AFRICAN DEVELOPMENT BANK GROUP
THE GAMBIA | COUNTRY DIAGNOSTIC NOTE
“Policy options to enhance socio-economic transformation and resilience”
Country Economics Department (ECCE) Regional Directorate General for West Africa (RDGW)
September 2020 Table of content
ACKNOWLEDGEMENT ...... V ACRONYMS AND ABBREVIATIONS ...... VI LIST OF TABLES ...... VIII LIST OF BOXES ...... VIII LIST OF FIGURES ...... IX EXECUTIVE SUMMARY ...... XI CHAPTER 1: INTRODUCTION AND BACKGROUND ...... 1 1.1 PURPOSE AND CONTENT ...... 1 1.2 BOOSTING INCOMES THROUGH AGRICULTURE AND TOURISM VALUE CHAINS: THE MISSING LINK ...... 1 1.3 REGIONAL INEQUALITY AND SOCIAL INCLUSION ...... 2 1.4 TRANSFORM THE ECONOMY FOR AN INCLUSIVE GROWTH AND RESILIENCE ...... 2 1.5 OUTLINE OF THE NOTE ...... 3 CHAPTER 2: ECONOMIC PERFORMANCE AND OUTLOOK ...... 4 2.1 INTRODUCTION ...... 4 2.2 THE GAMBIA’S EVOLVING DEVELOPMENT MODEL ...... 4 2.3 RECENT ECONOMIC GROWTH AND OUTLOOK ...... 5 2.4 MACROECONOMIC ANALYSES ...... 6 2.4.1 Demand-Side Components of GDP ...... 6 2.4.2 Supply-Side Drivers of Growth ...... 7 2.4.3 Spatial Distribution of Economic Activities ...... 7 2.4.4 Inclusive and Green Growth ...... 8 2.4.5 Structural Transformation and Diversification ...... 9 2.4.6 Productivity, Efficiency and Competitiveness ...... 11 2.4.7 Macroeconomic Outlook and Potential Impacts of the COVID-19...... 16 2.5 FISCAL DEVELOPMENTS AND THE DYNAMICS OF PUBLIC DEBT ...... 16 2.5.1 Revenue and Expenditure Profile ...... 16 2.5.2 Dynamics and Management of Public Debt ...... 19 2.6 MONETARY POLICY AND INFLATION DYNAMICS ...... 21 2.7 FOREIGN EXCHANGE RATE MANAGEMENT ...... 22 2.8 EXTERNAL SECTOR PERFORMANCE ...... 23 2.9 FINANCIAL SECTOR DEVELOPMENT ...... 25 2.9.1. Credit Conditions and Banking Sector Performance ...... 25 2.9.2 Financial Sector Stability and Efficiency ...... 27 2.9.3 Financial Sector Efficiency and Profitability ...... 27 2.9.4 Access to Financial Services ...... 28 CHAPTER 3: CROSS-CUTTING ISSUES...... 30 3.1 INTRODUCTION ...... 30 3.2 STATUS OF PROGRESS ON INSTITUTIONAL GOVERNANCE ...... 30 3.3 ECONOMIC GOVERNANCE ...... 30 3.3.1 Public Financial Management and other Institutional Reforms ...... 30 3.3.2 Illicit Financial Flows and Anti-Corruption Reforms ...... 31 3.3.3 Governance of State-Owned Enterprises ...... 32 3.3.4 Reforms Necessary to Improve Economic and Financial Governance ...... 32
3.4 ENVIRONMENTAL RISKS, CLIMATE CHANGE AND GREEN GROWTH ...... 32 3.4.1 Institutional and Regulatory Framework for Environmental Management ...... 33 3.4.2 Strengthening Country Systems ...... 33 3.5 GENDER DISPARITIES ...... 34 3.6 FRAGILITY ASSESSMENT AND CHALLENGES ...... 35 3.7 ROLE OF THE PRIVATE SECTOR IN THE GAMBIAN ECONOMY ...... 36 3.7.1 Investment Climate Developments ...... 36 3.7.2 Market Opportunities for Private Sector Growth ...... 37 3.7.3 Tourism Sector and the Impact of COVID-19 ...... 38 3.8 NATURAL RESOURCES MANAGEMENT: CHALLENGES AND OPPORTUNITIES ...... 38 CHAPTER 4: DIAGNOSIS OF DEVELOPMENT GAPS ON THE BASIS OF THE HIGH 5 STRATEGIC PRIORITIES...... 40 4.1 NEW INDUSTRIAL POLICY TO CREATE COMPETITIVE ADVANTAGES ...... 40 4.1.1 Strengthening Industry Development and Value Addition ...... 41 4.1.2 Strengthening Technological Innovation ...... 42 4.1.3 Strategies to Foster Successful Industrial Development in the Country...... 43 4.2 ADDRESSING THE ENERGY CRISIS FOR SUSTAINABLE GROWTH ...... 44 4.2.1 Spatial Distribution and Potential for Renewable Energy ...... 45 4.2.2 Energy Sector Reforms ...... 45 4.3 IMPROVING AGRICULTURE PRODUCTIVITY FOR INCLUSIVE GROWTH ...... 46 4.3.1 Agriculture Policies and Lessons Learned from Implementation...... 46 4.3.2 Reducing Dependence on Food Imports: The Case of Milled Rice ...... 47 4.3.3 Groundnuts Export Performance ...... 47 4.3.4 Potential for value Chains Development in Agro-Business ...... 48 4.3.5 The Gambia’s Inadequate Agriculture Financing Constrains Growth ...... 49 4.3.6 Infrastructure Deficiencies Impose a Severe Burden to Agrobusiness ...... 49 4.3.7 Technology and Agricultural Productivity ...... 50 4.4 THE GAMBIA’S ROLE IN REGIONAL INTEGRATION INITIATIVES ...... 52 4.4.1 Political, Economic and Social Context for Regional Integration ...... 52 4.4.2 Trade Integration ...... 52 4.4.3 The Gambia and The Africa Continental Free Trade Area...... 53 4.4.4 Progress Towards ECOWAS Macroeconomic Convergence ...... 53 4.4.5 Trade Orientation and Composition of Trade ...... 55 4.4.6 Improving Transport Infrastructure to Promote Regional Integration ...... 56 4.5 HUMAN CAPITAL DEVELOPMENT AND LABOUR MARKET CONDITIONS ...... 58 4.5.1 Human Development, Poverty and Inequality ...... 58 4.5.2 Poverty and inequality ...... 59 4.5.3 Adequacy of education and training facilities in the country ...... 60 4.5.4 Labour Market Conditions and Skills Development ...... 61 4.5.5 Access to water and sanitation ...... 63 4.5.6 Strength of Health and Social Protection Systems ...... 64 CHAPTER 5: PRIORITY POLICIES FOR ECONOMIC TRANSFORMATION AND JOB CREATION ...... 67 5.1 INTRODUCTION ...... 67 5.2 SEVEN PRIORITY POLICIES FOR THE GAMBIA’S ECONOMIC TRANSFORMATION ...... 67 5.2.1 Scaling-up Infrastructure Investment ...... 67
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5.2.2 Promotion of Agricultural Value Chains ...... 67 5.2.3 Supporting SMEs for Sustainable Job Creation...... 68 5.2.4 Improving Human Capital and Skills Development ...... 68 5.2.5 Enhancing Capacity for Domestic Resource Mobilization ...... 69 5.2.6 Adopt Climate-Smart Technologies for Resilience ...... 69 5.2.7 Institutional Capacity Building and Sector Governance ...... 70 CHAPTER 6: DEVELOPMENT EFFECTIVENESS AND MONITORING AND EVALUATION ...... 71 6.1 CAPACITY DEVELOPMENT ACTIONS ...... 71 6.2 CIVIL SOCIETY ENGAGEMENT ...... 72 6.3 MONITORING AND EVALUATION FRAMEWORK ...... 73 6.3.1 Status of the National Monitoring and Evaluation System in The Gambia ...... 73 6.3.2 Capacity the National Statistical System ...... 74 6.3.3 Data Generation in the National Statistics Systems to Support Monitoring and Evaluation ...... 74 6.3.4 Challenges in the National Statistical System ...... 75 6.3.5 Proposed Measures for Capacity Building ...... 75 CHAPTER 7: CONCLUSION...... 76 BIBLIOGRAPHY ...... 77 ANNEX 1: METHODOLOGY USED FOR ESTIMATION OF GROWTH- EMPLOYMENT ELASTICITY ...... 81
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Acknowledgement
The Gambia 2020 Country Diagnostic Note (CDN) is an African Development Bank knowledge product prepared in the Vice Presidency for Economic Governance and Knowledge Management, under the supervision and general direction of Charles Leyeka Lufumpa, Acting Vice President and Chief Economist. This CDN was prepared within the Revised Framework for Country Strategy Paper (CSP) and Regional Integration Strategy Paper (RISP) which was approved by the Board of Directors on December 14, 2018.
The preparation of the CDN was conducted under the leadership of Emmanuel Pinto Moreira, Director of the Country Economics Department and the overall guidance of Ferdinand Bakoup, former Lead Economist, West Africa and Guy Blaise Nkamleu, Lead Economist, RDGW. The technical coordination and drafting of the report was led by Joel Daniel Muzima, Principal Country Economist, ECCE and Roberto Júlio Tibana, Economist, PhD (Consultant) provided contributions on the macroeconomic part. Tricia Baidoo provided excellent administrative and logistical support to this work.
This CDN would not have been possible without the valuable contributions of a wide range of sector department specialists, including Evelyne Change (Chief Governance Officer, RDGS4), Yannis Arvanitis (Principal Governance Officer, ECGF), Nathalie Gisabo Gahunga (Chief Gender Officer, RDGW2), Hadja Tall (Principal Fragility and Policy Officer, RDTS), Senami Christelle Hazoume (Senior Technical Assistance Officer, PINS2), Edith Ofwona Adera (Principal Climate Change Specialist, PECG2), James Austere Quotek Nganga (Principal Ports and Maritime Transport Officer, PICU1), Prince Desea Tambah (Senior Transport Infrastructure Engineer, COLR), Ndeye Absa Gningue (Senior Innovation Platform Officer, AHHD), Maimouna Diop Ly (Health and Social Protection Officer, AHHD2), Bocar Cisse (Senior Financial Analyst, RDGW2), Minkailou Halidou Toure (Senior Energy Economist, RDGW1), François Traore (Senior Civil Society Officer, AHGC2), Ann Sow Dao (Chief Capacity Development, ECAD1), Salimata Soumare (Senior Natural Resources Governance Officer, ENCR), Danlami Gomwalk (Principal Domestic Linkages Officer, ECNR), Salieu Jack (Chief ICT Specialist, PITD3), Vincent Ngendakumana (Principal Agriculture Statistician, ECST2), and Stephane Regis Hauhouot (Statistical Assistant, ECST1), Tabi Karikari (Agriculture and Natural Resource Management Officer, RDGW2), Natan Masauso Jere (Principal Procurement Specialist, SNFI1), and Mukhtar Sauda (Consultant, PITD0).
This report benefited from extensive external peer review by Adam Kalapo. Anthony Simpasa, Lead Economist, RDGN has provided comprehensive peer review and strategic guidance. The authors are also grateful for the technical inputs received from internal peer reviewers, namely: Vera Kintu Oling, ECCE/COMW; Kelvin Banda, Principal Country Economist, ECCE/COLR; Bumi Camara, Senior Country Economist, ECCE/COGH; and Diko Hamacire, Senior Country Economist, ECCE, COBJ.
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ACRONYMS AND ABBREVIATIONS
AfCFTA Africa Continental Free Trade Area AfDB African Development Bank AML/CFT Anti-Money Laundering and Combating Financing Terrorism AMRC Asset Management Recovery Corporation CBG Central Bank of The Gambia CDN Country Diagnostic Note CEN-SAD Community of Sahelo-Saharan States CET Common External Tariff CPI Consumer Price Index CSP Country Strategy Paper CPIA Country Performance and Institutional Assessment CSOs Civil Society Organizations DSA Debt Sustainability Analysis DWR Department of Water Resources DHS Demographic and Health Survey ECOWAS Economic Community of West Africa States ECOMIG ECOWAS Military Intervention in The Gambia ECREEE ECOWAS Center for Renewable Energy and Energy Efficiency EPZ Export Processing Zones ERP Economic Recovery Program FAO Food and Agriculture Organization FDI Foreign Direct Investment FGM/C Female Genital Mutilation/Cutting GBoS Gambia Bureau of Statistics GCI Global Competitiveness Index GDP Gross Domestic Product GIEPA Gambia Investment & Export Promotion Agency GMD Gambian Dalasi GoTG Government of The Gambia GRA Gambia Revenue Authority GAMCEL Gambia Telecommunication Cellular Company GAMPOST Gambia Postal Services GAMTEL Gambia Telecommunication Company GCAA Gambia Civil Aviation Authority GEF Global Environmental Fund GGC Gambia Groundnuts Company GIA Gambia International Airlines GNPC Gambia National Petroleum Company GPA Gambia Ports Authority & Ferry Services GPPA Gambia Public Procurement Act GPPC Gambia Printing and Publishing Corporation GRTS Gambia Radio Television Services HCI Human Capital Index HDI Human Development Index ICOR Incremental Capital-Output Ratio
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IFPRI International Food Policy Research Institute IMF International Monetary Fund ICT Information and Communications Technology IFAD International Fund for Agricultural Development IHME Institute for Health Metrics and Evaluation IHS Integrated Household Survey IIAG Mo Ibrahim Index of African Governance ILO International Labour Organization IRENA International Renewable Energy Agency LDC Least Developed Countries LGA Local Government Area LECRD Low Emission Climate Resilient Development LFS Labour Force Survey MIC Middle Income Countries MVA Manufacturing Value Added M&E Monitoring & Evaluation MICS Multiple Indicators Cluster Survey MSMEs Micro, Small and Medium Enterprises MTDS Medium-Term Debt Management Strategy NAWEC National Water and Energy Company NRA National Road Authority NSDS National Strategy Development Statistics NAS National Agriculture Sample Surveys NDC Nationally Determined Contributions NEMA National Environment Management Act OMVG Gambia River Basin Development Organization PAGE Program for Accelerated Growth and Employment PFM Public Financial Management PPP Public Private Partnerships PSD Program for Sustained Development RISP Regional Integration Strategy Paper SSA Sub-Saharan Africa SSHFC Social Security Housing Finance Corporation SIC Special Investment Certificate SDF Standing Deposit Facility SEZ Special Economic Zones SOEs State-Owned Enterprises TFP Total Factor Productivity UNDP United Nations Development Program UNESCO United Nations Organization for Education, Science and Culture UNCDF United Nations Capital Development Fund UNCTAD United Nations Conference on Trade and Development VAT Value Added Tax WTO World Trade Organization
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List of Tables
Table 1: The Gambia: Growth Events,1967-2019 ...... 4 Table 2: The Gambia – Employment Elasticity by Age Group and Gender, 1991-2018 ...... 9 Table 3: Employment Elasticity and Value-Added GDP Growth by Sector, 1991-2018 ...... 10 Table 4: Incremental Capital-Output Ratio, 2017-2022 ...... 14 Table 5: The Gambia – COVID-19 Impacts on the Macroeconomic Outlook (2018-2021) .. 16 Table 6: Proportion of outstanding public debt by type of maturity ...... 21 Table 7: The Gambia Exchange Rate Directives ...... 22 Table 8: Licensed Financial Institutions in The Gambia ...... 25 Table 9: Recent Financial Sector Developments ...... 26 Table 10: Financial Sector Stability and Efficiency Indicators, 2019 ...... 27 Table 11: The Gambia - Banking Sector Efficiency and Profitability Indicators...... 27 Table 12: IIAG Index scores Pre/Post Transition (2015-2017) ...... 30 Table 13: State-Owned Enterprises and Sector Focus ...... 36 Table 14: Potential Opportunities for Light Industrialization in The Gambia ...... 42 Table 15: Costs of Access to Electricity ...... 45 Table 16: Simulations of Potential Sources of Agricultural Value Chains and Growth ...... 48 Table 17: The Gambia - ECOWAS Macroeconomic Policy Convergence ...... 54
List of Boxes Box 1: Government’s Response to COVID-19 in The Gambia ...... 16 Box 2: Key Governance Reforms, Achievements and Challenges ...... 31 Box 3: Examples of Successful ICT Initiatives in Agrobusiness in The Gambia ...... 51 Box 4- Key NDP High Level Executive Results/Priorities ...... 73 Box 5– Vision and Mission of NSDS II ...... 74
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List of figures
Figure 1: The Gambia- Percentage Real GDP Growth: 1967-2019 ...... 4 Figure 2: GDP Demand Composition (Five Years’ % Average) ...... 6 Figure 3: Demand Contribution to GDP Growth (Five Years’ Average % Growth) ...... 6 Figure 4: Real GDP Composition (Gross Value Added, Five Years’ % Average ) ...... 7 Figure 5: Sectoral Contribution to GDP Growth (Five Years' Average % Growth) ...... 7 Figure 6: The Gambia – Poverty and Economic Growth Trends ...... 8 Figure 7 : Gini Coefficient, 1998-2015...... 8 Figure 8: Environmental Performance Index, 2020 ...... 9 Figure 9: Sectoral Value Added and GDP Growth, 1981-2019 ...... 9 Figure 10: Growth Decomposition (Percent of Total Growth) ...... 11 Figure 11: Technical Efficiency in Selected West African Countries (in % of Best Possible) ...... 12 Figure 12: Agricultural Sector Partial and TFP and Output Growth (Percentage Change).... 13 Figure 13: Human Capital Index (0-worse, 1-best) ...... 13 Figure 14: Global Competitiveness Index ...... 15 Figure 15 : Fiscal Performance (% of GDP) ...... 17 Figure 16: Total Revenue Composition (% of Total Revenues) ...... 17 Figure 17: Tax Revenues in West Africa (% of GDP) ...... 17 Figure 18: Total Expenditure Composition ...... 18 Figure 19: Fiscal Deficit and Financing (% of GDP) ...... 18 Figure 20: The Gambia- Public Debt to GDP (%) ...... 19 Figure 21: The Gambia – Structure of External Debt (% of total debt,2019) ...... 19 Figure 22: The Gambia – Structure of Domestic Debt (% of total debt, 2019) ...... 19 Figure 23: The Gambia: External Debt Sustainability Indicators ...... 20 Figure 24 : Net Foreign Assets (GMD million) ...... 21 Figure 25: The Gambia – Inflation Trends (%) ...... 22 Figure 26 : Official Reserves and Exchange Rate ...... 22 Figure 27: Current Account Decomposition (% of GDP) ...... 23 Figure 28: Exports and Imports Trends (USD million) ...... 23 Figure 29: Financing of the Current Account (% of GDP) ...... 24 Figure 30: Overall External Sector Trends ...... 24 Figure 31: Treasury Bill Rates and Credit to Private Sector (Monthly % Change) ...... 25 Figure 32: Distribution of Credit by Sector (%) ...... 26 Figure 33 : Access to Financial Services – Selected Country Comparison ...... 28 Figure 34 : The Gambia - Access to Credit by Type of Source ...... 28 Figure 35 : Access to Mobile Money, Credit and Insurance Penetration, 2019 ...... 29 Figure 36: Poverty Headcount and Fragility ...... 35 Figure 37: Income Inequality and Fragility ...... 35 Figure 38: Doing Business Indicators 2020 ...... 36 Figure 39: Top Ten Business Constraints ...... 37 Figure 40: Industry (Including Construction), Value Added (% of GDP) ...... 40 Figure 41: Employment in Industry (% of Total Employment) (Modelled ILO Estimate) .... 41 Figure 42 : Manufacturing Value Added (% of GDP) ...... 41 Figure 43: Electricity Access Rates and Renewable Energy Output, 2019 ...... 44
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Figure 44: Percentage of Firms with Generators ...... 44 Figure 45: GDP Growth and Contribution by Sector (%) ...... 46 Figure 46: Milled Rice Production, Consumption and Imports (Metric Tonnes) ...... 47 Figure 47: Groundnut Production and Yield in The Gambia ...... 47 Figure 48: Government’s Agriculture Expenditure (% of Total Expenditure) ...... 49 Figure 49: Bank's Credit to Agriculture (Percentage of Total Credit) ...... 49 Figure 50: Fertilizer Consumption (kg/ha of Arable Land) ...... 50 Figure 51: Average Groundnut Yield in 2010-2018 (kg/ha) ...... 50 Figure 52: Use of Agriculture Inputs in The Gambia ...... 51 Figure 53: The Gambia Trade Regime Openness, 1966-2018 ...... 55 Figure 54: The Gambia – Merchandise Export and Import Composition, 2019 ...... 56 Figure 55: The Gambia – Merchandise Export Destination and Import Origin, 2019 ...... 56 Figure 56: The Gambia-Poverty Rates by Area (%) ...... 59 Figure 57: The Gambia - Gini Coefficient, 2010 and 2015 ...... 60 Figure 58: The Gambia - Education Indicators ...... 60 Figure 59: TVET Enrolment and Firms Offering formal training ...... 61 Figure 60: The Gambia - Employment Trends by Gender, Age and Regions ...... 61 Figure 61: The Gambia – Unemployment and Underemployment Rates, 2012-2018 ...... 62 Figure 62: The Gambia-Informal Employment and Levels of Education, 2012-2018 ...... 62 Figure 63: Access to Clean Drinking Water and Sanitation Services, 2017 ...... 63 Figure 64: The Gambia – Selected Health Sector Indicators ...... 65 Figure 65: Fertility Rate and Poverty Headcount ...... 65 Figure 66: Total Confirmed Cases of COVID-19 in West Africa – March to August 2019 .. 66
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Executive Summary
1. This Country Diagnostic Note assesses The Gambia’s socio-economic situation to date and the development strategies and policies it needs to achieve its national development goals. Following a brief historical overview, the Note considers The Gambia’s growth model, macroeconomic performance and outlook, as well as some cross-cutting issues, including governance, climate change, and gender. It also looks at how the country could resolve its structural and institutional problems and realize its development potential. Finally, the Note examines how the African Development Bank can assist through the implementation of its Ten-Year Strategy (2013-2022) and the promotion of its High 5 agenda.
2. The Gambia is a small but liberalized economy, accounting for 0.06% of continental GDP. The country has an history of re-export hub in the West Africa due to the strategic location of the port of Banjul and the River Gambia’s potential for maritime transportation, fisheries and agricultural development. The political transition initiated in 2016 with the election of President Adama Barrow ended 22 years of political misrule by Yahya Jammeh. The democratic transition has brought along high expectations for political, economic and social progression. Nevertheless, about 48.6% of Gambians are estimated to live below the national poverty line of USD 1.25 per person per day. Deep-seated gender disparities, notably socio-cultural practices that put women and girls at a disadvantage in acquiring assets, access to education and health services exacerbate social inequality Unemployment rate increased from 29.8% in 2012 to 35.2% in 2018 and is predominant among women (57.1%) and youth (41.5%). Furthermore, the economy now is in the midst of a downturn due to the COVID-19 pandemic, and failure to safeguard the population at large from economic hardship could revive social unrest.
3. Several reforms were undertaken over the years in various sectors including agriculture transport, energy and trade, but implementation has been hampered by lack of systematic assessment of results to inform subsequent policy design; a multiplicity of objectives contrasting with insufficient domestic and external funding; lack of transparency and weak institutional capacity. Structural transformation and economic diversification, for decades the country’s main policy focus under its Vision 2020, have therefore not been achieved. Most Gambians workers are trapped in low productivity activities such as subsistence agriculture. Lack of job opportunities has pushed thousands of Gambians to the informal sector. More concerning is the issue of the youth illegal migration to Europe and the United States in search of better opportunities. Youth unemployment, if unaddressed head-on, could be a ticking time- bomb waiting to explode.
4. This Note highlights the challenges confronting The Gambia and the opportunities it can seize in an era of challenging global change due to the COVID-19, but with renewed optimism on account of the implementation of the Africa Continental Free Trade Area (AfCFTA). The River Gambia provides great potential for development of efficient transportation for movement of goods and people, agriculture and fisheries development. The rapidly increasing domestic demand for food (driven by population growth, urbanization, and the expanding tourism sector) presents a great market opportunity for development of a variety of agricultural value chains such as rice, fresh and quality fruits, vegetables, eggs, meat, and
xi dairy products. In order to harness agriculture’s sector potential there is a need to address several binding constraints such as access to credit, essential inputs, processing facilities, and climate-smart agricultural irrigation systems to boost yields and enhance resilience to environmental shocks.
5. Adoption of resolute macroeconomic policies, improvement of the business environment and mitigation of climate shocks is critical to sustain growth. In fact, persistent macroeconomic slippages under the previous regime led to budget support suspension from 2013 to 2016, and the combined effect of persistent drought and the Ebola crisis on tourism slowed GDP growth at 1.8% over 2011-2016. More recently, the economy held up well in 2017 and 2019, with an average annual growth of 5.5%, driven by relatively better fiscal and monetary policy compared to the previous regime, lower interest rates and a recovery in tourism, energy, construction and trade. Nevertheless, economic growth is highly vulnerable to climate shocks as agriculture is almost entirely dependent on rainfall. This vulnerability is especially exacerbated by the extreme weather conditions that accompany climate change, particularly the droughts of 2002 and 2011 and erratic rainfall in 2014 and 2016. The economy is yet to achieve structural transformation. Agriculture and industry sectors have faltered while, the services’ contribution to annual growth almost doubled from 1.4% from 2001-2003 to 2.4% over 2014-2018. On the demand side, private consumption is the largest contributor to annual GDP growth, followed by gross fixed capital formation, exports and government consumption.
6. Consistent with the recent economic recovery, government revenues expanded from 13.1% of GDP in 2016 to 17.3% of GDP in 2019 mostly due to improved tax administration efficiency. Fiscal consolidation helped to curb total expenditures from 24.3% of GDP to 21.4% of GDP, lowering the fiscal deficit from 6.4% in 2016 to 4.1% of GDP in 2019. There has also been a recovery in financial and capital inflows from 4.3% of GDP in 2016 to 15.2% of GDP in 2017, reflecting renewed investors’ confidence in the economy following the democratic political transition that begun in 2016. In addition, migrant remittances are an important source of external finance in The Gambia and stood at 11.5% of GDP in 2019.
7. Strengthened oversight of State-Owned Enterprises (SOEs) has helped to reduce debt vulnerabilities. Total nominal public debt, which was at 105.3% of GDP in 2015 has declined to 82.5% of GDP in 2019 and is projected at 76.8% of GDP by end-2020. External debt to GDP declined from 51.4% in 2015 to 45.9% in 2019, due partly to the restructuring of the debt with some bilateral and multilateral creditors and re-basing of GDP. However, fiscal slippages under the previous regime has led to large fiscal deficits which were mostly financed through expensive domestic borrowing, driving high interest rates and crowding out private sector investment. Since 2016, the authorities have embarked into an ambitious fiscal consolidation reform which has helped reduce fiscal deficits and lower government’s domestic borrowing. The stability of both monetary and exchange rate policies also helped maintain a stable inflation environment.
8. Nevertheless, the legacy of past fiscal policy slippages and high domestic borrowing continues to hamper private sector growth. As a proportion of GDP, bank lending to the private sector only averages 8.7%, the second lowest in West Africa. According to the 2018 World Bank Enterprise Survey, over half of Gambian SMEs (53%) cite poor access to finance as the
xii biggest constraint in the business environment. Interest rates remain relatively high (average 20%) making it difficult for most SMEs to access credit. In addition, most credit offered is for short terms, with unfavourable payment terms and high collateral requirements. The absence of a strong guarantee mechanism increases the challenge. As a result, over 60% of the population in The Gambia tend to gain access to limited finance from informal or semi-formal providers. Meanwhile, the country’s high mobile penetration rate of 67% and 1.4 million subscribers has significant potential for expanding mobile banking.
9. The analysis of employment elasticity and factor productivity in The Gambia have revealed a consistent trend of jobless growth and negative contribution of Total Factor Productivity in agriculture. In terms of value-added elasticity, industry was both the fastest growing sector and with the most job-intensive growth. This finding is consistent with AfDB (2019) findings regarding the countries with economic structures that depend heavily on primary commodities, and with little progress in labour-intensive manufacturing. In this context of low employment responsiveness to growth, making industrialization as the engine of sustainable growth, productive employment and economic transformation will require more efforts in addressing the binding constraints (reliable electricity supply, transport infrastructure, skills and technological upgrade).
