and continuous education for adults. (5) By 2015, eliminate gender disparities in primary and secondary education, attain gender equality in educations (6) Improve all aspects of quality education and 36 government adopts new choices and directions in its education policy, which should be aligned as far as possible on the indicators of the “Accelerated implementation of Education for All48 Initiative (FTI49)”. Thus, the immediate challenge for Togo is to develop and adopt a Plan for the education sector (PSE) credible and financially viable for achieving the goal of universal completion of primary school (APU). The PSE should focus on the major policy areas of education, capacity building and financing. In the same way, the PSE should seek to implement a balanced sectoral policy between the priorities of the low levels of the teaching system (pre- school, primary, secondary 1st cycle and literacy), where the basic logic is the quantitative expansion and improving quality, and the priorities of the higher levels (2nd cycle of secondary, technical/vocational and higher education) where explicit reference must be made to the labor market.

B. 1- Combining the challenge of Intensifying Access and Improvement of the Retention and Quality in Primary Education 152. One obvious characteristic of the education sector in Togo during the last 10 to 15 years has been an increase in enrolment at all levels of education. The gross enrolment ratio (GER) in primary school was over 100% for several years. This rate does not indicate that Togo has achieved Universal Primary Education APU, but that the education system is theoretically capable of schooling all children aged 6 to 11 years. However, the reality is that the education system includes too many children beyond the school age at all levels, because they start school late, and there is an excessive number of repeaters. The Togolese education system is therefore facing a double challenge: (i) to ensure availability and adequate allocation of resources in disadvantaged settings, and (ii) improve primary education efficiency by reducing repeater rate, which currently constitutes a waste of resources and induce children to drop out).

153. The development of informal sector access (EDIL-School local Initiative) to education was a response to the inability of government to increase the provision of education services to meet growing demand in this area. Indeed, there has only been a minimal investment in public school structures (often only through foreign financing) in recent years.

154. For equity reasons and to increase opportunities for the poorest to have access to schooling, the Government should reduce families’ contribution to the financing of primary education by the cancellation of school fees and the gradual disappearance of teacher- parents. The cancellation of school fees must be accompanied by a financial grant from the Government to compensate for the shortfall in the operating resources for schools. The disappearance of teacher-parent from community schools (EDIL) should involve training and retraining of most of them as auxiliaries.

155. For all education stakeholders in Togo50, the most urgent priority is certainly in the short term, to reduce repetition and intensify the retention in primary education. An education of good quality contributes to an increased demand in education. It has been shown that

ensure excellence for all, in such a way that results are recognised and measurable by all, especially as concerns literacy, maths and basic knowledge. . 47 Education for all 48 The IMOA indicative framework is a set of limited indicators on educatonal policy, service provision and financing drawn from empirical analysis of a group of low-income countries. 49 Fast track initiative 50 It is estimated that in Togo (according to schooling data) an additional point for repeating is associated to 0.51 points less in the event of retention. 37 primary school produces high rates of return on personal and social level. But children must first succeed in school. They must obtain satisfactory results in learning in order to reduce the possible reluctance of parents to schooling. An education system that maintains a high rate of repetition can only reduce the value of education among parents whose children fail. However, the repetition seems to be firmly entrenched in the psyche of teachers and parents as an indication of the academic rigor and high standards for teaching/learning.

156. International experience shows that reducing repetition can only succeed through the effective implementation of administrative reform prohibiting the repetition one year out of two. To succeed, this reform must be accompanied by measures to raise awareness among actors and taking pedagogical measures for the weakest pupils. Based on successful reforms in other countries (Benin and Guinea, for example), Togo could establish a new policy organizing primary education in 3 sub-cycles within which repetition is no longer allowed.

157. There is a need for targeted public investment in the national construction of schools, at least in primary education. There would in generally be enough primary schools to house all children of school age51. However, the location of primary schools is unbalanced at two levels: (i) an inadequate provision of school facilities in rural areas, such as in the region of Savanna, and (ii) Local Initiative schools (EDIL) of lower quality in terms of educational environment are more prevalent in these communities. The recommendation to the government will be to invest sparingly in the construction of new primary schools, while ensuring that disadvantaged regions are targeted first for any public investment support (as well as the allocation of foreign financing). A map of schools should be developed (updated) on the basis of appropriate consultations with targeted beneficiary communities. This school map should present the average distance (in kilometers) between primary schools and homes in the rural areas (where the problem is most acute).

158. Support for a system of training with multiple courses and double shifts could contribute to intensify access and efficiency of primary education. The construction of new school facilities will not be economically feasible in several remote poor areas. In addition, the government will not be able to find enough teachers willing to accept to be deployed to hardship posts. As in several other countries (including OECD countries), the multiple class education system is encouraged (the model Escuaela in Colombia) as a financially sustainable solution and a practical solution to ensure education for all in areas with low population density. The evaluation of students has shown that results in the current multiple class system is as good as those of other types of academic organizations, if adequate materials and learning support are available. The double shift system is a viable option for improving service delivery. The double shift system is quite common in many educational systems in low and middle income countries (for example, until recently, Singapore had a double shift system at the primary level). The problem with the double shift system is that it could be constraining to devote lot more time to education, especially when teachers spend a fair amount of time on organizational tasks rather than teaching.

159. In terms of quality (learning of students), the PASEC52 study conducted in 2000/01 in French and math for students in CM1class has shown that the performance of Togo was slightly higher than in the average French-speaking African countries. Nevertheless, there is some room for improvement, insofar as some countries like Burkina Faso and Madagascar have better results

51 There is some uncertainty with regard to demographic data, because the last census was conducted in 1981. 52 PASEC is the Program for the analysis of education systems in Confenem (Conférence des Ministres de l’Éducation nationale ayant le français en partage) 38 without large differences in economic and social conditions. Moreover, even the best performing country in Africa was behind all OECD countries (International Programme for assessment of students - PISA), showing the necessity of improving the quality of learning in Africa in general and Togo in particular.

160. The CSR has analyzed the factors (the educational means) that have a positive impact on learning achievements in primary . The econometric analyses have shown that the priorities for improving the quality of education in primary education in a cost-effective manner are: (i) recruitment of women teachers, (ii) the provision of textbooks, ( iii) the recruitment of teachers who have successfully completed the first cycle of secondary education, and (iv) the initial and continuing vocational training of teachers.

161. In particular, the government should focus on the initial and continuing training of teachers to improve the quality of education. Currently, Togo has no teacher training schools. The teacher training institutions have been closed and/or converted for other uses. This means that no new teachers entering the career of teaching receive any sort of initial training. This need for training is particularly true for the many EDIL teachers “teacher-parents”53.

B. 2- Improving the quality and externa efficiency in Post-Primary Education 162. A problem facing Togo is that its economy is characterized by a strong discontinuity, whilst continuity dominates the education system. The country's economy is of a dual nature with a significant discontinuity between, on the one hand, a modern economic sector which represents only a limited number of jobs which do not grow or grow very slowly (the number of jobs in the modern sector is now more or less the same as it was fifteen years ago), and on the other hand, an informal sector which provides the largest proportion of jobs and is characterized by a strong downward trend in agricultural employment and a significant increase in informal jobs outside agricultural employment (and unemployment).

163. The education system is, for its part, characterized by a strong trend towards continuity. This continuity is illustrated by the fact that when a student has completed a cycle (whether primary, secondary or 1st or 2nd secondary level) his or her parents aspire to make it to the next school cycle. This continuity is also included in the construction of curricula whose contents in a given cycle are not primarily designed to allow employability, but rather access to the next cycle. In addition, we can see that a significant part of the overall selection in the education system of Togo (two-thirds of the overall selection) has its origins in the dropouts during a cycle, rather than by marked transitions between cycles or chosen by the decision makers of educational policy.

164. There are forces within the education system who seek to shape the dynamics of its developments. But international experience shows unambiguously that the structural decisions for education systems must take into consideration the demands of the economy, in terms of quantity and quality. They are the ones who actually determine to a large extent job structure (the hypothesis that training creates employment is not verified empirically54) and the system of

53 EDIL teachers are often selected from persons who completed primay schooling, whereas it is very probable that teachers in public schools completed primary and/or secondary school In addition, teachers from the latter category sit for examination to be recruited as contractual teachers (teaching assistants). 54 International research shows that the phenomenon of self employment in the modern sector of the economy is only marginal. 39 education and training cannot deviate very much from job prospects actually available55. In this context, the educational policy decision-maker has necessarily difficult choices to make as he seeks on the one hand to respond to two requests which are becoming increasingly difficult to reconcile: on the one hand individual requests that require continuity and demands of the economy where discontinuity is a fundamental characteristic for the next 25 years.

165. In the present situation, there is a structural imbalance in the educational system of Togo between the basic education system (first primary school, then the junior secondary) which is given insufficient attention, and the higher level (senior general and technical secondary and higher education), which is quantitatively too developed in the light of the available jobs, especially in the area of the modern sector. This creates unemployment, under-employment and frustration of graduates at the individual level and misuse of public funds at the collective level.

166. This situation results from an inadequate regulation of flows of students that has led to a growing number of young people to move towards the highest levels of the system without further budgetary resources accompanying these developments. Increasing and surplus numbers of individuals have thus been produced at these levels, but these numbers were also progressively poorly trained given the constraint of resources.

167. In recent years, there has been an increase in students in secondary schools, due to a less rigorous transition between primary school and the two cycles of secondary education. Today, 80% of primary school leavers enter junior secondary school. The same increase in enrolment was noted in the field of technical and vocational training and in higher education. For a number of years now, there has been an ’’excessive’’ number of university graduates compared to the absorptive capacity of the labor market, resulting in high unemployment (30% for individuals aged 25-34 having finished in higher education) and underemployment.

168. In addition to the systemic imbalance in the numbers and funding, there is an imbalance of a qualitative nature, with an excessive emphasis on academic sectors on the one hand, and legal and literary sector on the other to the detriment of scientific and professional courses that are more demanded on the job market. It should be noted, however, that while redefining the course orientation with a view to better meet the quality demands of modern labor market is important, it does not substitute for a check on numbers of students at a global level.

169. This aspect is important for two reasons: first, the quantitative absorptive capacity of the labor market is structurally limited and there is a need to better respond to qualitative requests (different types of training). The second reason is of a budgetary nature, knowing that there is a clear need to improve the quality of existing courses (increase the resource per student) and create new courses (usually more professional and more expensive), and that limited resources imply a new appreciation of arbitration between the quantity and quality..

170. In the anticipation of sector planning policy, it is recommended to reasonably calibrate the size of higher education, and to consider that the numbers of students in the second cycle of secondary school should anticipate the student size in higher education. This approach allows to aim for a good quality of services (course structure, content of training, supervision of students) and to protect higher education from excessive pressure for its extension.

55 This should not be interpreted too rigidly since the order of magnitude is what is important rather than the specific number. 40

171. The empirical analysis suggests that in the economic context of Togo as expected for 2020 (high growth assumption), the number of students should be around 350 students to 100 000 inhabitants, or about 31 000 students in 2020 if one wishes to maintain less than 30% unemployment rate (which is already a high figure) of trained students at this level. During 2005, there were already a little over 28 000 students (459 students to 100 000 inhabitants). In technical terms, the recommendation would be to stick to this goal of 31 000. However, on a more political level56, this option may be difficult to maintain and a more realistic goal is that of 40 000 students in 2020. This corresponds to an increase of 43% in the number of students in higher education compared to the situation in 2005, but the maintenance of the statistical number of 459 students per 100 000 inhabitants in the country

172. In terms of reforms, this policy means (i) the application of quotas for the numbers of places available when starting the two cycles of secondary education and higher education, and (ii) strengthening of short term training formulas for students who will be removed from the general education system for a better employability in the informal sector.

56 But not really social since if it is believed that possible social tensions will be eased by authorising the development of high numbers of university staff, future tensions may arise if degree holders have a higher probability of not getting a skilled job, or worse still none at all. 41

Promotion of Private Sector for Sustained Growth and Sustainable Development

173. The recovery of the Togolese economy to generate sustained growth and sustainable development goes through reform and recovery of several critical sectors including the private sector, the production sectors, infrastructure and agriculture. In this regard, it is also essential that the development of these sectors is aimed at improving the competitiveness of the real economy. This involves the implementation of reforms to remove constraints that hinder the emergence of a robust private sector, which is an engine of economic growth. The agricultural sector still occupies a prominent place in the Togolese economy with about 40% of GDP and employs nearly 70% of the active population, it is therefore, essential to devote special attention to the analysis of this sector especially for rural and job-generating growth. The promotion of sustained growth and sustainable development will also require upgrading of development infrastructure including an organized urbanization.

E. Promotion of the Private Sector

174. The diagnosis of the economy reveals globally a narrow productive base essentially made up of a subsistence-based agricultural sector (over 38% of GDP), a tertiary and services sector with no direct link with domestic production (over 2/3 of GDP), and an industrial sector only partially integrated with the rest of the economy with an embryonic modern private sector. The problems and constraints discussed in this section cover those related to relaunching the private sector and to improving the competitiveness of the Togolese economy for sustainable growth and led by a robust private sector. Despite the reforms and measures taken to support private initiative, it is clear that this sector is hampered in its growth by numerous problems involving institutional, regulatory, legal and judicial, market, production, marketing, access to financing, and competitiveness issues.

A.8 - Key Constraints to the Renewal of the Private Sector in Togo

175. Institutional problems. On the institutional level, we note the presence of a multitude of support structures for the private sector and a predominance of the public system and para-public sectors such as the Chamber of Commerce and Industry of Togo (CCIT), the Regional Chambers of Agriculture (CRA), the Advisory Council of Trades (CCM), the Managing Company of the Free Trade Zone (SAZOF), and the Network of Private Consulting Firms (RCCP). However, the institutional environment remains uncoordinated resulting in a multitude of structures, overlapping missions, lack of coordination, an inefficient mechanism that lacks critical mass, roles only partially accomplished and several weak structures with poor staff and no technical support, no export promotion and no financing support for their interventions.