10. The Gambia is confronted with an energy crisis. Electricity supply is insufficient, erratic and amongst the most expensive in Africa. Over 90% of the Gambian population rely on biomass for their energy needs. While 66% of the population in the Great Banjul Area is served, only 13% of the population in the outlying provinces has access. The installed capacity of the grid is 99 MW (of which 88 MW is in Greater Banjul Area), which relies on heavy fuel oil. However, even with the current 30 MW power rental, the gap between demand and supply at peak stands at 11 MW (not counting suppressed demand) in Greater Banjul Area, leading to widespread blackouts, with some parts of the Greater Banjul Area reporting only two to three hours of power per day. The completion of the Gambia River Basin Development Organization (OMVG) electricity project in 2021 will enable the country to close the electricity supply gap by accessing to additional 14 MW of low-cost hydroelectric energy from Guinea. In the future, the country could also access to gas-to-power from Senegal, and more broadly to the electricity from the West Africa Power Pool (WAPP).
11. The Gambia made significant strides in the education sector in the past decade, but human capital development has been distorted by low quality of teaching that adds up to cultural and religious barriers to formal schooling. Gender parity has been achieved in basic education; net enrolment rates in primary education increased for both boys (from 80.9% to 88.4%) and girls (78.4% to 85.5%) during 2005-2018. However, high dropout rates among girls, and insufficient funding allocated to the education sector (2.1% of GDP over 2010-2017 compared to the Africa’s average of 4.1% of GDP) affect the quality of schooling outcomes. Lack of integration of technical and vocational education with labour market needs, and inadequate learning outcomes leads to skills mismatch and constrains employment prospects for the youth and women. In fact, only 25.2% of private sector firms in The Gambia offer formal on-the-job training (Figure 59). This contrasts with Ghana (40.1%), Côte d’Ivoire (35.5%), Togo (33.7%) and Nigeria (30.7%). Therefore, there is a need to intensify public- private partnerships and upgrade the quality of the education sector and place greater emphasis
xiii on Science, Technology, Engineering and Mathematics (STEM) courses to develop skills for the future.
12. Releasing The Gambia’s development potential and pulling the country out of its current low growth trajectory will require much more than the injection of financial resources. Above all, the country must be able to design and implement effective socio-economic policies. This also requires improved inter-ministerial coordination and political commitment to forcefully tackle the country’s developmental challenges and fragility pressures which remained unchanged and unaddressed due to weak institutional capacity and structural constraints.
13. Given the limited fiscal space due to the relatively high debt burden, there is a need for improving the business environment while searching for innovative strategies to attract investments from the private sector and development partners at affordable costs. This includes the exploration of public-private partnerships (PPPs) for implementation of large infrastructure investments (e.g. rehabilitation and modernization of the port of Banjul). However, for PPPs to succeed, there is a need to put in place a robust regulatory framework and sound institutional coordination. To this effect, the Africa Legal Support Facility could be a potential partner to assist the government in ensuring fair and successful deals.
14. The African Development Bank has established itself as a trusted development partner in The Gambia. The High 5s objectives within the broader framework of The Gambia’s development agenda demonstrate support for the country’s development aspirations. The Bank’s resources will continue to be used to help to improve institutional governance and facilitate the innovative means for domestic resource mobilization needed to finance critical infrastructure and human capital for the sustainable transformation and prosperity of The Gambian economy.
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Chapter 1: Introduction and Background
1.1 Purpose and Content
The purpose of this Country Diagnostic Note (CDN) is to examine The Gambia’s efforts to achieve economic transformation and diversification from dependence in volatile foreign financial aid, tourism exports and subsistence agriculture. The note discusses the country’s growth model since independence in 1965, which has been factor-driven and reliant on exports of primary products and tourism services and with a limited degree of diversification and structural transformation. The country’s socio-economic situation is challenged by poverty, income inequality, unemployment and inefficient delivery of basic social services (education, health and social protection). Several structural constraints also impede economic diversification, such as infrastructure deficits (transport, energy, water and sanitation), poor social indicators, climate- related shocks, and constrained private sector environment. The note proposes seven priority areas to enhance socio-economic transformation and resilience. These are: expansion of infrastructure investment; promotion of agriculture value chains; support to SMEs for sustainable job creation; improvements of human capital and skills development; enhancement of capacity for domestic resource mobilization; reinforcement of environmental resilience by adopting climate-smart practices and technologies; and addressing fragility through institutional capacity building and sector governance.
The Gambia has an history of re-export hub in the West Africa due to the strategic location of the port of Banjul and the River Gambia’s potential for maritime transportation. The country possess a large agricultural and fisheries potential though vulnerable to climate change. The mining sector is small, but it has an untapped potential in some mineral resources, including titanium, ilmenite, zircon, silica, and hydrocarbon resource potential both onshore and offshore. The energy sector faces a supply deficit and depends entirely on heavy fuel oil power generators. However, there is huge potential for power generation and irrigation but is constrained by lack of financial resources.
The country is one of the smallest economies in Africa, accounting for 0.06% of continental GDP and a population estimated at 2.3 million, 65% of whom are under 24 years old. The Gambia accounts for around 0.6% of the population of West Africa, and the political transition initiated in 2016 with the election of President Adama Barrow, ended 22 years of political misrule by Yahya Jammeh. The democratic transition has brought along high expectations for political, economic and social progression. The drafting of a new constitution was completed in March 2020 and it will guide the next presidential elections by end-2021. However, with the economy now in the midst of a downturn due to the COVID-19 pandemic, failure to safeguard the population at large from economic hardship could revive social unrest.
1.2 Boosting incomes through agriculture and tourism value chains: the missing link
The agricultural sector employs 46% of the labour force, and accounts for 22.1% of GDP of The Gambia, the second largest sector in the economy after the services sector. It is also the sole means of income generation for the majority of rural households below the poverty line. At least half of the country’s poor are farmers and agricultural workers. Paradoxically, among the poorest farmers are those who produce groundnut, the main export crop. The agricultural sector is the prime sector for investments to raise income, improve food security and reduce poverty and, therefore, meet the Vision 2020 objectives and the Sustainable Development Goal (SDG2) of “no hunger.”
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Agricultural transformation from subsistence to a commercially-oriented farming has been constrained by: (i) poor agricultural practices, (ii) declining soil fertility and soil erosion, (iii) lack of access to credit, (iv) inappropriate land tenure arrangement that does not give women full rights, especially considering the fact women form the majority of the agriculture workforce; and (v) inadequate rural infrastructure development. The potential for agricultural value chains in The Gambia through export of the fresh produce is enormous. There is increasing demand for tropical and off-season fresh fruits and vegetables in the European and tourist markets.
The tourist industry in the Gambia although small in international terms is at present a major contributor to the national economy accounting for 20.8% of GDP, supporting over 10,000 direct and indirect jobs, earning USD 181.3 million in foreign exchange in 2019, and generating taxes for the national budget. It also helps to provide the necessary air cargo infrastructure to support the development of some of The Gambia’s other airfreight seafood sector such as shellfish, horticulture and other international business activities. However, the sector’s linkage with the local agricultural produce remains weak. Local markets for horticultural produce remain under- exploited in the Gambia and most tourist hotels and restaurants offer mainly imported vegetables and fruits, canned fruit juices and conserves. In order to achieve the goal of greater integration of agriculture and tourism value chains, there is a need for proper spatial planning, product diversification, capacity building, institutional strengthening, improving skills, intensive marketing and establishing backward linkages with other sectors of the economy.
1.3 Regional Inequality and Social Inclusion
Regional inequality in The Gambia is interlinked with inequality of access to necessary infrastructure such as roads, public transport, piped water supply and ancillary services for storage of produce. Disparities in infrastructure access increase regional inequality between rural and urban communities in The Gambia and are an impediment to engagement in viable economic activity. As a result, poverty is concentrated in the rural areas with a relatively lower stock of infrastructure and access to basic social services, notably in the Central River Division (e.g. Kantaur – 72.4%, and Janjanbureh – 71.4%), Lower River (e.g. Mansakonko – 60.1%), North Bank (e.g. Kerewan – 59.8%) and Upper River (e.g. Basse – 59.4%). While income per capita increased from USD 605 in 2003 to USD 785 in 2019, nearly half of the country’s population still live below the national poverty line of USD 1.25 per person per day. Moreover, the expenditure shares of the top 10% of the population are 1.4 times higher than those of the poorest 40%1. The country has had serious constraints in addressing issues of youth unemployment (41.5%) and high informality of the economy (61%) due to lack of economic opportunities. In 2018 and 2019, the deportations of youths back to The Gambia from mainly Europe and the United States of America (USA) with no opportunities had put more pressure on the already existing problems of youth in the Gambia. These social imbalances, if unaddressed, could undermine social cohesion.
1.4 Transform the economy for an inclusive growth and resilience
The implementation of the National Development Plan (2018-2021) has been to transform the economy for an inclusive growth and resilience for the well-being of all Gambians. The NDP is aligned to the country’s longer-term Vision 2020, and the 2030 SDG goals. The NDP is anchored on eight strategic priorities: (i) governance, human rights and decentralization, (ii) macroeconomic stabilization and economic management, (iii) modernized agriculture, agribusiness and fisheries,
1 Gambia Bureau of Statistics (GBoS), Integrated Household Survey, 2015-2016. 2
(iv) human capital development (health, education and social protection), (v) infrastructure and energy, (vi) tourism and culture, (vii) youth empowerment, and (viii) private sector development and trade. A number of reforms have been adopted in recent years to help implement this agenda. In 2017, the government launched the Agricultural Investment Plan (GNAIP II-FNS 2017-2026) to transform the subsistence sector into a commercially-oriented activity. Subsequent policy reforms were launched in transport (e.g. The Gambia National Transport Policy, 2018-2027), trade (e.g. Trade and Industrial Policy, 2018-2022) and energy (e.g. Electricity Sector Roadmap, 2019- 2025). In spite of this, implementation has been hampered by weak inter-ministerial coordination, institutional fragility and weak governance. Recently, the COVID-19 pandemic has displayed the vulnerabilities of the economic policy environment. This highlights the need for stronger and more diversified policies aimed at strengthening growth.
1.5 Outline of the Note
The rest of the note proceeds as follows: Chapter 2 focusses on The Gambia’s macroeconomic and growth performance during recent years, identifying the drivers of structural transformation from a historical perspective. Chapter 3 discusses cross-cutting issues, including environmental stresses, spatial exclusion, poverty escalation, gender disparities, and the challenges associated with private sector development. Chapter 4, the core of the study, identifies policy and structural gaps under the Bank’s High 5 strategic agenda and suggests appropriate reforms. Chapter 5 discusses a number of policy proposals and priority-setting measures designed to enable the country to achieve the High 5s for The Gambia’s transformation while Chapter 6 outlines a monitoring and evaluation (M&E) framework for The Gambia, using the findings of a scoping study undertaken by the Bank. Chapter 7 provides the conclusion to the Note.
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Chapter 2: Economic Performance and Outlook
2.1 Introduction
This chapter discusses The Gambia’s recent economic performance in the context of the macroeconomic and structural reforms undertaken in response to external shocks and poor economic growth during recent decades and including the potential impacts of the COVID-19 pandemic in the economy. It also assesses the degree of structural transformation achieved by The Gambia and the opportunities and challenges to productive employment in the wake of implementation of the Africa Continental Free Trade Area (AfCFTA).
2.2 The Gambia’s Evolving Development Model
Since Independence in 1965, The Gambia enjoyed a relatively steady growth supported by production and processing of food crops and, tourism services. The strong performance of the food crops, notably groundnuts, and favourable weather conditions boosted agricultural production and enhanced growth resilience. Private sector investment in a wide variety of high value tropical and off-season fresh fruits and vegetables increased exports and helped sustain high GDP growth rates averaging 5% over 1967-1984 (Figure 1, and Table 1). The activities of organized communal village-based women vegetable growing schemes encouraged by donor assistance to cater for the local market were also boosted by a thriving tourism industry. However, the early and mid- seventies brought in their wake the first major economic challenges including oil shocks which generated an exorbitant cost that left The Gambian economy heavily indebted and unable to service its debt.
Figure 1: The Gambia- Percentage Real GDP Table 1: The Gambia: Growth Events,1967-2019 Real Growth: 1967-2019 Classification:based Real GDP 20.0 Period on per capita GDP2 GDP per 15.0 growth capita 10.0 1967-1970 4.5 1.7 growth spell 5.0 1971-1977 5.5 2.3 growth spell 0.0 1978-1984 5.1 1.7 growth spell
-5.0 1985-1995 2.9 -1.2 negative growth
1991 1970 1973 1976 1979 1982 1985 1988 1994 1997 2000 2003 2006 2009 2012 2015 2018 -10.0 1967 1996-2001 -0.9 -3.9 negative growth -15.0 2002-2007 2.4 -0.8 negative growth -20.0 2008-2010 6.2 3.1 growth spell -25.0 2011-2014 1.8 -1.2 negative growth -30.0 2015-2019 4.6 1.5 growth spell GDP growth GDP per capita Source: Authors’ calculations using AfDB Statistics Source: AfDB Statistics Department Department data.
Deteriorating economic performance under adverse terms of trade shocks during the eighties led to significant domestic borrowing to finance the budget deficit. Increased reliance on government intervention in allocating credit and promoting economic development, primarily in the agricultural sector, and the absence of a competitive environment created an unsustainable economic situation. To address the situation, the government embarked on an Economic Recovery Program (ERP) in 1985 followed in 1990 by a Program for Sustained Development (PSD). Both
2 This classification uses the methodology in the IMF Policy Paper, “The Macroeconomic and Operational Challenges of Countries in Fragile Situations, June 2011. 4
programs received donor support, which was only interrupted between 1994 and 1997 by a military take-over of government.
Despite some positive stabilization results registered under the ERP and PSD, both programs failed to achieve significant real growth rates, which declined to an average 2.9% during 1985-1995 from 5.1% during 1978-1984 and recorded an unprecedented contraction of -26.2% in 2000. The stabilization effort was also at the cost of redundancies in the public sector and cuts in social spending amid rising urbanization and declining world market prices for the country’s primary commodity (e.g. groundnuts). However, since 2002, the pursuit of prudent macro-economic policies and implementation of broad-based structural reforms3 have, together with favourable weather, helped sustain economic recovery with growth averaging 2.4% over 2002-2007.
The Gambian economy was resilient during the financial crisis from 2008 to 2010, registering real average growth of 6.2% annually. Growth was supported not only by robust performance in agriculture but also by inflows of FDI in the tourism, telecommunications and financial sectors, the implementation of the Poverty Reduction Strategy (2007-2011) and the impact of debt relief under the Highly Indebted Poor Countries (HIPC)4 initiative. However, growth has since been highly volatile, with episodes of negative growth. In 2011, the economy registered a deep contraction of 4.3% caused by persistent drought. Crop harvest in that year declined by more than 40% leading to an average annual growth of 1.8% over 2011-2014. This performance came short of the average growth projections outlined in the Program for Accelerated Growth and Employment (PAGE, 2012-2015) of between 7.5% and 7.9% during the three-year implementation period. During 2015-2019, growth recovered strongly averaging 4.6%, driven by more favourable rainfall and the end of the Ebola crisis, which eased difficulties in the tourism sector as well. Growth was particularly resilient in the construction and agriculture sectors, with an annual average of 9% and 3.1%, respectively.
2.3 Recent Economic Growth and Outlook
Over the past five years, The Gambia experienced positive, although highly volatile growth rates. In 2014, real GDP grew by only 0.9% after the economy was hit by late and poorly distributed rainfall during the cropping season. Moreover, the effects of the Ebola outbreak in West Africa worsened the macroeconomic situation as it affected the services sector (e.g. the largest sector in the economy accounting for 62.5% of GDP), and in particular, the tourism sector which accounts for about 20.8% of GDP. Economic growth showed signs of trend reversal in 2015 averaging 5.9%. However, in 2016, macroeconomic and governance vulnerabilities were exacerbated by the challenging political transition following 22 years of Yahya Jammeh’s autocratic rule and dictatorship. In addition, policy inconsistencies under the previous regime led to the suspension of direct budget support and hampered the delivered of critical services and infrastructure investments. As a result, real GDP grew by only 0.4% in that year.
3 The Government of The Gambia - Interim Strategy for Poverty Alleviation II, October 2000. 4 On December 19, 2007, the Republic of The Gambia became the 19th regional member country (RMC) to reach completion point under the enhanced HIPC Initiative. The total debt relief to Gambia was estimated at USD 66.6 million in end-1999 Net Present Value terms, broken down as follows: (i) multilateral debt relief, USD 49.2 million (73.9%); and (ii) bilateral debt relief, USD 17.4 million (26.1%). The ADB Group’s share of the debt relief was USD 15.8 million, which accounted for 32.1% of the multilateral debt relief and 23.7% of the total debt relief. 5
Economic growth rebounded in 2017-2019, averaging 5.5% per annum. Thomas Cook’s bankruptcy in late September 2019 and its potential impact on tourism activity in the latter quarter of the year was insufficient to reverse earlier gains on growth. Growth during 2017-2019 was supported by robust public investment program and macroeconomic reforms that minimized balance of payment and fiscal imbalances and allowed the setting-up of a framework for the country’s exit from external debt distress as noted in the Debt Sustainability Analysis (DSA) by the IMF (2020). Key growth drivers over the past five years were reliable a more power supply and increased activity in tourism and private construction.
2.4 Macroeconomic Analyses
2.4.1 Demand-Side Components of GDP
In The Gambia, a comparatively higher Figure 2: GDP Demand Composition (Five Years’ % proportion of GDP is accounted for by Average) 100 private consumption (about 65% of GDP) 14.4 13.5 14.4 than gross fixed capital formation, of about 80 10.2 11.2 12.2 12.2% (Figure 2). Moreover, in aggregate, 60 both private consumption (annual average of 40 68.9 68.0 64.9 4.1%) and gross fixed capital formation (2.1%) have contributed more to real GDP 20 0 6.5 7.3 8.5 growth than net exports and government 2004-08 2019-13 2014-18 consumption over 2014-18. (Figure 3). Government consumption Private consumption However, private consumption growth has Gross fixed capital formation Exports of goods and services been unstable over the past five years Source: AfDB Statistics Department reflecting volatility in per capita income growth. Gross fixed capital formation has been supported by private sector investments in tourism, construction, and telecommunications and investments in public infrastructure. Public sector investment accounts for 9.8% of GDP and most of it is foreign-financed through disbursements o project loans and budget support grants.
The contribution of total government’s Figure 3: Demand Contribution to GDP Growth (Five Years’ consumption to GDP growth has been low Average % Growth)
(average 1.1% over 2014-18 up from -0.1% 10 8 1.5 in 2004-08), in part, reflecting expenditure 2.1 6 0.9 inefficiencies in the past decade and recent 4 0.9 4.5 1.1 4.1 reforms for the rationalization of spending. 2 2.5 0.5 1.1 As a result, government’s consumption 0 -0.1 0.3 -2 2004-08 2019-13 2014-18 experienced a steady decline, in part due to Government consumption the steps taken to improve the performance Private consumption Gross fixed capital formation of State-Owned Enterprises (SOEs) resulting Exports of goods and services in a reduction and more transparent Source: AfDB Statistics Department definition of subsidy needs. Overall, the average annual growth of government’s consumption over 2014-2018 fell below the private final consumption growth throughout the past decade.
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2.4.2 Supply-Side Drivers of Growth
The structure of the economy of The Gambia Figure 4: Real GDP Composition (Gross Value has changed little over the past decade. It Added, Five Years’ % Average ) remains predominantly a service economy, 100 with an underperforming agriculture and a 80 59.5 57.1 58.2 63.2 booming construction sector (Figure 4). The 60 Services sector has remained the mainstay of 40 13 14.9 14.5 15.5 the economy, and its share in GDP increased 20 from around 57% in the de cade 2004-2013 27.5 28 27.3 21.3 0 to 63.2% during 2014-2018. Services sector 2000-03 2004-08 2009-13 2014-18 contribution to GDP growth also has doubled Agriculture, forestry and fishing Industries Services from 1.4% on average per year during 2001- Source: AfDB Statistics Department 2003 to 2.4% during 2014-2018. Meanwhile agriculture contribution to GDP output declined from around 27.5% during 2004-2008 to an average 21.3% during 2014-2018, while its contribution to growth has gone from less than 1% per year over 2001-2013 to -0.1% during 2014-2018 (Figure 5).
The critical factors behind the faltering Figure 5: Sectoral Contribution to GDP Growth (Five agriculture sector include the impact of Years' Average % Growth) climate change and the loss of efficiency and 2.4 2.8 2014-18 0.5 factor productivity due to limited access to -0.1 3.0 3.7 2009-13 0.7 credit, inadequate availability of essential 0.2 inputs (seeds and fertilizers), and inadequate 0.5 1.3 2004-08 0.3 infrastructure (transport, market, equipment, 0.8 1.4 2.8 irrigation and processing facilities). In the 2001-03 0.9 wake of a faltering agricultural sector, 0.9 -1.0 0.0 1.0 2.0 3.0 4.0 industry (mainly construction) has seen its Gross value added at market prices Services share rise by 2.5 percentage points compared Industry with the previous decade average, to reach Agriculture, forestry and fishing 15.5% during 2014-2018. The boom in Source: AfDB Statistics Department private sector construction activity was supported by improvements in public infrastructure and services and diaspora remittances channeled to real estate financing.
2.4.3 Spatial Distribution of Economic Activities
In terms of spatial distribution, the economic activity is concentrated in Brikama Local Government Area (LGA) accounting for 37% of total enterprises activity, followed by Kanifing Municipality (Greater Banjul Area- GBA) with 33%. Janjanbureh has the lowest estimated number of enterprises, 2% according to the United Nations Conference on Trade and Development (UNCTAD, 2016). The concentration of industrial and service activities in urban coastal areas has triggered high rural-to-urban migration of many youth. Agriculture sector activities are concentrated in rural areas around the North Bank, Lower River and Central River Region with the highest poverty rates but also where opportunities to improve tidal irrigation rice productivity abound. The West Coast Region has income generation potential for women and youth operating along the horticulture value chain. The government has also pioneered Export Processing Zones (EPZ) and the first of its kind is the Gambia Investment and Export and Africa Global Limited (GIETAF) Special Economic Zone (SEZ), a USD 300 million joint-venture between the TAF
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Africa Global Limited and the government through Gambia Investment and Export Promotion Agency (GIEPA). The project launched in 2018 is expected to be completed in 10 years and will generate about 50,000 direct and indirect jobs to become the largest SEZ in West Africa. However, according to the Ministry of Trade Industry and Employment, the EPZ has failed to attract investors due to constraints of infrastructure deficit as well as lack of funds at GIEPA to conduct promotional activities.
2.4.4 Inclusive and Green Growth
As a reflection of a volatile economic growth that is impacted by economic and climate shocks, The Gambia remains a poor country with high unemployment, regional economic and social inequalities, low levels of education and a still relatively high poverty rate. Since 1994, the share of the population living below the national poverty line (USD 1.25 per person per day) initially increased by 36 percentage points, from 33% in 1994 to 69% in 1998. This was mainly driven by the deterioration of the economic and social conditions following a military take-over of government. Progress was made with the adoption of the Strategy for Poverty Alleviation (SPA II) in July 2002 which enabled the recovery in agriculture. This helped reduce poverty rates by 11 percentage points from 69% in 1998 to 58% in 2003 (Figure 6).
Poverty rates declined further by 9.9 Figure 6: The Gambia – Poverty and Economic Growth percentage points from 58% in 2003 to Trends 48.1% in 2010. However adverse macro- 40 36.0 10 5 economic developments during 2010- 30 0 2015, such as the sharp declining value 20 -5 of the Dalasi against major currencies -10 10 1998- 2003- -15 and galloping inflation led to rapid 2003 2010 0.5 increases in prices and a subsequent 0 -20 (%) rate growth GDP 1994- 2010- -25 decline in the purchasing power of (%) rate poverty in Changa -10 1998 2015 -11.0 -9.9 -30 people. Latest data on poverty dates -20 -35
from the 2015-16 Integrated Household
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Survey. According to the survey. Change in poverty (%) Real GDP growth (%) Poverty rates have slightly increased by Source: Gambia Bureau of Statistics (GBoS) 0.5 percentage points from 48.1% in 2010 to 48.6% in 2015.
Income inequality has steadily declined in The Figure 7 : Gini Coefficient, 1998-2015 Gambia over the past decades. Improvements 70 in health and education may have contributed 65 60 to this outcome. Inequality in The Gambia as 55 50 measured by the Gini index declined by 12.6 45 points from 48.5 in 1998 to 35.9 in 2015 40 35 (Figure 7). Latest data on income inequality for 30 The Gambia dates back to 2015 and the country 1998 2003 2010 2015 ranked 91st/156 countries in the World Bank’s Gambia Burkina Faso Ghana Nigeria database, but its Gini coefficient is relatively Mali Kenya lower than Mauritius (36.8), Kenya (40.8), South Africa Mauritius Nigeria (43), Ghana (43.5), Namibia (59.1) and Source: World Development Indicators, World Bank South Africa (63.0).
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Promotion of green growth is among the Figure 8: Environmental Performance Index, 2020 100 priorities of The Gambia’s National (scores: 0-worse, 100-best) 80 Development Plan. However, the pursuit of 60 green growth may not always be compatible 40 with the development goals of the country, 20 particularly in the case of The Gambia where 0 the energy mix is still dominated by fossil fuels Cabo Cote Gambia, Ghana Mali Nigeria Senegal Verde d'Ivoire The with detrimental impacts on the environment. Environmental performance score Climatic shocks and also impact on soil fertility Environmental health score and agricultural productivity. The Gambia Source: University of Yale ranks 166th/180 countries (Figure 8) in the 2020 Environmental Performance Index, a measure of a country’s ecological performance, and well below Cabo Verde (144th), Nigeria (151th), Senegal (155th) and Mali (160th) but above Ghana (168th), and Côte d’Ivoire (176th).
2.4.5 Structural Transformation and Diversification
In terms of structural transformation, the rising Figure 9: Sectoral Value Added and GDP of the services sector contribution on GDP 80 Growth, 1981-2019 30 from 58.8% in 2016 to 62.5% of GDP in 2019 20 (Figure 9) has demonstrated The Gambia’s 60 10 0 potential to diversify its economy beyond 40 subsistence agriculture and tourism. A -10 20 -20 transforming economy would mean having an -30 (%) growth GDP Real
increasing share of the labour force in formal GDP % of as Added Value 0 -40
employment as the shares of modern
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 agriculture, manufacturing, and high-value Agriculture Services services in GDP expand, and as entrants to the Industry Real GDP growth (annual %) labour force become more skilled and Source: AfDB Statistics Department educated. However, in The Gambia, the bulk of services activities are in the informal sector: the latter comprises close to 60.6% of GDP5. The economic dualism has been reinforced by weak productivity and reflecting years of technological disinvestment, lack of adequate skills with implications in terms of job creation. Table 2 presents several country-level elasticity of employment to GDP growth by age and gender. These are estimated using the methodology of Islam and Nazara (2000) and Islam (2004) as outlined in Annex 1.
Table 2: The Gambia – Employment Elasticity by Age Group and Gender, 1991-2018 1991-2004 2005-2018 1991-2018 Total -0.31 0.99 1.40 Youth -0.46 0.92 1.54 Female -0.40 1.10 1.58 Male -0.25 0.93 1.28 GDP growth (%) 1.0 3.8 2.4 Source: Author's calculation using ILOSTAT, 2020 data accessible: https://ilostat.ilo.org/data/#summarytables.
Overall, The Gambia experienced positive employment elasticity for 1991-2018 ranging from 1.28 for male employees and 1.58 for females while the youth cohort (aged 15-24) was 1.54. Similarly,
5Gambia Bureau of Statistics (GBoS), Gambia Labour Force Survey, 2018. 9
the employment elasticity over 2005-2018 was positive. This coincide with the period of the strongest economic growth in The Gambia coupled with the implementation of the Second Poverty Reduction Strategy Paper (PRSP II, 2007-2011), and the availability of debt relief resources from the HIPC initiative. The results of the employment elasticity to GDP in The Gambia point for three results with policy implications on inclusive growth as follows:
(i) During 1991-2004, total employment elasticity to GDP was negative for all categories (male, female and youth), implying a jobless growth. This was also the period marked with unstable policy environment, which led to sharp decline in GDP growth rates and therefore a reduction in the employment intensity of growth;
(ii) Despite the rapid economic growth recorded over 2005-2018 (average annual growth of 3.8%), the employment elasticity to GDP for the youth cohort (aged 15-24) registered the lowest value (0.92) among all categories. This indicates that the employment intensity of economic growth in The Gambia is insufficient to generate tangible gains for its young entrants in the labour market. This result bears strong policy implications and if the issue of the jobless youth is not tackled head-on, this could be a ticking time-bomb waiting to explode;
(iii) Another demographic observation is that female employment elasticity exceeded those for males during 1991-2018 and 2005-2018. Deliberate government policy of empowerment or growth in service sectors that employ mostly women may have led to a “catching up” effect, in terms of women’s labour force participation relative to men6. This result could also reflect the high responsiveness of female employment to both economic growth and economic contraction, whereby women suffer from more than men in terms of employment lost during economic downturns. This highlights the importance of investments in effective social protection systems to cushion most women and youth from economic shocks, as most of them are employed in the informal sector, lack insurance, and earn low incomes.
The analysis of employment elasticity to output growth can be extended to assess the extent to which the economy has experienced structural transformation. The sectoral employment elasticity to GDP indicates whether employment is growing or shrinking in a given sector. The sectoral employment elasticity to value-added growth gives an indication of the extent to which growth in a particular sector is being driven by productivity or employment. As illustrated in Table 3, all sectors have experienced employment growth over the full period of 1991-2018, though the elasticity of services (1.81) is nearly twice as large as the corresponding figure for agriculture (0.88) and industry (1.16). This implies that to some extent, there is evidence of gradual structural change, as employment is being generated in high productivity sectors (industry and services) at a considerably faster rate than in the lower productivity agricultural sector.
Table 3: Employment Elasticity and Value-Added GDP Growth by Sector, 1991-2018 Agriculture Industry Services Sector GDP elasticity 0.88 1.16 1.81 Sector value-added elasticity -0.38 0.85 0.27 Average annual value-added growth rate (%) 0.58 1.99 1.83 Source: Author's calculation using ILOSTAT, 2020 data accessible: https://ilostat.ilo.org/data/#summarytables.
6 Data from The Gambia Labour Force Surveys of 2012 and 2018 shows that adult female labour force participation increased from 48.4% in 2005 to 51.2% in 2019. 10
In terms of value-added elasticity, industry was both the fastest growing sector and with the most job-intensive growth. On the other hand, value-added growth in the agriculture sector was jobless, and for every one-percentage point growth, employment declined by 0.38 percentage points. Erratic rains since 2016 that cut agriculture output in half may have prompted many agriculture workers to abandon the activity and migrate to cities, most of them engaging in low paid informal sector jobs or public and private investment-driven construction boom, but without access to social protection systems. Finally, sector value-added GDP in services grew faster than employment as evidenced by the low employment elasticity of 0.27. This implies that value-added growth in the services sector must have been driven more by gains in productivity than by gains in employment.
The Gambia’s low elasticity of employment with respect to growth are in line with AfDB (2019) findings regarding countries with economic structures that depend heavily on primary commodities, and with little progress in labour-intensive manufacturing. This is a major concern given the substantial positive effect of manufacturing-driven growth acceleration on employment’s responsiveness to economic growth.
2.4.6 Productivity, Efficiency and Competitiveness
Country specific studies on Figure 10: Growth Decomposition (Percent of Total productivity growth for The Gambia Growth) are scarce, partly because of dearth 100% time series macroeconomic data for the 80% 34.9 41.9 country. A recent study of 36 African 51.2 60% economies spanning the period 1996- 24.0 7 21.5 40% 5.1 2014 (Garzarelli and Liman, 2019) 24.4 5.0 shows that The Gambia’s growth is 20% 5.6 36.0 31.6 based on factor growth, in particular 18.8 physical capital contribution to GDP 0% The Gambia West Africa Africa growth averaged 51.2% and well above Total Factor Productivity Human Capital Labour Physical Capital the West Africa’s average of 34.9% and 41.9% in Africa. Labour Source: Garzarelli and Liman (2019) productivity in The Gambia contributes by an average 24.4% and similar to the West Africa’s regional average (24%) but above Africa’s average of 21.5%. Human capital productivity contribution to growth in The Gambia averages 5.6% compared to 5.1% in West Africa and 5% in Africa. However, the country is lagging behind regional peers in Total Factor Productivity (TFP) with average contribution of 18.8% to growth, that is half of West Africa’s average (36%) and 31.6% in Africa (Figure 10).
The low productivity in The Gambia is partly related to low technical efficiency and within the Africa study sample The Gambia ranks 29th in technical efficiency with a score of 38/100 points (Figure 11). This means that the economy is only 38% as efficient as the nationally most efficient economy in the sample. Within the 11 West African countries in the sample, The Gambia ranks sixth and behind Nigeria, Côte d’Ivoire, Mali, Senegal, and Ghana. Since TFP measures how well the inputs such as capital, labour and human capital are used in production, The Gambia’s
7 Garzarelli, G. & Liman, Y.R., 2019, “Physical Capital, total factor productivity, and economic growth in Sub- Saharan Africa.”, South African Journal of Economic and Management Sciences, 2(1), a2309. https://doi.org/10.4102/sajems. 11
relatively low contribution of TFP on growth Figure 11: Technical Efficiency in Selected West clearly points to some areas of reform to be African Countries (in % of Best Possible) addressed in order to boost growth. These Nigeria 85 policies affect growth rate through a variety Cote d'Ivoire 48 Mali 43 of channels, including: investments in Senegal 41 education and health, infrastructure, Ghana 40 subsidies to innovation and technology, and Burkina Faso 38 The Gambia 38 economic governance and quality of Benin 35 financial institutions. In fact, over 2010- Togo 28 2017, The Gambia’s average spending on Nigeria 21 Liberia 17 education (2.1% of GDP) and health (4.4% 0 20 40 60 80 100 of GDP) fell short of the African averages of Source: Garzarelli and Liman (2019) 4.3% of GDP and 5.3% of GDP, respectively. Similarly, some health and education outcomes8 in The Gambia, which are key determinants for the rate of accumulation of human capital and knowledge tend to perform below the Africa and regional peers hinting some inefficiencies in resource allocation and overall quality of human capital and skills. These aspects are further elaborated in Chapter four where the country’s gaps on skills for employability are assessed in detail.
Sectoral factor productivity – The agriculture sector9: The steady reduction in the rate of growth of agricultural output seen in The Gambia over the last quarter of century (eventually turning negative during 2011-2015) is partly associated with the decline in factor productivity (Figure 9). In the decade between 1991 and 2000 agricultural land, labor and total factor productivity increased by 98.7%, 38.7% and 2.5% respectively, resulting in an output growth of 6%. In the following decade (2001-2010) TFP stagnated, while the productivity of land reduced to 15.9% reflecting the impact of saline soil intrusion and soil erosion. Labour productivity reduced to 1.5% reflecting the strong predominance of subsistence farming and with limited mechanization. During 2011-2015, the intensification of climate change effects on soil fertility, lack of investments in technological innovation turned all factor productivities negative consequently, total agricultural output declined by 5.6%.
In The Gambia, the agriculture sector suffers from growth volatility that depends on weather- related shocks. According to the IMF (2015), reducing 50% of the effect of droughts in the agricultural sector would have resulted in an average per capita GDP growth of 1.5% over 2004– 2014 (IMF 2015). This means that with an adequate irrigation system which would reduce dependence on inconstant and inconsistent rainfall, poverty levels could decline a lot in Gambia. Furthermore, controlled fertilizer management experiments conducted with System of Rice Intensification practices in The Gambia showed that grain production can be significantly increased without higher application of inorganic fertilizer and with less requirement for water. In the 1990s the Gambia outperformed both Africa and the West Africa region in all measures of agricultural productivity (Figure 12). However, while the whole region faltered in the 2000s, The
8 For example, in 2018, malnutrition prevalence as percentage of children under 5 years averaged 25.2% slightly above the Africa’s average of 18.5%. Secondary school completion rates averaged 59.7% while the enrolment rate in Technical and Vocational Educational Training (TVET) only stood at 24.4%, behind countries such as Mali (37.2%) and Niger (32.1%). 9 Available sector productivity data only covers the agricultural sector. Given that the share of this sector in total GDP is not negligible (despite falling from over a quarter between 2000 and 2013 to one fifth during 2014-2018) understanding the dynamics and addressing the constraints to productivity in this sector may shed some light on ways to strengthen the sustainability of the Gambia’s economic recovery. 12
Gambia has been performing worse, recording declines in both productivity and output growth. This hints the persistence of significant inefficiencies in the labor skills as well as human capital accumulation which impacted negatively on growth.
Figure 12: Agricultural Sector Partial and TFP and Output Growth (Percentage Change)
Land Labour 120.0 60.0 98.7 38.7 100.0 32.6 40.0 27.1 31.2 80.0 25.2 20.0 60.0 40.9 10.1 35.8 1.5 40.0 33.3 -0.2 25.7 0.0 20.0 15.9 5.0 5.0 1991-2000 2001-2010 2011-2015 -20.0 0.0 -9.7 1991-2000 2001-2010 2011-2015 -20.0 -40.0 -35.8
The Gambia West Africa (simple average) Africa The Gambia West Africa (simple average) Africa
Output Total Factor Productivity 10.0 4.0 2.5 6.0 1.5 1.5 1.2 1.0 4.0 3.7 2.0 0.7 5.0 4.1 3.1 3.9 0.0 0.4 1.7 2.1 0.0 0.0 1991-2000 2001-2010 2011-2015 1991-2000 2001-2010 2011-2015 -2.0 -5.0 -4.0 -5.6 -4.3 -10.0 -6.0
The Gambia West Africa (simple average) Africa The Gambia West Africa (simple average) Africa
Source: International Food Policy Research Institute (IFPRI). 2019
Human capital investment: The Figure 13: Human Capital Index (0-worse, 1-best) Agricultural sector growth decomposition Singapore 0.88 also indicates that labour productivity is the Jordan 0.56 Ghana 0.44 component that most declined during 2011- Senegal 0.42 Benin 0.41 2015. During this period, The Gambia lost Togo 0.41 35.8% in labour productivity, as compared The Gambia 0.4 Burundi 0.38 to 0.2% loss in the whole West Africa, and Burkina Faso 0.37 an increase of more than 10.1% in the Guinea 0.37 Sierra Leone 0.35 whole African continent as illustrated in Cote d'Ivoire 0.35 Figure 13. This calls for an enquiry into the Nigeria 0.34 Niger 0.32 extent and the potential productivity Mali 0.32 outcomes of country’s investment in human Liberia 0.32 Chad 0.29 capital. The recently developed index of 0 0.2 0.4 0.6 0.8 1 10 Human Capital (Kraay (2018)) offers Source: Kraay (2018) some insight into this issue. According to this index, given the investment in human capital as reflected in education and health outcomes (survival, stunting, quality adjusted education), a child born in The Gambia is likely to become only 40% as productive compared to a fully educated and healthy worker.
10 Kraay, Aart (2018). ‘Methodology for a World Bank Human Capital Index’, World Bank Policy Research Working Paper, WPS 8596 (September 2018). 13
Investments in human capital in The Gambia face several constraints, notably: (i) Low quality of teaching, that adds up to cultural and religious barriers to formal schooling and the challenge of integrating religious schools into the national education system are also obstacles to human capital accumulation; (ii) High dropout rates and many out of school children penalized the productivity of the current and future workforce; (iii) The health sector is under pressure from high population growth, lack of resources, and insufficient focus on primary health care. National safety nets are almost inexistent;
Production efficiency: An alternative formulation to assess the levels of capital efficiency use in the economy is through the use of the incremental capital-output ratio (ICOR). The ICOR is often used to explain the relationship between the level of investment made in the economy and the consequent increase in GDP. More specifically, the ICOR indicates the additional unit of capital or investment needed to produce an additional unit of output. Therefore, the higher is the ICOR the lower is the marginal productivity of capital and therefore the productive efficiency is considered weak. Table 4 below presents the results of the estimation of the ICOR ratios for a selected group of economies. In The Gambia, the maintenance of an average growth rate of 5.5% over the period 2017-2019 required an average investment rate of 19.5%. This implied an ICOR of 3.6, implying a marginal productivity of capital of 28%. This average marginal capital efficiency in The Gambia measured by the ICOR is slightly higher than Senegal (ICOR of 5.1) and Sierra Leone (ICOR of 4.9), corresponding to a marginal productivity of capital of 19.7% and 20.2%, respectively. Meanwhile, Ghana seemed the most capital-efficient country in the sample during 2017-2019 with an ICOR of 2.4, implying a marginal productivity of capital of 41.1%.
Table 4: Incremental Capital-Output Ratio, 2017-2022 The Gambia 2017 2018 2019 2020 2021 2022 Real GDP Growth rate 4.6 6.6 5.4 1.9 5.9 6.9 Investment rate 19.9 17.9 20.8 17.1 18.5 18.2 ICOR (Investment rate/Real GDP growth rate) 4.3 2.7 3.9 9.0 3.1 2.6 Senegal Real GDP Growth rate 7.2 6.4 5.3 3.0 5.5 8.0 Investment rate 27.5 32.5 33.4 30.4 33.3 33.4 ICOR (Investment rate/Real GDP growth rate) 3.8 5.1 6.3 10.1 6.1 4.2 Ghana Real GDP Growth rate 8.1 6.3 7.0 5.8 4.0 3.7 Investment rate 21.5 14.9 16.0 18.4 19.3 20.4 ICOR (Investment rate/Real GDP growth rate) 2.7 2.4 2.3 3.2 4.8 5.5 Sierra Leone Real GDP Growth rate 3.8 3.7 3.5 5.1 4.7 4.8 Investment rate 19.2 17.9 17.3 16.9 17.9 18.0 ICOR (Investment rate/Real GDP growth rate) 5.1 4.8 4.9 3.3 3.8 3.8 Source: Author’s calculations using data from AfDB Statistics Department, and Government authorities
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Competitiveness: The Gambia’s Figure 14: Global Competitiveness Index competitiveness is weak, a fact which Global could be associated in large part to the competitiveness Innovation 100 Institutions country’s relatively low total factor capability 80 Business productivity, efficiency and human capital. 60 Infrastructure dynamism The Gambia’s fell five places in the 2019 40 Global Competitiveness Index (GCI) Market size 20 ICTadoption ranking 124th out of 141 countries 0 Macroeconomic surveyed and with a score of 45 in a scale Financial system of 0 to 100 (Figure 14), where 100 is the stability top. Major impediments to international Labour market Health competitiveness, as well as to doing Product market Skills business more generally, include a costly The Gambia Mauritius Senegal and complicated tax system and Chad Singapore administration, limited access to financing, Source: Global Competitiveness Report, 2019. Score: 0-worse, 100-best and poor infrastructure, all of which have contributed to holding back growth.
An introspection into the 12 pillars of the Global Competitiveness Index 2019, shows that The Gambia ranks 96th/141 in terms of quality of institutions. The country’s weak legal and administrative framework impedes individuals, firms, and government to interact effectively and generate wealth. Inadequate infrastructure impedes the effective functioning of the economy. As a result, The Gambia ranks 117th/141 countries on the quality of its infrastructure. The most critical issues include airport connectivity (ranked 137th/141), electricity access (121st/141), exposure to unsafe drinking water (118th/141), health systems (122nd/141), reliability of water supply (104th/141) and ICT adoption (122nd/141).
Macroeconomic stability is important for business and overall competitiveness. However, in The Gambia, high fiscal deficits under the previous regime have limited government’s future ability to react to business cycles and stimulate competitiveness and growth. Therefore, the country ranks 125th/141 on macroeconomic stability. Other areas impacting competitiveness in The Gambia, include: inadequate skills (118th/141), labour market regulations (99th/141), underdeveloped financial system (113rd/141), lack of business dynamism (118th/141) and, innovation capability (107th/141). Finally, the small market size (138th/141) and lack of product diversifications also hampers competitiveness and growth (76th/141).
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2.4.7 Macroeconomic Outlook and Potential Impacts of the COVID-19
The macroeconomic outlook is adversely Box 1: Government’s Response to COVID-19 in The Gambia affected by the COVID-19 pandemic. Upon declaration of first cases of COVID-19 in The Gambia on 16th Under a baseline scenario, GDP growth is March 2020, the government took urgent steps to put in place contingency plans to prevent and contain the virus. However, projected to decline to 1.9% in 2020 from infection cases have been on the rise. As of 5th September 2020, the initial estimate of 5.2%. In the worst- there were 3150 confirmed cases, 1315 recovered and 99 deaths. case scenario, GDP could shrink by 3.1% Key priority measures undertaken by the government to mitigate the pandemic include: if the pandemic lasts beyond 2020 (Table (i) An increase of health sector budget by 0.5% of GDP to 5). The economic slowdown stems from strengthen health security, logistics and testing capacity from declining agricultural exports (e.g. 100 tests/day to 200 tests/day by the Medical Research Council in Banjul; groundnuts) due to lower commodity (ii) The reduction of the monetary policy interest rate by 50 basis prices. The authorities have taken points to 12% to boost liquidity and support private sector measures to mitigate the pandemic (Box 1) growth; (iii) The provision of food support package (rice, sugar, cooking oil) but the shock is expected to reduce export worth USD 17.2 million to be distributed to more than 201,600 revenues of medium and large firms by vulnerable households. Of these, 84% are in rural areas; 10% and 22%11, respectively, in 2020, due (iv) The government has committed to taking over the liabilities of The Gambia Hotel industry such as Municipalities rates and to global supply chain disruptions. Travel Gambia Tourism Board license fees; restrictions will reduce tourist arrivals by (v) Granting of extension of filling tax returns for businesses. 28% compared to 2019, resulting in USD 110 million revenue loss in 2020, and risking about 20,000 jobs in the economy. FDI inflows, mostly from the United Kingdom, Spain and Germany, are expected to contract by 34% and reach USD 64.7 million in 2020, delaying investments in real estate, construction, tourism and financial sector. The reduction of remittances12 will disproportionately affect savings and consumption of vulnerable groups (women, youth and informal workers), with a negative impact on food security, poverty and income inequality.
Table 5: The Gambia – COVID-19 Impacts on the Macroeconomic Outlook (2018-2021) Without With COVID-19 With COVID-19 COVID-19 (Baseline) (Worst-Case) 2018 2019(e) 2020 (p) 2021 (p) 2020 (p) 2021 (p) 2020 (p) 2021 (p) Real GDP Growth (%) 6.6 5.4 5.2 5.0 1.9 5.9 -3.1 2.9 Inflation (%) 6.5 5.1 4.8 5.3 7.2 6.2 7.6 7.0 Budget balance (+/-) (% GDP) -6.6 -4.1 -2.8 -3.5 -3.0 -2.6 -3.6 -2.9 Current Account Balance (% GDP) (+/-) -12.3 -10.3 -12.0 -13.2 -10.0 -10.4 -10.8 -11.1 Source : AfDB, Statistics Department. Note: (e) estimate, (p) projection.
2.5 Fiscal Developments and the Dynamics of Public Debt
2.5.1 Revenue and Expenditure Profile
The Gambia’s fiscal balance is improving, thanks to a substantial fiscal adjustment. Since 2015, the authorities embarked on an economic program to correct fiscal imbalances that accumulated in previous years. Unplanned transfers to SOEs, higher expenditures on goods and services and lower- than-expected revenues also added up to the past fiscal imbalances.
11 United Nations (2020). “Socio-economic impact of COVID-19 on The Gambia”. 12According to The Gambia Integrated Household Survey 2015/16, diaspora remittances account for 11.5% of GDP and are a source of income for an estimated 64.1% of the population (60% in rural areas and 66% of urban households). 16
The recurrent policy slippages and loose Figure 15 : Fiscal Performance (% of GDP) fiscal policy led to the widening of the fiscal 30.0 deficits from 1% of GDP in 2008 to 5.4% 25.0 of GDP in 2015. Tightened expenditure 20.0 controls helped to improve the overall fiscal 15.0 stance from a deficit of 5.3% of GDP in 10.0 2017 to 4.1% in 2019 (Figure 15). 5.0 Moreover, the government revised the 2017 0.0
-5.0
2006 2001 2002 2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 budget expenditures estimates to generate 2000 -10.0 much-needed savings of approximately 1% Revenues Expenditures Overall fiscal balance of GDP. This helped reduce the fiscal Source: AfDB Statistics Department, 2020 deficit, ensured the target of lowering net domestic borrowing below 0.5% of GDP in 2018 and 2019.
The government revenues expanded from Figure 16: Total Revenue Composition (% of Total 13.1% of GDP in 2016 to 17.3% of GDP, Revenues) mostly driven by taxes on trade and goods Grants 9% and service (Figure 16). High dependence on 35% Non-taxes 10% foreign grants (about 35% of total revenues) 14% highlights the need for greater domestic Taxes on trade 25% 13% revenue mobilization. International trade Taxes on goods and 35% taxes declined from 25% in 2015 to 13% in services 25% Taxes on incomes 21% 2019 due to the impact of volatile 13% commodity prices, increased competition in 0% 10% 20% 30% 40% re-exports (mainly textiles) among regional 2015 2019 ports and forgone revenues arising from tax Source: AfDB Statistics Department, 2020 exemptions13. Taxes on incomes, profits and capital gains on total revenues have declined by 7 percentage points to reach 13% in 2019. This was driven by inefficiencies in tax collection, underperformance of corporate companies and SOEs, and growing informal sector in which, the bulk of jobs do not yield tax revenues.
14 However, some studies point that the Figure 17: Tax Revenues in West Africa (% of GDP) concentration of tax revenues towards 25 indirect taxation may have some problematic 20 redistributive effects. For example, a 15 reduction in income taxes coupled with an 10 increase in VAT tends to reduce the tax 5 burden on higher incomes while increasing it 0
on poor or middle-income households. Mali
Togo
Niger
Benin
Ghana
Guinea Liberia
Nigeria Gambia
Overall, the tax-to-GDP ratio in The Gambia Senegal
Cape Verde Cape
Sierra Leone Sierra Cote d'Ivoire Cote has persistently been low compared to its Faso Burkina peers in the region. In 2019, The Gambia‘s Guinea-Bissau Source: AfDB Statistics Department, 2020 tax revenue was around 4 percentage point of GDP below the tax frontier and the country ranked only in the second lowest place in West Africa region (Figure 17), only surpassing Nigeria. Improving tax collection is critical to reverse the
13 According to the Ministry of Finance and Economic Affairs, the estimated revenues foregone in 2019 due to tax and duty exemptions exceeded 3% of GDP. 14 Caragata and Giles (1998); Bartlett (2004); and Phiri (2016). 17
downward trend in income taxes as well as explore options to tap on migrants’ remittances to finance critical investment infrastructure and promote growth.
Cognizant of the low progress in domestic Figure 18: Total Expenditure Composition revenue mobilization, the authorities 21% embarked on fiscal consolidation to create Capital expenditures 40% fiscal space for financing capital and social Subsidies and transfers 21% expenditure. This helped to curb total 15% 24% expenditures from 24.3% in 2017 of GDP to Interest 13% 18% 21.4% of GDP in 2019. High interest Goods and services 14% payments and subsidies have put significant Salaries 16% pressure on the quality and efficiency of 18% public expenditure in The Gambia. However, 0% 20% 40% 60% government’s reduced domestic borrowing 2015 2019 since 2015 helped lower the interest rate Source: AfDB Statistics Department, 2020 burden from 24% to 13% of total spending. Similarly, subsidies and transfers, mostly channeled to the National Water and Electricity Company (NAWEC) have declined significantly over 2015-2019 owing to the implementation of performance audit and action plans on SOEs. Capital expenditures have rebounded from 21% of total spending in 2015 to 40% in 2019 as significant disbursements of project grants and external concessional loans provided an impetus to the public investment program.
The Gambia made significant strides in Figure 19: Fiscal Deficit and Financing (% of GDP) improving its fiscal stance since 2015. 9.0 However, the emergence of COVID-19 threatens to reverse the gains made on 6.0 fiscal consolidation. AfDB (2020) estimates project a slight increase of 3.0 the fiscal deficit from 3% of GDP, in 0.0 the baseline scenario, to 3.6% of GDP 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 in the worst-case scenario in 2020 -3.0 (Figure 19), driven by the COVID-19 Statistical discrepacy -6.0 Foreign financing related expenditures and revenue Net domestic borrowing shortfalls arising from the deferrals in Overall fiscal deficit Fiscal deficit with Covid-19 (worst-case) tax payments. The budget balance Overall fiscal deficit with Covid-19 (baseline) deficit will then narrow to 2.9% of Source: AfDB Statistics Department, 2020 GDP in 2021, as the implementation of the 2018 Tax Administration Diagnostic and Assessment Tool (TADAT) is set to boost domestic revenue collection through increases in tobacco-related taxes and other excises, increase in customs processing fees by 0.5% to 1.5%, and tightening of tax exemptions. The fiscal deficit will be mostly financed through budget support loans, project grants and Treasury Bill issuances in the domestic market. Once effects of the COVID-19 pandemic have petered off and economic conditions normalize, there is a room for boosting, domestic revenues. This can be done by increasing the Value Added Tax (VAT) threshold from Gambian dalasi (GMD) 1 to 2 million to generate additional revenue in the medium-term.
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2.5.2 Dynamics and Management of Public Debt
The sharp increase in government deficits in recent years increased borrowing in The Gambia. The issue of debt sustainability is at the heart of the debate today, and significant debt management efforts will need to be made quickly by The Gambian authorities to avoid public debt to become a perpetual brake on the country's economic growth.
Strengthened oversight of SOEs has helped to Figure 20: The Gambia- Public Debt to GDP (%) reduce debt vulnerabilities. Total nominal 120 public debt, which was at 105.3% of GDP in 100 2015 has declined to 86.7% in 2018 due to the 80 combination of increased aid inflows, debt 60 restructuring, reduced non-concessional 40 borrowing, and fiscal consolidation that 20
contained risks on SOEs. Public debt declined 0
2012 2019 2011 2013 2014 2015 2016 2017 2018 2020 2021 2022 further from 86.7% of GDP in 2018 to 82.5% 2010 in 2019, due partly to the restructuring of debt Domestic debt External debt Total debt with some bilateral and multilateral creditors Source: Central Bank of The Gambia and rebasing of GDP (Figure 20).
The external debt increased from 40.2% of Figure 21: The Gambia – Structure of External GDP in 2010 to 51.4% of GDP in 2015 but has Debt (% of total debt,2019) Others, since declined to 45.9% of GDP in 2019. Private creditors, 2.2% Ongoing fiscal consolidation is expected to 5.1% Multilateral reduce fiscal deficits and bring borrowing Bilateral official creditors, 29.6% levels down. Nearly 60% of The Gambia’s creditors, 27.3% Plurilateral medium and long-term external debt was creditors, estimated at USD 778.8 million by end-2019 35.7% and 29.6% is owed to multilateral donors (Figure 21), notably the International Development Association with 14.5%, AfDB Source: Central Government of The Gambia (7%), IMF (4.5%) and IFAD (3.6). Plurilateral creditors account for 35.7% of total external debt and with half of this debt owed to the Islamic Development Bank (IsDB). Bilateral creditors account for 27.3%, one private creditor (M.A. Kharafi and Sons) accounts for 5.1% and the Islamic Trade Financing Corporation holds 2% of total external debt.