176. In terms of Governement /Private Sector relationship, there is an inoperative framework for dialogue between government and the private sector, several administrative support services that are however characterised by their inability to meet the needs and requirements for quality service. There are also several private sector professional organizations and associations such as

42 the National employers’ Board (CNP), the Association of Enterprises Approved in Free Zone (ASEAZOF) and the Togolese Group of Small and Medium Enterprises (GTPME/PMI). The problems of state/private relationships are also characterized by (i) the bureaucratic red tape in the processing of files, (ii) the lack of or absence of economic, commercial, industrial, and agricultural information, as well as unavailable current statistics, (iii) the lack of communication between ministerial departments and lack of efficient working tools, and (iv) the corruption and strong centralization of public services. These problems are compounded by the outdated and obsolete nature of legislation on the business world and the weakness of the authorities responsible for collection of tax and customs duties.

177. Regulatory, Legal and Judicial Environment. The legal and judicial environment remains marked by a judicial system that is not adapted to the requirements of economic development and the expectations of investors. It is characterized by an inadequate training in commercial, maritime and banking law, lack of publications on jurisprudence, staff shortages, and of equipment and materials. It is also characterized by: (i) the lack, in practice, of a real independence of the judiciary vis-à-vis the political and executive power, as part of the separation of powers otherwise recognized by the Togo Constitution; (ii) the absence or inadequacy of commercial and labour courts in the country, (iii) the submission of disputes arising under commercial or labor law to the ordinary courts whose members often do not have the qualification or skills required, (iv) problems related to political pressures exerted on the judiciary by interest groups, (v) poor legal interpretation of the content of the applicable laws, (iv) legal insecurity that exists in the business world because of texts which may no longer correspond to current economic situation, (vii) lack of equipment, (viii) insufficient training of judges and court officers, (ix ) the exorbitant rates of certain taxes and customs duties, (x) the repeated withdrawals made by the Governement from the coffers of public enterprises and parastatals, and finally, (xi) the problems of collection of credits and bank loans resulting from difficulties of Justice to make decisions or take legal action against defaulting creditors.

178. In the legal and judicial area, the legal obligations applicable to the business community in Togo are from the provisions of the Civil Code inherited from the era of French trusteeship, combined with those of the Commercial Code inherited from the same period. The efficiency of the judicial and legal environment of the private sector requires a good judicial administration to ensure security of affairs. But the judicial system in Togo is no longer adapted to the requirements of economic development and the expectations of investors. This environment is characterized by weaknesses such as inadequate training in trade, maritime and banking law, the absence of publication of the law, lack of support staff, and aging of equipment and materials.

179. The establishment of the rule of law in Togo must be translated in reality, inter alia by a sustained promotion of private enterprise assured by freedom of trade and industry, guaranteed by a more efficient and effective judicial or arbitral set up. It is in this vein that the OHADA uniform acts were adopted a few years ago. They were adopted to ensure a common modernization of affairs in the Member States of UEMOA to ensure business security.

43

Rule of Law

1996

1998

2000

2002 Rule of Law 2003 (percentile rank 0-100) 2004

2005

2006

0 10 20 30 40

Source: 2007 Worldwide Governance Indicators

180. In recent years, a program for modernizing the justice system has been underway. The European Union has supported the Togolese government to prepare a study on modernization of the judicial system in Togo. But the uniform acts can not be effective unless they are really applicable and applied in all UEMOA countries after ratification. In Togo, no decision on ratification of acts of OHADA uniform acts has been taken.

Quality of a Regulation

1996

1998

2000

2002

2003

2004

2005

2006

0 10 20 30 40 50 60 70

Quality of Regulation (percentile rank 0-100) Source: 2007 Worldwide Governance Indicators

181. The application of the uniform acts could therefore be legally challenged, as could the validity of all legal acts, judicial decisions, contracts signed on the basis of the uniform acts. Thus, solutions must be found to avoid that revocation of acts and procedures relating to business laws result in a legal imbroglio far more disastrous than the situation prior to OHADA.

182. In order to create a favorable environment for the promotion of private sector and business development in Togo, necessary reforms were started. A critical analysis of these various reforms will be made (taxation, customs, mining code, code of investment, procurement code, etc.), highlighting their strengths and weaknesses.

183. Customs Policy. Between customs and the wealth and job creating company are now established privileged relations of partnership. Thus, the customs administration supports the constraints faced by traders, linked to developments in the domestic and international environment, adapting its methods and procedures to the needs of commerce and industry. Regarding the guidelines and regulations on customs matters, the Government derives most of its

44 fiscal policy from the WAEMU directives. Under the analysis of the fiscal system, tax provisions provided by the customs union which includes eight (8) countries including Togo, entered into force since January 2000.

184. Indeed, the WAEMU objectives are, inter alia, to create between Member States, a common market based on the free movement of goods, services and capital. Thus, the customs union seeks to make the WAEMU region more attractive while making investments profitable.

185. In addition to the harmonization of legal practice in the Union, a system of protection of industrial activities against competition is established through the adoption of a Common External Tariff (CET) reinforced by safeguard measures. The Common External Tariff (CET) is applicable to goods from outside the area. The CET is composed of four (4) permanent rates and two (2) temporary rates. The four rates represent the custom duties and vary according to the categorization of products. They are 0%, 5%, 10% and 20%.

186. The tax benefits for investors under the Customs Union are the elimination of tariffs on products and goods originating from the WAEMU zone. Thus, commercial companies that import products from the WAEMU zone for resale in the same area or outside the Union become more competitive by making available to consumers, consumer goods at an acceptable cost. The industrial companies that import raw materials in the area will also be competitive.

187. However, some weaknesses need to be highlighted in the implementation of the common market, namely: (i) the excess pressure on firms by the exit tax system (‘fiscalité de porte”) (ii) the red tape relating to customs formalities, and (iii ) insufficient customs staff to provide appropriate services to users, (iv) the multitude of checkpoints outside the Port Authority of Lome, (v) inadequate equipment and infrastructure for the agencies responsible for border controls; and finally (vi) the lack of data sharing between customs services and a lack of harmonization of procedures within WAEMU. All these weaknesses are significant barriers for private sector development and regional integration.

188. Internal Fiscal Policy. In the area of taxes, there is a very strong fiscal pressure on business, sometimes characterized by double taxation. The Value Added Tax (VAT) for example is uniform for all products, which is unacceptable in universal tax practice. Accordingly some products turn out to be very expensive to consumers.

189. In Togo, the domestic tax policy is regulated by the General Tax Code of 1913 amended in 1985. Since 1997, the Government has been applying a single 18% of VAT (Directives No. 02/98/CM/UEMOA) that operators and consumers consider too high. Broadly speaking, the tax system of Togo and professional taxes are a heavy financial burden for SMEs, which affects the prices of local products. The tax system of Togo and professional taxes are a heavy financial burden for SMEs given the absence of any accompanying measures aimed at alleviating the financial burdens on young companies at the beginning of activities and this often leads to the disappearance of these infant enterprises.

190. In addition, tax impositions do not take into account the gloomy economic context of Togo and which naturally works against all the efforts of SMEs. The revision of tax legislation should therefore stick to a few simple principles namely: (i) provisions that would help reduce the size of the informal sector (simplification of levies, lower tax rates, tax on the outward signs of wealth); (ii) the effectiveness of the collection method (low cost, high yield) (iii) non- discriminatory taxation: progressively phasing out of previous approvals, (iv) a stable and

45 attractive tax for investors (compensation for certain adverse factors such as the problems of power outage), and finally (v) a regular consultation with economic actors.

191. Investment Code. Since independence, Togo has had four successive investment codes. The latest in 1989 was tacitly suspended in 1996. The current void in the Investment Code has not been filled by the proposed Community Code of WAEMU which has not been developed so far.

192. According to private operators, the absence of a national code of investment is a major obstacle, because it penalizes investment promotion at a time when the enactment of the Community Code of WAEMU in the current context has become uncertain. Other countries continue to use their National Code pending the implementation of the Community Code. This situation has forced Togo to set up an inter-ministerial team to prepare the preliminary draft of the new national code of investment which is expected to be submitted soon to the Council of Ministers.

193. Land Code. The need for a Land Code is essential to ensure legal security of transactions and investments by private operators in Togo. A study on the tenure system was done in 1999. It revealed that there is a range of texts dating from colonial times, but not codified in the form of a land code that could facilitate the control of land by private actors. There has been an agricultural land reform since 1974, but no special provision has been made on urban land. However, there is a need for regulation of land (both urban and rural areas), given the anarchic development of towns and cities across the country and the volume of disputes relating to urban land. It should be possible to have a single legislation on land reform encompassing rural and urban land, like what is done in other neighboring countries (Burkina-Faso, for example).

194. Public Procurement Code. A new code of public procurement has been promulgated (Ordinance No. 96/006/PR). It allows for the splitting of public contracts to enable access to SMEs, groups of agricultural producers, worker cooperatives of production and craftsmen. It also includes specific provisions to encourage national enterprises. It specifies the modalities and timetable for the administration to pay and provides special provisions for settling disputes. Within the framework of the improvement of public procurement code of WAEMU, a vast program is being undertaken to support all Union member countries to update their procurement codes to make the process more transparent to all stakeholders. In addition, regulations at the Communty level will enable economic operators to use the appropriate courts in their respective countries.

195. Labor Code and Collective Bargaining Agreements. The new labor code adopted in December 2006 has foreseen a series of innovations covering: (i) provisions on employment contracts, including fixed-term contract with the institution of an allowance for precariousness, (ii) the recruitment on probation, (iii) cases of suspension of employment contract, (iv) the abusive breach of fixed-term employment contract, and (v) the collective dismissal on economic grounds, (vi) the substantial change of employment contract, (vii) the obligation to issue certificates of employment, and (viii) new conditions for exercising the right to strike..

196. Mining Code. The new mining code was approved by the National Assembly in December 1995 and was promulgated on February 16, 1996. The fundamental principle of the mining code is simple: dealers must obtain from the Department of Mines, operating licenses or artisanal permits in exchange for the payment of royalties.

197. However, two articles of the draft Mining Code appear to contain inconsistencies: Article 55 stipulates that any company awarded a concession will attribute, free of charge, 10 to 20% of

46 its shares to the Government. This provision, most probably unenforceable, fundamentally contradicts the current policy of disengagement of the Government from the productive sector. Besides, Article 60 deals with the procedure for settling any disputes between the concessionaire and the Government. Inspired no doubt by the apparent legal gap of business law, the provisions of this Article provide three levels of procedures: (i) arbitration in a consultative capacity by independent experts, (ii) thereafter, in case of persistent disagreement the final decision is taken by the Minister in charge of mining, and (iii) in case of dispute of the ministerial decision, the concessionaire has the opportunity to appeal to the common courts.

A.9 - Financing of the Private Sector

198. Private investment remains in the medium to long term, the main factor that would generate economic growth and employment and thus fight against poverty. But private investment cannot occur in the absence of funding availability which is one of the key problems of private sector development in Togo.

199. The analysis of available financial products from commercial banks shows that these institutions offer direct credits (regular loans and seasonal credits) and commitments by signature. The direct credits are generally short-term loans. These banks however, also grant medium and long term loans whose share in the portfolio remains relatively small, while private investment, likely to generate strong growth (processing, etc.), would rather need medium and long term credit. The credits from these banks are in large part, oriented towards commercial operations. The signature loans and commitments mainly include documentary credits and guarantees granted to customers to enable them to solicit funds.

200. In addition, the constraints faced by local banks limit the access of private sector to financing from the banks. These constraints are both external (macro-economic situation, Government interference in business, quality of the dossiers) and internal (critical situation described above, bad lending policies, organizational problems, violations of banking regulations, etc.). However, the main obstacles to private sector financing must be sought in the lack of diversity of financial products offered by the banking system in light of actual needs of the private sector; the absence of a mortgage market does not facilitate ability of Banks to obtain collateral. Foreign direct investment which is also a source of private sector development faces constraints related to political instability in the country and the lack of a good and appropriate investment code.

201. On top of these problems mentioned above are others which also hinder business development in Togo. These include: (i) the existence of certain pressure groups hampering the development of formal business of economic operators, namely the practice of unfair competition, and (ii) the monopoly practice on certain products by groups of individuals engaged in dumping.

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F. The Mining Industry

202. Mining. Togo has large deposits of phosphates, limestone and iron. Only deposits of phosphates and limestone are currently exploited industrially. The contribution of extractive industries to GDP fell by 5.3% in 1998 to 2.7% in 200557. This decline was due for the most to the crisis in the phosphate sector. Management of the Togolese Phosphates Office (OTP) was entrusted to IFG-TG (International Fertilizers Group -Togo) in 2002. With this new company, production increased in 2003 to fall again in 2004 and thereafter. This situation has been partly due to ageing equipment which for the most part has reached its useful life but have not been renewed. The production of phosphates was located at 1 million tons in 2005, well below potential.

203. Based on the potential such as phosphate content, the ease of the extraction process, the quality of equipment, the available manpower and fluctuating results recorded by phosphate company, the Togolese authorities recently decided to dissolve the company and to replace it with the Société Nouvelle des Phosphates (SNPT) of Togo. The SNPT has signed a financing contract with the Islamic Development Bank. This funding agreement amounting to 45.11 million is expected to be used: (i) to strengthen the productive capacity of the new company by acquiring new equipment, (ii) to repair and rehabilitate some of the dilapidated equipment; and (iii) to increase working capital. The rehabilitation of the sector which will result in additional phosphate exports could increase the contribution of the sector to to 5%, according to IMF estimates.

204. Regarding the extraction of limestone, it is done by a private company called the West African Cement Company (WACEM). The latter supplies the two (2) Togo cement companies installed in Lome one of which, WACEM, is established in the free zone since 1999 and another Société des Ciments du Togo (CIMTOGO), supplies the domestic market

205. In general, mining plays an important part in the trade balance of Togo. It is necessary to make a thorough study of the phosphate industry, to restructure this production unit not only by providing it with financial resources but also technical resources, as Togolese phosphate is appreciated at the international level. It will be necessary to carry out a deep restructuring of the sector, starting with a financial and strategic audit of the sector. Following the audit, it will be important to create a steering committee for the implementation of the recommendations resulting from the strategic/financial audit and formulate a development plan for the Société Nouvelle des Phosphates of Togo (SNPT). To ensure better governance of the sector, it is important that the SNPT prepare and publish its annual sales of phosphate. The new company should already set up a redeployment plan for staff that would seek staff reduction in both the departments dealing with production and administration, and by establishing clear rules of good governance, such as the establishment of an external monitoring and audit, and effective functioning of the organs of management and compliance with administrative and financial procedures. .