Output growth boosted domestic revenues and Figure 22: The Gambia – Structure of Domestic Debt prompted a decline in domestic debt from (% of total debt, 2019) 53.9% of GDP in 2015 to 36.6% of GDP in Restructured NAWEC SSHFC loan (from 2019. Improved domestic revenues and bond, 3.3% NAWEC), 2.3% increased donor support eased government’s Central Bank of domestic borrowing and this led to a decline in Gambia bond (30- the average Treasury Bill rates from a peak of year), 29.9% T-bills, 55.4% 18.9% in October 2016 to 6.2% in December 2019. The Gambia’s domestic debt was Commercial estimated at GMD 32.453 billion at end-2019 Banks, 9.0% and comprises 64.4% of marketable debt (e.g. Source: Central Goverment of The Gambia T-Bills (55.4%) and Bonds held by commercial banks (9%)). Non-marketable debt is comprised
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of: 30-year Central Bank of Gambia bond (29.9%), a restructured NAWEC bond (3.3%) and Social Security and Housing Finance Corporation (SSHFC) loan from NAWEC (2.3%).
The strong performance under the 2019 IMF Staff Monitored Program improved the country’s debt risk rating from being “In debt distress” in April 2019 to “High” in March 2020. This paved the way for the approval of an Extended Credit Facility program in March 2020. However, total public debt service (interest and amortization) has absorbed more than 42% of total export revenues over 2016-2018, leaving limited fiscal space for financing priority spending. The Gambia’s debt sustainability ratios are highly vulnerable to external shocks. Both Present Value of external public debt-to-GDP and external debt to exports would peak to 47.6% and 233.5% in 2022, largely breaching their sustainability thresholds of 40% and 180%, respectively (Table 6). Similarly, public debt service-to-exports and debt service-to-revenues are vulnerable to export shocks arising from lower commodity prices due to COVID-19. Both ratios breach their indicative thresholds of 15% and 18% in 2025 and stay above these thresholds until 2030 (Figure 23).
Figure 23: The Gambia: External Debt Sustainability Indicators
PV of external public debt-to-GDP ratio PV of external debt to exports ratio 60 250
40 150
20 50 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 -50 Baseline Historical scenario Baseline Historical scenario Most extreme shock Threshold Most extreme shock Threshold
External public debt-service-to-exports ratio 20 30 External debt service-to-revenue ratio 16 25 20 12 15 8 10 4 5 0 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Baseline Historical scenario Baseline Historical scenario Most extreme shock Threshold Most extreme shock Threshold Source: IMF Debt Sustainability Analysis, March 2020. The “Combination” extreme shock involves: real GDP growth, primary balance, exports, other flows, and 30% nominal depreciation.
In the short-to-medium term, a large pipeline of already contracted loans (19% of GDP) poses solvency risks compounded by high contingent liabilities stemming from several loss-making SOEs. In response, The Gambian government is implementing a Medium-Term Debt Management Strategy (MTDS) for the 2019-2022 which aims to bring public debt to GDP below 55% of GDP by 2025. Key measures include: (i) Cautious borrowing by prioritizing highly concessional loans and grants; (ii) Reduction of subsidies for non-performing SOEs; (iii) Domestic resource mobilization; (iv) Settle SOEs-related contingent liabilities; (v) Debt relief under the G-20 initiative, and IMF’s Catastrophe Containment window to address the COVID-19 shocks.
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The strategy also projects to reduce short-term domestic borrowing (e.g. Treasury Bill issuances with maturity of one year or less and Bonds held by commercial banks). The objective is to reduce rollover risks, minimize exposure to interest rate risks, and crowd in private investment by limiting the government’s demand in the domestic debt market. As for external new borrowing, the strategy prioritizes medium-to-long term loans at highly concessional terms only to finance priority development projects, in cases where grant financing is not available. Table 6 shows the portfolio and maturity mix of current outstanding public debt. External debt accounts for the largest proportion in medium-to-long term dated instruments and followed by short-term domestic debt.
Table 6: Proportion of outstanding public debt by type of maturity Debt category Maturity 2016 2017 2018 2019 Short-term 0.0 0.0 2.3 1.2
External debt Medium-to-long term 45.4 53.0 51.9 53.9
Sub-total 45.4 53.0 54.2 55.1
Short-term 34.1 27.2 27.6 28.9
Medium-to-long term 20.5 19.9 18.2 16.0 Domestic debt
Sub-total 54.6 47.0 45.8 44.9
Total 100.0 100.0 100.0 100.0 Source: Computed using data from the IMF Debt Sustainability Analysis for The Gambia
2.6 Monetary policy and Inflation Dynamics
The Central Bank of The Gambia (CBG) Figure 24 : Net Foreign Assets (GMD million) operates an eclectic mix of monetary policy 18,000 tool mainly with consideration of inflation 15,000 dynamics to keep it around single digits. The 12,000 framework is centered on money targeting in 9,000 pursuance of the price stability objective. 6,000 This is combined with the policy rate to 3,000 manage liquidity. During 2012-2015, the 0
adoption of exchange rate controls led to a -3,000
2008 2007 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 drop of net foreign assets (Figure 24). The 2006 CBG continued its efforts to improve Monetary authorities Commercial banks exchange rate management, and in 2017, it Total net foreign assets abolished all forex restrictions. This reform Source: Central Bank of The Gambia helped in the rebound of accumulation of reserves as illustrated by the increase in the net foreign assets in the monetary system (Figure 24). Recently, the reduction in the monetary policy rate by 50 basis points to 12% in February 2020 was aimed to boost liquidity and support private sector growth amid the adverse effects of the COVID-19 shock. In the short-to-medium term, CBG is likely to maintain the recent policy decision of keeping its policy rate at 12%, at least until the COVID-19 shock eases. However, should indications of inflationary pressures and exchange rate depreciation emerge, the CBG may be forced to tighten monetary policy.
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The inflation rate stood at 7.6% in December Figure 25: The Gambia – Inflation Trends (%) 2019 and down from 8.8% in January 2017 25.0 (Figure 25). The inflation decline was due to 20.0 the fall in both food and non-food 15.0 commodity prices and energy prices. Falling 10.0 inflation implied a relative improvement in 5.0 real wages. However, salaries in The Gambia 0.0
remain low, ranging from an average lowest
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19
Apr-17 Apr-15 Apr-16 Apr-18 Apr-19 level of GMD 2,170 (USD 42.2/month) in Apr-14 agriculture, to a maximum average of GMD Food and non-alcoholic beverages Non-food prices 71,000 (USD 1,379/month) for management Overall CPI Inflation positions (GBoS, 2018 Labour Force Source: Central Bank of The Gambia Survey). Reduction in government’s domestic borrowing and the stability, in both monetary and exchange rate policies, since 2017, helped maintain a stable inflationary environment. Meanwhile, the supply shortages due to the COVID-19 are likely to drive inflation beyond 7% in 2020-21.
2.7 Foreign Exchange Rate Management
The Gambia follows a floating foreign exchange rate regime, which was however interrupted during 2012-2015 by imposition of administrative controls. Until then, the regime had served the country well and enhanced competitiveness over the years. The CBG was able to build-up reserves to five months of import cover until end-2014. However, from 2012 to 2015, the government issued several Presidential Directives (Table 7) to fix the exchange rate amid growing speculation. This led to an exchange rate overvaluation relative to the USD, that reached a maximum of 30% in 2015, and the CBG experienced a sharp loss of international reserves as illustrated in Figure 26. The restrictions lowered market confidence and destabilized the exchange rate market. In 2017, the CBG removed all exchange rate restrictions and the supply of foreign currency significantly increased as sources of foreign exchange recovered. The lifting of exchange rate restrictions also helped correct the real exchange rate movements which remained largely overvalued by 8.5% in 2015 but has since experienced real depreciation (e.g. 3.2% since September 2018) and resulting in gradual gains of competitiveness of the country’s exports, including the tourism services.
Figure 26 : Official Reserves and Exchange Rate Table 7: The Gambia Exchange Rate Directives Duration Target Market Over- 10 55 GMD/ GMD/USD valuation 9 50 8 USD 7 45 6 40 October 22- 28 34 about 21% 5 35 November 15, 2012 4 30 June 26 - July 15, 30-33 37-39 about 18% 3 25 2 2013 1 20 0 15 July 26 – August 14, 37 40 about 8% 2013
Reserves (in months of imports) imports) of months(in Reserves August 14 – October 35 40 about 14%
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Nominal exchange rate GMB/USD rate exchange Nominal 9, 2013 Reserves (in months of imports coverage) May 4 – December 35-40 50 about 30% Nominal exchange rate GMD/USD 2015 Source: Central Bank of The Gambia Source: Central Bank and IMF estimates, 2015 Note: The Presidential Directives fixed exchange rate limits.
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2.8 External Sector Performance
External sector performance remained Figure 27: Current Account Decomposition (% of GDP) weak reflecting slow growth in exports 25.0 and reduced donor inflows, particularly 15.0 during the 2013-2017 period. The 5.0 Gambia has been running current
-5.0
2016 2014 2015 2017 2018
account deficits, owing to large deficits 2013
2019(e) 2021(p) in its merchandise trade. Current -15.0 2020(p) account balance deficit averaged 12.4% -25.0 of GDP between 2013 and 2019, with -35.0 Trade balance (goods) Services exports (net) relatively little volatility within that Income (net) Current transfers Current account balance period. It shrunk from 10.3% in 2013 to Source: AfDB Statistics Department, 2020 8.9% in 2016, and slowly widening again to reach 19.3% of GDP in 2017 (Figure 27).
The imposition of foreign exchange controls over 2012-2015 and the consequent exchange rate overvaluation has impacted negatively on the country’s export competitiveness, leading to a decline of export earnings and favoured the increase of imports of food items (particularly rice, sugar and vegetable oils), fuels, cement, vehicles, and capital goods. The Gambia is a net exporter of services dominated by tourism, which is also the most important foreign exchange earner (USD 181.3 million in 2019 compared to USD 63.9 million in 2015). Services imports are largely due to travel (mainly education) and transportation services. High dependence on tourism exports has impacted on the current account, as tourism receipts in the 2014/15 season dropped by 50% following the Ebola outbreak, leading to a deterioration of the current account.
The external sector performance is Figure 28: Exports and Imports Trends (USD million) expected to stabilize over the medium- 900.0 800.0 term, despite the slowdown in the 700.0 global economy. The current account 600.0 deficit is projected to widen from 10% 500.0 400.0 of GDP in 2020, in the baseline 300.0 scenario, to 10.8% of GDP, in the 200.0 worst-case scenario of COVID-19 by 100.0
end-2020, as high imports outweigh the 0.0
2015 2014 2016 2017 2018
growth in exports (Figure 28), 2013
2019(e) 2021(p) particularly in the tourism sector which Exports Imports 2020(p) is likely be hit hard by the COVID-19 Source: AfDB Statistics Department, 2020 shock. For 2021, the current account deficit is projected to rise from 10.4%, under the baseline scenario to 11.1% in 2021, in the worst-case scenario still below the pre-COVID-19 levels of 13.2%. Total exports of goods are projected to average 8% of GDP supported by agricultural exports (groundnuts and cashew nuts) on account of a favourable rainfall. Furthermore, total imports’ growth is expected to average 3 percentage points and reach 35.2% of GDP in 2021, as total demand for food items and capital goods that are essential for domestic consumption, construction and investment will remain subdued.
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The capital and financial account of the Figure 29: Financing of the Current Account (% of GDP) balance of payments continued to 40.0 record a surplus over 2013-2019. 35.0 Inflows of the capital and financial 30.0 account remained stable over 2013- 25.0 20.0 2015, owing to strong FDI and portfolio 15.0 inflows, but policy inconsistencies 10.0 5.0 combined with the emergence of the 0.0 Ebola outbreak during the 2014-2015 2013 2014 2015 2016 2017 2018 2019(e)2020(p)2021(p) undermined investors’ sentiment and Foreign reserves Remittances FDI Tourism receipts prompted a sharp drop in the capital and Capital and financial account financial account from 12.4% of GDP in Source: AfDB Statistics Department, 2020 2015 to less than 4.3% of GDP in 2016.
Inflows to the capital and financial account improved to 15.2% of GDP in 2017 from 4.3% of GDP in 2016 (Figure 29). FDI, especially in real estate, construction, tourism and financial sector increased by 28% over 2017-2019, reflecting renewed confidence in the economy following the democratic political transition in 2016. Furthermore, migrant remittances are an important source of external finance in West Africa. In The Gambia, remittance flows contribute significantly to the GDP by 11.5%15 in 2019 and are an important source of finance for domestic real estate investments the introduction of regulatory framework for remittances onto digital finance (mobile wallet) could be an opportunity to improve financing of the current account in The Gambia.
The overall Balance of Payments Figure 30: Overall External Sector Trends (BOP) deteriorated over 2013-2016, 350 8 with an average balance of payments 300 6 deficit of 3% of GDP (Figure 30) as 250 4 large trade balance could not be offset 200 2 150 0 by net service exports and transfers. 100 -2
The introduction of foreign exchange 50 -4 Reserves USD) (million Reserves restrictions over 2012-2015, 0 -6 2013 2014 2015 2016 2017 2018 2019 2020 2021 overvalued the exchange rate and Gross International Reserves resulted in significant losses of gross Months of imports BOP of imports/Overall Months Overall balance of payments -% GDP external reserves from USD 76.1 Source: AfDB Statistics Department, 2020 million in 2015 (2.3 months of imports) to USD 59.6 million in 2016 (1.4 million of imports). Since, 2017, the current account deficit narrowed from 19.3% of GDP in 2017 to 10.3% of GDP in 2019. The deficit was fully financed by strong capital and financial inflows, including from diaspora remittances that were invested in real estate. As a result, the overall BOP turned positive to 4.2% of GDP in 2019 up from 1.3% of GDP in 2018. The lifting of foreign exchange restrictions since 2017, also helped in the accumulation of gross official reserves from 3.7 to 3.8 months of imports’ coverage. In the short- to-medium term, the overall BOP is projected to deteriorate by USD 46 million (2.4% of GDP) in 2020 due to the COVID-19 effects, although lower oil prices may lighten the import bill. The sharp decline in the tourism earnings and remittances will reduce the international reserves by USD 10 million to USD 258 million by end-2020, still sufficient to cover 3.7 months of prospective imports.
15 IMF (2020) article IV staff report. 24
2.9 Financial Sector Development
The financial environment in The Gambia has changed rapidly within the last two decades. The financial system, which is governed by the Central Bank of Gambia (CBG), has largely been liberalized. Most interest rates are freely determined, with direct control by the CBG abolished. Similarly, exchange rate controls have also been removed, pushing the system’s monetary controls towards open market operations. Despite these reforms, the country dropped from 110th/140 in 2018 to 113th/141 countries in the 2019 Global Competitiveness Index. Low domestic credit to the private sector as percentage of GDP, low access to financing by SMEs, lack of capital market structure, and relatively high non-performing loans are areas requiring improvement.
The country’s financial sector landscape is made up of commercial banks, insurance companies, microfinance institutions, foreign exchange bureaus, and non-bank financial institutions. As of end-2019, The Gambian commercial banking sector included 14 commercial banks (Table 8), with the top five banks accounting for 95% of total assets. The insurance industry is made up of 13 insurance companies, with an ownership structure split evenly between local and foreign companies. The microfinance finance institutions sector is classified into three main types of institutions – commercial microfinance, credit unions and Village Savings and Credit Associations (VISACAs). The financial sector remains stable and is dominated by commercial banks which are well capitalized and liquid. Total banking sector assets grew by 15.4% in 2019 as compared to 2018 and reached USD 1.026 billion (51% of GDP).
Table 8: Licensed Financial Institutions in The Gambia Commercial banks 14 Microfinance institutions 4 Credit Unions 64 VISACAs 65 (14 active) Source: Central Bank of The Gambia
2.9.1. Credit Conditions and Banking Sector Performance
Despite the consistent decline in the CBG’s Figure 31: Treasury Bill Rates and Credit to policy interest rate from 20% in 2015 to 15% Private Sector (Monthly % Change) in 2017, the average commercial bank’s 25 25 20 lending interest rate declined at a slower pace 20 15 10 from 28% in 2016 to 25% in 2017. Average 15 5 lending interest rate in 2019 stood at 21%, a 10 0 -5 level that remains relatively high. In regard to 5 -10 -15 time deposits, the maximum interest rate was 0 -20
recorded at 16% in 2014 but has since declined
Jul-16 Jul-14 Jul-15 Jul-17 Jul-18 Jul-19
Jan-15 Jan-14 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Oct-14 Oct-16 Oct-15 Oct-17 Oct-18 Oct-19
Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 to 9% in 2018. As of the end of 2018, the Apr-14 T-Bill rates (left hand scale) minimum and maximum interest rate on Credit to private sector growth (right hand scale) savings deposits remained unchanged at 0.5% Source: Central Bank of The Gambia and 8.0%. In the short-to-medium term, interest rates are likely to continue to fall reflecting excess market liquidity and reduced government borrowing in the domestic market. The average Treasury Bill rates for 12-months also dropped significantly from 21.6% in December 2016 to 9.2% in February 2020 (Figure 31). Declining interest rates are gradually stimulating the rate of growth of credit to the private sector.
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Figure 32 illustrates the distribution of credit across each sector of the economy. On average, commerce (31.2%), building and construction (15.8%), transport and communication (8.5%) are the three sectors that have demanded the most credit over 2015-2019. Agriculture sector received little less than 4.5% of credit hinting commercial bank’s risk aversion to the sector and lack of credit collateral by smallholder farmers. Due to decreasing levels of activity in the manufacturing sector, on average, the sector only received 1.3% of available credit over 2015-2019. Tourism sector received only 5.3% of total credit as most of the investments in the sector are foreign- financed. More broadly, credit to the private sector expanded significantly by 33% year-on-year in 2019 from a negative growth rate of 12% in 2015. This is primarily a result of a decrease in government borrowing which prompted a sharp drop in Treasury Bill interest rates and induced a drop in commercial bank’s average lending rates, therefore minimizing the crowding-out effect of government borrowing and spending on private investment.
Figure 32: Distribution of Credit by Sector (%) 100%
80% 60%
40% 20%
0% 2015 2016 2017 2018 2019 Other activities Financial institutions and enterprise services Tourism Commerce Transport and communication Building and construction Manufacturing industries Agriculture and fishing Source: Central Bank of The Gambia
Financial intermediation is recovering and banks have gradually reduced their concentration of assets on Treasury Bills from 40.2% in 2016 to less than 30% in 2019 (Table 9). Banks are increasingly looking for retail business as Treasury Bill rates have fallen. However, deposit interest rates have fallen faster and this coupled with low average per capita incomes has reduced incentives and capacity for long-term savings. Moreover, the prevalence of short-term deposits is not conducive to financing medium and long-term infrastructure.
Table 9: Recent Financial Sector Developments 2015 2016 2017 2018 2019 Total assets (GMD millions) 29,329 32,611 37,824 43,907 52,480 Annual growth rate (%) 0.3% 6.7% 12.0% 15.4%
T-Bills held by commercial banks (GMD millions) 10,632 13,096 11,820 13,385 15,508 T-Bills share on total assets (%) 36.2% 40.2% 31.2% 30.5% 29.5% Total credit to the private sector (GMD millions) 3,959 3,485 3,756 5,187 6,899 Credit to the private sector (annual growth - %) -12.0% 7.8% 38.1% 33.0%
Time deposits (GMD millions) 2,998 3,210 3,201 3,492 3,923 Total deposits (GMD millions) 16,538 18,534 22,440 27,176 35,031 Share of time deposits on total deposits (%) 18.1% 17.3% 14.3% 12.9% 11.2% Exchange rate (GMD/USD) 39.54 43.82 47.63 49.35 51.12 Source: Central Bank of The Gambia
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2.9.2 Financial Sector Stability and Efficiency
The Gambia’s financial sector remains stable, and the banking sector is well capitalized. Non- performing loans declined from 9.6% in 2016 to 5.8% in 2019 due to a decline on gross loans compared to nonaccrual and restructured credits. Consistent with an accommodative monetary policy, the liquidity ratio was reported at 92% well above the regulatory threshold of 30% (IMF, 2020). The risk-weighted capital adequacy ratio fell from 38.2% in 2016 to 31.4% in 2019, but the banking sector but remains above the minimum regulatory rate of 10%. Moreover, Gambian commercial banks are better capitalized than most other ECOWAS countries, outperforming banks in the larger economies such as Nigeria, Côte d’Ivoire and Ghana (Table 10). Nevertheless, the rate of transformation of deposits into credit in The Gambia is below the average in West Africa countries. This drives low total credit to GDP (8.7%), therefore an area requiring urgent reforms.
Table 10: Financial Sector Stability and Efficiency Indicators, 2019 Bank Top 5-banks Regulatory Bank Credit to Bank Non- assets to asset capital to credit/Bank private lending/ performing GDP (%) concentration risk weighted deposit (%) sector deposit loans (%) (%) assets (%) (% GDP) spreads (%) The Gambia 51.0 95.9 31.4 69.4 8.7 11.5 4.5 Benin 34.2 90.3 7.6 77.9 22.7 2.4 18.9 Burkina Faso 36.2 78.5 11.4 83.4 31.3 3.7 9.2 Cote d’Ivoire 32.6 67.6 9.8 92.0 26.5 1.3 9.9 Cabo Verde 85.1 96.8 18.0 67.7 62.4 7.0 12.8 Ghana 25.5 53.7 17.7 64.6 13.9 11.9 18.2 Guinea 12.8 95.2 16.8 57.7 9.7 4.8 12.2 Mali 33.4 73.6 14.3 121.6 27.1 3.21 16.7 Niger 21.5 85.2 13.3 113.2 15.7 2.93 19.0 Nigeria 19.2 63.2 14.8 88.0 14.2 7.9 11.7 Senegal 36.3 56.7 14.2 98.4 29.5 0.9 15.5 Sierra Leone 10.4 94.9 30.1 36.9 4.8 11.7 12.7 Togo 53.9 87.6 6.0 90.1 39.6 2.14 18.3 Source: World Bank, Global Financial Development Database
2.9.3 Financial Sector Efficiency and Profitability
Banking sector efficiency remains a challenge as reflected by the high average spread between lending and deposit rates 11.5% (Table 10). This may be attributed to the prevalence of structural and operational inefficiencies, and high credit risks. Net interest margins which include fees and commissions and other operating income stood high at 8.1% in 2017 but has since declined to 6.5% in 2019 (Table 11), brought about by the impact of CBG’s cut on the benchmark policy rate on domestic interest rates.
Table 11: The Gambia - Banking Sector Efficiency and Profitability Indicators 2015 2016 2017 2018 2019 Returns of Assets (%) 0.5 0.7 1.6 1.6 1.9 Returns on Equity (%) 3.5 4.2 11.0 11.3 15.4 Net interest margin (%) 1.8 1.9 8.1 5.9 6.5 Non-interest income ratio 33.2 27.6 31.7 40.9 40.2 Source: Central Bank of The Gambia
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Banking sector profitability in The Gambia as measured by the return on equity reached 15.4% in 2019 up from 3.5% in 2015, in part driven by high interest rate margins. However, The Gambian commercial banks are facing high degree of exposure to sovereign and SOEs debt, debt reprofiling and restructuring, and declining interest rates may put domestic banks at a medium risk of experiencing a sharp fall in profitability.
2.9.4 Access to Financial Services
Access to financial services Figure 33 : Access to Financial Services – Selected Country Comparison remains low as 69% of the Benin 2018 8 35 29 38 population in The Gambia lacks Cameroon 2017 10 39 15 36 access to banking and financial Nigeria 2018 40 9 5 36 Burkina Faso 2016 18 12 21 39 services through formal and Togo 2016 18 27 15 40 informal institutions (Figure 33). Ghana 2010 34 7 15 44 Most striking is the proportion of The Gambia 2019 5 14 12 69 banked population (about 5%), 0% 20% 40% 60% 80% 100% which is the lowest in the region. Banked Other formal (non-bank) Informal only Excluded High poverty and low incomes, Source: Finscope, 2019 : The Gambia - Consumer Survey Highlights low level of awareness and financial literacy, and barriers to opening a bank account such as proximity, infrastructure, and affordability impacts on low access to financial services in The Gambia (CBG, 2020).
Over 60% of the population in The Gambia is engaged in the informal sector and gain access to limited finance from informal or semi-formal providers (Figure 34). Access to formal financial services, in particular for the youth and women who suffers from high unemployment and poverty, can help stimulate economic development and reduce inequality. In terms of access to formal financial services, there is an estimation of about half a million formal accounts (CBG data on commercial banks and non-bank financial institutions), this inclusive of all individual and business accounts; which in relationship to the population of 2.3 million people shows an inclusion rate of 35%. Although 68%16 of adults are aware of mobile money (both Qmoney-74% and AfriMoney- 60%) its usage remains low at only 2% of adults are registered mobile money users (Figure 35). 17 The country’s high mobile penetration rate of 67% and 1.4 million subscribers has significant potential in expanding mobile banking. Insurance penetration in The Gambia remains structurally low (0.7% of GDP in 2019).
Figure 34 : The Gambia - Access to Credit by Type of Source Access to credit through formal sources Access to credit through informal sources Other Other Village NGOs, (informal), (formal), association, 2.3% 0.5% Credit 2.0% Money Employer, Commercial 1.5% union, 0.6% lender, 2.0% 2.9% bank, 8.2% Government Osusu, 2.0% agency, Trader , 3.5% 21.4% Relative/Friend, Microfinance 28.7% institution, Farmer, 20.5% 4.0% Source: Gambia Bureau of Statistics, IHS, 2015-2016 Source: Gambia Bureau of Statistics, IHS, 2015-2016
16 Finscope, 2019: The Gambia - Consumer Survey Highlights 17 The Mobile Economy Report on Sub-Saharan Africa 2018 28
The development of sound insurance markets and social protection funds could provide substantial buffers to help, both individuals and businesses, cope with unforeseen shocks, like the impacts of extreme weather shocks and pandemics. However, high unemployment, low incomes and lack of customer centric products and services limits insurance penetration. Only 16.6% of firms reported access to a loan in 2019. According to the UNCDF (2017) report, lack of access to finance deters Micro Small and Medium Enterprises (MSMEs) growth, entrepreneurship and innovation and hinders job creation and growth.
Figure 35 : Access to Mobile Money, Credit and Insurance Penetration, 2019 Ghana 39 0.5 23.3 Cameroon 15 0.3 14.2 Nigeria 6 0.1 11.4 Togo 21 0.9 42.3 Senegal 32 0.6 22.6 Cote d'Ivoire 34 0.6 21.3 Gambia 20.7 16.6 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Mobile money account (% 15+ years) Life insurance premium volume (% of GDP) Firms with a bank loan or line of credit (%)
Source: World Bank, Global Financial Development Database
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Chapter 3: Cross-Cutting Issues
3.1 Introduction
After a long reign of 22 years by Mr. Yahya Jammeh, the 2016 presidential elections and democratic election of President Adama Barrow marked the beginning of a new hopeful chapter for The Gambia. This new political transition brought along high expectations for political, economic and social progression through President Barrow’s implementation of macroeconomic stability, improvement in governance and service delivery, and further reinforcement of the relations with donors and partners. The delivery of good governance and accountability comprises one of the 8 priority clusters of the National Development Plan (NDP) for 2018-2021, which specifically commits the government to efficient governance, human rights and decentralization, and effective public service delivery. This chapter highlights the key reform efforts by the government towards addressing the challenges confronting the country and assesses progress to date.
3.2 Status of progress on institutional governance
Underlying governance issues under the previous Table 12: IIAG Index scores Pre/Post Transition regime had led to generally low scores on most of the (2015-2017) standard governance measures across the board. In Pre/post Pre/post transition transition % the 2016 edition of the Mo Ibrahim Governance Index score gains in (IIAG) accounting for the situation in 2015, The difference scores Safety And Rule Of Gambia was ranked 35th with a score of 46.9/100. In + 13.1 points 28% st Law the 2018 edition (2017 situation), it jumped to the 21 Participation And + 15.2 points 46% place with a score of 54.9. Greatest gains were Human Rights obtained in the Participation and Human Rights, and Sustainable Economic + 1.9 points 4% Safety and the Rule of Law categories (Table 12). Opportunity Human Notably, the transparency and accountability sub- + 2 points 3% rating also greatly improved, from 24.4 to 43.8/100 Development over the same period. The country ranks 43rd out of Source: Mo Ibrahim Index, 2015-2017 54 countries in the AfDB’s Country Performance and Institutional Assessment (CPIA) with a score of 3.03 in 2018 up from 2.97 in 2016. Key improvements were made on CPIA ratings for structural reforms on financial sector development and trade policy and regional integration. However, performance on economic management, social inclusion and equity, and governance remained weak.
3.3 Economic Governance
3.3.1 Public Financial Management and other Institutional Reforms
The Gambia is at critical juncture with recent Public Financial Management (PFM) reforms. The implementation of the PFM Strategy 2016-2020 (published in May 2016) is just starting to yield results, ranging from the full roll-out of the Integrated Financial Management Information system (IFMIS); the Program-Based Budgeting (PBB); the establishment of the Financial Integrity Unit (FIU) in 2016 with Bank’s support from its Governance Trust Fund; the introduction of Treasury Single Account (TSA) in 2018, and the comprehensive performance audits of major SOEs and strategic reform action plan. Box 2 presents some of the critical PFM reforms in The Gambia.
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Box 2: Key Governance Reforms, Achievements and Challenges
1. A Program Based Budgeting (PBB) framework has been piloted at the level in two ministries with plans to roll-out to others but progress still remains slow. While new templates for PBB are being designed, it is important that they are appropriately used. In addition, an element of Public Private Partnerships (PPP) has been established with the aim of improving the quality and efficiency of some public services and infrastructure management.
2. Within the scope of PFM Strategy 2016-2020, the Accountant General’s Department is now a fully- fledged stand-alone department. A separate Internal Audit Directorate has been established (with some support from the Bank) but staffing of internal audit unit remains weak. In addition, non-compliance with internal control rules and procedures undermines service delivery through potential wastage of resources and the accumulation of arrears outside the system. Audit or financial management software are sometimes not in place as per the 2004 Local Government Audit and Financial Act.
3. The Treasury Single Account is yet to be fully implemented. At present, even though the Treasury has a firm control on all Treasury-managed bank accounts, service delivery will be enhanced when the TSA is fully operational, bringing on board all government accounts held in commercial banks as well as donor project accounts. Timely consolidated financial reporting has seen some improvements, thereby contributing to public accountability, with the support of the National Audit Office (NAO) and the Legislature.
4. In year 2014 a new Public Procurement Act (PPA) was approved by the National Assembly and applicable to all procuring organization. The PPA was recently (year 2018) amended in order to abolish the Major Tender Board initially in charge of approvals above 10 million Dalasi (approximately USD 200,000) and transfer its mandate to the Gambia Public Procurement Agency (GPPA). This institutional arrangement is not in line with international standards, which require a segregation of conflicting functions among different bodies to ensure a well-functioning system. In addition, even though operating since 2017, the Complaint Body which decisions are not enforceable is currently facing key institutional challenges.
3.3.2 Illicit Financial Flows and Anti-Corruption Reforms
In spite of some progress made in the past years, Illicit-Financial Flows (IFF) and corruption remain key concerns. According to the Report of the High-Level Panel on IFF from Africa (2018), IFF in the Gambia account for 14% of GDP. An analysis undertaken on IFF and their impact on Millennium Development Goal (MDG) 4 on Child mortality suggests that The Gambia could have reached MDG 4 in 10 years if IFFs were eliminated, as compared to 32 years under current rates of progress. The Government of the Gambia (GoTG) enacted the Anti-Money laundering and Combating the Financing of Terrorism (AML/CFT) Act in 2012, which requires full implementation as a matter of urgency. Although The Gambia has established a Financial Integrity Unit (FIU) with Bank support from its Governance Trust Fund to carry forward this work, key elements are still missing, including the operational guidelines for the FIU and key capacity building of its members. When it comes to corruption, the Gambia scored 37 out of 100 and ranks 93 among the countries assessed in the 2018 edition of Transparency International’s Corruption Perceptions Index, up from a rank of 143 in 2017. This improvement is echoed by findings under Afrobarometer's first national survey in 2018 indicating that 46% of Gambians perceive a decrease in corruption against 32%, which see an increase. Importantly, and in contrast to perceptions under the previous regime, the vast majority (66%) of Gambians think ordinary citizens can make a difference in fighting corruption, and 58% say they can report corruption incidents without fear of retaliation. This points to the importance of nurturing demand-side governance in the fight against corruption.
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3.3.3 Governance of State-Owned Enterprises
The state-owned utility (NAWEC) has suffered financial distress in the past few years given its inefficient generation, high prices of imported fuel, and the sustained depreciation of the Gambian currency “the dalasi”. NAWECs contingent liabilities are key issue in terms of fiscal management (e.g. NAWECs exposure for 2017 on the loans it is servicing is approximately USD 1.3 million per month, against revenues of approximately USD 4.3 million per month). Over many years NAWEC suffered from presidential directives that set electricity tariffs well below cost recovery and imposed economically unviable projects in rural areas, while fuel supply cost was inflated from rent seeking by a monopoly supplier as part of a scheme to siphon off funds. Authorities are developing a comprehensive strategy to address the operational and financial difficulties of NAWEC which are also informed by the special purpose audits. In the immediate term, authorities have liberalized the fuel supply to NAWEC and mandated the use of international competitive bidding from NAWEC fuel purchases. Although NAWEC is part of the overall SOE reform package being designed, it is singled out due to its high social and economic impact due to under- performances in service delivery.
3.3.4 Reforms Necessary to Improve Economic and Financial Governance
In addition to SOE reforms, the government has committed to focusing on civil-service reform in year two of the transition period. Administrative structures are still fragmented, and co-ordination mechanisms are generally inadequate to overcome entrenched bureaucratic interests. In this difficult context, reforming the civil service and rebuilding the government’s overall institutional capacity will require a long-term political commitment supported by sustained external financial and technical assistance. Further structural reforms are being shaped at the economic stabilizes. These mostly pertain to economic governance, public financial management, and the below summarises key aspects which should be focused on in the medium-term:
(i) Reforms at decentralized level, notably by clarifying responsibilities adjudicated to LGAs, developing a reference human resources framework for them as well as building capacity on financial management; (ii) Actions focusing on anti-corruption and anti-money laundering through further widening of training and stakeholder outreach activities, the completion of a National Risk Assessment or the implementation of an AML compliance software; (iii) Improving the PFM coordination architecture; (iv) Deploying the TSA; (v) Clarifying institutional procurement arrangements stemming from the 2018 amendment of the Act to ensure there is segregation of conflicting functions among different bodies; (vi) Reinforce compliance with internal control rules and procedures
3.4 Environmental Risks, Climate Change and Green Growth
Climate hazards in The Gambia include torrential rainfall, storms (and flooding), drought, cold spells, intra-seasonal-drought, heat waves, sea level rise, and unseasonal rains. Climate projections indicate for ‘high risk’ of occurrence of river flooding at least once in the next 10 years, while water scarcity and droughts are expected to occur on average every 5 years. Soil salt intrusion resulting from sea level rise also impacts agricultural production affecting negatively the poor and
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vulnerable groups. As a result, The Gambia displays high vulnerability to climate change and low readiness and ranks 141st/192 countries in the 2018 Notre Dame Global Adaptation Index.
The Gambia ratified the Paris Agreement on November 7, 2016 and the country’s Nationally Determined Contribution (NDC) aims to unconditionally reduce emissions by 2.7% by 2030 below “business-as-usual” targets, and a target of 44.4% by 2025 and 45.4% reduction by 2030, conditional on international financial support. Greater emphasis is placed on renewable energy and afforestation, and the country recently launched a project to restore 10,000 hectares of forests, mangroves, and savannas (Green Climate Fund, 2018) bringing it closer to reaching its NDC afforestation targets. The Gambia’s NDC unconditional afforestation targets will contribute with emissions reduction of 0.3 Mt CO2eq in 2030.
The Gambia is currently reviewing its NDC and developing a long-term strategy to pursue a low carbon and climate resilient development pathway. To ignite this transition, a New Renewable Energy Law was enacted in 2013 to implement a feed-in tariff for renewable energy sources, and to establish a renewable energy fund. The Gambian government also announced its Sustainable Energy Action Plan (GoTG, 2015), with specific renewable energy and energy efficiency targets for 2020 and 2030 to attract international investors. Estimates by the United Nations Framework Convention on Climate Change (UNFCCC, 2015) suggest that The Gambia needed USD 14.2 million for implementing its Low-Emission and Climate-Resilient Development (LECRD) strategy. According to a national assessment of investment and financial flows completed in October 2011, The Gambia will also need an additional USD 1.35 billion to implement priority actions to reduce greenhouse gas emissions from the energy sector and forest degradation and adapt to the impacts of climate change in the agriculture and water sectors by 2030. Of this, USD 420.6 million is for adaption and USD 925.74 million for mitigation. The government will therefore need to initiate innovative financing mechanisms to leverage private sector investment given the huge funding needs for mitigation projects.
3.4.1 Institutional and Regulatory Framework for Environmental Management
The GoTG has put in place legislative and policy instruments and strategies/action plans to address climate change such as: the National Climate Change Policy of The Gambia (2016); the National Adaptation Program of Actions (2007); Climate Change Priority Action Plan (CCPAP, 2011); the National Disaster Management Policy (2007) and the National Environmental Management Act (NEMA), enacted in 1994 which privides the legal framework for the control and management of the environment. The NEMA also makes provisions for the overall management of the coastal zone and all other wetlands. In 2017, The gambia published its first volume of its Strategic Program for Climate Resilience, which summarizes its strategy to integrate climate change into policy planning and action. In additon, the Climate Change Priority Action Plan of Gambia has identified twenty-four cross-sectoral activities that contribute to mainstreaming of climate change into the national development process. The CCPAP will also lead to the development of a Low Emissions Carbon Development Strategy that will allow The Gambia to continue to follow a green economic development pathway.
3.4.2 Strengthening Country Systems
The Gambia has benefited from training, technical support and financial assistance from the USA, Norway, multilateral agencies, World Bank, United Nations Development Program (UNDP),
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Global Environmental Fund (GEF), and intellectual NGOs. The AfDB is supporting the country its Strategic Program for Climate Resilience under the Pilot Program for Climate Resilience. The objective of the project is to support national efforts to integrate climate change into policy planning and action, build resilience in coastal zones, and climate proof vital infrastructure. According to the climate funds update18 The Gambia has mobilized USD 66 million in climate Finance, and most of which from international, multilateral, bilateral donors. Multilateral agencies such as the United Nations also play a major role in drawing down resources, with many projects funded from the Least Developed Countries Fund and GEF Trust Fund. Although international public finance is likely to remain the main source of climate financing in the near future, the private sector has recently started tapping into the carbon market to finance LECRD investments. Therefore, The Gambia should further incentivize private sector investment in LECRD.
3.5 Gender Disparities
The Gambia ranks 43rd/51 countries for overall gender equality score and at 50th place in the economic sector category on the AfDB’s Gender Equality Index 2019. The AfDB’s 2019 Gender Data Book highlights several inequality gaps notably, in literacy rates (70.7% for men against 64.5% for women); gender-wage inequality (e.g. average men’s income (USD 2,190) is higher than women’s income (USD 800); access to credit (7.4% for men and 5.7% for women); land ownership (71.7% for men as against 28.4% for women), about 17.2% of women have been victim of Gender-Based Violence (GBV); and only 10.3% of parliament seats are held by women compared to an average of 23.7% in Sub-Sahara Africa. Customary and early marriages prevent women from furthering their education and acquire the necessary skills for productive employment. This ultimately drives huge differences in labour force participation (51.2% for women and 68% for males).
Women face dire economic and social conditions, especially with respect to employment and access to social services. For instance, about 65.1% of the women are employed in lower- productivity and more informal jobs in The Gambia and lack health insurance, paid leave, and earn low income. Despite recent improvements in access to basic drinking water source in The Gambia (78% in 2017), access to sanitation facilities (39.2% in 2017) remains a challenge and this affects mainly women as the main accessors, couriers and transporters of water in all regions and the first responsible of hygiene at the community levels. In addition, access to energy remains a challenge and the most common cooking fuel in The Gambia is firewood, used by 59.8% of households. This is causing rapid deforestation, and health concerns which affect directly women who spend more time on firewood collection. Women also find it difficult to access quality health services, owing to high costs for treatment. Improved access to basic services could save women time and enable them to complete domestic activities, thus allowing them to participate more actively in paid work.
The government has established policies towards the attainment of gender equality, and these include: The National Gender Policy 2010-2020, the Women‘s Amendment Act 2012, the Sexual Offenses Act 2013, and the Domestic Violence Act of 2013. The COVID-19 pandemic could affect most women who are in vulnerable employment (83.2%) compared to men (64.2%), as well as nurses and hospital staff, who are at high risk of contracting the virus. The risk of increased GBV is high due to economic and social stress caused by the lockdowns. The closure of schools could increase drop-out rates among girls due to their domestic responsibilities and child marriages.
18 (https://climatefundsupdate.org/data-dashboard/#1541245745457-d3cda887-f010) 34
3.6 Fragility Assessment and Challenges
The Gambia is currently facing a fragile political situation after 22 years of Yahya Jammeh’s misrule. President Adama Barrow won the 2016 elections based on a broad coalition of several political parties. The country has also secured some stability due to the presence of ECOMIG (ECOWAS Security Forces). However, the country remains divided along political lines. Going forward, these factors will play a key role in the likelihood of future uprisings and distress among citizens. The ongoing Truth, Reconciliation and Reparation Commission (TRRC) findings’ implementation presents an opportunity to overcome years of human rights violations and abuses of power as well as to restore voice and trust but implementation capacity is critical.
In 2017, the Bank conducted a Country Fragility Assessment Paper jointly with the World Bank, identifying political instability, macro-fiscal challenges, limited public administration capacity, vulnerabilities and climate change and environmental degradation as key fragility drivers. In addition, potential sources of resilience include: the Gambian diaspora, neighboring governments and regional institutions, (notably ECOWAS); Civil Society Organizations (CSOs), women and youth activism; and lastly large-scale emigration which relieved labour market pressures.
Poverty and fragility nexus. Empirical Figure 36: Poverty Headcount and Fragility CHAD studies find a positive correlation between 110 SUDAN CAR DRC ZAMBIA 100 UGANDA CAMEROON GUINEA fragility and poverty (Odusola, 2018 and MALI NIGERNIGERIA ETHIOPIAMAURITANIACONGO,COTE REP. D'IVOIRE BURUNDI 90 y = 0.4262x + 67.503 EGYPTANGOLA MOZAMBIQUELIBERIAGUINEA-BISSAU Corral et al., 2020). The combination of DJIBOUTI GAMBIATOGOESWATINI BURKINA FASO MALAWI 80 R² = 0.2363 TANZANIA COMOROS LESOTHO ZIMBABWE ALGERIA BENINSENEGAL low levels of human capital accumulation 70 TUNISIA GABON SAO TOME & GHANA CABO VERDESOUTH AFRICA due to low investments in education and 60 NAMIBIA PRINCIPE SEYCHELLES 50
infrastructure; weak institutions; low (2019) index Fragility incomes due to low productivity and 40 MAURITIUS 30 economic informality; absence of social 5 10 15 20 25 30 35 40 45 50 55 60 65 70 safety nets and vulnerability to extreme Poverty headcount ratio at national poverty line (% of population) weather shocks all tend to disrupt people’s Source: Author's computation using AfDB Statistics livelihoods, increase poverty which contribute to perpetuate fragility. This is evidenced by cross-country data from African countries and including The Gambia (Figure 36).
Income inequality and fragility Figure 37: Income Inequality and Fragility 125 connection. While the relationship DRC 115 SOUTH SUDAN CAR SUDAN CHAD between poverty and fragility seems clear, 105 GUINEA NIGER BURUNDINIGERIACAMEROON ZAMBIA 95 MALI ETHIOPIA UGANDA GUINEA-BISSAU however, the income inequality-fragility COTE D'IVOIRECONGO, REP. MAURITANIALIBERIA TOGO MOZAMBIQUE 85 EGYPT DJIBOUTIZIMBABWE ESWATINI BURKINA FASO MALAWI ANGOLA relationship does not appear to be GAMBIA TANZANIACOMOROS SENEGALLESOTHO 75 ALGERIA MOROCCO BENIN TUNISIA GABON SAO TOME & straightforward (Figure 37). Inequality 65 GHANA SOUTH AFRICA
CABO VERDE PRINCIPE NAMIBIA Fragility (2019) index Fragility tends to be positively correlated with 55 y = -0.0303x2 + 2.5396x + 34.328 SEYCHELLES fragility if economic growth is 45 R² = 0.033 MAURITIUS concentrated on few sectors, the economies 35 26 36 46 56 66 display a dualistic structure (services vs. Gini index (latest value) informal sector, like is the case of The Source: Author's computation using AfDB Statistics Gambia), and with a limited redistributive capacity of the state manifested by urban bias policies, regressive tax systems, inadequate investment in health, education and social protection, and ethnic and gender inequalities (Odusola, 2018).
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3.7 Role of the Private Sector in The Gambian Economy
The Gambia’s private sector is active, but it operates below potential. The economy thrives on the Micro, Small and Medium Enterprises (MSMEs) which consist of 88,940 enterprises concentrated on retail trade, tourism, construction, manufacturing, automotive repairs, agribusiness and contributing an estimated 20% of GDP (Emanic, 2014). About 70% of MSMEs are unregistered and operate in the informal sector. Enterprises countrywide are predominantly owned by men (66%), whilst female owners account for 34%. Gambian SOEs (Table 13) have become a major burden for the state budget due to poor corporate governance and accounting practices together with weak oversight. SOEs are active in power generation and distribution, maritime services, aviation, public transport, telecommunications, road building and housing. Most of the foreign owned enterprises attracting FDI are concentrated in agriculture, fisheries, manufacturing, tourism and services. The country lacks institutional set ups and rules for the management of subcontracting between those foreign companies MSMEs.
Table 13: State-Owned Enterprises and Sector Focus19
3.7.1 Investment Climate Developments
The Gambia has a desire to move towards a Figure 38: Doing Business Indicators 2020 private sector led economy but inadequate Overall doing policy environment remains a constrain. The business government has made starting business easier Getting 200 Starting a Electricity business by eliminating the requirement to obtain a 150 Dealing with Resolving 100 construction company seal and reduced the corporate insolvency income tax rate from 30% to 27% in January 50 permits 0 2018. On the Global Competitiveness Report Enforcing Registering (GCR), the country ranks 124th out of 141 contracts property economies in 2019. Small market size and Trading across Getting credit inadequate infrastructure hamper the borders Protecting country’s economic competitiveness. Overall, Paying taxes minority The Gambia ranks 155th/190 economies in the investors The Gambia Sub-Saharan Africa 2020 World Bank’s Doing Business report Senegal Guinea-Bissau (Figure 38) down from 149th/190 in 2019 and Source: The World Bank 2020 Doing Business report well below Senegal (123rd/190).
19 National Development Plan 2018-2021 36
Unreliable electricity is a further major constraint on industrial development and national competitiveness (the country ranked 160th/190 for “Getting electricity”). Despite legal reforms, the local financial market remains underdeveloped. Limited financial products and access to finance are a major hindrance for firms (ranking of 134 for “Getting credit”). The Gambia ranks 123rd/190 for “dealing with construction permits”, 128th/190 for “resolving insolvency” and 132nd/190 for “registering a property”, thus suggesting that there is still room for progress in those areas. The tax system poses a challenge for both the public and private sectors. Firms in The Gambia face national and local area council taxes, which in some cases overlap. The total tax rate amounts to 51% of commercial profits. Gambian companies have to comply with one of the highest tax rates in the ECOWAS resulting in an unfair playing field for compliant firms. This further prevents the optimal contribution of private sector towards job creation and economic growth. Figure 39 highlights the country’s top ten business environment constraints.
Figure 39: Top Ten Business Constraints20
3.7.2 Market Opportunities for Private Sector Growth
There are grounds for optimism about the economic outlook and private sector growth in The Gambia, but constraints need to be lifted. Quality and hard infrastructure is needed, in particular initiatives for an improved road infrastructure network, river transportation system and the reform of the Banjul Sea Port. Investment to upgrade the port of Banjul could create a new transhipment hub for the region and, in relation to this, the already functional Senegambia Bridge is just one step in the development of the western corridor within ECOWAS. Above all, filling the gap of electricity production, including by using renewables such as solar will be critical to make The Gambia more attractive for investment.
Investments in agriculture and fisheries could be an important contributor to private sector growth. Automation and advanced irrigation techniques should help to produce high-value and high- yielding crops, boost exports and provide high-value employment for many unskilled workers, in particular women. To create a modern and climate resilient agriculture sector in a small and fragile ecosystem like The Gambia’s, there will be a need for weather tracking, satellite imaging and other sophisticated ICT solutions. Trade is also a pillar for The Gambia’s prosperity. Africa is now moving ahead with the AfCFTA, which The Gambia has endorsed. This initiative has the potential
20 UNCTAD, 2014. 37
to boost trade and growth across many dimensions. It can add jobs, foster competition, help increase investment, and spread knowledge and technology.
3.7.3 Tourism Sector and the Impact of COVID-19
Although no cases of Ebola were registered in The Gambia during the 2014/15 Ebola outbreak, the country’s tourism sector experienced a sharp decline in arrivals as international tourists were avoiding visiting the most stricken countries (Guinea, Sierra Leone and Liberia) and its neighbours in West Africa. Consequently, tourism business spending in The Gambia shrank by 33% between 2014-2016. The impact of COVID-19 in the tourism sector in The Gambia is likely to be more severe and not limited to the decline in commodity prices and FDI. Data from The Gambia Tourism Board indicates that tourist arrivals increased from 162,075 in 2017 to 235,788 in 2019, and boosted earnings from USD 103 million in 2017 to USD 181.3 million in 2019. Most tourists originate from Europe (62%) and this increases The Gambia’s tourism exposure to shocks from the Eurozone.
An initial estimate of the impact of the COVID-19 in the tourism sector suggests that 2,358 entrepreneurs and 7,289 employees are adversely impacted in The Gambia. Although the economic recovery of the tourism is likely to be longer than expected, tourism services will remain essential to growth and job creation in The Gambia. The expansion of transport infrastructure including better connections to the region will facilitate tourism, help rebrand the country’s tourism offerings, including by sourcing some of the food demand from local agribusiness companies and by branching out into eco-tourism and water sports.
3.8 Natural Resources Management: Challenges and Opportunities
Sustainable management of natural resources is at the heart of Gambia’s quest for socioeconomic development. The Gambia River serves for transportation21, fishing, agriculture. The River has the potential to generate hydro-electricity but strangely, there are no dams on the river within the country. The country also has a coastline of approximately 80 km long on the Atlantic Ocean and its Northern Kombo beaches are major tourist destinations, a contributor to the economy22. There are further opportunities for enhanced development of waterfront locations but provision of efficient infrastructure is essential to boost construction industry through supply of materials and create more jobs and opportunities especially for youth and women.
The fishery sector also plays an important role in the national economy, the sector evolved from a negative growth of -18.9% in 2014 to achieve a positive growth of 34.4% in 2017. Total annual fish production over 2016-2019 averaged 58,296 metric tons, with additional 35 metric tons from aquiculture. In 2018, a 6-year Fishing Protocol was signed with the European Union (EU) with half of the resources (e.g. USD 550,000) being used to strengthen the fishing sector. Additionally, the agreement committed The Gambia to become a member of the International Commission for the Conservation of Atlantic Tunas. The agreement also covers special support to artisanal fishing; cooperation in the fight against illegal, unreported and irregular fishing; and promotion of blue economy and aquaculture. Another challenge of the sector is the large amount of post-harvest losses. Resolving this will require investing in the development of proper and modern fish landing and processing facilities
21 It is the only river in Africa, which is navigable by ocean-going vessels all year round 22 2018 AfDB Gambia Economic Outlook Country Note 38
The Gambia is committed to preserve its natural forests and protect the environment. In 2010, the Forestry sub-sector policy 2010-2019 was enacted as an addendum to the economy-wide policy framework for sustainable natural resource management. The policy places an adequate forest cover at its center front23 with the objective of achieving 30% forest cover, a level that the authorities believe is adequate for maintaining an ecological balance necessary for sustainable economic growth. The country has 4,750 square kilometers (e.g. 47.5% of land area) but weak governance has led to a loss of 8.09 hectares of tree cover, equivalent to 498 tons of CO₂ emissions.
The Gambia is also challenged by a number of factors including a surge in competition over land use and resources, which threatens not only sustainable land management, but also deprives local rural communities over and access to land and its resources, upon which their livelihoods depend. It is further worthy to note that land rights are still governed by customary law. The law tends to discriminate against women, who constitute the majority in agriculture. This may have negative implications for investments and ultimately, for collaboration with multilateral development organizations.
The extractives’ sectors, including Oil and Gas and mining are still relatively small contributors to the economic development. The Gambia does not possess large minerals reserves or any discovered deposits of precious stones and higher value minerals24. However, experts believe that lower value minerals’ deposits are present in some areas. This may justify the fact the country is not yet a member of the Extractive Industries’ Transparency Initiative. In 2010, The Gambia produced 174 000 metric tons of laterite, 69.9 million metric tons of Ilmenite and 1.12 metric ton of silica sand25. Licenses for exploration of heavy sand deposits were recently awarded to an Australian mining company, and exploration of offshore blocks to the British Petroleum company. However, strengthening of governance frameworks is key to ensure that resource extraction benefits the society while preserving the sustainability of land, water and forests.
In the short-to-medium term, greater emphasis should be placed on the following priority areas: (i) Sustainable land and water management; (ii) Sustainable development of fisheries and aquaculture; (iii) Sustainable management of Gambia River and sustainable development of waterfronts on the Atlantic Ocean; (iv) Sustainable development exploitation of mineral and; (v) Develop strong linkages between the existing resource industries and other sectors in the economy for enhanced diversification.
23 The Republic of Gambia 2010, Forestry sub-sector policy (2010-2019) 24 P. M. Mobbs, 2016, The Mineral Industry of Benin, The Gambia and Guinea-Bissau and Sao Tome E Principe, In 2013 Minerals Yearbook, US Geological Survey, Dec 2016, Washington DC. 25 https://www.azomining.com/Article.aspx?ArticleID=113 39
Chapter 4: Diagnosis of Development Gaps on the basis of the High 5 Strategic Priorities
This chapter diagnoses The Gambia’s development gaps and challenges using the African Development Bank’s High 5 strategic priorities and the reforms required to achieve them as the basis for analysis. The Bank’s High 5s are ‘Light up and power Africa’; ‘Feed Africa’; ‘Industrialise Africa’; ‘Integrate Africa’ and ‘Improve the quality of life of the people of Africa26. The diagnosis focuses on the opportunities and challenges for industrial development; the potential for agro-processing and tackling bottlenecks in the power and energy sector, and for unlocking the potential of the private sector. It also assesses human capital development, skills and employment creation, and the role The Gambia should play in regional integration processes to facilitate trade and development through regional value chains. Emphasis is placed on the relationship between the public and private sector and the role each should play in moving the country to a higher growth trajectory. Delivering on this agenda will require building capacity and strengthening compliance to mobilize the additional domestic resources needed to finance The Gambia’s transformation agenda. Given the country institutional fragility context, particular attention is paid to strengthening governance and institutional capacity to implement the required policy reforms and build resilience.
4.1 New Industrial Policy to Create Competitive Advantages
The key challenges of The Gambia’s economy Figure 40: Industry (Including Construction), Value derive from the inadequate infrastructure and Added (% of GDP) small market that hinders competitiveness as 25 discussed in the previous sections on economic 20 transformation and investment climate. The 15 Gambia has experienced a steady growth in 10 industrialization from 2010 to 2013. Industry 5 (including construction) value added as a 0
percentage of GDP grew at an average rate of
1990 2010 2011 2012 2013 2014 2015 2016 2017 2018 4.1%. This increased rapidly to 9.6% in 2014 2000 Industry (including construction), value added (% of… and peaked at 22.6% in 2015 (see Figure 40). However, in 201627 the annual percentage Source: World Bank Development Indicators growth began to decline, falling drastically to 2.5% in 2018.
This sharp decline in industrial value added to GDP reflects, in part, the impact of years of disinvestment in technological upgrade, skills development and lack of adequate infrastructure, notably energy and transport networks. As a result, The Gambia ranked at the bottom quintile at 145th out of 150 economies in the 2018 Industrial Competitiveness Index assessment with a score 0.001128. It was outperformed by all other African countries excluding Burundi (148th) and Eritrea (149th). The government drafted a new Trade and Industrial policy in 2018 which updates the The National Investment Policy (1999). The new policy has the objective of building on existing comparative and competitive advantages and sectors and creating new competitive advantages.