B. 3- Oil Products and Natural Gas

206. Togo has no operating Units for oil and gas reserves. Since 1998, prices of petroleum and gas products are regulated by a Committee responsible for monitoring the fluctuations of prices of oil products (CSFPP), in collaboration with the Council of Ministers.

57 (Cf. baisc macroeconomic indicators, 1998-2004). 48

207. For several years, the fluctuation of prices has had an impact on the functioning of several industries, increasing operating costs, which in turn are passed on as increased costs of finished products to consumers. It should be noted that there was an effort made by government at some point to grant subsidies to gas-oil used mainly by industries, butane gas for food preparation and kerosene used for lighting in the villages.

208. This measure by the Togolese authorities, although useful in easing production costs of industries and likely to reduce costs for low-income households, should go beyond this and look for opportunities for energy substitution. To this end, the offshore exploration of the Norwegian company Petroleum Geo-Services AS (PGS) is to be relaunched for the search of oil in Togo.

G. Infrastructure

209. The improvement of infrastructure at all levels is a priority for the restoration of production capacity and economic recovery of the country. The report will examine in a selective manner the existing infrastructure services.

C. 1- Electrical Energy

210. Togo is unable to cover its needs in electricity. 90% of these needs are covered by imports (with the hydro-electric complex of Lake Volta covering about 75% of these electricity imports). The supply of electric power in Togo is provided by two companies: the Compagnie d’Energie Electrique du Togo (CEET), which has had a monopoly on distribution and sale of electricity inside Togo since February 2006, and the Communauté Electrique du Bénin (CEB).

211. In addition to these two (2) companies are the auto-industrial producers or individuals who provide their own supply by using generators. The CEET buys its electricity from the CEB, in addition to its own production from central thermal Diesel powered plants and the Kpimé dam. The electricity supplied by the CEB to the two markets of Benin and Togo comes from energy produced and imported from Côte d'Ivoire and Ghana (70%) and local production (30%).

212. The new 2001 Benin-Togo electricity Code not yet ratified by the respective assemblies of the two countries, confirms CEB’s status as a single buyer and its import and transport monopoly for voltages greater than 61 KV. However, the draft code identifies opportunities to entrust new production units to new producers. This openness will make energy supply competitive in the two countries and hence will be favorable for improving private sector activities, provided that their production costs are controlled.

213. This liberalization would limit the strong dependence on the two countries, Ghana and Cote d'Ivoire who themselves need an increased supply of energy for their economic growth and for meeting the needs of their increasing populations. However, higher prices of electricity or a policy of increasing prices of electric power are not likely to help in developing competitive activities at the industrial units of production. Indeed, the price difference doubles between the cost of electricity production in the concerned countries (Togo - Benin) compared to prices offered by the exporting countries of Ghana and Cote d’Ivoire.

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214. In order to limit the economic loss occurred as a result of difficulties in the supply of electrical energy, substantial investments should be made rather quickly to strengthen the productive capacity of existing power plants and to diversify sources of supply. In addition, extensive research must be undertaken to develop new energy sources best suited to the case of Togo.

215. With regard to supply of Togo in gas, its production capacity of electricity should be increased after the inception of the pipeline project planned by the West African Gas Pipeline Company Limited (WAPCo). Indeed, four (4) countries namely Nigeria, Ghana, Togo and Benin, in seeking solution in terms of regional cooperation, have planned a project pipeline of 620 km, which is expected to link Lagos (Nigeria) to Takoradi (Ghana), with connections in Cotonou (Benin), Lome (Togo) and Tema (Ghana).

216. The construction of this infrastructure began in September 2005 at Takoradi. The first deliveries of gas through the pipeline would be expected in 2008 and will help to alleviate the suffering, both for economic operators and households, affected by drastic outages caused by load shedding during the last two years (2006 and 2007).

217. In light of all these considerations, diversification of supply sources is needed, as well as exploitation of enormous opportunities available to Togo and Benin on setting up hydro-electric infrastructure, such as the construction of Adjaralla dam on the Mono River. Also, rehabilitation and maintenance of power plants should be pursued by the CEB and CEET.

C. 2- Hydraulic Infrastructure

218. In Togo, distribution and marketing of water are done by the Société Togolaise des Eaux (TdE). The Company has a monopoly for the production and distribution of drinking water and management of sanitation works and wastewater in Togo.

219. In terms of drinking water supply, the company intervenes in three (3) areas: rural, semi- urban and urban areas. Whatever the zone of intervention of TdE, drinking water remains a nationwide concern. These difficulties are linked to the funding problems facing the sole company distributing water. Both households and firms find that the water tariffs applied by TdE are too high, and the erratic supply of water to companies that often penalizes the normal evolution of their production activities.

220. Broadly speaking, the lack of infrastructure for providing drinking water is a problem both in urban and rural areas, exposing a large portion of the population to waterborne diseases. In addition, women must spend a lot of time looking for water, which becomes a chore affecting the enrolment of girls in school and women’s participation in income-generating activities (AGR). In addition to the inadequate production and distribution network, the sector is also marked by a lack of legislation on water, leading to uncontrolled production by private individuals.

221. Given the situation in the sector, the government must implement measures to reduce the costs of providing water services, while practicing consistent tariffs that would enable the production unit of the company to be as profitable as possible in order to increase its self- financing capacity. In this vein, privatizing the commercial management of the company may be necessary, coupled with a sub regional integrated approach to search for the means of solving water problems, similar to that of energy.

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222. Also, the priority objectives of government should be to meet the basic needs of drinking water for the population as well as water needs for production while taking into account the provisions of the National Action Plan for the Environment.

223. This will ensure effective management by reducing losses and waste, and by implementing a development plan to look for promising alternative resources for the production of water. The basic strategy will focus on liberalization of the water sector. Emphasis should be placed on improving the quality of services and infrastructure in this area.

C. 3- Maritime Transport

224. The Port Authority of Lome (PAL) provides the bulk of port services related to international maritime activity and handles 80% of commercial activities. The PAL is the only deep water port of WAEMU, which can accommodate tankers and bulk grain carrier that have a draught of at least 14 meters. It is also the only one to have space for storage, because it is situated near the city of Lome. It therefore plays a vital role in national development and serves as a transit hub for the hinterland countries.

225. The volume of goods handled in 2005 was over 80% more than in 1999. This trend is mainly due to higher traffic volume imported in Togo (hydrocarbon bulk imports and additional imports linked to the crisis in Côte d'Ivoire), the PAL ensuring a greater part of transit traffic to Sahel countries including Burkina Faso and Niger.

226. Despite these results, the PAL faces competition from other ports in the sub region as regards the transit supply of landlocked countries, partly because of poor state of the road network of Togo. Despite the privatization of handling activities in 2001, this Department is still experiencing significant management difficulties and problems adjusting its activities to the tax procedures in force in the country. In addition to handling activities, all the other port and paraport activities are reserved at the PAL, including the container terminal operated by a concessionaire.

227. On the organizational level, the PAL has problems of organization as well as outdated technical equipment (technical direction, harbor works, etc.). The PAL is currently characterized by overstaffing and staff skills are not always suited to their posts. An organizational study (audit) will help to better understand these problems. A number of investment and measures are necessary to make the port more competitive. The Directorate of PAL has proposed investments that would help improve the efficiency of port activities. These investments include the construction of bypass roads to Alédjo and Défalé to facilitate access to carriers of Burkina Faso, Mali and Niger; retention and development of a place outside the port for unloading and parking containers; development of port infrastructure, including parking lots and construction of a new fishing port.

C. 4- Air Transport

228. In this area, the country has two international airports in Lome and Niamtougou. The management of the airport in Lome entrusted to a mixed economy company, namely the

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Aeronautical Society of Lome Tokoin (SALT), welcomed 218,996 passengers and handled 9361 tons of freight in 2005, for a capacity of ten thousand (10,000) tons of freight and seven hundred thousand (700,000) passengers per year. This situation is due to the fact that Togo is no longer a magnet for tourists, investors, businessmen, tourists, because of the socio-political crisis that prevailed for a long time. Faced with this situation, Togo would gain much by improving the socio-political environment, through the pursuit of peace and dialogue between all components of civil society and political life.

C. 5- Road Transport

229. The Togolese road network is estimated at 11,672 km of which (i) 1724 km of paved roads, representing 14.77% of the entire road network, (ii) 1355 km of unpaved roads, (iii) 6802 km of rural roads and (iv) 1783 km of urban streets. The network includes only 20.6% of highway asphalt, while the road provides 98% of traffic. Before 1997, the state of the roads was characterized by an advanced level of degradation on a large portion of unpaved and paved roads resulting in an increased overuse of road vehicles. Thanks to road transport projects and the Road Maintenance Fund (ERF) established in 1997, improvements were made to obtain an acceptable level of service of the national road network. Thus the state of national road network increased from 80% in good state in 1997 to 92% at the end of 2002. However Government having only its own meager resources for maintenance since that date, the rate of roads in good condition declined again and now revolves around the 1997 level. But these roads provide 98% of traffic. The paved roads are largely in a very critical state, because of the lack of periodic maintenance and monitoring over the past ten years. Since 2002, only FER provides routine maintenance of the national road network. Created in 1997, the resources of FER consist of: (i) the levy on petroleum products and the road tolls, this by special dispensation from the general principles applicable to public accounting.

230. The urban and interurban transport of passengers is provided by private operators generally in the informal sector. Freight transport is also provided by private operators according to rates set by the Government and adjusted regularly. Regarding the regional transport of goods, the necessary mechanisms regulating the operation of the Inter State Road Transit (ISRT), in accordance with the agreements signed to this effect between the member countries of ECOWAS, are not fully in place.

231. Togo Rail, company operating along private lines, has been operating since December 2002 two railway lines, one linking Lomé to the centre of the country and the other in the southern part. Passenger transport by rail is no more operated since 1996, because it is deemed unprofitable.

H. Service Industries

232. Services contribute significantly to the GDP with a predominance of commercial services. This is due mainly to the development of maritime transport and related commercial activities, as Togo plays an important role in transit of goods to landlocked countries, including Burkina Faso.

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D. 1- Posts and Telecommunications

233. Togo has a modern and equipped telecommunications network, which enables secure services throughout the territory. In recent years, the number of subscribers has grown steadily. An analysis of recent data shows a rapid expansion of information technology and communication and mobile telephony, with the emergence of two (2) mobile phone companies (Togocellulaire, a subsidiary of Togotélécom created in 1998; and Télécel which has become Moov, which started its activities since 2000). The three providers of Internet connection (Togotélécom, Café computer and e-Process) have served 17 providers of Internet access for individuals and managers of Internet cafes.

234. In comparison with neighboring countries, the rates of fixed-line phones are high and do not yet provide the advantages offered by ICT (Information Technology and Communication). Given the many jobs and opportunities offered by this niche, the Government should provide incentives to promote the development of activities in this area by organizing awareness and information and training sessions for Internet cafes managers in order to make them true professionals.

D. 2- Insurance Services

235. Insurance services are provided by ten companies including seven operating in non-life insurance and three in life insurance, for a capital of 6.7 billion CFA francs. Apart from the Société Fidelia Assurances, all these companies are in majority owned by foreign interests.

236. The 10% Tax on Financial Affairs (TAF) affects the turnover of all companies providing financial services including insurance. It would be useful for the Government to provide support to insurance companies, to educate, inform and train the users of that sector, showing them the merits of the services provided by insurance, and this for the promotion of private sector itself and business development in the country.

D. 3- Tourism

237. Togo has an important potential for tourism and this sector is a major source of foreign exchange earnings of the country. The tourist industry had progressed well before the period of unrest that Togo experienced between 1990 and 1993. This trend continues and attention should be devoted to restore the sector's role of job creation and foreign exchange in the country.

238. The tourism sector still lacks a clear sector promotion policy and is especially characterized by concentrated efforts of the administration of tourism on the financial restructuring of state hotels. Hotelling and catering, travel agencies, car rental companies and crafts are the direct intervention areas where the private sector can contribute significantly to the development of tourism in Togo and must be supported. Of course, tourism can become for Togo a powerful factor to develop private initiative if the Government makes it a priority because it is a source which has important advantages.

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I. Urban Development

239. Togo is experiencing rapid urbanization, which translates into a rapidly growing urban population. From about 15% in 1970, the urban population has reached nowadays 36% of the total population. It is estimated that by 2025 the urban population could reach 65%. Currently, public administration in Togo is centralized and regional or municipal authorities have no financial means. They are therefore unable to provide and maintain infrastructure, making urban and peri urban areas difficult to live, especially for the poor who are faced with a non performing service delivery system. The urban infrastructure, neglected and not maintained for several years, is severely damaged or broken, and has become inadequate to serve the needs of a growing urban population.

240. The urban sector is characterized by a plethora of institutions with conflicting objectives and causing a lot of inefficiencies in public administration which is itself governed by outdated regulations and a myriad of systems that are not functioning properly

241. The urban sector is mainly financed by the Government and development partners. In 1999, nearly 65% of the financing of urban infrastructure services was provided by development partners. Since the country went into a situation of accumulation of arrears to the World Bank and other borrowers, the sector has benefited from insignificant investments, leaving the existing infrastructure in a poor condition.

242. The lack of maintenance of infrastructure and services58 in urban and peri urban areas is one of the major challenges facing the country. The deterioration of infrastructure and the provision of such services in urban areas of Togo result, in part, from the non reliability, unpredictability, and precarious financial resources that the central government allocates to municipalities. It is also due to the failure to have a systematic scheduled maintenance, to the non-renewal and under-investment in modern equipment and absence of technical expertise.

243. This lack of maintenance of urban infrastructure affects the provision of infrastructure services in all major cities and their suburbs. Lome, the capital, is most affected because of its demographic and physical situation, and also because of its position as the "capital" of Togo. Lome hosts about 58% of the urban population, exacerbated by an increasing rural-urban migration.

244. In addition, the market for urban land in Togo is in disarray. The lack of an efficient land market due to a false "competition" and a Government decree on land management have resulted in a stifling of land development and of urban housing and economic development relating thereto. There are several constraints to the efficient functioning of urban land market. These include: an outdated and incomplete regulatory framework: most laws and regulations date back to 1907. These constraints also include among others (i) a system of very poorly developed and ineffective land registration system (only a small percentage of land have title to them in Lome), (ii) the lack of an organized process of development of land, leading to an anarchic development, and (iii) a low urban land planning and space management based on short term models.