26 The High 5s are central to the achievement of the SDGs and are closely linked to Africa’s Agenda 2063. They are consistent with The Gambia’s economic transformation and prosperity. For more details and linkage to the transformation of Africa, see: https://www.afdb.org/en/news-and-events/african-development-bank-accelerates-pace- with-high-5-priorities-15879 27 The Gambia held Presidential elections in December 2016 resulting in a political transition after 22 years of dictatorship under Yahya Jammeh. 28 The Industrial Competitiveness Index ranges from 0-1, the highest score was Germany with a score of 0.52. 40
Consistent with declining industrial value added Figure 41: Employment in Industry (% of Total to GDP, the trend in industrial employment has Employment) (Modelled ILO Estimate) experienced a slight decrease from 17.3% in 2000 17.5 to 15.7% in 2019 (Figure 41). Employment in 17 16.5 industry as percentage of total employment has 16 stagnated, increasing only marginally from 15.6% 15.5 in 1991 to 16.0% in 2019 and peaking in 1996 at 15
17.0%. One of the major constraints to job 14.5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 creation in manufacturing is the lack of 2000 appropriate skills. The Gambia suffers from a Employment in industry (% of total employment) mismatch of skills and a shortage of skilled labour (modeled ILO estimate) .. Source: World Bank Development Indicators leads to a dependence on foreign labour.
The Manufacturing Value Added (MVA) as a Figure 42 : Manufacturing Value Added (% of percentage of GDP in The Gambia declined from GDP) 5.5% in 1990 to 4.4% in 2018 (Figure 42). This is 8 7 representative of the larger trend of 6 deindustrialization occurring in a number of Low- 5 Income Countries (LICs). The Gambia’s MVA 4 3 per capita, a widely accepted measure of a 2 country’s level of industrialization adjusted for 1
the size of the economy, has undergone a steady 0
2000 2010 2011 2012 2013 2014 2015 2016 2017 2018 decline from 31.76 in 1990 to 25.51 in 2014. It 1990 peaked to 33.36 in 2007. The Gambia’s Manufacturing, value added (% of GDP) performance is well below its comparator Source: World Bank Development Indicators economies such as Senegal with an MVA per capita of 115.43 in 2014. It is also below the SSA median of 100. The disparity is wide compared to industrialized and emerging economies whose MVA per capita was USD 5,880 and USD 959, respectively, in the same year. The gap still remains wide compared to the Small Island States and Middle-Income Countries’ economies, whose MVA per capita was USD 1,904 and USD 1,096, respectively, in 2018.
4.1.1 Strengthening Industry Development and Value Addition
The success of the manufacturing sector depends on, among other things, the ability to secure raw materials. The success of primary production, in turn, depends on the availability and affordability of modern inputs and technical services that are not readily available in The Gambia. However, in The Gambia the agroprocessing and light manufacturing sectors share common characteristics and challenges in terms of their investment performance and development which if addressed could stimulate value addition and create sustainable jobs. The two sectors are among the priorities identified by the government, and their activities have complementarities. In effect, the agroprocessing value chain moves towards light manufacturing as more value is added and the final product evolves in sophistication.
In countries where agroprocessing and light manufacturing activities are at an advanced stage of development, separate strategies, notably in terms of investment attraction, may be warranted to further expand them. In The Gambia, however, both sectors are at early stages of development and face similar challenges. Despite these challenges, opportunities for growth exist in both sectors (Table 14), if supported by appropriate policies and promotion measures.
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Table 14: Potential Opportunities for Light Industrialization in The Gambia Sector and commodity Remarks description Rice mill and the Government’s strategic focus is to revitalize the Kuntaur rice mill and the agro-oil mills, feed mills agro-oil mills, feed mills, continue to support and protect existing industries while promoting. The private sector will be supported to exploit these opportunities during the NDP 2018-2021 period through appropriate incentives and the creation of the enabling environment. Industrial fishing Industrial fishing is declining. The majority of fishing vessels, 90% of foreign- owned, land their catches abroad, principally in Senegal, for processing and value addition. This deprives The Gambia of foreign exchange and employment generation opportunities. Change in the industrial licensing regime in 2015, which increased the percentage of catch that fishing vessels are required to offload locally drives weak linkages in the sector. Absence of modern fisheries port, lack of storage facilities, high energy costs and less competitive ancillary impacts hinders competitiveness. Groundnuts and cashew nuts A report by the US Department of Agriculture’s Foreign Agricultural Service stated it is possible to derive 63 derivative products from raw peanut – the kernels are used to make several products including peanut butter, roasted snack peanuts, and peanut oil. The Gambian manufacturing industries can also use cashew nuts as an ingredient in sweets and cooking. Moreover, the fruit pulp can be made into jelly, syrup, candied fruit and jams. Food and beverage sector In The Gambia, the number and size of food and beverage companies make it the largest manufacturing subsector. However, The Gambia’s high dependence on imported foods and beverages has increased in recent years, exacerbating foreign exchange shortages and food insecurity. Attracting FDI in domestic manufacturing could substantially reduce The Gambia’s dependence on imports, thus easing the country’s persistent shortage of foreign exchange and contributing to food security. Glass container manufacturing The Gambia has access to all the ingredients required to manufacture glass. Large deposits of silica sand suitable for glass manufacturing have been identified in the Greater Banjul Area (Gambia Expansion Corporation, 2016). Key ingredient for glass production (e.g. caustic soda) is readily available at a competitive price (UNCTAD, 2017) and calcium carbonate, the final ingredient in glass production is also available in neighbouring Senegal.
Source: Authors’ elaboration from UNCTAD, 2017 Investment Policy Review and NDP 2018-2021.
4.1.2 Strengthening Technological Innovation
One of the critical challenges affecting the industrialization process in The Gambia is the lack of technological innovation. The Information, Communication and Technology (ICT) industry is among the strongest private industries in The Gambia, and it is on a trajectory of continued growth. The sector is small but is partially liberalized. However, there is a continued monopoly over the international voice gateway through the state-owned company, GAMTEL. There are five fixed and mobile service providers in the sector - Gambia Telecommunication Company, GAMTEL (fixed line), GAMCEL, AFRICELL, COMIUM, and QCell. The country is developing a national fibre backbone network, but low fixed line penetration’ has hindered Internet usage, which was 19.8% in the GCR 2019, ranking the country 122th/141 in terms of ICT adoption, better than Guinea (126th/141) and Mali (128th/141) but outperformed by Senegal, which ranked 115th/141. The need for efficient management of the national backbone; and provision of electronic service platforms such as e-health, e-tax, agri-technology as part of e-government reform are among key areas requiring reforms. The Gambia’s high mobile cellular telephone penetration rate of 67% could help expand mobile banking services and digitalization of financial services.
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4.1.3 Strategies to Foster Successful Industrial Development in the Country
The Gambia suffers from large infrastructural constraints that are inhibiting the potential of industrialization in the country. The Gambia can draw from the experience of countries that have succeeded in attracting sustained FDI for industrial development and have leveraged it for socioeconomic development. This includes the need to address major impediments to industrialization and growth, notably:
(i) Tackling infrastructural deficits: reducing the energy crisis while investing in alternative sources of energy away from fossil fuels as laid out in the 2013 Renewable Energy Act is critical. The country should also continue efforts to improve its ports, roads, air transport, riverine transport, and ICT infrastructure in order to ensure competitiveness of its industries;
(ii) Industrial clusters: GIEPA should intensify efforts to ameliorate the challenges faced in the development of EPZs by ensuring adequate know-how in managing these zones, provide adequate infrastructure and a friendly regulatory environment to attract firms;
(iii) Implementing industrial policies-quality over quantity: The country should streamline policies and priorities and institute a clear implementation framework with clear roles and responsibilities;
(iv) Access to finance: The Gambia needs to diversify targeted financial products that will cater to the private sector, especially MSMEs who make up the majority. Furthermore, the development of capital market is critical to serve as an alternative financing channel for the industrial sector;
(v) Improve the regulatory environment: Cumbersome taxation system hinders private sector development. The country should consider overhauling the tax system, by reducing the level and number of taxes. Optimizing the regulatory framework by removing regulatory and administrative hurdles for business start-ups, streamlining procedures, increasing access to information, reducing costs, increasing the benefits of formalization, and improving the predictability and enforcement of contracts;
(vi) Develop skills for industrial development: Industrialization requires a pool of sufficiently and appropriately skilled labour, the Gambia suffers from a mismatch of skills and a shortage of skilled labour leading to a dependence on foreign labour. To rectify this the country can develop formal linkages between industry and education institutions so skills developed are aligned with the industry demands. Although there are various skills development and vocational training initiatives the outcome has been modest. The government should intensify efforts to upgrade the quality of the education sector and also give attention to Science, Technology, Engineering and Mathematics (STEM) courses to develop skills for the future;
(vii) Industrialization through value addition in existing sectors: The country should promote value addition through agro-processing of oilseeds, fish and fish products. Value addition and diversification can also be promoted in the tourism sector by diversifying it from a ‘beach holiday’ destination to include eco-tourism, cultural inland and community-based tourism and conference tourism. Deeper linkages should be formed between the sector and the rest of the economy to maximize spillover to the domestic economy.
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4.2 Addressing the Energy Crisis for Sustainable Growth
The Gambia is confronted with an energy crisis. Electricity supply is insufficient, erratic and amongst the most expensive in SSA. Over 90% of the Gambian population rely on biomass for their energy needs. Alternative fuels are gaining in popularity. Energy crops include the Jatropha plant, which is being, used a source of biofuels and Miscanthus (Elephant grass). Waste-to-energy ventures are also being promoted such as the use of groundnut shell briquettes. Fuel-efficient cook stoves that use less wood fuel and lower emissions are also being promoted. Half of the population in The Gambia has approximately access to electricity services (Figure 43). While 66% of the population in the Great Banjul Area is served, only 13% of the population in the outlying provinces has access. The installed capacity of the grid is 99 MW (of which 88 MW is in Greater Banjul Area), which relies on heavy fuel oil. However, even with the current 30 MW power rental, the gap between demand and supply at peak stands at 11 MW (not counting suppressed demand) in GBA, leading to widespread blackouts, with some parts of the Greater Banjul Area reporting only two to three hours of power per day.
Figure 43: Electricity Access Rates and Renewable Energy Output, 2019
Access to electricity (%) Renewable energy output (% of total electricity output) Cabo Verde 92.9 Ghana 79.0 Togo 75.3 Cote d'Ivoire 65.6 Low income countries 65.8 Senegal 61.7 Ghana 50.9 The Gambia 56.2 Cabo Verde 20.2 Togo 48.0 Cote d'Ivoire 16.7 Benin 43.1 Senegal 10.4 Low income countries 40.9 Burkina Faso 9.4 Guinea 35.4 Benin 5.6 Burkina Faso 25.5 The Gambia 2.1 0 20 40 60 80 100 0 25 50 75 100 Source: World Bank Development Indicators Source: World Bank Development Indicators
The inadequate electricity supply is a binding Figure 44: Percentage of Firms with Generators constraint on inclusive growth and Niger 96 competitiveness, and businesses in general Mali 89 often report unreliable and expensive Guinea 85 Senegal 80 electricity as one of the major constraints to Nigeria 80 growth, especially hotels. About 70% of the Liberia 75 Cote d'Ivoire 73 firms in The Gambia are forced to depend on Sierra Leone 71 expensive backup generators (Figure 44). The Gambia 70 Benin 69 ageing power supply infrastructure breaks Togo 68 down frequently reflecting decades of Ghana 64 underinvestment, and about 10% of firms 0 25 50 75 100 125 report sales losses due to power outages29. Source: Center for Global Development, 2017 Meanwhile, the network distribution losses have been reduced in recent years from 27% to 22% but the grid has still serious bottleneck to address. Technical and commercial losses therefore remain well above international norms, especially for a small system.
29 ECREEE: off-grid solar market assessment and private sector support facility design, July 2019. 44
The average electricity tariff In The Gambia Table 15: Costs of Access to Electricity declined to USD 0.20 per kWh in 2019 Access to electricity Access to electricity cost (% of revenue per cost (US cents per (Table 15) against an estimated operating capita) kWh) cost per kWh of USD 0.39. This not cost 2016 2019 2016 2019 reflective tariff and NAWEC’s significant The Gambia 5,115.7 2,613.6 25.4 20.0 debt service burden (approximately 25% of Benin 14,278.3 11,584.3 23.1 20.7 its revenues) are exacerbating the sector’s Burkina Faso 10,217.1 8,977.4 28.8 23.8 Togo 5,705.1 2,120.4 21.7 17.6 financial issues and make NAWEC non- Senegal 3,747.1 2,421.1 22.6 18.2 financially viable. Paying its fuel bills and Source: World Bank, Doing Business database debt service obligations alone entirely absorb one-third of its monthly revenue and leaving no resources for other basic operating costs (personnel, maintenance, and so on). This situation lead NAWEC to accrue losses to approximately USD 15-25 million per year. As result, NAWEC is not able to perform basic maintenance activities, let alone make the investments required to upgrade and expand the electricity system. Furthermore, public sector receivables arrears amounting to USD 13.4 million, as of December 2018, continues to weaken NAWEC’s cash position.
4.2.1 Spatial Distribution and Potential for Renewable Energy
The Gambia has no hydroelectricity generating potential. However, it is working with Guinea, Guinea-Bissau and Senegal, through their regional institution the Gambia River Basin Development Organization (OMVG) to improve energy supply and security in the member states. The Gambia receives 2,500 sunshine hours per annum, which translates to a solar irradiance of over 4.5 kW/m²/day. Solar energy is already being harvested and used for the traditional applications of lighting, refrigeration, heating and pumping of water and electricity for communication equipment, among others. Besides, the ongoing development of the OMVG’s electrical network could boost the development of large scale of solar power plants near its major substations. The Bank could play a facilitating role to attract Independent Power Producers by supporting the government to adopt policies and strategies.
4.2.2 Energy Sector Reforms
The country’s power utility company, NAWEC, is a vertically integrated electricity entity that handles generation, transmission, and distribution of electricity and the distribution of water. The main bottleneck of the utility reform lies with its governance (strategic and operational) structure and technical capacities. Prior to the prospective unbundling of the utility, the ongoing key reforms of the utility, are: (i) the separation of electricity, water, and sewerage accounts to ensure accuracy of costs figures and increase transparency on costs and cross‐subsidies; (ii) the organization audit and proposals for restructuring of NAWEC; (iii) the cleaning up of the NAWEC’s balance sheet by capitalizing a portion of its debts that are unrelated to any specific asset; and (iv) the adoption of performance contract and strategic plan.
The regional power trade has been identified as a significant opportunity for The Gambia to import low-cost and renewable power from its neighboring countries. The OMVG Energy Project is a vehicle for such an import. In fact, the interconnection will enable The Gambia to import high volumes of electricity from the sub region, allowing it to access low cost hydroelectric energy from Guinea, or in the future, gas-to-power from Senegal, and more broadly from the West Africa Power Pool (WAPP).
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4.3 Improving Agriculture Productivity for Inclusive Growth
Agriculture is the second largest sector in the economy employing 46% of the labour force and accounts for over 22% of GDP and is a major source of income for about 72% of poor households and 91% of extremely poor rural households. Agricultural exports generate 30 to 40% of all foreign exchange earnings. Agricultural output covers only half of the country’s domestic consumption needs and this leads to dependence on food imports. For instance, the country imports 83% of its rice consumption requirement which cost USD 35.7 million in 2019, corresponding to 3.7% of GDP (FAOSTAT, 2019). This tend to leave about 55% of Gambians with caloric intake below 2,400 calories per day, according to the Integrated Household Survey (HIS), 2015-2016.
Economic growth in The Gambia is Figure 45: GDP Growth and Contribution by Sector (%) highly correlated to agricultural growth , 35.0 which can fluctuate greatly from year to 25.0 year because the sector depends heavily 15.0 on weather conditions. The sharpest decreases in economic growth resulted 5.0
from similar declines in agricultural -5.0
2009 2002 2003 2004 2005 2006 2007 2008 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 growth following bad weather. This -15.0 2001 vulnerability is especially exacerbated by -25.0 the extreme weather conditions that Services Industry accompany climate change, particularly Agriculture, forestry and fishing GDP growth Source: AfDB Statistics Department the droughts of 2002 and 2011 and erratic rainfall in 2014 and 2016 (Figure 45).
4.3.1 Agriculture Policies and Lessons Learned from Implementation
Agriculture sector policy support has been articulated along different strategies including: the Poverty Reduction Strategy Papers (PRSP I, 2003–05 and PRSP II, 2007–11); the Program for Accelerated Growth and Employment (PAGE) 2013–15; the Agriculture and Natural Resource Policy 2009–15; and the Gambia National Agricultural Investment Plan (GNAIP) 2011–15. The GNAIP is a product of the Comprehensive African Agricultural Development Program (CAADP) process under the New Partnership for Africa’s Development (NEPAD) of the African Union (AU). More recently, the government adopted, in 2017, the Agricultural Investment Plan (GNAIP II, 2017-2026) with the objective to transform the subsistence sector into a commercially-oriented activity.
However, several implementation challenges hampered satisfactory achievement of the agricultural development objectives, notably: (i) lack of systematic assessment of the implementation and results to inform subsequent policy design, as was the case with the PRSP I, PRSP II and PAGE; (ii) mismatch between a multiplicity of objectives and resources. In fact, some studies30 indicate that the funding gap for the GNAIP I (90%) was one of the greatest among ECOWAS countries (compared to 31% for Niger, 48% for Senegal, 81.5% for Liberia, and 89% for Côte d’Ivoire); (iii) insufficient domestic and external funding; (iv) the imposition of some price controls under the Essential Commodities Act of 2015 (e.g. price fixing policy for groundnuts, tariffs on imported rice) as well as fertilizer subsidies have yielded uncertain success; and (iv) scarcity of qualified staff created a major implementation challenge.
30 Hollinger and Staatz (2015) 46
4.3.2 Reducing Dependence on Food Imports: The Case of Milled Rice
In the Gambia, rice policy, particularly in the Figure 46: Milled Rice Production, Consumption form of rice import tariffs, is at the center of 250 and Imports (Metric Tonnes) the broader agricultural program to achieve 200 self-sufficiency by stimulating domestic 150 production and reduced the dependence on 100 food imports which consume an estimated USD 149.8 million in 201831, that is 50 equivalent to 37.2% of total merchandise 0
32
2005 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2008 2011 2014 2017 imports . In 2007, the government had 1960 imposed import tariffs on rice ranging from Consumption Production Imports 5% to 10% to align with the ECOWAS Source: United States Department of Agriculture (USDA) Data Common External Tariff and curb rice imports and support local production. However, in 2018, the authorities decided to restore the 10% tax exemption on rice imports to bring the price down, a decision that has benefited urban consumers the most. Between 2007 and 2018, the volume of rice trade in The Gambia more than doubled, showing the increasing reliance on rice imports to meet demand regardless of the level of tax imposed (5% or 10%). Even though this rice import expansion did not cause domestic production to fall, rice production is not growing at a pace commensurate with consumption growth (Figure 46). The volume of imports has grown consistently from 2006 onward. Therefore, tariffs alone have not succeeded in changing the import dependency. Investments for improving local productivity are therefore critical to gradually reduce import dependence.
4.3.3 Groundnuts Export Performance
Groundnuts are of paramount importance to Figure 47: Groundnut Production The Gambia. Approximately 45% of the and Yield in The Gambia 150,000 12000 agricultural land is devoted to groundnut 125,000 10000 production and nearly 70% of the agricultural 100,000 8000 labour force works in groundnut farming, 75,000 6000 handling, processing and trade. Groundnut 50,000 4000
production declined sharply in 2011 due to a (Tonnes) Production 25,000 2000 Yield (Tonnes/Hectare) Yield severe drought but quickly recovered in 2012. 0 0
However, from 2013 onwards, the total
2010 2011 2012 2013 2014 2015 2016 2017 2018 groundnut output and yields have stagnated Production Yield even going below the amount produced Source: FAOSTAT initially in 2010 (Figure 47). Overall, The Gambian groundnut production is relatively small compared to global production, but has gained market share in the world market, increasing from 0.06% in 2012 to 0.41% in 2016 (ITC, 2017). Groundnuts account for 66% of the total exports of agricultural products in The Gambia. The Gambia groundnut main market is China, but they are mostly exported to Viet Nam due to lack of bilateral agreements between The Gambia and China. Exports to traditional markets, like the United Kingdom (UK) or European Union (EU) markets, are constrained by the strict regulations on phytosanitary measures (aflatoxin issues). Marketing of groundnuts is difficult due to these quality issues, as well as irregular supply of appropriate quantities.
31 FAOSTAT, 2018 32 AfDB Statistics Department, 2020 47
4.3.4 Potential for value Chains Development in Agro-Business
The Gambia has great potential to create value addition through primary processing of its agricultural products. The agriculture products offer farmers and other actors of the value chain, particularly youth, the potential to capture a larger share of income, open new markets, enhance customers’ appreciation for the product, extend the market and create interesting youth employment opportunities. Econometric simulations33 show that improving productivity and competitiveness of the main agricultural value-chains could lead to cumulative annual growth of over 14% for agriculture GDP and about 6% for economic GDP growth, by 2024. This growth and economic diversification potential could mostly come from the following products: (i) Rice: if The Gambia could increase average rice yield of 4 metric tons per hectare , total revenues would rise from USD 24 million to USD 103 million. This would be equivalent to an annual average growth of 7.04 percent over a five-years period leading to an annual increase by 1.27 points of the GDP growth; (ii) Chicken meat: an increase of current poultry production by ten times current would help to meet both domestic demand as well as comply with export quality requirements. As a result, The Gambia could gain 4.86 and 0.85 points in agriculture and economic growth, respectively. Other important crops with potential for value addition and exports growth include: groundnut, millet, maize and sorghum as well as vegetables and egg production34 as illustrated in Table 16.
Table 16: Simulations of Potential Sources of Agricultural Value Chains and Growth Sources of Hypothesis Increase in Crop Annual Percent Annual growth (Over 5 years: 2019/24) Gross Production Increase in Percent Value Agriculture Gross Increase in (in current US$) Production Value GDP Groundnut Gambia Yield = Nigeria Yield =1.5 15,965,199 1.57 0.26 metric tonnes/ha Rice Gambia Rice Paddy Yield = Senegal 79,469,535 7.04 1.27 Yield = 4 metric tonnes/ha Millet Gambia Yield = 1.5 metric tonnes/ha = 12,884,348 1.28 0.21 Yield of new varieties in Senegal Maize Gambia Yield = Yield in Mali = 2.5 10,950,928 1.09 0.18 metric tonnes/ha = Half world average
yield Sorghum Gambia Yield = Nigeria Yield = 1.5 4,127,732 0.42 0.06 metric tonnes/ha = Yield of new variety
generated in Senegal Vegetables Gambia Yield = Yield in Nigeria = 9 678,193 0.07 0.01 metric tonnes/ha Chicken Gambia eggs production meets country eggs needs like in Senegal = Actual 5,031,650 0.50 0.08 Production*4 =349*4= 3980 metric tonnes Chicken Gambia chicken meat meets country meat needs like in Senegal = Actual 52,552,813 4.86 0.85 Production*10 =1513*10=15,130 metric tonnes Cumulative 181,660,398 14.39 5.73 growth Source: World Bank staff calculations based on data from WDI and FAOSTAT, 2019
33 World Bank, 2020 34 Hotels in The Gambia consume 20,000 eggs daily and there is a large importation of poultry products. 48
4.3.5 The Gambia’s Inadequate Agriculture Financing Constrains Growth
The government expenditure on Figure 48: Government’s Agriculture Expenditure agriculture as a share of total expenditure (% of Total Expenditure) in The Gambia has decreased sharply 18.0 35 16.0 from 17.3% in 1980 to 5.97% in 1990 . 14.0 The Gambia has yet to meet the 12.0 10.0 Comprehensive Africa Agriculture 8.0 Development Program (CAADP) target of 6.0 4.0 10% of total public expenditure 2.0
established in the 2003 New Partnership 0.0
1986 2008 1982 1984 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2010 2012 2014 2016 2018 for Africa’s Development (NEPAD) and 1980 African Union (AU) Maputo Declaration The Gambia Senegal West Africa (Figure 48). The Gambia’s agriculture Source: ReSAKSS, www.resakss.org spending has declined by an annual average of 4.6% over 1980-2018 period and averaged 4.7% over 2005-2018, compared to 4.3% in West Africa. Senegal, where the average agricultural expenditures averaged 9.7% over 2005-2018, has outperformed The Gambia, since 2005, but there have been recent trends for catch up. Compounding the low level of budgetary allocations in agriculture in The Gambia, the country spend much smaller proportions of its public budget on agriculture than the sector’s share in the economy. This is evidenced by the ratio of agricultural expenditures to agriculture’s share of GDP, also known as the Agricultural Orientation Index which is estimated at only 0.2736 over 2011-15.
The agribusiness sector in The Gambia Figure 49: Bank's Credit to Agriculture also suffers from low access to financial 9 (Percentage of Total Credit) 8.5 services, including savings, credit, and 8 7 6.5 insurance services and products. The share 6 of domestic credit supplied to agriculture 5 4 is very small, estimated on average at 4 3.6 3 .5%. The provision of credit to the 3 2 1.7 2 agriculture sector has experienced a sharp 1 1.2 0 increase from 2014-2017 owing to the 2013 2014 2015 2016 2017 2018 2019 government subsidies policy on fertilizers and seeds and aimed to increase food Source: Central Bank of The Gambia production following the 2008 food crisis. However, credit has started to decline drastically since 2017 (Figure 49), partly because of the high interest rate (mostly above 20%). The majority of credit offered is for short terms, with unfavourable payment terms and high collateral requirements. The absence of a strong guarantee mechanism increases the challenge.
4.3.6 Infrastructure Deficiencies Impose a Severe Burden to Agrobusiness
The country’s trade realities show that lack of adequate infrastructure constrains the producers of goods and services to link their produce to market outlets in an effective manner and at least cost of doing business. The quality of the road infrastructure is poor, and the country ranks 83rd/141 countries in the 2019 Global Competitiveness Index on road infrastructure quality. Lack of funding
35 Data on agricultural expenditures are from ReSAKSS and reflect expenditures from the different subsector ministries (crops, livestock, fisheries, forestry). 36 An AOI of 1.0 means that the share of agricultural expenditures equals the share of agriculture in GDP. 49
and weak capacity of local contractors constrains road maintenance. The NDP 2018-2021 foresees significant investments to improve the road infrastructure network including feeder roads linking production areas and markets and improve road connectivity which falls below regional standards. The country’s inadequate maritime infrastructure (high congestion at the port of Banjul)37 and air transportation (limited cargo storage, handling facilities at the Banjul International Airport)38 also pose significant challenges to the shipment of fresh products of good quality to EU markets. Some exporters resort to shipping their fresh product through the port of Dakar, despite the additional costs. Unreliable access to electricity39, in particular in the rural areas, and the extremely high cost of electricity impedes the development of functioning and cost-efficient cold-chains and food processing plants. This reduces the competitiveness of Gambian fresh exports. Limited use of ICT constraints rural farmers’ access for inputs as well as product marketing and trade. About 90% of agricultural production is highly dependent on rainfall and vulnerable to climate change. Only 6% of the potential irrigable land (e.g. 80,000 hectares, based on FAOSTAT 2014).
4.3.7 Technology and Agricultural Productivity
Low adoption of modern inputs and Figure 50: Fertilizer Consumption (kg/ha of Arable Land) technological innovation remains a major 18 16 challenge in The Gambia. It is estimated that 14 the government and the private sector are 12 10 importing and marketing approximately 8 6 15,000-17,000 metric tonnes of fertilizer every 4 2 year. Nonetheless, these levels of adoption of 0
yield enhancing inputs remain below the
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 fertilizer requirements for the country, The Gambia Senegal West Africa 40 estimated at 52,000 tonnes , based on the Source: ReSAKSS, www.resakss.org major types of crops growth in The Gambia. Overall, the evidence suggests that fertilizer use has collapsed since 2011, falling steeply from an average of 9 kilograms per hectare (kg/ha) in 2011 to 1 kg/ha in 2016 (Figure 50). This is far below West Africa’s average of 8.9 kg/ha as well as Senegal’s average of 9.1 kg/ha over 2003-2016.