245. Togo also suffers from a highly centralized and binding administrative and political system, without any power devolved to local structures. It is organized into 5 regions, each

58 In Lomé, the Commune is increasingly turning to the private sector and civil society for provision of urban services as defined in a book of specifications and contracting of services. The Municipal services are decreasingly used. Even, inland local authorities are turning to these operators, even though the urban service run by the latter is insignificant. 54 divided into districts and sub-districts with urban and rural areas administered by municipalities and local governments. There are a total of 23 municipalities. The institutional framework (decentralization and development/urban management) for the management of urban areas of Togo is complicated and confusing, thus hindering attempts at decentralization and urban management. The poor coordination among stakeholders, the overlap in management, obsolete regulations and inefficient land practices have also contributed to a poor urban management in the cities of Togo

E. 1- Priority Reforms 246. It is necessary to decentralize and to clarify the responsibilities of central government and local governments, strengthening the capacity and role of local authorities; furthermore, it will be important to deconcentrate government services in order to facilitate dialogue between different actors for taking quick decisions at regional and local level.

247. GoT must transfer taxation authority/power on issues such as land and property, vehicle registration, hotel and hospitality, gaming, alcohol and liquor, and other such taxes to local governments. This should form the basis of the LGAs’ power to tax these activities and generate their own financial resources sustainably. In the interim, GoT must continue to use intergovernmental transfer system that is more transparent, reliable and done on the basis of a formula that is well understood by all citizens of the country, to make funds available to LGAs for their development.

248. The transactions in land continue to be the object of speculation and anarchy in Togo. It would be necessary to encourage the government to quickly carry out land reform in order to empower the State vis-à-vis the land. Land appropriation by the State would thus be in harmony with the management of land in other West African countries and reduce without doubt, the chaotic land management situation in Togo.

249. GoT must begin to advertise in national dailies and on the government’s website the amounts transferred to LGAs, the financial audit reports and budgets to put more information in the public domain and create better avenues for citizens’ monitoring of LGAs spending on development projects and also reinforce accountability and improve service delivery.

250. The local authorities must make every effort to involve their citizens in designing, implementing and monitoring all development projects in their areas. This would require the services of Community Development Specialists and the LGAs must look for these experts and employ them to help facilitate community mobilization and participation in the affairs of the LGAs. The share of LGAs investment programs based on communities’ needs should be part of the performance contracts the LGAs sign with the GoT as a result of transferred funds from the central level to the municipalities.

251. LGAs and municipalities must be made to sign performance contracts for specific time frames, say three years at a time, to achieve specific outputs and outcomes—viz. give communities a voice in decision-making on issues that affect their welfare, complete a certain number of projects, for example, extending water supply services to say extra 10% of people who hitherto had no such connection, etc. These contracts need to be monitored and incentives built in for those who perform according to the contracts. Those who fail must receive reappraisals and sanctions that will provide them the needed enthusiasm to perform better.

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252. The Government must clarify that movable and immovable commercial equipment are property belonging to local communities. It has therefore to take all necessary steps to resolve the problem of de facto occupation of some of this property by entities other than local governments (such as bus stations, which are occupied by the transport unions who keep all the resources generated from such property). Local governments must generate resources on such property to ensure self-financing and improving the services and quality of life of users of such property.

253. Local Governments and municipalities will be able to better fulfill their duties if they have qualified and motivated staff. It is recommended that these structures recruit their technical and administrative staff on a competitive basis. This requires: (i) job descriptions and clear terms of reference for key positions in all local structures, (ii) the organization of on the job training to strengthen the technical skills of staff. To avoid the brain drain to the capital city the local governments and decentralized services should seek, going more and more, towards a recruitment of regional or local competences.

254. Municipal Financing. Municipal taxes alone are not sufficient as a source of funding for major investments that require long-term financing, as is the case for urban infrastructure. To create a systematic and sustainable financing mechanism for local governments to borrow for infrastructure finance it is strongly recommended that—two central lending mechanisms, LGAs / Regional Development Account (RDA) and Subsidiary Loan Agreement (SLA) need to be put in place soon. At the inception these funds, LGAs must be restricted to borrow for financing infrastructure that “generates revenues.” However, for long term development reasons they could be allowed to borrow for slum upgrading or environmental protection.

E. 2- Medium and Long Term Actions 255. For Togo’s urban and peri-urban areas to sustainably grow, issues of urban governance and development need to be approached in a comprehensive manner, driven by well -guided policies developed in partnership with the people to support LGAs in carrying out their functions efficiently.. To meet evolving challenges of urbanization and decentralization, GoT must rationalize the roles of various levels of government and agencies and limit their numbers to limit duplication, strengthen the capacities of relevant sector institutions and coordinate institutional actions and investments.

256. Moreover, it is recommended that the Government: (i) clarify the roles and functions of national, prefectoral, and local governments while ensuring that coordination functions between them work well; (ii) separate urban policy and regulatory functions from implementation of urban projects by allocating implementation responsibilities to private operators or qualified state agencies under performance-based arrangements; (iii) ensure proper allocation of taxing responsibilities, develop and implement transfer of financial resources from the central government to the local governments on a transparent basis supported by simple and precise criteria; and (iv) strengthen the central government’s role in policy, regulatory, coordination, oversight and supervision. Contractualization of relationships between different tiers of government and benchmarking of performance must be prominent among the guiding principles that should govern the delivery of responsibilities of GoT, LGAs and their agencies.

J. Agriculture and Rural Development

257. The agricultural sector is an important source of economic growth in Togo and supports about 2/3 of the country's workforce. Indeed, it represented an average of 40% of GDP during the

56 past 10 years (1995-2005), and provided more than 20% of export earnings. During the same period, the Agricultural Gross Domestic Product (PIBA) grew at a faster rate than GDP. Unfortunately, public spending on agriculture has virtually collapsed due to the consequences of the socio-political crisis which affected Togo. The capital budget allocated to agriculture went from 10 billion CFA francs on average in 1988-90, to 0.6 billion CFA francs on average between 2002 and 2004. In addition, the capital budget for agriculture remains heavily dependent on foreign aid, which has contributed more than 85% of total agricultural investment during the past 10 years

Sector background

258. The main exported products are cotton, coffee and cocoa, and their share in the Agriculture GDP represented an average of 9% during the last ten years. Food crop production (cereals, tubers and legumes) represented approximately 68.5% of Agriculture GDP (PIBA) for the past 10 years. Overall, it has grown at an annual rate of 3.0% since 1991, this increase is due to a 40% increase in the area (1.2% per annum) and 60% due to increase in productivity (1.8% per annum). During the last 5 years, other sub-sectors contributed to the formation of PIBA as follows: 13.4% for livestock; 3.6% for fishing, and 5.5% for forestry.

259. As a result of land degradation, inadequate methods of production and unsound management of water, productivity has remained low and irregular for both foodcrop and cash crop production. The expected institutional support was weak or inefficient, particularly from research institutes (ITRA), whose advice and training did not meet the expectations of producers.

Institutional framework related to agricultural sector management

260. The institutional framework for sector management was defined under the National agricultural Support Services projects (PNASA) and regulated by decrees signed in July 1997 establishing the following three main organs which are: the General Secretariat, the Institute for Agricultural Extension and Technical Support (ICAT), and the Agricultural Research Institute of Togo (ITRA).

261. The General Secretariat is the coordinating and supervising body for programs of and central departments and institutions under the technical supervision of the Ministry. It coordinates the activities of the central and regional Departments of Agriculture, Livestock and Fisheries (DRAEP), which are represented in each Region by the Regional Directorates. Agencies such as the Togolese Cotton Company (SOTOCO), the Office National des Abattoirs Frigorifiques (ONAF) and the Food Security Observatory (OSAT) are attached to the General Secretariat).

262. ICAT’s mission is to contribute to rural development, through the professionalization of agricultural producers. It includes a Directorate General, Regional Offices and agencies at the Regional level. ITRA’s mission is to conduct research and development activities in the fields of farming systems, production, and management of natural resources, food technology and standardization. It includes a Directorate General with a Scientific Department and at the regional level, it manages Agricultural Research Centers.

Key Challenges to address for the Development of the Agricultural Sector

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263. The major constraints to the development of the agricultural sector are mainly: (i) the inadequacy of the land tenure system and degradation of natural resources, (ii) the lack of agriculture financing, (iii) inadequate water control, (iv) weak organization of the rural world, (v) insufficient capacity of agricultural partners, and (vi) the inadequacy of basic statistics. Dealing effectively with these constraints would include:

• The mobilization of external resources for financing the sector. It implies: (i) a peaceful political climate that would allow a resumption of full cooperation with the EU and key development partners, including bilateral partners, (ii) the finalization and adoption of the final PRSP to enable Togo to reach the completion point of the HIPC initiative as soon as possible, (iii) the adoption of a plan for the clearance of the arrears and dbts owed to creditors and partners, and (iv) making arrangements for the effective mobilization of counterpart funds from the Governement for future projects and programs to be executed.

• The consolidation of the rule of law, good governance and creating an enabling environment for investment in the agricultural sector.

• Improving competitiveness of sectors and agricultural production systems by integrating the dimensions of sustainability and equity. It would also be necessary to put in place the conditions for an effective resumption of public service activities (central and local) necessary for the development of the agricultural sector.

F. 1- Structural Impediments to the recovery of the Agricultural Sector 264. The recovery of the agricultural sector would depend on the removal of structural impediments undermining productivity and modernization of the sector.

Removal of Obstacles to Export of Agricultural Products

265. Togo’s regulations on export of agricultural products still contain legal texts rendering them contradictory to rules on the free movement of raw products within WAEMU. This is an obstacle to the promotion of food production, because of the seizure of such products sometimes by customs. To ensure that food production in Togo would benefit from the regional market opportunities, the Government must: (i) take a new decree allowing for the export of food, consistent with the provisions of the WAEMU Common External Tariff (CET), and (ii) arrange for the effective implementation of those texts by all stakeholders.

Enhancing the Effectiveness of Institutions of the Ministry of Agriculture, Livestock and Fisheries (MAEP)

266. The current principal organs of the MAEP (SG, ICAT and ITRA) were set up under the PNASA. However, the premature closure of PNASA in 2002 did not allow for the implementation of programs to strengthen institutional capacities and to allow for staff training to adapt to the various posts that were set up. In addition, since there has been no staff recruitment in the civil service from the 1990s, several positions in the different institutions, particularly the decentralized ones, have no longer been filled. This has resulted therefore in a problem of matching profiles with activities, which can lead to a low efficiency of the activities, especially with inadequate work resources.

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267. To remedy this situation, the Government, through the Ministry, must conduct an assessment of current skills available in each department or agency of the Ministry, both at the central, regional and District levels. This skill assessment will enable it to compare the adequacy of the posts to profiles and activities. This will be the starting point for the development and implementation of a coherent program of capacity building. For agriculture support organizations (ICAT, ITRA), training requirements will also result from the skill assessment. Regarding the SG and regional directorates (DRAEP), emphasis must be placed on the development of policies and development programs, on legislation and monitoring/evaluation.

Access to Agricultural Information

268. The liberalization and professionalization of the agricultural sector imply the existence of an information and communication system for use of both agricultural and commercial operators and the authorities responsible for the planning of operations. In this spirit, the Government must: (i) establish an effective national information system in the markets for agricultural products (SIM), (ii) strengthen the system of regular monitoring of food crops by the DISD59 and statistical monitoring of fisheries for the DEP60, by providing these two structures adequate funding through the capital budget, and (iii) establish an effective system of statistical monitoring of livestock, and (iv) to mobilize resources necessary to carry out the next national census on agriculture. The last one dates back to 1996.

Improved Monitoring and Control Functions

269. The Government, in accordance with its sovereign role, should put in place a mechanism to establish norms and standards, and appropriate means to control the quality of imported inputs and agricultural products (crop and animal) and fish; this, in accordance with the ratified conventions on hazardous waste, hazardous pesticides on Persistent Organic Pollutants (POPs) and biosafety. In this context, veterinary, phytosanitary and food analysis laboratories must be strengthened, as well as the capabilities of inspection posts at the border.

Strengthening of Professional Agricultural Organisations (OPA)

270. The Professional Agricultural Organizations (OPAs) are still weak at the organizational and operational levels. They are however expected to play a major role as service providers to their members and as representatives of their interests. The strengthening of these structures should therefore be actively pursued by the Government which should provide support for the drafting of their internal regulations and for training and management as well as provide them with organization advice. The Government will have to restart the process of revising the legal framework, in order to provide the best possible regulatory texts adapted to the grass-roots organizations and their district and other higher level structures. It must also establish a process to speed up the registration procedures of those organizations; in order to make them legal entities.

271. Regarding regional chambers of agriculture, an assessment of their current operation is needed to ascertain how they can be strengthened. These Chambers will have to undergo

59 Department of Statistics, Information and Documentation 60 Department of Livestock and Fisheries 59 profound changes in their current structure in order to find their place in the professional organization, alongside the other umbrella organizations.

Water Control

272. The issue of water control remains a major constraint to improving agricultural productivity. The potential for the use of bottom-lands or already existing irrigation downstream of dams is largely under-exploited, for lack of planning and support for their exploitation. Also, Government should support the grassroot communities in the identification, development and exploitation of bottom-lands and lands downstream of dams, by placing special emphasis on small perimeters at reduced costs (to develop rice, vegetable and other foodcrops), the strengthening of involved communities in organization and management and providing them with the factors of production. The intervention strategy must be based on a participatory approach involving the empowerment of communities to make all decisions related to the choice of sites, the type of development the want, and the management and maintenance of works.

Linking up of Areas with Strong Production Potential

273. For the high potential production areas to develop, they must be opened-up. In this context, the Ministry of Agriculture will have to define the production areas that need to be opened up in order to get the national coordinating committee of rural roads to focus on areas with high agricultural production potential in their interventions and sensitize grassroot communities to respect the national strategy in this area.

Promotion of Agricultural Mechanization

274. The Agricultural Mechanization (animal draught cultivation and motorization) is an important factor in improving soil productivity and labor. The support that the Government could provide to promote animal draught cultivation will have to focus on the implementation of integrated actions including: supporting draft oxen production through specialized family farms; assistance to producers to access adequate funding; ox training in for tillage, the provision of animal traction equipment, developing partnerships for supply of equipment with existing production companies. For mechanization, Government will have to promote appropriate private sector mechanization companies, which will provide farms with motorization services for which the demand is strong in certain regions. However, production techniques to be used should integrate environmental protection concerns.