The low level of adoption of technological Figure 51: Average Groundnut Yield in 2010-2018 (kg/ha) innovation and other yield enhancing inputs 8000 7,021 and fertilizers drives low agricultural 7000 productivity in The Gambia. Despite being 6000 5000 above Senegal (860 kg/ha) and Africa (935 3,619 4000 kg/ha), The Gambia’s groundnut average yield 3000 1,657 over 2010-2018 is less than 1 metric ton per 2000 862 940 935 1,157 hectare. This is lower than the world average 1000 and much lower than some high performing 0 Senegal Gambia Africa Nigeria World China Israel country like Israel (Figure 51). Source: FAOSTAT, 2020
37 The country ranks 92nd/141 in terms of ‘maritime shipping connectivity’ with a score of 8.3 in a scale of 0-100 (best) according to the 2019 Global Competitiveness Index. 38 The Gambia’s ‘air transport connectivity’ is weak and the country ranks 137th/141 in the 2019 Global Competitiveness Index. 39 The Gambia ranks 121th/141 in the 2019 Global Competitiveness Index in regard to access to electricity. 40 The World Bank database (2019) 50
The Gambia lacks adequate delivery Figure 52: Use of Agriculture Inputs in The Gambia mechanisms to ensure the provision of good 60% 48% quality farm inputs such as certified seed, 50% 36% 40% fertilizer, and other agricultural goods and 30% 21% 18% 16% services needed by smallholder producers and 20% 10% agribusinesses. The low adoption of 0% productivity-enhancing technologies and inputs (Figure 52) also results from a lack of access to credit, the unavailability of such technologies and inputs on the market, their lack of affordability, as well as farmers’ Source: Author's calculation using data from GBoS IHS, aversion to risk. Institutional capacity and 2015-16 funding for research and agricultural extension services impacts negatively on productivity. The budget for the National Agriculture Research Institute (NARI) finances wages and allowances, leaving little to cover research and extension costs. As a result, no more than 12%41 of farmers have access to extension services.
The Gambia can also start to transform the agriculture sector, especially if digitisation, mobile, ICT and technology solutions are allowed to play their catalytic role. The Gambia’s high mobile cellular telephone penetration rate of 67% could help expand mobile banking services and digitalization of financial services and facilitate smallholders’ marketing and access to inputs and modern technologies. Despite the current constraints in terms of access to affordable electricity and inadequate availability of skills, there are have been successful cases on leveraging ICT opportunities, mostly involving the youth in the agroprocessing sector (Box 3).
Box 3: Examples of Successful ICT Initiatives in Agrobusiness in The Gambia
Online trading platform for African agriculture connecting farmers to buyers
Tesitoo is a mobile app and web-based platform that connects rural and smallholder farmers to buyers, eliminating barriers in the supply chain of agricultural products in The Gambia. The platform opens up new market opportunities for local farmers and increases their income level, while allowing urban buyers to pay less for their products. Tostito works with networks of rural farmers, agents and hand-picked drivers to facilitate the selling, buying and delivery of purchased products from rural to urban Gambia.
ICT applications in retail: e-commerce
Farm Fresh is a Gambian social enterprise that helps market smallholder farmers’ local products through an e- commerce platform. It was established in 2014 and is the first online food store and delivery service in The Gambia. The platform markets and sells online fresh and locally grown vegetables, fruits and processed food items in partnership with farmers across the country. By doing so, Farm Fresh ensures a regular source of income generation for farmers.
App development for the agrobusiness sector
Assutech is a software engineering company that builds apps for mobile, web and desktop for The Gambian market. It specializes in developing tailor-made cross-platform software solutions for multiple-level organizations. Assutech’s DEKA app with virtual tours won the People’s Choice Award at a pitching contest of the Gambia Chamber of Commerce and Industry (GCCI) in collaboration with the Start-up Incubator Gambia and the Youth Empowerment Project (YEP). The app also won the Most Innovative Business Concept Award 2017. Source: Youth and Trade Roadmap for The Gambia, 2018-2022
41 The Gambia National Development Plan (2018-2021) 51
4.4 The Gambia’s Role in Regional Integration Initiatives
4.4.1 Political, Economic and Social Context for Regional Integration
The Gambia has an open trade and investment regime but has witnessed over the last few years a deterioration in its trade performance and balance of trade. However, the main thrust of the government's trade policy includes building trade capacity, improving competitiveness and promoting private sector development. Since 2018, the government has elevated the importance of international trade to achieve its aim of increased sustainable and inclusive economic growth and development. For example, the government commissioned a new ‘Trade and Industrial Policy’ and ratified the African Continental Free Trade Agreement (AfCFTA). However, there remain numerous challenges that must be tackled to improve conditions to increase inclusive economic growth.
The WTO and the Economic Community of West African States (ECOWAS) trade regime provides the basic parameters for The Gambia's trade policies. The Ministry of Trade, Industry, Regional Integration, and Employment (MOTIE) is responsible for formulating and coordinating trade policy. Some of the trade policy programmes and plans, including the agricultural policy, are awaiting revision. The Gambia Investment and Export Promotion Agency (GIEPA) is the body responsible for promoting and facilitating investment, business and export development, and supporting Micro, Small and Medium Enterprises (MSMEs); and overseeing the export processing zones in the country.
4.4.2 Trade Integration
The Gambia is making progress in trade integration with efforts to harmonize documentation and streamline processes that would allow for free trade across its borders. The country is member of the World Trade Organization since 1996. The county deposited its instrument of acceptance of the Trade Facilitation Agreement on July 11th, 2017. As a member of the WTO, The Gambia applies Most Favoured Nations (MFN) treatment to all trading partners with an average rate is 12.3%, down from an average rate of 14.1% of the previous customs tariff. The Gambia is a founding member of ECOWAS since 1975. As a member of the ECOWAS it adopted a its Common External Tariff (CET) in January 2007, and comprising five band tariffs42: • 0% for basic social goods; • 5% for basic needs, raw material, capital equipment, and specific inputs; • 10% for inputs and intermediate products; • 20% for final consumer goods and other products; and, • 35% for specific goods for economic development.
The country’s main trade related preferential arrangements involve tariff elimination on certain imports in compliance with ECOWAS Trade Liberalisation Scheme (ETLS) in line with the Bank’s Regional Integration Strategic Framework 2018-2025. The ECOWAS additional legislation implemented by The Gambia include the following: (i) ECOWAS Community Levy; (ii) ECOWAS Inter-State Road Transit Scheme (ISRT); and (iii) Free Movement of Persons, Right of Residence and Establishment on Strategic Framework 2018-2025. The Gambia is also a member of the Community of Sahel-Saharan States (CEN-SAD), an organization that has
42 Gambia Trade Strategy and Industrial Policy 2018
52
partnership agreements with many regional and international bodies with the aim of promoting common and shared action in political, cultural, economic and social issues.
The Gambia also benefits from preferential tariff access market conditions in most importing markets, given its Least Developed Country status. These include the largest industrialized countries (under the generalized system of preference), the EU countries (under the “Everything But Arms” Initiative), and the US (under the African Growth and Opportunity Act). The Gambia is also part of many bilateral trade agreements. It has potential with dried mangoes, exotic juices (hibiscus, ginger, baobab, tamarind), and other unique niche products (hot sauce, exotic jams) that may have prospective markets abroad like Europe and North America.
However, there is much to be done on the integration of productive value chains in the ECOWAS (especially with respect to agriculture and the manufacturing sector for exports). This is because of the concentration of its exports on raw agricultural materials. Only 4.4% of The Gambia’s exports are with West Africa, compared to 76.1% with Asian countries in 2019. This figure ignores the large unrecorded informal trade between The Gambia and some of its neighbouring countries, notably Senegal.
4.4.3 The Gambia and The Africa Continental Free Trade Area
The Africa Continental Free Trade Area (AfCFTA) is the continent’s most ambitious integration initiative embedded within the Agenda 2063 of the African Union. The Agreement entered into force on 30th May 2019 after having been ratified by the required 22 countries. The AfCFTA seeks to create a single continental market for goods and services with free movement of people and capital, thereby expanding intra-African trade across the continent. The Gambia ratified the AfCFTA in April 2019.
An open trade economy, The Gambia stands to benefit through economies of scale from an expanded market in an integrated African economy under the AfCFTA. The opening of the Trans- Gambia Bridge as well as the investments in the modernization of the port of Banjul are likely to generate revenues from transit trade as well as foster the development of new business opportunities in the transportation of imported liquefied fuel products to the Sahelian hinterland. The recent development of the National AfCFTA Implementation Strategy, and the setting up a National Implementation Committee to oversee its implementation in March 2020 offers a solid basis upon which the AfCFTA reforms can be enacted.
4.4.4 Progress Towards ECOWAS Macroeconomic Convergence
The Gambia has is undertaking a series of macroeconomic policies and reforms in order to create a healthy financial climate that attracts cross-border investments. However, FDI inflows in The Gambia have remained below levels reached preceding the 2007-2008 global financial crisis. FDI inflows peaked in 2006 at USD 82.2 million but became negative (USD -1.69 million) in 2015 before recovering slightly to USD 32.9 million in 201843. The country lags behind comparator economies in terms of its net inflows as a percentage of GDP. Its net inflows per GDP was 2% in 2018 compared to that of Liberia (4%), Guinea (3.2%), Senegal (3.5%) and Guinea-Bissau (1.4%).
43 World Bank Development Indicators Foreign Direct investment, net inflows (BoP, current USD) 53
The country’s progress towards ECOWAS macroeconomic convergence has improved over the past five years. In 2015, the country only met one primary criteria related to inflation (6.8%) convergence which was below the regional target of 10%. The country also met one secondary criteria related to the exchange rate stability with annual variation of -4.9%, well within the regional target interval of +/-10%. In 2019, the country progressed to meet 3 primary criteria (e.g. average inflation, reduced Central Bank financing of the fiscal deficit, and gross external reserves) and one secondary criteria (e.g. exchange rate stability) as illustrated in Table 17. Particularly worrying is the high level of public debt (82.5% of GDP) which remains above the 70% convergence criteria and is highly vulnerable to GDP fluctuations and exogenous shocks.
Table 17: The Gambia - ECOWAS Macroeconomic Policy Convergence Target 2015 2016 2017 2018 2019 Primary criteria Budget deficit/GDP ≤ 3% 8.1 9.7 7.9 6.6 4.1 (including grants) Average inflation < 10% 6.8 7.2 8.0 6.5 5.1 Central Bank financing of ≤ 10% 14.2 34.7 7.8 4.7 2.7 budget deficit Gross external reserves ≥ 3 months of 2.5 1.3 2.8 3.0 3.4 imports Secondary criteria Exchange rate stability ± 10% -4.9 1.3 6.95 3.47 3.2 (dalasi/dollar) Total public debt/GDP ≤ 70% 105.3 82.3 87.9 87.0 82.5 Number of criteria met 2 2 3 4 4 Source: West Africa Monetary Agency (2019), Gambian authorities, and AfDB Statistics Department.
The Central Bank of The Gambia is also collaborating actively with the West Africa Monetary Institute (WAMI) in the implementation of trade, financial integration and institutional capacity building activities. While the ECOWAS ultimate objective of establishing a Single Currency for all member states by 2020 is still work-in-progress, banking sector integration is yet to be achieved.
Critical reforms requiring actions for The Gambia include: (i) establishment of deposit insurance scheme (e.g. Nigeria has a deposit insurance institution in place, and Ghana is in the process of establishing one); (ii) establishment of a Unique Identifier (Bank Verification Number) System44 (e.g. Nigeria has a Unique Identifier, and Ghana has started registration of its citizens); (iii) develop domestic debt and capital markets (e.g. debt markets in The Gambia, Guinea, Liberia and Sierra Leone are characterized by few money market instruments, while the market for bonds is relatively non-existent or at a nascent stage).
The Gambia has adopted the International Financial Reporting Standards (IFRS) in line with financial sector convergence. The country also collaborated with WAMI in the upgrade of payment system infrastructure. This was achieved through a regional project valued at USD 30 million and funded by the AfDB and completed in 2016 for The Gambia, Guinea, Liberia and Sierra Leone.
44 All Member States are encouraged to have a unique identifier (bank verification number) system for proper profiling of bank customers. WAMI was directed to source for funding for the implementation of Unique Identifier in the Zone. The Institute has not been able to secure the needed funds to implement the project in Member States.
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4.4.5 Trade Orientation and Composition of Trade
The Gambia’s trade openness, as measured Figure 53: The Gambia Trade Regime Openness, 1966-2018 by the sum of its exports and imports as a percentage of GDP was 63.4% in 2018 (Figure 53), ranking it 28th out of 48 countries in Africa. This is a slight increase from the previous year in which the value was 61.5%, ranking The Gambia 31st out of 51 countries in Africa. Between 1966 to 2018 the average value of trade for The Gambia was 73.1% with a minimum of 39.1% (2008) and a maximum of 131.5% (1990). Source: www.theglobaleconomy.com
The country ranks 19th/54 countries in the 2019 Africa Regional Integration Index with a score of 0.351. The Gambia is a top performer on trade integration (8th/54), macroeconomic and financial integration (12th/54), free movement of people (20th/54) and infrastructural integration (26th/54). However, it performs low on productive integration.
Despite the significant trade integration, trade performance has been deteriorating in recent years. In 2019, total trade stood at GMD 32.6 billion (USD 630 million). Total exports were GMD 1.6 billion (USD 30.9 million), whilst total imports stood at GMD 31 billion (USD 599.6 million). The trade deficit has increased significantly from GMD 12.8 billion (247.6 million) in 2015 to GMD 29.4 billion (USD 568.7 million) in 2019. The country has had a consistent current account deficit running for over 30 years, with the exception of 2003 and 2007.
Top Imports and partners: In 2019, the country’s top ten imports stood at GMD 26.1 billion (USD 521.8 million) and mostly comprised of ‘mineral fuels, mineral oils and products of their distillation’ (43%), ‘articles of iron and steel’ (11%), ‘cereals’ (7%) and ‘vehicles other than railway’ (4%). Other imported products include ‘Sugars and sugar confectionery’ (5%), ‘Electrical machinery and equipment’ (3%), ‘Animal or vegetable fats and oils’ (3%). Figure 54 displays The Gambia’s merchandise exports and import composition.
In 2019, The Gambia’s top import partner (Figure 55) was Cote d’Ivoire (29%) with mineral fuels as the main product imported. The second was India (18%), followed by Brazil (9.3%), China (6%) and The Netherlands (5.3%). The main products imported from India were electrical machinery and equipment.
Top Exports and Partners: Exports in 2019 of the top products totalled GMD 425.5 million (USD 8.5 million), making up 94.2% of all exports. Of these ‘Wood and articles of wood’ and ‘Fish and crustaceans’ registered the highest share of exports with 29.7% and 26.6%, respectively. Other exported products include: ‘Edible fruit and nuts; peel of citrus fruit or melons’ (17.7%), ‘Salt; sulphur’ (4.3%) and ‘Animal or vegetable fats and oils’ (4.2%).
The Gambia’s top export markets (Figure 55) include China (34%), India (22.7%), Vietnam (13.8%), Republic of Korea (9.5%), Chile (5.7%) and UK (2.9%). The main products exported to China are wood and articles of wood, to India are edible fruits and nuts, and to Vietnam are fish and crustaceans.
55
Figure 54: The Gambia – Merchandise Export and Import Composition, 2019 The Gambia - Export Composition (2019) The Gambia - Import Composition (2019)
Printing industry Meat and Glass and Others, products, 1% Others, 6% edible meat, glassware, 1% 19% Wheat 1% Iron and products, 1% steel, 1% Mineral fuels and oil Electrical machinery, 3% Animal or vegetable Fish and products, fats and oils, 2% crustaceans, 43% 52% Animal or vegetable fats Articles of iron and oils, 3% and steel, 3% Preparations from Cement , 3% food industry, 5% Vehicles and Wheat spare parts, 4% Articles of Cashew nuts , Sugar , 5% iron and products, 3% Oil seeds and 19% Cereals, fruits, 7% 7% steel, 11% Source: GBoS, 2019 Source: GBoS, 2019
Figure 55: The Gambia – Merchandise Export Destination and Import Origin, 2019
The Gambia - Export destinations (2019) The Gambia - Import origin (2019)
Others, 5% Senegal, 1.3% Spain, 1.9% United States, 1.5% Algeria, 2.1% Others, Cuba, 1.6% 20% Cote Guinea-Bissau, Turkey, 2.3% d'Ivoire, China, 1.9% 29% 34% Malaysia, 2.7% United Kingdom, India, 18% 2.9% India, Belgium, 2.9% 22.7% Chile, Netherlands, 5.3% Viet Nam, 5.7% China, 6% Republic of Korea, 13.8% Brazil, 9.3% 9.5%
Source: GBoS, 2019 Source: GBoS, 2019
4.4.6 Improving Transport Infrastructure to Promote Regional Integration
The Gambia has been highly vulnerable to climate change and external shocks and most of its infrastructure has had no maintenance since its construction in early 1980’s leaving it in a critical condition. This results in high vehicle operating and maintenance costs, low travel speed, congestion in the port of Banjul and high transport costs for the 60% of the population living in rural areas. Trade with the upcountry and transport of goods and people with neighboring countries are negatively affected by the poor infrastructure conditions.
In order to overcome the stipulated challenges, the government has designed the NDP 2018-2021. With respect to the transport sector, the plan aims to enhance the capacity of land, sea and air transport to boost affordability, accessibility, and competiveness. Major strategies include port expansion, improved performance of SOEs, road safety, airport improvement, PPPs for infrastructure financing and development, road network expansions, policy reforms and public works management. The government has prioritized completion of ongoing roads improvement programs, completion of national roads network, maintenance and expansion of secondary feeder roads to improve access in rural areas are some of the key priorities for the government of Gambia. 56
Port Infrastructure. The Port of Banjul is managed by the Gambian Port Authority, industry benchmarks show that the Gambia’s Port infrastructure falls short of standards necessary to ensure competitiveness. The country needs to increase efficacy in key areas such as container dwell times (days), which is 10-15 days against the benchmark of less than 7 days; truck processing time of 5 hours against the 1-hour industry average; and crane productivity, measured by containers per hour, which is 10 moves per hour compared to 20-30 moves per hour as the industry average. Other challenges include inadequate space for open container storage and limited birth ability, which limits bigger vessels that are the changing trend in the shipping and port industry. With increasing traffic at the ports, throughput increased by 3% in 2018 from 2,397,725 metric tons in 2017 to 2,465,267 metric tons in 2018. Therefore, the country needs to urgently tackle these deficits to ensure competitiveness45. The natural Port of Banjul at the mouth of River Gambia and the river itself navigable for about 500 km downstream, serve as a major transport mode and had been an enabler that made the country play a significant trading role for the Port Hinterland countries of Senegal, Guinea Bissau and Mali.
The GoTG has recently launched a 20-year master plan ‘The Greater Banjul Area: Sustainable Urban Development Program 2020-40’, which includes plans to improve the port infrastructure such as port expansion with a 200-meter wharf extension and a capacity to handle larger vessels of over 20,000DWT. This expansion work has received Bank support under the Transitional Support Facility. The GoTG also prepared a port Master Plan (2018-2038) in line with its outlook within the NDP 2018-2021 where the Port of Banjul is to be positioned as one of the nation’s key aims to facilitate future traffic growth. The government plans to address Port capacity requirements to facilitate future traffic growth. The planned investments at the Port of Banjul will be complemented by investments in road expansion, improvements in border facilities between the Gambia and its neighbors as well as inland dry ports as a complementary facility to the Port of Banjul.
Road Networks. The Gambia ranked 68th/141, with a score of 76.7 in terms of road connectivity in the 2019 GCR. In terms of quality of road infrastructure, its ranking dropped to 83rd/141 with a score of 45.8. The country has a total road network of 3,920.53km of primary, secondary, urban and rural roads. About 20.9% of the network serves as the primary road system, linking important economic centers to gateways (sea port, airport and border crossings) and Banjul. The country has a road density of 34.7km/100km2, which is below the African average of 50km/100km2. The quality of the roads are poor with surveys classifying only 20% of the whole network as in ‘good condition with the remaining 80% ranging from fair to poor condition46.
The GoTG undertook reforms of the road sector in 2003. This resulted in the National Roads Authority (NRA) being set up and vested with the responsibility of administration, control, construction and maintenance of all roads in the Gambia. The NRA draws its road maintenance funds from the Road Fund. Government budget estimates to support maintenance activities have over the years been able to only cover 30% of the maintenance needs. This shortfall between the funding demand and actual budget allocations has seen most of the planned maintenance works having to be deferred resulting in a heavy backlog of maintenance works.
Air transport Infrastructure. The country performs poorly in terms of ‘airport connectivity’ ranking 137th/141 in the 2019 GCR. In terms of ‘efficiency of air transport services’, which
45 Istanbul Program of Action (IPoA) Report 20119 46 Istanbul Program of Action (IPoA) for Least Develop Countries Report November 2019 57
measures the perceptions of the quality of air services, the country performed moderately with a score of 4.4 (in a range of 1 (worst) to 7 (best) in the same year. Banjul International airport is the conduit for air travel into and out of the Gambia. Air traffic has been increasing in recent years from 326,757 passengers handled in 2018 to 406,029 in 2019, a trajectory projected to continue owing to an increase of 60% in regional traffic and 15.2% in internal traffic. However, the country has seen recent positive developments in its air infrastructure including the rehabilitation of the passenger terminals increasing capacity to the target of 500,000 passengers per annum. Other efforts include improving service delivery through introducing common user passenger systems including self-service kiosks and improvements to the air traffic control tower. The country, however, has the challenge of financing the necessary investments for further infrastructure upgrades owing to idle capacity during half the year post tourist season, and a low passenger per annum traffic making it difficult to attract private sector investment.
Key challenges. From the above assessment, the transport sector still faces the following challenges: (i) The funding requirements for the proposed five-year road development for expanding, improving and maintaining the road networks for primary and secondary roads network will place significant resource mobilization pressure on the transport infrastructure sector; (ii) The coordination of the multiplicity of agencies involved in managing urban transport will remain a challenge; (iii)Limited internal resource mobilization options for funding road maintenance and expanding network connectivity; (iv) The Competiveness of the Port of Banjul is under severe competiveness pressure from the recent measures by government of Senegal. Import tax and Port dues differential between Senegal and Gambia have recently narrowed significantly hence adversely impacting on the competiveness of the Port of Banjul towards selected transit traffic from Senegal.
4.5 Human Capital Development and Labour Market Conditions
4.5.1 Human Development, Poverty and Inequality
According to the World Bank’s Human Capital Index (HCI)47, The Gambia ranks 130th out of 157 countries, placing the country below the average for its region but slightly higher than the average for its income group. The Gambia ranks toward the bottom of the 2019 UN Human Development Index at 174th position out of 189 countries with a score of 0.466 and falling within the category of low human development.
The Gambia ranks 131st/162 countries in the 2019 Sustainable Development Goals (SDG) Global Index. Progress in achieving the SDGs 1 to 9 on socio-economic conditions and infrastructure development has been slow compared to other regions in the world (Figure 80). The country is on- track to achieve SDG 13 (climate action) and SDG 16 (Peace, Justice and Strong Institutions). To improve low performance on SDG 17 (Partnerships for the Goals) there is need to strengthen institutions and to increase domestic resource mobilization.
47 The HCI measures the amount of human capital that a child born today can expect to attain by age 18. It has three components: (i) Survival, as measured by under-5 mortality rates; (ii) Expected years of quality-adjusted school which combines information on the quantity and quality of education; (iii) Health environment using two proxies of (a) adult survival rates and (b) the rate of stunting for children under age 5. 58
4.5.2 Poverty and inequality
The Gambia remains one of the poorest Figure 56: The Gambia-Poverty Rates by Area (%) countries on the continent, with per capita 80 70 income of roughly USD 785 in 2019 and almost 60 50 half (48.6%) of the population estimated to be 40 poor48. Estimates suggest that close to 55% of 30 20 the population in 2015 were unable meet their 10
daily required minimum calories of 2,400, a 0
Rural Basse
sobering statistic which has been exacerbated Urban
Banjul
Kuntaur
National Brikama Kanifing by erratic rains affecting agriculture. Due to Kerewan
2010 2015/16 Janjanbureh Mansakonko population growth during this period, there was Source: GBoS, Integrated Household Surveys an increase in the number of the poor from 0.79 million in 2010 to 0.94 million in 2015. The gap between urban and rural areas is increasing with approximately 69.5% of the country’s poor residing in rural areas, notably in the Central River Division (e.g. Kantaur – 72.4%, and Janjanbureh – 71.4%), Lower River (e.g. Mansakonko – 60.1%), North Bank (e.g. Kerewan – 59.8%) and Upper River (e.g. Basse – 59.4%) as illustrated in Figure 56.
Poverty in The Gambia appears to be increasing due to a number of multidimensional factors, notably: (i) Policy inconsistencies: The suspension of budget support and reduced aid-flows to The Gambia due to policy inconsistencies under the previous administration, notably during 2013-2016, have severely compromised many poverty-focused programs; (ii) Lack of income opportunities: The impact of the Ebola outbreak in 2014-15 on tourism; climate change effects in agricultural output and reduced re-export trade due to loss of competitiveness affected income of most workers, in particular those in the informal sector; (iii) Social and demographic factors: Rapid demographic growth has not been accompanied by the necessary investments in social infrastructure; this has resulted in poor access to health and sanitation, relatively low life expectancy, and high infant mortality rates; (iv) Inadequate health infrastructure: Prevalence of endemic diseases, particularly malaria, diarrhoea, tuberculosis and acute respiratory diseases impacts on the health conditions of the labour force leading to high absenteeism and low productivity; (v) Poor educational infrastructure and weak outcomes: Despite the recent improvements in overall education ratios, reversing the underinvestment in the education sector remains a major development issue. Transition to higher grades for pupils is extremely constrained by the limited number of schools offering higher education. Consequently, the system provides a large number of inadequately trained graduates who face stiff competition on entering a narrow labour market.
The Gambia has a population growth rate of about 3% and a total population of around 2.3 million inhabitants and is projected to reach 3.1 million by 2030 spurred on by a high fertility rates, and a decline in infant mortality rates (UNDESA, 2015). More than 65% of the population is young and this poses significant challenges in terms of public policies towards employment creation to reap
48 This is based on a national absolute poverty line of equivalent to USD 1.25 per person per day, according to the HIS, 2015-2016. 59
the demographic dividend. Lack of employment Figure 57: The Gambia - Gini Coefficient, 2010 and opportunities drives high income inequality in 2015 The Gambia. This is evidenced by a Gini Basse Janjanbureh coefficient for the country in 2015 was 0.356 in Kuntaur 2015 (Figure 57). In fact, inequality seems to Kerewan Mansakonko have declined at a faster rate in urban areas (-1.3 Brikama percentage points between 2010 and 2015) than Kanifing Banjul in the rural areas (-1.1 percentage points). This Urban reflects the challenges faced by urban population Rural National in maintain and diversifying their sources of 0.00 0.10 0.20 0.30 0.40 incomes, particularly in event of an exogenous 2015/16 2010 shock. This calls for the need to implement Source: GBoS Integrated Household Surveys further reforms to diversify the economy and enhance sustainable growth to gradually reduce inequalities in Gambia.
4.5.3 Adequacy of education and training facilities in the country
The Gambia has made significant strides in improving its education indicators over the past decades. Primary school net enrolment rates increased significantly for both boys (from 80.9% in 2005 to 88.4% in 2018) and girls (78.4% in 2005 to 85.5% in 2018), and gender parity has been achieved in Lower Basic level of education (UNICEF, 2012). Primary completion rates for girls (71.7%) have surpassed those for boys (66.9%). However, there is a slight disparity in lower secondary completion rates which is completed by boys (60%) against 59.4% for girls (Figure 58). Disparities are more marked by area of residence and the gaps are even more pronounced in the rural areas. About 41.2% of the population lives in the rural areas yet this does not translate into the same proportion when it comes to school enrolment and efficiency rates. The Gambian education sector faces a number of important challenges. High dropout rates, particularly among girls, due to early marriage and pregnancy, disparities in the regional distribution of schools and limited teaching resources drives high rates of pupil-to-teacher ratio in primary education. Low level of education expenditure to GDP averaged 2.1% of GDP over 2010-17 which is well below the West Africa’s average of 4.1% of GDP.