Marketing, Post-harvest Conservation and Transformation

275. The rates of post-harvest losses are particularly high and therefore reduce the net production available for final or intermediate consumption. The products mainly affected are cereals, legumes, tubers, fruits, vegetables, and milk and fishery products. The strategic guidelines on conservation and transformation must foster the emergence of private operators, by enhancing their professional organizations and should aim at: (i) supporting various organized actors to develop warehouses and other appropriate storage and conservation equipment (fumigation or simple stores, solar dryers, ovens, pallets, cold chain), and processing equipment, and (ii) training these players in production techniques of conservation, sanitary product treatment and processing, and then facilitating their access to credit facilities and working capital.

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Secure Access to Land

276. The insecurity in the access to land is a significant constraint to the modernization of agriculture, to the plantation of perennial species, and taking into account the long-term maintenance of soil fertility by farmers. Given the complexity of land issues in Togo and their diversity across regions, the approach to the development of land policy that the Government should support must be participatory and include: (i) organizing information campaigns and awareness to the attention of all stakeholders, (ii) establishing local, regional and national land consultation fora whose mission will be to take stock of land issues in their areas and to consider possible consensual solutions to these problems, and (iii) implement pilot operations to test possible approaches in different areas covering the diversity of land.

277. The evaluated results of tested approaches would enable the Government to revise the land legislation and strengthen land administration services in charge of the application of the new legislation. A system of land census and inventory (rural cadastre) should be considered in the long term. The land issue is to be taken into account in liaison with the management aspects of soil fertility, hydro-agricultural and bottom-land development, and development of rural areas (land management).

Access to Rural Financing

278. The improvement of the financing of agricultural and rural activities is a prerequisite for reviving the sector. Laws 2001-010 and 2001-011, which established and set up operating procedures respectively of the National Fund of institutional support to agriculture (FNAIA) and the Regional Inter-professional Funds for Agricultural Development (FRIDA) have been enacted since 2001, by the Head of State. However, they have not been followed by decrees of application, because of the premature termination of the PNASA. The internal funding of agriculture depends by and large on the microfinance institutions (IMF), but this financing remains marginal in terms of financing needs of the sector and institutional weaknesses of the IMF. It is necessary that the Government supports the IMF in enhancing their operational capacity and in developing their networks.

Renewal of Coffee and Cacao Sector

279. During the last 10 years, coffee production has dropped by more than 50% and cocoa by over 60%. This deterioration of the cocoa/coffee sector is linked to the lack of implementation by the Government of accompanying measures with the liberalization of the sector61, lack of funding for the sector, the low extension support of producers (30 %), the aging of plantations and the land, and the resurgence of diseases and pests because of inadequate maintenance of the plantations. In light of the above problems and to revive the sector, Government support should come in the following areas: (i) completion of a diagnostic study of the coffee-cocoa sector, that will come up with a recovery strategy, (ii) the establishment of a technical advisory structure with agricultural extension staff with adequate ressources, (iii) the establishment of an effective financing system for the sector through, inter alia, strengthening the existing mutualist associations of coffee and cocoa producers, (iv) strengthening the production of high yielding plant material for replanting by supporting the establishment of nurseries in different village in

61If the implementation of the support project to coffee and cocoa farmers’ associations (PAOP) from 1999 to June2005, through funding fromAFD is excluded. 61 various production areas and rehabilitating some central nurseries for production of plant material, (v) the organization of integrated campaigns against diseases and pests, (vi) support the development of a research program for production of plant material tolerant of “necrosis” in coffee and "swollen shoot" in cocoa, (vii) the funding of maintenance and rehabilitation of agricultural roads for the collection of coffee and cocoa, and (viii) the consolidation and strengthening of unions and the umbrella organizations62 of producers, in order to make them more professional.

280. The management of the coffee and cocoa sectors is currently under a coordinating committee composed of representatives of all operators involved in these sectors. Besides the determination of an incentive producer price every two weeks, taking into account the evolution of international prices and certain expenses, the committee’s other tasks are: supervision, marketing and coordination of all activities of the sector. The capabilities of the Unions and the umbrella organizations must be strengthened in terms of establishing administrative procedures and reliable accounting and strategic planning. The Government should assist the coordinating committee to finalize the study on setting up an interprofessional organization for the coffee and cocoa sectors. The capacity building of the umbrella organizations in marketing and identification of outside market opportunities would also be necessary so that they can, in the medium-term, export products emanating from its members.

Recovery of the Cotton Sector

281. Cotton constitutes a strong potential for development in Togo and helps support more than one million small producers and active farmers. Despite the very critical situation of the sector and the difficulties experienced by SOTOCO, the political will to get the cotton sector out of the current slump seems to there63, and audit studies and operational diagnosis of SOTOCO which have just been carried out in the context of cotton sector reform strategy will provide the consensual framework for the institutional restructuring and technical strengthening of the sector. An analysis of the current situation of the cotton sector reveals that production costs are high because of: (i) too high operating charges for the current volume of activities, (ii) diversion of part of cotton inputs by farmers for food crops, (iii) dilapidated infrastructure and production equipment, and (iv) the performance by SOTOCO, of public utility missions (maintenance of rural roads, etc.). In the immediate future, it will be necessary to implement the recommendations of the 2004-05 audit at least concerning: (a) the recovery of amounts overbilled on inputs for the period 2003 to 2005, (b) clarification of unexplained billings, (c) the establishment of new decision-making and control bodies, for example Board of Director, Supervisory Council, and (d) Government decision on how to restructure the sector with a clear calendar.

282. The reform measures that must be implemented by SOTOCO with the support of the Government (principal shareholder of the Company) for the recovery of the cotton sector can be summarized as follows: (i) improving the governance of the company by strengthening the performance of external control bodies (Board of Directors, Supervisory Council), putting in place a procedures for effective internal control and establishing clear procedures for procurement of goods and services; (ii) taking measures for reducing production costs at all levels (by substantial reduction of operating expenses of the Company) and determining with the Government the conditions for carrying out the tasks of public service, (iii) establishment of a cost accounting system, (iv) establishing a transparent and agreed mechanism to set the price of

62 FUPROCAT : Federation of Unions of Coffee and Cocoa Producers in Togo 63 18 billion CFA F in arrears (out of a total of 21 billion) has just been paid to farmers by the Government. 62 cotton seed that would take into account world prices and production cost, and (v) strengthening advice to producers concerning the application of inputs at the recommended doses. In the medium term, the Government must also support the creation and operational implementation of an interprofession (comprising the cotton company, the federation of organizations of producers and other operators) capable of handling the overall management of the sector and to encourage competition among operators, as well as transparency in the sector.

283. Other investment measures that the Government should support and which are essential for the consolidation of the necessary reform actions to revive the sector are related to assuring the financing of ;the supply of inputs and equipment necessary for production, research, rehabilitation and maintenance of cotton roads, cotton storage and ginneries.

Agricultural Inputs

284. Besides the support for strengthening the professional organization of producers (OPAs), described above as part of the structural measures, the improvement and promotion of productivity, and hence of production, would depend on improved access to agricultural inputs. The Government must review the role and responsibilities of Government institutions responsible for managing fertilizer supplies. This review should examine the role of the new structure created since 2006, the Office of Fertilizers and Pesticide (OFEP), and how it can operate in a public- private partnership with the private sector and OPAs.

285. The distribution of fertilizer and identification of input needs could be done by producer organizations with the support of the regional directorates (DRAEP) in the short term. Gradually, measures must be taken to ensure that the private sector and/or the umbrella farmer organizations take full charge of importation and distribution of fertilizer to farmers.

286. The efficient use of improved seeds is also an important factor in improving productivity. However the disorganized distribution network for improved seeds for foodcrops does not facilitate access to this important factor of production. To remedy this situation, the Government has to support actions relating to: (i) organization of awareness campaigns on the need for farmers to use improved seeds as part of combined and total technical package (organic and mineral fertilizers, pesticides, planting dates and planting densities, regular maintenance), (ii) the establishment of a national network of commercial seed producers (mainly based on producers’ organizations, or the private sector), (iii) training them in seed production techniques, and (iv) quality control of seed produced by ITRA at all levels.

Promotion of Livestock Production

287. Livestock rearing remains essentially traditional. The main constraints that limit its development are as follows: low performance of the breeding stocks, low levels of extension support, poor health control, poor use of available feed-stock and low access to credit. The areas of improvement which should be supported by the Government should focus on areas such as: (i) provision of better performing breeding-stocks, (ii) strengthening the dissemination of technical themes and messages related to improved habitat, feed-stock, hygiene, and management of pastures and herds, (iii) promoting the integration of livestock and agriculture, (iv) more effective immunization campaigns against epidemic outbreaks, and (v) establishing a credit system adapted to the cycle of livestock production. Overall, the development priority should focus on short- cycle livestock. In addition, the participation of private veterinarians in the actions of livestock

63 public health programs (immunizations, epidemio-surveillance, and veterinary inspection) must be specified in the framework of a health mandate establishing the role of private operators and ensuring payment of services rendered by them.

Promotion of Fisheries

288. The main factors limiting the development of fisheries are the inadequacy and non- compliance with existing regulations, the narrowness of the continental shelf, over-exploitation and low productivity of fish stocks, marine pollution, the high cost of fishing and storage equipment, lack of an appropriate credit system, poor organization of artisanal fishermen, and lack of conservation infrastructure. However, the sector offers a certain number of assets, including the potential development of fish farming and the possibility of reversing the degradation of sea and continental fishing resources. The areas on which the Government should focus its support are: (i) organization and training of fishermen and fish farmers, (ii) strengthening the sanitary control system, (iii) the enforcement of fisheries regulations, including through the development and monitoring of the implementation of the accompanying decrees, (iv) promoting refrigerated containers for the marketing of fresh fish, (v) identification and rehabilitation of fish breeding and fish farming infrastructure, and (vi) supporting access to credit.

Diversification and Other Agricultural Products for Exports

289. Agricultural exports are highly dependent on three main crops: cotton, coffee and cocoa, all three subject to severe price fluctuations in the global market that undermine producers. However, given the existing potential, both for export and for the domestic market, it is possible to promote other diversification crops and activities for commercial purposes. These include pineapple, corn, organic tropical fruits dried or fresh, some oilseeds, processed tubers (tapioca), off-season vegetables, aromatic spices and herbs, cashews and cola, medicinal plants and essential oils, ornamental plants, cut flowers, mushrooms, special livestock (aulacaude, snail) and fishing. It will be up to Government to promote the emergence of these new sectors and activities for commercial purposes and export, through coordinated actions, including: (i) the development of technical themes, (ii) training, support and advice to producers on management, production techniques, packaging and processing, and (iii) support for resolving logistical and transport problems, (iv) the organization of producers and commercial operators, and (v) support for quality control and certification of products. Furthermore, it should be noted that support for capacity building and training and for opening up to the private sector should be done at the same time as support for small farmers. In addition, detailed studies should be conducted in order to identify new promising sectors for export development.

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Strategic Approach for Reform and Economic Recovery 290. Togo is today facing socio-economic difficulties to which there is an urgent needs to provide appropriate solutions. It is now essential and urgent that it reconstructs the foundations of its economy for sustainable growth and establishes ways to effectively combat poverty. To do so, Togo will have to rehabilitate key sectors which are traditional sources of growth and are in a process of collapse. Togo will also have to look for additional sources of growth to diversify its economy and reduce its vulnerability to external shocks. But above all, it is essential that the country establishes strategic and coherent development benchmarks that would help it relaunch the economy. In the short term, there is an urgent need for a number of structural reforms which include:

ƒ Measures to improve the management of public finances through: (i) further reducing the use of exceptional expenditure procedures, (ii) the deployment and use of Sydonia ++ software in the main customs offices; (iii) the adoption of a system of monthly monitoring of budget execution, including sharing real-time information by budget line item on the commitments, authorizations and payments, (iv) strengthening internal and external controls of public spending by creating a General Inspectorate of Finance and the appointment of judges of the Revenue Court.

ƒ Urgent and medium term actions should be undertaken to reform the phosphates sector. These include: (i) a technical and financial audit of the company, (ii) a new feasibility study, followed by adoption and implementation of a technical and financial restructuring plan, (iii) an immediate settlement of any remaining legal disputes with the International Fertilizer Group (IFG), and finally (iv) the search for a new partner for the transfer of management.

ƒ Reforms in the cotton sector which will include: (i) settling as soon as possible, all arrears to producers in order to gradually restore the sector’s credibility, (ii) quickly put at the disposal of all stakeholders, including donors, the results of the recent financial audit and develop a timetable for implementation of the audit recommendations in the short and medium term

ƒ Take appropriate steps to ensure a better energy production and electric power supply, including improving institutional and regulatory framework in the sector, especially the legal system concerning the supply/sale of electricity and access to gas, and a clarification of the new Contract for Public Private Partnership (PPP).

ƒ Private sector reforms, including continuing actions for Government withdrawal from the productive sectors through privatization and restructuring of companies in difficulty

ƒ Adoption of restructuring and adjustment measures for BTCI and UTB and for one of the private banks, including the recruitment of an interim administrator for BTCI as requested by the Banking Commission.

ƒ An audit of domestic debt due to the private sector with a jointly agreed timetable for clearance to be implemented as soon as possible followed by the development of a strategy document and an action plan for development the private sector.

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ƒ In the health sector: (i) extend the contractual approach to improve the provision of health services and cope with the shortcomings of the current system, and (ii) prepare a reform policy for the system of partnership/co-management between Government and communities.

Coherent Strategy for Economic Recovery

291. In order to cope with these challenges, it is necessary that Togo adopt a comprehensive and consistent strategy starting with the establishment of political and economic stability. Dialogue and political cooperation as opposed to confrontation appear to be one of the most important prerequisites for the country’s recovery. Thus the signing of the Global political Agreement followed by a government of national unity and the establishment of a new National Assembly after a transparent, fair and democratic election process constitute significant and positive steps for the country’s socio-economic recovery and should enable the government to take the difficult, but necessary measures for growth and development.

292. The immediate challenges facing Togo and several new governments are: reform of the key sectors and sources of growth; improvement in the management of public resources and restoration of economic governance, a process that has already begun; governance and restructuring of the financial sector; development of human resources and the social sectors; clear definition of the role of the private sector and its promotion; rehabilitation and development of priority infrastructure; the establishment of a coherent programme for agricultural development; and establishment of a partnership with all internal and external stakeholders. In all these areas, Togo should clearly formulate its basic needs and take actions that will, in the short-, medium- and long-term, help restore its productive capacity. The long-term vision that has been prepared on the development of the social sectors in the framework of the objectives of the Millennium Development Goals (MDGs), and the preparation of a Poverty Reduction Strategy Paper (PRSP) would serve as a compass in the planning and paving the way for the economic recovery and poverty reduction.

K. Reform of the Key Growth Sectors

293. The Mining Sector. The potential of the phosphate industry is still very high and could be an important factor for recovery and represent a significant part in the trade balance of Togo. However, the phosphates company (OTP) has faced significant financial difficulties for several years and over the years became a major debtor of the banking sector. However, the technical and financial situation of the sector is currently poorly known. It is necessary therefore that measures be taken to do a thorough study of the phosphate industry (financial and organizational audit) in order to thoroughly restructure the production unit as Togolese phosphate is very much appreciated on the the international market. Already, the newly created company (SNPT) should work hard to reduce production costs, establish and implement rules and procedures of good governance, such as the establishment of an external control and audit unit, and ensure the effective and transparent functioning of the different management departments and comply with the administrative and financial procedures.

294. Phosphate and clinker are the only minerals currently mined in Togo. However, recent explorations have highlighted a wide range of mineral deposits, several of which may be promising in terms of the possibility of commercial exploitation such as marble and ornamental stones, dolomite, kaolin, attapulgite and bentonite, Sandy glass, large reserves of peat, limestone, etc.. Again, in-depth studies should be commissioned to determine the minerals most likely to be 66 of export quality and volume. An adapted mining sector policy must be prepared to help clarify and adopt a regulatory, legal, and fiscal framework for the mining sector.

295. The Cotton Sector. The financial and technical audits of SOTOCO and the study on the strategic orientation of the sector last year helped to clarify the organizational and financial situation of the cotton sector, exposing the many dysfunctions that exist. The studies have also proposed reforms in depth. The reform measures that must be implemented by SOTOCO with the support of the Government (main shareholder of the company) for the recovery of the cotton sector can be summarized as follows: (i) the implementation of recommendations of the ’Financial audit of the SOTOCO, especially with regard to verification and recovery of overcharges on inputs identified by the audit, (ii) improving the governance of the company by strengthening the performance of external control bodies (Board of Directors, Supervisory Council), putting in place procedures for effective internal control, and defining clear procedures for procurement of goods and services, (iii) taking measures for cost reduction at all levels (by substantial cutting down on current operating expenses of the Company and the agreeing with the Government to fix the conditions for carrying out tasks that should normally be done by the public, (iv) the establishment of a cost accounting system; (v) establishing a transparent and agreed mechanism for setting the producer price of cotton seed that would take into account wold market prices and production cost, and (vi) strengthening extension services to producers on the application of inputs at the recommended doses. It is also important that the government makes a decision on the nature of the new structure to be put in place that could include one or more strategic partners, and establish a regulatory framework for the sector clearly specifying the roles of Government, private sector, and producers, as well as a possible interprofession.

A.10 - Economic and Financial Governance

296. Public Finance Management. For more than a year, the Government has been cleaning up the public finance management system in the framework of the Staff Monitored Program (SMP) of the International Monetary Fund. In this context the following actions and measures have already been put in place: (i) reduction in the use of exceptional procedures, (ii) centralization of cash management at Treasury.

297. But despite the progress already made, additional measures are still needed to improve public finance management and human resource management some more. These measures relate to: (i) improving the institutional and regulatory framework, (ii) management of Government cash-flow and domestic debt, (iii) preparation of the Government budget and exceptional expenditure procedures, (iv) public accounting, and finally (v) financial control on Government expenditure. Every effort must be made to improve the deteriorating public accounting system, further reduce the use of exceptional spending procedures, and adopt and implement a manual procedures for public expenditure. It is also necessary to strengthen the internal control system, by establishing a General Inspectorate of Finance in charge of control and audits within the Ministry of Finance, as well as introduce the computerized system of expenditure flow by implementing the Public Finance Integrated Management System (SIGFIP). Finally, the Government must ensure the development of a Code of public procurement in line with international standards and guidelines of OHADA, then put in place the necessary institutions for the implementation of the Code.

298. Governance Structure for the Financial System. There is no doubt that the development of the financial sector supports and stimulates economic growth, while financial

67 instability contributes to limit this growth and can cause major financial turmoil. In pursuit of efforts in this area, several principles should guide any effective restructuring of banks and financial institutions in Togo, including:

• Restructuring must be complete. So far, the restructuring of Togolese banks has been partial. Without a comprehensive cleaning up, the restructured institution will be unable to resume or continue its activities on a solid foundation. It will remain fragile and be at the mercy of external shocks.

• Restructuring must be both organizational and financial. Operating expenses must be reduced so as to bring them in line with the level of activities. Internal controls and procedures for granting and monitoring of loans should be established and implemented.

• Restructuring should not introduce rigidities, such as the inability to manage the composition of assets and a lack of matching between assets and liabilities. In the face of such rigidities, important non negotiable claims on Government will cause problems in the medium term.

• The cost of restructuring should be minimized. In particular, if the government should be involved, the costs it has to take on should be consistent with the budgetary constraints it is subjected to. The sustainability of the reforms demands that the Government has the financial capacity to meet its obligations.

• A prerequisite to the restructuring process is the establishment of a credible set of actions aimed at restoring macroeconomic stability in the country. The viability and health of the banking sector are indeed dependent on macroeconomic stability.

• The measures accompanying the restructuring of credit establishments include: (i) the restructuring of domestic debt of the Government and debt of several public enterprises; SOTOCO and OTP/IFG should be given an in-depth restructuring; water, telecommunications and electricity enterprises should also be subject to review; without restructuring the debt of the public sector, the portfolios of commercial banks would continue to be at risk, given that banks are directly and indirectly exposed to government and the big public enterprises, (ii) a regulatory and adequate supervision environment, essential to the success of the restructuring and a viable banking sector, (iii) a judicial system that fully supports enforcement of contracts and the recovery of loans and places bank restructuring within an appropriate legal framework.

299. Three schemes can guide the financial restructuring of banks and financial institutions: (a) recapitalization by injecting liquidity is clearly the preferred path, but this depends on the availability of shareholders and investors, (b) exchange of compromised claims by Governement securities, provided they are tradable and accepted by the Central Bank for refinancing commercial banks, prerequisites to avoid rigidities in the management of banks and prevent risks from the lack of correspondence between maturities of assets and liabilities, (c) the split/liquidation: the method is to split a bank in difficulty into what might be called a "good bank" and a structure for liquidation, in other words, a "bad bank"64. The "good bank" would retain the good assets and an equivalent amount in liabilities. This method brings the net value of

64 Similar mechanisms have been successfully implemented in several African countries, including Cameroon and Congo. 68 the bank to zero and the increase in its capital to enable the institution to comply with prudential standards would be left to the new shareholders. Deposits will normally be left in the "bad bank" and their repayment will depend on the recovery of bad loans, an incentive to maximize recovery efforts. Such a mechanism would minimize the costs for the Government and, indeed, would allow for cost sharing between the government, the shareholders and the depositors. The use of one or the other of the above schemes depends on the specific situation of individual banks.

300. Finally, the authorities and commercial banks should actively pursue the search for new partners for Togolese banks (the three banks in difficulty and the Togolese Development Bank- BTD). These partners would finalize the financial restructuring of troubled banks by injecting funds, transfer their know-how, and lend their financial strength. These partners should be banks that operate in several countries of the subregion. Considering the fact that there is more and more competition in the subregion, banks conducting their business only at a country level are likely to bear the costs of this new competition. Several banks/banking groups in the sub-region (particularly from Senegal, Nigeria and Morocco) have expressed their interest. It would be good to complete these new alliances during the course of the year 2008.

301. Three banks remain in difficulty (a private bank and two banks) and require financial and organizational restructuring. Two other banks require organizational restructuring. It is for each of these banks to implement the strategy described above. For the private bank, the financial restructuring scheme will depend on the amount of the financial contribution of the former shareholder to absorb losses of the past.

302. The success of the restructuring of the banking sector of Togo, as indicated above, is essential and urgent for a return to an efficient, viable and profitable banking sector. The withdrawal of the Government from the management of banks and the privatization of Togolese banks will strengthen their financial situation and solve the current governance problems. Banks operating efficiently will provide better access to financial services to a greater part of the population. Access to banking services will also be facilitated by a more accurate assessment of consumer risks by banks through a more efficient information system. Banks should also be able to develop their internal capacities for risk assessment in different sectors of economic activity, and in particular for SMEs. A capacity building program aimed at banks and SMEs would be of great value. An improvement in the financial statements of SMEs would also increase their access to banking services.

303. Once their financial health restored, the Togolese banks may turn to the regional financial market to raise long term resources to meet the investment needs of their clients. The discussions underway in the WAMU region with authorities under a regional project should contribute to lower costs of emissions.

304. Another important product for access to financial services is leasing. Unfortunately, the only leasing company that sought and was granted a license had the latter revoked and therefore leasing products will become less accessible to the Togolese companies. It would therefore be very useful to undertake a study to understand the reasons for the failure of this company and determine the conditions that would bring back firms financing and leasing equipment in Togo in order to give companies access to appropriate financial services in the future.

305. Regarding social security, reforms of the two pension schemes should urgently be done in order to enable the Government of Togo to eliminate the increasing fiscal burden on it and secure the services from them. This implies the need to: (i) conduct actuarial studies for the two institutions (CRT and CNSS), (ii) organize public consultations involving trade unions, private

69 employers and the Government on the recommendations of the actuarial studies to revise the contributions and benefits for both institutions.

306. The success of the implementation of reforms of these two funds would enable the Government of Togo to ease the financial burden it is facing. The reorganization of the pension scheme will not only guarantee a certain income security for retirees and other beneficiaries, but also generate additional funds necessary for the development of the financial sector.

307. For microfinance, institutions should have a diversification strategy with an emphasis on providing products and services that meet the needs of specific groups or regions in order to reach more beneficiaries, to increase their profitability and, hence, contribute to their viability. The sector has neither good supervision nor a strong supervisory authority. With the new regional law, the BCEAO will provide direct supervision of the larger microfinance institutions. For the supervision of smaller institutions, the CAS-IMEC should encourage independent institutions to come together or form networks, but it should also increase its physical and human resources and align its priorities with its capacity, by beginning to inspect institutions through their umbrella bodies.

308. Given the importance of these issues, it would be desirable that the government put in place as a priority a program reform for the financial sector and public enterprises with the support of donors. As a priority, the program should focus on the restructuring of banks and public enterprises. It would aim first to stop the bleeding of the banks and appoint a new management in one of the banks in accordance with the recommendations of the Banking Commission, then proceed to a complete restructuring of three banks and finalize the restructuring of two others. The restructuring of SOTOCO and the phosphate sector should also be launched in the short term, followed by the strengthening of the supervision of microfinance and actuarial studies of social security institutions.

A.11 - Social Development and Human Resources Sector.

309. Despite a mixed performance of its education system, Togo has clearly chosen to work to achieve the MDGs in education and objectives of Education for All (EFA) by 2015. Clearly, this objective is not out of reach for Togo, but it will require that the government adopt new choices and directions for its education policy, and that these be aligned as far as possible with the indicators of the indicative framework for the accelerated implementation of Education for All (FTI) Initiative. Thus, the challenge for Togo is to develop and adopt a credible and financially viable education sector plan (ESP) for achieving the goal of completing primary school for all (UPC). To achieve this, government policy has to find solutions to the issues of demand for education, to increase the rate of admission to primary school and to retain children in schools. The government should also sufficiently finance the provision of education services, but it need not always be the provider.

310. Recommendations of the diagnosis of the education sector (CSR), conducted with World Bank support and endorsed by the Government, contain several priority actions which aim at meeting the challenges and solving institutional problems faced by the education system, with an emphasis on primary education. The recommendations include: (a) a public investment program targeted to the national construction of schools, at least for primary education; (b) support by the government and donors to the dynamism of communities and non-official providers of education services; (c) support for the multiple-year education system and that of double-shift training

70 system that could contribute to the intensification of access and effectiveness of primary education; (d) the intensification of retention in primary education through the reduction in the percentage of loss and repetition, which is certainly the most urgent priority in the short term for all those involved in education in Togo. In addition it will be necessary to have in the coming 12/18 months: (i) a first draft of the new sector program for education ready in order to get this endorsed under the Accelerated Education for All Initiative, and (ii) the development of an updated map of schools in consultation with beneficiaries of rural communities (where the problem is most severe) to support a targeted program of public investment.

Improvement in the Health Sector

311. Several measures are important for improving the health sector in the coming years. The priority measures in the short term include: (a) organizing a workshop to assist in formulating a policy on the extension of the contractual approach to improve the supply of health services, and to address the shortcomings and reform the partnership/co-management between the Government and communities in order to arrive at operational proposals which will serve as a basis for the policy development; (b) the adoption by the National Assembly of the Health Code prepared in 2005 by the Ministry of Health with support from its partners; (c) the adoption of the revised contractual policy, of the policy of co-management and a hospital policy given the deterioration of infrastructure and hospital technical management; and (d) the preparation of an institutional audit and the proposal of a new organizational structure for the Ministry, followed by a capacity building of the Ministry and its departments. Other areas that should be subject to attention and reforms include: (i) a better definition of roles and responsibilities of the various levels (central, regional, district, USP) and the actual implementation of these respective roles and missions; (ii) a clarification of the legal status of COGES, (iii) a clarification of the powers and duties of municipalities in relation to health, and finally (iv) effective participation of representatives of civil society, COGES and NGOs (national and international) involved in community health and who provide support to COGES, in all instances of the system relating to the issue of rights to health.

312. The issue of governance should be addressed at all levels of the system. The governance of the health system is part of a wider problem concerning Togo as a whole. After years of social and political crisis which has weakened and damaged the relationship between rulers and ruled, transparency and accountability of actions taken are of paramount importance for promoting the establishment of a new social pact, restoring better living conditions and creating a degree of confidence necessary so that the country can build its future.

A.12 - The Private Sector

313. The acceleration of growth expected by Togo will depend largely on private sector reforms, including: (a) continuation of actions for the disengagement of the Government from productive sectors through the privatization and restructuring of loss-making enterprises; (b) improving the institutional environment for business, (c) improving the legal and judiciary environment to ensure the protection of investments and bank action; (d) reducing costs of factors of production - in addition to solving the energy crisis, the Government must continue to improve coverage of the country in drinking water and means of communication; and finally (e) restructuring of the banking system: the solutions proposed to this end are presented in another section.

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314. Improving the Business Environment. The Togolese Government should now play its role as regulator and motivator. This role includes the implementation of concrete and well defined measures and means of action for the private sector, by creating a supportive and enabling environment for the recovery of private sector activities. These include: (i) letting the management structures and representation of the private sector play a major and more active role; (ii) promoting dialogue and cooperation between the public sector and the private sector; (iii) federating initiatives and coordinating assistance to the private sector to strengthen the synergy and coherence of interventions, (iv) insisting on the promotion of private sector in the process of regional integration and promoting its competitiveness, and hence that of the national economy; and (v) establishing a light system of coordination of actions and activities.

315. The refocusing of Government’s role in order to create a conducive environment for business development will articulate around three specific areas: basic services, the disengagement from the productive sector, and promoting the private sector.

316. The Government’s role in basic services can be reinforced through an organization of production and distribution of basic services in the nature of public goods that the market cannot provide alone. In this scenario, the Government may confine itself to finance and regulate private companies responsible for producing public goods, and thus increase the efficiency of supply. For example, essential services can be physical and administrative infrastructure, human capital, legal and judicial framework, financial infrastructure and environmental protection.

317. The Government 's role in the productive sector should focus on: (i) disengagement as soon as possible to foster competition; fair assessment of taxes with regulations taking into account the costs they entail to businesses; ( ii) improved regulation of activities, price liberalization and openness to international competition which are the crucial points on which the Government should focus its measures; and (iii) restructuring of the functions necessary for the promotion of private sector. These functions relate primarily to those performed by the support structures, particularly in the field of technical assistance, financing and consultation. In the case of Togo, areas such as promoting investment and exports, the promotion of enterprise, the promotion of quality and productivity, advice and technical support to enterprises, support for funding, and promoting partnership dialogue. Consultation and monitoring should be the main center of focus of the public sector.

318. To make the private sector an engine of growth and of economic and social development of the country, the Government should define a vision for its development, with precise and clear objectives and strategies. This vision should be part of the prospective economic and social development program of the country and therefore the Government must necessarily develop this with all stakeholders (representatives of the technical departments of the Government, civil society, private sector, local communities) and adopt it to give it the force of law.

Standardization of Administrative, Legal and Regulatory Environment

319. An environment conducive to the effective and speedy resolution of trade disputes or relating to enforcement of contracts is a prerequisite for investment, transactions and business management. The phrase "enabling environment" refers to economic, material, legal, regulatory and institutional environment in which firms operate. This conducive environment includes: (i) macroeconomic policies promoting growth and stability; (ii) legislative reform to facilitate the establishment and protection of property rights to the local population; (iii) provision of

72 appropriate and well maintained infrastructure; (iv) reforms of legal and regulatory frameworks to achieve a rational balance between, on one side, protection and legitimate controls and on the other hand, deal with concerns of efficiency, simplicity, fairness and legal redress; (v) appropriate fiscal policies and effective recovery procedures; (vi) an institutional framework to facilitate taking responsibility, private initiative and risk-taking; and (vii) support services for businesses.

320. In view of the foregoing, one realizes that the administrative and legal framework, as it exists in Togo, is cumbersome and incomplete for the purpose of economic activity. The legal and judicial framework is characterized by lack of legal information, lack of courts responsible for settling disputes between the administration and administered, the multiplicity and non- functionality of texts, the slowness in the settlement of disputes, lack of credibility of justice, inadequate number of judges, lack of jurisdiction equipment, the absence of specialized business courts, etc. . The normalization of this environment (both on the administrative, regulatory and judicial level) is indispensable to ensure the consequent operation of enterprises’ activities.

321. The barriers and obstacles to the smooth functioning of the administrative regulatory, legal and judicial system, would lead to the following recommendations:

• In legal terms: adapt the legal environment to recent economic developments at the regional and international levels; develop a legal framework on competition and establish monitoring mechanisms, ensure legal security of transactions and investments by land regulation.

• At the judicial level: improve the functioning of the judicial system as it relates to commercial transactions.

• At the administrative level: simplify administrative procedures relating to entrepreneurship and operating activities. In this case, the country should be guided by the results of the World Bank study on doing business (Doing Business 2007), which has clearly identified the weaknesses in this area.

• In legal terms: ensure transparency and regular discussion of regulations with economic operators.

• In terms of tax and customs: make the tax and customs regulations an instrument of private sector development.

A.13 - The Rehabilitation and Development of Infrastructure and Services

322. The improvement of infrastructure at all levels is a priority for the restoration of production capacity and economic recovery of the country. The economic infrastructure plays a strategic role in the development process by helping to reduce costs of factors of production, reducing transaction fees and helping to improve the competitiveness of the economy. The economic and social infrastructure also provides essential services to populations (access to roads, water, etc.); and contribute to poverty reduction. The priorities in this area include reform actions and investments in the short, medium and long terms.

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323. Supply of electrical energy. Considering the enormous losses in production arising from difficulties in energy supply, it becomes imperative that the country takes measures to ensure a better supply of electrical energy. Some reform measures and substantial investments will have to be made as soon as possible to diversify supply sources and make electricity available to consumers at an affordable price. In addition, extensive research should be conducted to develop new energy sources best suited to the context of Togo.

324. The projects identified to achieve these objectives are: (a) improving the institutional and regulatory framework in the sector; (b) the construction of the Adjarala hydroelectric dam studies for which are completed and funding being sought, (c ) negotiations with Nigeria to supply gas for the proposed gas turbines, (d) the adaptation of existing turbines of CEB to operate on natural gas, (e) getting independent producers to develop production from natural gas at competitive costs, (f) putting in place a program of energy management, and finally (g) rehabilitation of 161 kV line Lomé-Aflao-Lome-Port and from the Lomé Port post.

325. It would also be necessary to strengthen the transmission and electricity distribution networks throughout the country. For rural electrification, development and implementation of a coherent program of widespread rural electrification are fundamental. This should include the promotion of rural electrification from renewable energy sources including solar photovoltaic, micro-hydropower to cite only a few sources.

326. Hydraulic Infrastructures. To improve the quality of services and infrastructure for potable water, the following reforms and actions are to be considered: (i) the consolidation of administrative institutions in charge of the sector for greater efficiency, (ii) the development of an Integrated Management Policy for Water Resources (IWRM), (iii) the implementation of the decentralization law 98/006 involving the reform in the water sector, (iv) the definition of a clear policy on water and the development of a water code, and (v) the preparation and proposal of regulations and standards relating to the management of water resources and their mobilization on the one hand, and their proper application on the other hand, (vi) guidance and coordination of the different actions of government and external partners in the water sector, (vii) increased investment to increase production capacity of potable water, and (vii) the development of rainwater reservoirs.

327. Infrastructure and Transportation Services: The Port Authority of Lome plays an important role in maritime transport in the subregion and in the Togolese economy. Several investments are under consideration by the Directorate of PAL, which seeks the support of Government to realize them. But in addition to investment, it is important to put in place measures to improve the effective and transparent management of the port. It is important to: (i) carry out a systematic reconciliation between the manifestos of boats and statistics from Customs, (ii) establish a monitoring program of transit (for example "smart seal" or GPS / GSM), (iii) operationalize the system of one-stop shop for port operations, (iv) address the problem of double guarantee collected by the Chamber of Commerce and Industry of Togo with foreign importers, and (v) settle the problem of 'Compensation of people whose land was expropriated in the port area.

328. Looking ahead for the transport sector, government guidelines may be centered around the following points: (i) improve the maintenance of road infrastructure by strengthening the financial capacity of the FER. To this end, the management of toll booths on the main roads must be transparent and provide a real financial support for FER, (ii) strengthen the competitiveness of the Togolese corridor for freight heading to the North and to the hinterland countries, but also facilitate the transport and transit along the Togolese part of the Abidjan-Lagos coastal corridor,

74 in this sense, the creation of a dry port at the centre of the country, Blitta, for greater ease of transport of goods to the Sahel countries can help facilitation; (iii) increase the competitiveness of PAL compared to the ports in the subregion, making operational the one-stop shop for all customs operations in order to accelerate the exit of goods from the Port.

329. Urban Development. From about 15% in 1970, the urban population has reached nowadays 36% of the total population. It is estimated that by 2025 the urban population could reach 65%. Urbanization remains a very important phenomenon and urban development must be an integral part of the economic recovery program of the country. In order to provide appropriate services to the growing urban populations, it is essential to decentralize municipal government in Togo in order to separate the responsibilities of central government from those of local governments (in the areas of management of waste disposal, sanitation, urban environment and public health, water supply, construction of urban roads, traffic management and maintenance of all facilities related to the provision of urban infrastructure). In the short and medium terms, the following measures are necessary: (a) the transfer of the fiscal administration power to local governments as regards land, property, vehicle registration, hotels, games, alcohol and liquor licenses, and similar taxes, (b) the need to make public the amounts transferred to local structures, reports of financial audits and budgets, (c) signing of performance contracts between the Government, local structures and municipalities for specific periods, and (d) addressing issues of governance and urban development in an integrated manner and supported by well developed policies.

330. In terms of tourism development, two types of actions should be taken: (i) rehabilitation of sensitive sites and training of groups responsible for maintaining the animation of these sites, and (ii) the intensive promotion of tourism with participation in trade fairs and marketing in international fairs, in order to attract new international tourism to touristic targets in Togo.

331. An inventory of sites was made in 1999. As a priority, sites that could disappear, including the local architectural site from Tamberma to Kande65, the site of blast furnaces of extraction of iron in Nangani and the colonial vestiges, such as slave house in Aného must be the subject of an evaluation in order to assess the cost of their development. This would involve safeguarding and rehabilitating lucrative sites that are currently threatened.

A.14 - Recovery of the Agricultural Sector 332. Given the preponderance of agriculture in general in the Togolese economy, it constitutes an important source of growth in Togo and a source of income for about 2/3 of the country's workforce. It will be necessary to undertake priority reforms for the recovery of the agricultural sector as a whole. The needs of actions and reforms to be undertaken in the medium and long terms are in three key areas, namely: (i) strengthening the legal and institutional framework, (ii) structuring the rural world and the professionalization of the agricultural sectors and (iii) improving access to land and land tenure security.

333. The improvement of the institutional and legal framework must be done through the implementation of strategic actions concerning: (a) the completion of the liberalization of agricultural sector and harmonization of regulations within WAEMU and ECOWAS, (b) institutional support to the Ministry of Agriculture (MAEP), and (c) the structuring of the rural world.

65 This is a world heritage site. 75

334. The completion of the liberalization of the agricultural sector should include:

• The elimination of tariffs and especially non-tariff barriers which still subsist on the export of food, contrary to the provisions in force since 2000 on the Common External Tariff (CET) adopted by all countries of WAEMU;

• The completion of the Government disengagement from trade in inputs of agricultural and veterinary inputs. Steps must be taken to promote the full support of importation and distribution possibly by the private sector and/or umbrella organizations of farmers.

• The liberalization of food prices at all stages is yet to be completed, especially in the field of meat at the point of consumption.

• The completion of the liberalization of cash crop sectors. The liberalization of coffee/cocoa sectors is now effective at all stages66, but support for the organization of this sector by the interprofession is only gradually being put in place. This should be continued and strengthened.

335. For the cotton sector, we need to reflect on the responsibility for extension, management and maintenance of rural roads, cotton research, and financing of these activities within the framework of the reflection on the structuring of Ministry of Agriculture services. This reflection should take into account the fact that producer groups are playing an increasing role in the various activities of the sector. It is therefore necessary to establish programs to: (i) strengthen producer groups and consolidate the unions of producer groups and their umbrella organizations into viable structures that can support a number of economic functions ( ii) create and operationalize an interprofession able to take charge of the overall management of the sector and foster competition among operators, as well as transparency in the sector, and (iii ) define clearly the rules of the game between the interprofession and the Government.

336. The Capacity building program initiated for MAEP to improve its role in the elaboration, control and monitoring of agricultural policies, initiated under PNASA and the establishment of ITRA and ICAT, must be revived, particularly in the areas of personnel training, adaptation and dissemination of legislation, monitoring/evaluation and renewal of equipment. The capacity strengthening should also apply to the regional structures of the Ministry of Agriculture (DRAEP), so that they can fulfill, at the regional level, their public service missions (analysis, coordination and monitoring of policies, monitoring of rural institutions and land issues, management of natural resources, fight against natural disasters, quality control of products and inputs, agricultural statistics and information), as well as public/private agencies supporting agriculture. The capacity strengthening process should involve redeployment and recruitment of staff, enhancing skills and an effort to provide equipment and a consistent operating budget. In the specific case of livestock, it is noteworthy that for veterinary and phytosanitary sub-sectors, the issuance of a health mandate is necessary. This will involve a clear definition of responsibilities, for implementation and funding between the government (vested with the functions of design and control) and the private sector which will increasingly ensure the implementation of field level activities as the publc sector withdraws from such activities.

66 The Coordination Committee of Coffee and Cocoa Sectors (CCFCC) received a delegation with regard to marketing and production support. 76

337. Capacity building of the Rural Population has an intersectoral dimension (agriculture, land, trade, crafts, soil management, etc.) and a sector dimension (production, storage and processing, marketing and distribution). The strategy to meet these needs must target the following actions: (i) supporting the emergence and strengthening of associations or village development communities, through an institutional and legal framework and an interactive participatory approach ( ii) strengthening of OPA and OPEA by training support, management advice, and the formation of umbrella organizations, (iii) strengthening of interprofessions, and (iv) support for the promotion of a new generation of farmers and rural entrepreneurship open to innovations.

338. Access to Land. For sustainable growth, insecure access to land is a strong constraint. Given the complexity of land issues in Togo and their diversity across regions, the process towards the development a land policy which is indispensable must be participatory and should include: (i) organizing information and awareness campaigns to the attention of all stakeholders, (ii) establishing local, regional and national frameworks for concertation on land in order to take stock of the status of land issues in each area, and consider possible consensual solutions to these problems, and (iii) implementing pilot operations to test formulas envisaged in each area and that is representative of the diversity of land issues. This participatory process should lead to the revision of land legislation, taking into account the specificity of the representative areas.

339. Export Diversification and Search of Market Niches. A number of products are exported, but their contribution to income is insignificant. They include cereals and flour, spices, vegetables and fruits, cotton seeds, flowers and cuttings, shea butter and wood. It has been observed, for this category of products, a remarkable rise in exports with an increase of over 120% in 5 years. The rapid development of these products indicates that a number of them could likely be avenues for diversification. To this end, specific studies must be conducted in order to identify other sectors that can be developed for exports. Moreover, according to an analysis on the competitiveness of the economies of WAEMU member countries, one reads from the Provisional Report of January 2004 that Togo could have a comparative advantage that would allow it to specialize in the production of the following products: coffee, cocoa, tea, malta, spices, milled products, starches, wheat gluten, oilseeds (shea butter), grains, seeds, industrial and medicinal plants, residues, etc.. To better capitalize on these strengths, it is necessary that the Government should do further studies in these products.

L. Accompanying Measures

340. To prepare for a sustainable recovery of the economy in the various productive sectors, especially the private sector, it is essential to conduct vigorous actions in key support sectors such as infrastructure, economic services, transport and human resources through: (i) the continuation and scaling-up of programs of construction and rehabilitation of the main roads and rural roads, and in this specific case, the consolidation and strict monitoring of the management of the Road Maintenance Fund would be essential, (ii) continuation of the modernization of equipment and strengthening of the capacity of the Port Authority of Lome, to raise the level of performance of this economic unit in the context of the increasing demands for services, (iii) the continued work on expansion and upgrading of power grids and telecommunications and research and use of alternative energy sources such as wind and solar energy and biogas at affordable prices to enterprises and households, (iv) improving the quality of education and technical and vocational

77 training, to provide skilled human resources for development and more particularly the private sector, and (v) strengthening the capacity of administrative staff to make them more operational and able to better serve the public and business people.

341. As a partial conclusion, one can say that the adoption of an appropriate strategy for the recovery and development of the private sector by Togo will pave the way for better prospects for growth and improvement of living conditions of the population. By adopting such a strategy, the country could benefit greatly from globalization and regional integration.

342. It is for this reason that the promotion of the private sector has to be looked at from a long-term perspective. This perspective becomes important given the response time required for deep-seated strategies to reinforce the foundations of long-term development (institutions, infrastructure, and human capital). However, the proposed strategy should not be limited only to medium and long-term actions; it is also important to include actions in the short-term, insofar as the immediate problems and their resolution will determine the future. Hence, the formulation of strategies and programming of actions should consider short, medium and long-term horizons. The pace of implementation and progress of actions will depend on the actual situation in the targeted areas and sectors. Under these conditions, the Togolese private sector operating in a clean and healthy environment will regain its vitality and thereby support the country’s economic and social development through an effective contribution to the fight against poverty.

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ACTIONS AND TARGET OF ACHIEVEMENTS ACTION AREAS IMMEDIATE ACTIONS MEDIUM-TERM ACTIONS LONG TERM ACTIONS (to be done in 1 year or less) (to be done in a 1 to 2 years) (to be carried out in 3 to 5 years)

AXIS I : IMPROVING ECONOMIC GOVERNANCE

Establish budgetary classifications, including Developing the Governement budget in a Present the budgets of priority ministries A. Cleaning-up of a functional classification, in accordance with completely unified manner under the (agreed in advance) in the form of Medium public finances the WAEMU directives coordination of the Budget Directorate Term Expenditure Framework (MTEF)

Prohibit the use of payment orders without Telegram Letter which indicates exceptional Update the texts governing the subject matter Reinforce the electronic network covering the expenditure under the budget of Accounting of state resources expenditure circuit and install the System for Integrated Management of Public Finances (SIGFIP). Establish the Sydonia + + system in at least 5 Customs offices Develop a manual of procedures for public Establish a risk-based financial control expenditure and train staff to use as part of a system of state expenditure broader training program

Set-up a table to monitor monthly budget Create a General Inspectorate of Finance Make operational the General Inspectorate of implementation covering commitments, within the Ministry of Finance Finance (appointments of its members, payments and payment orders adoption of inspection procedures) Present to Parliament a simplified Proceed to the appointment of judges of the Proceed with the installation of members of Regulations Act to monitor the Revenue Court, to set up external controls of the Revenues Court implementation of the State budget public expenditures Submit to the Revenues Court mamagement Develop a Code of public procurement in line accounts of the Public sector with international standards and guidelines of OHADA, and put in place the institutional bodies for the implementation of the Code Present an administrative accounts describing the situation of budgetary commitments Adopt a strategy for the clearing of domestic debt based on the recent audit by KPMG ACTIONS AND TARGET OF ACHIEVEMENTS ACTION AREAS IMMEDIATE ACTIONS MEDIUM-TERM ACTIONS LONG TERM ACTIONS (to be done in 1 year or less) (to be done in a 1 to 2 years) (to be carried out in 3 to 5 years) B. Reforms of public Set up a Verification Mission to ascertain the • Take action on the results of the 3.1 Establishment of a new structure for the enterprises veracity or otherwise of overinvoicing Verification Mission; cotton sector that could include one or more (inputs, supplies) and losses on sales of fibres • Establish a computerized analytic strategic partners recorded by the financial audit of SOTOCO accounting system 3.2 Definition of a regulatory framework for B. 1 SOTOCO • Set up a pricing mechanism for cotton the sector which clearly defines the roles of Renew and set-up new decision-making and • Audit of human resources of SOTOCO Government, private sector and producers supervision bodies for SOTOCO (Board of • Lower unit costs of SOTOCO to match 3.3 Establishment of an interprofession Directors, Board ot Supervision, auditors) the standards of neighbouring countries 3.4 Signature of an agreement between the • Increased participation of producers in Government and the interprofession regarding Decision on the restructuring option of the the management of the sector through the role of each, including pricing cotton sector on the basis of the National Federation of GPC mechanism, input distribution, and so on. recommendations from the validation (FNGPC) workshop on the final report "Strategic • Preparation of the terms and conditions Study" necessary to start the process of restructuring and / or creation of the new Preparation and adoption of Legal Texts for cotton company the agreed structure and specifications for the restructuring to be given to the Directorate General of the society

Review and establishment of a manual of Review the strategic sector audit report and Adopt the development plan for the SNPT B.2 Phosphates procedures and a system of internal control at formulate a development plan for the Société and start its implementation the SNPT Nouvelle des Phosphates du Togo (SNPT) Review cross-debts between the Government Launch financial and strategic sector audit and SNPT In-depth review of the regulatory and fiscal Assessment of sales of phosphates by SNPT framework of the mining sector AXIS 2: SECTORAL MEASURES

1. Clearance of arrears of public enterprises Change the institutional and regulatory Launch the construction of a hydroelectric C.1 Energy Sector and the Administration to CEET on the framework of the sector, together with a Plant at Adjarala consumption of electricity in the past. strategy of production and distribution of energy including the role of existing Set up a programme for the use and 2. Adequate provision in the 2008 budget for institutions and the private sector popularization of new sources of energy. the consumption of electricity by the . Administration and public enterprises in order Preparation and signature of a program- to avoid the accumulation of arrears. contract between the state and CEET over 3-5 years

3. The Government should include in the Strengthen transmission networks and 2008 budget the amount necessary to cover distribution of electricity + program for the additional costs for the purchase of fuel in reduction of energy losses + increase the order to minimize the power outage and / or number of electrical connections increase tariffs to industrial / commercial and large consumers

4. Establishment of permanent institutional structure to manage the CEET, by:

• The establishment of a board of directors (according to the laws in force) • The appointment of a Director-General • The adoption of the Statutes of CEET in accordance with the regulations of the OHADA

5. Implementation by the Government, of a technical and financial review of CEET to provide information for the preparation of a strategy for the sector (and to have in the short term, more information to appreciate the 2009 Budget allocations. Adopt a sector strategy and policy for the In-depth review of the regulatory and fiscal C.2 Mining Sector mining sector framework of the mining sector.

BTCI removes the bad debts from its Implement measures for restructuring and Strengthening the capacity of the General C.3 Banking portfolio; BTCI and UTB adopt a redressing of BTCI, BIA and UTB according Inspectorate of judicial services and banking, restructuring plan (including, inter alia, to the agreed timetable establish and make functional the direction of recapitalization, a new Board, a manual of prosecutors procedures, instructions for the approval and Finalization of partnerships of Togolese monitoring of loans, a better management banks with foreign banks The supervision of micro-finance institutions and internal control system), together with an has been strengthened. implementation schedule approved by the Adoption of a strategy for the development authorities and beginning of implementation of the financial sector All banks comply with prudential norms according to an agreed timetable Undertake actuarial studies for the CRT and Updating laws of the CNSS and e al CRT and BIA adopts a restructuring plan that will CNSS changes of settings (contributions and include the contribution of Belgolaise benefits)

Appoint new management for BTCI as requested by the banking commission

C.4 Port Sector Reconciliation between the manifests of ships Do an organizational and technical audit of Study and solve definitively the problem of and customs statistics? PAL compensation for expropriated land at the port.. Operationalize the system of one-stop shop Set up a monitoring and tracking system for for port operations transit goods (eg smart seal or GPS / GSM)

resolve the problem of double guarantee imposed by the Togo Chamber of Commerce and Industry on foreign importers

Realization of an institutional review of the Completion of a diagnostic study of the Adopt a new strategy for the coffee / cocoa C.5 Agriculture Sector Department of Agriculture, Livestock and coffee-cocoa sector, discussions with the sector Fisheries including the Producer profession of its results, and preparation of a Organizations (OPA) strategy to revive the sector Disengagement of the State from agricultural and veterinary input trade ƒ Needs assessment of the MAEP The elimination of tariff barriers and ƒ Develop a medium-term expenditure especially non-tariff barriers which still affect Support a research program for the ƒ Redeployment and preparation of TDR the export of food products production of coffee/cocoa plant material for the audit of human resources; revision of legislative and regulatory texts Adopt new provisions on the export of food TOR for the relaunch of seed production; adapted to the OPA products consistent with the provisions of the revival of cereal production Capacity building of the MAEP and its Common External Tariff (TEC) of the agencies ITRA and ICAT r adaptation and WAEMU Launching the diagnostic study of the coffee- dissemination of their legislation, monitoring cocoa sector / evaluation and renewal of equipment Establish frameworks for consultation on local, regional and national land that will aim Redeployments and recruitment of staff, at looking at the status of land issues in their strengthening of skills, equipment and area and to think of possible consensual staffing consistent with operating budget of solutions to the land problems in the zone the Ministry of Agriculture and its organs concerned; Participatory identification and development of lowlands and agro-pastoral water resevoirs. Review land legislation and Identification of priority areas and training of identification/enumeration of rural lands farmers in harnessing and training of animals (Cadastre) for traction. Establishment of credit lines for refinancing Support the establishment of nurseries for of Microfinance institutions (MFIs) in rural plant material for the production of coffee- areas to finance seasonal credit and credit for cocoa the development of various income- generating activities

Conduct studies for the selection of new and promising sectors

Organizational and financial audit of the Infrastructure Road Fund (FER) to strengthen its operation

Consolidation of administrative structures in charge of the water sector for greater efficiency

Development of a policy of Integrated Management of Water Resources (GIRE) Define a clear policy on water and develop a water code AXIS 3: HUMAN RESOURCE MEASURES

Ready the Education Sectoral Plan for an Implementation of the Education Sector Plan ….% of government revenue allocated to endorsement by the Fast Track education (the target already exists in the (FTI)/Education For All (EFA) Initiative Adoption of effective system of sub-cycles in simulation model of the sector plan). Education (Fast Track). primary education to reduce repetition rate % Of the budget of the education sector Reduce inter and intra regional disparities in (including the three Ministries) allocated to terms of allocation of teachers in primary preschool, primary and literacy programs schools Set up an effective and efficient system of Establish mechanisms for regulating the flow pre-employment training of teachers in of students in secondary schools, and for primary education piloting training and employment for technical and higher education

Development of updated map for schools in consultations with beneficiary rural communities (where the problem is most severe); in order to support a target public investment programme.

Adoption of the Public Health Code by 1. Elaborate a plan for human resource 1. Implement the Human Resources Health parliament development Development Plan with the following objectives:: In order to prepare operational proposals, 2. Increase public spending from the state launch a reflection on: budget, compared to the level of 2007 with an - Two doctors at the 26 district and expenditure target of at least 25 billion CFA prefectoral hospitals • The extension of the contractual francs by 2010 - Three specialists (1 surgeon, gynaecologist approach to improve the provision of 1 and 1 pediatrician or other specialist) in the health services and cope with the 3. Match the system of the health card for the 6 regional hospitals. shortcomings of the system. Plateaux region (and also for other regions) -- Ratio midwife/person per region of at least with the demand of the sector and prepare a ……. • Reform Government / Community hospital policy to upgrade the technical partnership/co-management system platform. 2. Implement the new organigram of the Ministry 4. Adopt a policy of co-management in parallel with strengthening the program of 3. At least 30% of senior managers must be health training by providing staffing and trained in management equipment.

5. Do an institutional audit and propose a new organizational chart for the Ministry and hold management training for a large number of its staff

6. Provide training to recycle a number of medical and paramedical staff in line with the human resources development plan

AXIS 4: PROMOTION OF PRIVATE SECTOR

Simplify administrative procedures relating to Definition of a prospective vision of private D. Business the establishment of enterprises and the sector development with specific and clear Environment pursuit of business based on the results of the goals and strategies defined with the active World Bank study on the business climate in participation of the private sector. Togo on "Doing Business" Improve the legal and judicial environment adapt the legal environment to recent for the protection of investment and developments of the regional and commercial transactions international economy, and develop a legal framework to promote competition Institutional strengthening of the Chamber of Commerce and Industry of Togo and the adopt appropriate fiscal policies and effective National Employers’Board (Patronat) recovery procedures The continuation of measures for disengagement of the State from the productive sectors through privatization and restructuring of companies in difficulty