Figure 58: The Gambia - Education Indicators The Gambia - Education Indicators Trends Education Spending and Literacy Rates, 100.0 60 140 2010-2017 9 120 8 50 7 75.0 100 40 6
teacher ratio teacher 80 5 50.0 30 - to 4
- 60 Literacy (%) rates Literacy 20 40 3
25.0 Pupil 2 completion rates (%) rates completion 10 20 1 0.0 0 0 0
2005 2010 2015 2018 GDP) of (% spending Education
Mali
Togo
Niger Benin
Primary completion, female Ghana Guinea Primary completion, male Senegal
Lower secondary completion, female Verde Cabo
The Gambia The
Cote d'Ivoire Cote Burkina Faso Burkina
Lower secondary completion, male Bissau Guinea Pupil to teacher ratio (primary education) Pupil to teacher ratio (secondary education) Literacy rates Public expenditure on education (% of GDP) Source: UNESCO, 2020 Source: AfDB Statistics Department, 2020
60
The country faces a skills-shortage with Figure 59: TVET Enrolment and Firms Offering formal an estimate of 75% of skilled workers training being non-Gambians. The education 45 40 sector in the country has many 40 35 35 30 bottlenecks and is unable to deliver a 30 25 25 20 quality service that prepares students for 20 further education and the workforce49. 15 15 10 10
The literacy rate in the country as of 5 5 (%) enrolment TVET
2015 (% of people aged 15 and above) 0 0 Mali
was 50.78%. One of the biggest Togo
Niger
Benin
Ghana
Guinea Liberia
Firms offering formal training (%) training formal offering Firms Nigeria
challenges facing the country is the Senegal
Cabo Verde Cabo
The Gambia The Cote d'Ivoire Cote shortage of well-trained artisans needed Faso Burkina to meet the labour market demands. Firms offering formal training (% of firms) TVET enrolment (% total enrolment in secondary education) Another challenge is a mismatch of Source: World Bank Development Indicators, 2018 skills, stemming from the weak linkage between technical and vocational programs and the job market needs. In fact, only 25.2% of private sector firms in The Gambia offer formal on-the-job training (Figure 59). This contrasts with Ghana (40.1%), Côte d’Ivoire (35.5%), Togo (33.7%) and Nigeria (30.7%). There have been efforts to tackle this challenge through vocational training programs under the National Accreditation and Quality Assurance Authority, but this needs to be supplemented with the skills demanded by the country’s productive sector.
4.5.4 Labour Market Conditions and Skills Development
The employment rate in The Gambia has increased from 51.1% in 2012 to 64.8% in 2018 (Figure 60). The highest proportion of the employed population is found in the urban areas (79.9%) and among the age group 36-64 years old (73%). These figures raise concerns in terms of gender and regional inequalities in access to formal employment. For instance, despite increasing from 42.9% in 2012 to 54.5% in 2018, women’s employment still lag behind that of men highlighting the barriers faced by women to access labour markets. Formal employment is concentrated in the urban areas, notably in Brikama (81.2%), Kanifing (88.1%), and Banjul (87.5%). This contributes to rural-urban migration particularly among the youth who represent the age group with least employment rate (42.4%).
Figure 60: The Gambia - Employment Trends by Gender, Age and Regions Employment Trends by Gender, Age and Employment Trends and Labour Force Participation by Regions 100 Area of Residence 100 80 80 60
Percent 60 40 40 Percent 20 20 0
0
Basse
Banjul
Male
Kuntaur
Rural
Brikama
Kanifing
Kerewan
Urban
Female
National
Janjanbureh
Mansakonko
25-35 years 25-35 years 36-64 2012 2018 years 15-24 Labour force partication rate Employment rate Source: GBoS, Labour Force Surveys, 2012 and 2018 Source: GBoS, Labour Force Survey, 2012 and 2018
49 UNICEF, https://www.unicef.org/gambia/education
61
The Gambia still faces considerable challenges in respect to reducing unemployment rates which increased from 29.8% in 2012 to 35.2% in 2018. Unemployment remains extremely high in rural areas at 76.6%, and among the youth (41.5%) and women (57.1%). Partial lack of work, low income, low productivity and inadequate use of skills of the employed population has led to the underutilization of productive capacity of the employed population. In fact, underemployment rates in The Gambia more than doubled to from 6.3% in 2012 to 17.4% in 2018 (Figure 61). Underemployment rates also increased significantly in the urban areas (11.3%) and among women (10.6%). This implies that lack of work is forcing more women, and urban workers to accept low paid and poor-quality jobs, without any formal social protection system, thus increasing their economic vulnerability to shocks. This is likely to deteriorate with the anticipated negative effects of the COVID-19 on employment.
Figure 61: The Gambia – Unemployment and Underemployment Rates, 2012-2018 The Gambia: Unemployment Trends (%) The Gambia: Underemployment Rate as Percentage of Employed Population Youth Youth Female Female Male Male Urban Urban Rural Rural National National
0 20 40 60 80 0 5 10 15 20 2018 2012 2018 2012 Source: GBoS, Labour Force Surveys, 2012-2018 Source: GBoS, Labour Force Surveys, 2012-2018
Currently, low human capital levels limit the productivity and employment opportunities, in particular for the youth and women. This is evidenced by the fact that 51.1% of the women working in the informal sector are illiterate (Figure 62). Informal sector has contributed significantly to Gambia’s economy, particularly in terms of employment for women (65.1% in 2018), and most of the labour force in the rural areas (61.7% in 2018). The failure of past policies in terms of investing in skills adequate to the needs of the labour market, efficient economic infrastructure to facilitate agriculture value chains and exports, and lack of affordable credit to farmers have all pushed most youth and women to unemployment and underutilization of their productive capacity.
Figure 62: The Gambia-Informal Employment and Levels of Education, 2012-2018 Informal Non-Agriculture Employment Levels of Education of Informal Employed 100 Trends by Gender and Area of Residence Workers, 2018 80 Urban 43.0 13.1 15.2 19.3 60 Rural 52.5 14.0 15.2 14.1 40 The Gambia 46.4 13.4 13.4 17.5 20 Female 51.1 13.3 13.2 15.3 0
Male 43.5 13.5 16.4 18.8
Male
Rural Basse
Urban 0% 20% 40% 60% 80% 100%
Banjul
Female
Kuntaur
National Brikama Kanifing Kerewan No schooling Early childhood schooling
Janjanbureh Primary education Lower secondary Mansakonko Upper secondary Vocational certificate 2012 2018 Diploma Higher education Source: GBoS, Labour Force Surveys, 2012-2018 Source: GBoS, Labour Force Surveys, 2012-2018
62
4.5.5 Access to water and sanitation
The challenges associated with the provision and management of basic water needs50 in The Gambia varies widely, particularly with respect to potable supplies, where the urban, peri-urban and rural sectors impose quite different and often incompatible demands. The opportunities presented by the PPPs to augment more traditional approaches to service delivery are attractive and were considered appropriate and they have been highlighted in the Water Policy (2006), Sanitation Policy (2015-2020). Access to clean water services in The Gambia improved significantly in the past decade and was 78% in 2017 (Figure 63), well above the Africa’s average of 66.3%. The proportion of the population with access to pipe borne drinking water increased in urban areas and decreased in rural areas. Furthermore, national coverage for improved sanitation has dropped from 42.1% in 2013 to 39.2% in 2017, slightly below the Africa’s average of 40.3%. The per capita waste generation is above the capacity of the municipal councils resulting in severe challenges in waste management.
Figure 63: Access to Clean Drinking Water and Sanitation Services, 2017 100 80
60 40 20
0
Mali
Togo
Niger
Benin
Ghana
Guinea Liberia Nigeria
Senegal
Cabo Verde Cabo
The Gambia The
Sierra Leone Sierra Cote d'Ivoire Cote
Faso Burkina Guinea-Bissau Access to clean water services (%) Access to basic sanitation facilities (%) Source: AfDB Statistics Departtment, 2020
While there are wide disparities in access to water supply among the rural, urban and peri-urban populations, in general, The Gambia has made some progress in the delivery of water supply and sanitation services since 1990. According to the Joint Monitoring Program (JMP, 2015 Update), The Gambia met its MDG target for water supply with 90% of its population estimated as having access to improved water sources, while only about 59% of the population (55% rural and 62% urban) was estimated to be using improved sanitation facilities by 2015. In addition, only 2% of the rural homesteads had evidence of hand-washing with soap. Progress made in water supply and sanitation needs to be sustained to ensure sector targets are met as required by the National Development Plan. Urban Water Supply and Sanitation. The urban water supply and sewerage sector is being managed by NAWEC, a utility company established in 1995 that operates water supply reticulation systems and sewer network under the auspices of the Ministry of Energy mostly in the Greater Banjul Area. NAWEC supplies water from groundwater sources mainly due to salinity problems associated with surface water from River Gambia. NAWEC is expanding its operations to cover
50 Basic water needs includes water to support life, subsistence agriculture and aqua-culture
63
nearby peri-urban areas and the growth centres, and therefore is seeking to strengthen collaboration with the LGAs and private sector to facilitate services delivery in such areas.
NAWEC charges tariffs that are regulated by Power Utility Regulatory Authority. The current water tariffs do not allow full cost recovery, as they are set based on the consideration of water as a social good. NAWEC is therefore unable to realize enough resources to expand its operations while ensuring adequate maintenance of existing water supply systems. A study concluded in 2010 by AMCOW, in collaboration with Water and Sanitation Program of the World Bank, AfDB, UNICEF and WHO concluded that about USD 87 per capita for urban water supply, and about USD 51 per capita for urban sanitation were required to meet MDG target of 100% urban water supply and 80% urban sanitation by 2015. These required total annual investments of about USD 25 million for water supply and USD 6 million for sanitation for the next five years. Incidentally, sector investments have not reached such levels.
Rural Water Supply and Sanitation. The rural water and sanitation sector is managed by the Department of Water Resources (DWR) under the MoFWR. Within the context of the Local Government Act, 2002, the DWR provides sector related services in collaboration with the LGAs, DCD, MoH, NGOs and private sector entities. Water supply systems are mainly dug wells and boreholes fitted with hand pumps or solar powered submersible pumps which have replaced others powered by windmills and diesel generators. The DWR adopts a design life of 20 years and minimum service levels of 20 to 25 litres per capita per day from a public water point served by a protected spring, shallow well, borehole with hand pump or standpipe served by a gravity fed scheme and located within 250 metres.
4.5.6 Strength of Health and Social Protection Systems
The Gambia’s National Health Strategic Plan 2014-2020 goal is to reduce inequalities in health care services and reverse the downward trends. Progress was recorded on child health outcomes due to improved access to basic health care services across the country. Currently, up to 85% of the population is within 5 kilometers of a primary health care facility and reproductive health facility leading to similar successes with the latter (Gambia Demographic and Health Survey, 2013). In the past the Gambia had a strong health system; however, the primary health care services have deteriorated over time and are still faced with challenges to be able to serve the population adequately.
Following the results of the 2018 Multiple Indicators Cluster Survey (MICS), under-5 mortality rate declined from 80.5/1000 live births in 2017 to 57/1000 live births, with mortality rates higher in rural areas at 64 deaths per 1000 live births. Neonatal mortality rates have increased in the last 5 years from 28 to 31/1000 live births to 32.1/1000 live births in 2017, which is a worrying trend and needs urgent attention. The percentage of children aged 24-35 months who received all antigens recommended in the national immunization schedule at any time before the survey is 58%. Maternal mortality ratio declined sharply from 1055.5 per 100,000 live births in 2000 to less than 597 per 100,000 live births in 2017. The most prominent diseases in children causing high morbidity and mortality are pneumonia, malnutrition, anemia, neonatal sepsis, as well as birth complications such as asphyxia, trauma, and premature births. In adults, the “leading causes” of in-patient deaths are maternal deaths, diabetes, tuberculosis, malaria, cancer, cardio-vascular disease, and trauma according to the 2015 Health Statistics. Figure 64 below, highlights the trends of The Gambia’s key health sector indicators over the period 1995 to 2017.
64
Figure 64: The Gambia – Selected Health Sector Indicators The Gambia - Health Indicator Trends Incidence of Diseases and Key Health 200 8 Personnel 450 80 400 150 6 350 percent 300 60 100 4 250 200 50 2 150 40 100 50 0 0 0 20 1995 2000 2005 2010 2015 2017
Health expenditure/GDP (%) expenditure/GDP Health 1995 2000 2005 2010 2015 2017
Incidence (per 100,000 people) 100,000(per Incidence Births attended trained staff (%) staff trained attended Births Neonatal mortality rate per 1,000 live births Physicians per 100,000 people Under five mortality rate per 1,000 live births Nurses and midwives per 100,000 people Malnutrition prevalence (% of children under 5) Incidence of tuberculosis (per 100,000 people) Public expenditure on health as percentage of GDP) Incidence of malaria (per 100,000 people) Births attended by trained health personnel (%) Source: AfDB Statistics Department, 2020 Source: AfDB Statistics Department, 2020
For all ages fertility rate is higher in the urban Figure 65: Fertility Rate and Poverty Headcount areas as compared the rural. For Urban, the 75 MADAGASCARy = 6.3084x + 15.827 highest rate is between 25-29 at 258 births/1000 ZIMBABWE ERITREIAGUINEA- SAO TOME & DRCR² = 0.1692 65 BISSAU women. While for rural areas the rate peaks at PRINCIPE CARBURUNDI ESWATINI TOGO ZAMBIA 55 SOUTH AFRICA GUINEA NIGERIA MALAWI GAMBIA 30-34 years of age at 180 births/1000 women. LESOTHO LIBERIA SUDAN CHAD SIERRA LEONE MOZAMBIQUE 45 COTE D'IVOIRE NIGER Total fertility rate is high at 5.2 with urban total COMOROSSENEGALMALI BENIN SEYCHELLES RWANDA BURKINA FASO KENYA CONGO, REP. fertility rate standing at 3.8 compared to 5.8 for 35 CABO VERDE GABON ANGOLA EGYPT CAMEROON ETHIOPIAMAURITANIA rural areas. High fertility rates tends to drive high 25 DJIBOUTI TANZANIA BOTSWANA GHANA UGANDA population growth rates which is not population)of (% line 15 TUNISIA NAMIBIA MAURITIUS corresponded by commensurate investments in ALGERIA 5
social infrastructure and employment 1 2 3 4 5 6 7 8 Poverty headcount ratio at national poverty poverty national at ratio headcount Poverty opportunities, thus raising poverty rates, in The Fertility rate (total births per woman) Source: Author's computation using AfDB Statistics Gambia, as well as in most Low Development Department, 2020 data, Fragility States Index 2019 Countries in Africa (Figure 65).
The health systems design is the weakest component of the health sector in The Gambia. Government budgetary allocations rose to 10.56% in 2016 and 9.65% in the 2017 fiscal years, which is below the 15% Abuja Declaration target. Meanwhile “Out-of-Pocket expenditure” constitutes 22% of the total health expenditure (National Health Administration, 2018) and continues to be a huge burden on households, impacting negatively on the livelihood of the population. The Gambia is experiencing a critical shortage of health workers, with the issue compounded by poor distribution, uneven performance and quality, insufficient incentives and remuneration, poor working conditions and inadequate management practices and support and attrition. The country only has 10.8 physicians per 100,000 people against 33.6 per 100,000 people in Africa. While the number of nurses and midwives (162.9 per 100,000 people) is above the Africa’s average of 123.3 per 100,000 people, however there has been a decline in the percentage of births attended by trained health personnel from 68.1% in 2015 to 57.2% in 2017. These highlight chronic shortages of human resources and lack of investment in skills training which may undermine service delivery.
65
The Gambia registered its first case of the Figure 66: Total Confirmed Cases of COVID-19 in West Africa – COVID-19 pandemic on 16th March March to August 2019 2020, and as at 5th September 2020, there 20000 18000 were 3150 cases recorded, of which 1315 16000 recovered, 99 resulted in a death, 14000 12000 corresponding to a crude case-fatality 10000 rate of 3.1%. The 2019 Global Health 8000 6000 Security Index assessed the country’s 4000 health system as more prepared to deal cases confirmed Total 2000 with infectious disease outbreaks, 0 ranking 117th out of 195 in the World,
th
7/5/2020 8/6/2020
7/29/2020 7/21/2020 8/14/2020 8/22/2020
and 19 out of 54 countries in Africa. 7/13/2020
04/08/2020 02/28/2020 03/07/2020 03/15/2020 03/23/2020 03/31/2020 04/16/2020 04/24/2020 05/02/2020 05/10/2020 05/18/2020 05/26/2020 06/03/2020 06/11/2020 06/19/2020 06/27/2020 However, shortages in medical staff, Benin Burkina Faso Cape Verde equipment and consumables constrains Cote d'Ivoire The Gambia Guinea Guinea-Bissau Liberia Mali the quality of health treatment, safety of Niger Senegal Sierra Leone Togo health workers may compromise health Source: AfDB Statistics Department, 2020 service delivery as most of the health sector budget is concentrated on COVID-19 in detriment of other diseases, immunization programs as well as family planning. The GoTG, through the GBoS, in collaboration with the Ministry of Health and Social Welfare, will be conducting the 2019/20 Gambia Demographic and Health Survey from October 2019 to February 2020. The Gambia Demographic and Health Survey will be the second demographic and health survey to be conducted in The Gambia in collaboration with the worldwide Demographic and Health Survey Program. Meanwhile, the COVID-19 pandemic is increasing the vulnerability of Gambian households, most of which work in the informal sector (60.6%) and lack health insurance, paid leave and earn low income.
The Gambia National Social Protection Policy (NSPP 2015-2025) approved in February 2016. The policy proposes a set of priority actions to guide the gradual establishment of an integrated and inclusive Social Protection system in The Gambia. Various initiatives are executed and these include: cash transfer for pregnant women in poor regions, maternal and child health package, scholarships and school feeding programs, the Government-run Family Strengthening Program, disability and health care services for children, and pension schemes for those in the formal sector, as well as support to returning migrants including the support to communities to build the resilience of those communities. However, the current social protection system in The Gambia is fragmented and focuses on social assistance and promotional activities, particularly schemes designed to improve food security, address malnutrition, and promote access to education. There is less focus on healthcare and reliable income support through cash transfers to extremely poor and vulnerable households and individuals. For example, the country does not have a universal social pension for the elderly51 or a child support allowance. Furthermore, preventative social protection is highly limited in the country, given that social security schemes are reduced to those employed in the formal sector. Most of the population works in the informal sector, thus lacking any form of social security. Another important area in the social protection agenda is Child Protection, which seeks to guarantee the rights of all children to a life free from violence, abuse, exploitation, and neglect in both emergency and non-emergency setting.
51 According to the UNDP Human Development Report (2019), old-age pension recipients (% of statutory pension age population) in The Gambia stands at 17% below 33.3% in Ghana and 23.5% for Senegal. 66
Chapter 5: Priority Policies for Economic Transformation and Job Creation
5.1 Introduction Based on the analyses in the previous chapters, this chapter identifies a number of priority policies for achieving The Gambia’s development objectives, and for achieving economic transformation in the context of the High 5 agenda set by the African Development Bank. 5.2 Seven Priority Policies for The Gambia’s Economic Transformation This section outlines seven priority areas to enhance socio-economic transformation and resilience. These are: expansion of infrastructure investment; promotion of agriculture value chains; support to SMEs for sustainable job creation; improvements of human capital and skills development; enhancement of capacity for domestic resource mobilization; reinforcement of environmental resilience by adopting climate-smart practices and technologies; and addressing fragility through institutional capacity building and sector governance.
5.2.1 Scaling-up Infrastructure Investment
Despite the economic and trade liberalization, investment in The Gambia is low. Several factors discourage investment. Key ones include poor transport infrastructure (road, air and maritime) and inadequate electricity supply. Improving road infrastructure is critical to link producers in rural areas to markets. Transformation of the Banjul International Airport to become a both collection and distribution point for passengers and cargo moving between Africa, Europe and North America could act as a catalyzer for tourism and agricultural export growth. The country also need to improve operational effectiveness of the port of Banjul which strives to improve performance in cargo handling, ICT technology and dedicated workforce to ensure the provision of quality service to facilitate trade. The port of Banjul Master Plan (2018-2038) could serve as a starting basis for making the port more competitive. In addition, harnessing the potential of river transportation which is grossly under-utilized could also act as viable alternative to road transport both for the movement of goods and passengers. Finally, investments in affordable and reliable energy sources, including renewable energy will be critical. This is so because it is a cross-cutting area and has great importance on all poverty reduction efforts.
Given the limited fiscal space due to the relatively high debt burden, the government is encouraged to search for innovative strategies to attract resources from the private sector and development partners at affordable costs. This includes the exploration of public-private partnerships for implementation of large infrastructure investments (e.g. rehabilitation and modernization of port of Banjul). However, for PPPs to succeed, there is a need to put in a place robust regulatory framework and sound institutional coordination. The government’s intention to benefit from the Africa Legal Support Facility is a first step in the right direction to ensure successful investment.
5.2.2 Promotion of Agricultural Value Chains
The Gambia has an enormous agricultural resource base that can be further developed. As discussed in previous chapters, there are opportunities for increased domestic rice production. Another opportunity is for production of fresh and quality fruits, vegetables, eggs, meat, and dairy products that could be supplied to the tourism industry. This could help save the country’s scarce foreign exchange that is currently used for food imports, because the national supply of these products is insufficient and does not meet consumer quality requirements. At the international level, prospects for expanding groundnuts and horticultural exports could be improved by 67
increasing the supply and complying with international quality requirements. The majority of these potential value chains offer profitable business opportunities for private investors and could provide gainful employment to The Gambia’s growing and young labour force. In addition, since many of these value chains are dominated by poor, small-scale producers, most of whom are women, their development would also contribute directly to inclusive growth and poverty reduction. However, in order to ensure that agriculture becomes a robust engine of inclusive growth and poverty reduction, there is a need to build on a combination of favourable factors and addressing binding constraints for growth. These include: improvements in access to credit, essential inputs, processing facilities, and climate-smart agricultural irrigation systems to boost yields and enhance resilience to environmental shocks.
5.2.3 Supporting SMEs for Sustainable Job Creation
Most farmers as well as private investors in The Gambia struggle to access short and long-term credit, and as a consequence they cannot invest in modernizing their production systems and agribusinesses. However, SMEs which account to 20% of GDP can be important sources of growth and jobs in The Gambia. This will require a more innovative approach that seeks to meet the varied financing needs of the SMEs. However, commercial bank’s risk aversion and lack of credit collateral by smallholder farmers limits credit growth for the agro-food sector. This could be attributed to asymmetries of information. Credit bureau have been established to mitigate this market failure but their effectiveness is limited despite significant donor’s support52 and technical assistance.
Weak quality of sponsors’ balance sheets, financing instruments’ mismatch (e.g. local currency cash flows vs. foreign currency loans), and lack of compliance with the multilateral banks’ environmental and social safeguards also constrain private sector deals in The Gambia. The African Development Bank and other multilateral development financial institutions can support with the provision of lines of credits and de-risking instruments (e.g. partial risk guarantees, partial credit guarantees) aimed at leveraging financing for private sector businesses. As institutional capacity remains a challenge, the Bank can consider provision of technical assistance for preparation of bankable projects as well as ensure compliance with the environmental safeguards. The Bank can also consider pilot matching grants schemes to mobilize private investments in agro- enterprises thereby creating employment for mostly women and youth.
5.2.4 Improving Human Capital and Skills Development
The provision of quality education, training and technical skills as well as workforce health are fundamental requirements for economic transformation and poverty reduction. In The Gambia, human capital development has been distorted by low quality of teaching, that adds up to cultural and religious barriers to formal schooling, lack of resources, and insufficient focus on primary health care and compounded by lack of national safety nets. Providing better quality education, health care, and social safety net services will strengthen human development and enhance private sector growth through higher productivity.
52 In 2013, the African Development Bank (AfDB) and VoLo (a privately-owned company registered in Senegal and The Gambia) signed a grant agreement amounting to USD 284,472 to facilitate financial inclusion and improve the efficiency of MSMEs financing in Senegal and The Gambia through the piloting of an innovative technology-based solution for collecting and disseminating credit information on MSMEs to prospective creditors.
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The Gambia suffers from a mismatch of skills and a shortage of skilled labour leading to a dependence on foreign labour. To rectify this, the country can develop formal linkages between industry and education institutions so skills developed are aligned with the industry demands. Although there are various skills development and vocational training initiatives the outcome has been modest. The government should intensify efforts to upgrade the quality of the education sector and also give attention to STEM courses to develop skills for the future.
Most youths in The Gambia are unemployed and have resorted on illegal migration to Europe and USA seeking for better opportunities. The youth issue if unaddressed head-on, could be a ticking time-bomb waiting to explode. In this context, the youth bulge or “demographic dividend” is one area where the African Development Bank can help the country going forward to create an equitable and sustainable society through job opportunities by empowering the youth to be productive (e.g. education and training in basic skills through apprenticeship, mentoring and coaching) in line with its Jobs for Youth in Africa (2016-2025) Strategy. 5.2.5 Enhancing Capacity for Domestic Resource Mobilization
The use of domestic resourcing has become paramount for low developing countries’ initiatives for financing infrastructure projects and reforms. The Gambia is no exception and the country relies heavily on taxation on trade and VAT on goods and services to finance government expenditure. However, high debt servicing obligations constrains government’s ability to allocate significant resources to finance development. The National Development Plan (2018-2021) foresees three key measures to be adopted in order to increase government’s contribution to the financing of the country’s development agenda: (i) Continue the path of prudent fiscal management, sound monetary policy and structural reforms which is expected to rationalize the budget; (ii) Prudent debt management, especially domestic borrowing which will lead to increased fiscal space; (iii) More efficient revenue collections mechanisms and simplifying and expanding the tax base.
As the budget balance deficits are projected to remain sizable in the medium-term, the authorities are encouraged to continue committed to fiscal consolidation while strengthening domestic resource mobilization. This includes the implementation of the 2018 Tax Administration Diagnostic and Assessment Tool (TADAT) in order to boost domestic revenue collection through increases in tobacco-related taxes and other excises, increase in customs processing fees by 0.5% to 1.5%, and tightening of tax exemptions53. The African Development bank can support the country in improving its customs revenue collection system through the upgrade and business process re-engineering of the Automated Systems for Customs Data (AsYCUDA) world to automate and enhance revenue administration management.
5.2.6 Adopt Climate-Smart Technologies for Resilience
As discussed in the previous chapters, the productivity of agriculture in The Gambia has lagged behind the rest of West Africa, including neighbouring countries like Senegal. These lags are an indication that the potential gains in productivity are huge, but these have to take into consideration the adverse effects of climate change. Therefore, The Gambia will need to build, through an
53 The estimated revenues foregone in 2019 due to tax and duty exemptions exceeded 3% of GDP. 69
integrated approach, a climate-smart agri-business system for agriculture to remain resilient and capable of sustaining increases in productivity. Building a climate-smart agri-business system will require interventions focused on: (i) Improving water management and increasing irrigated area; (ii) Strengthening the agricultural innovation system by taking advantage of digital technologies to access real-time agro-meteorological data; (iii) Enabling access to, and large-scale adoption of, quality inputs (including seeds resistant to drought), and improved technologies, such as solar-powered irrigation systems to enhance sustainability and resilience.
5.2.7 Institutional Capacity Building and Sector Governance
Adverse political cycles, weak regulatory frameworks and heavy-handed management of civil servants and other repressive measures under the previous regime undermined effectiveness of reforms. Limited institutional capacity still constrains the performance of the Ministries, Department and Agencies in the formulation of new sectoral policies, development strategies, and programs. The country needs to strengthen inter-agency coordination and improve governance across all agencies of government, both at the central and local governmental areas. This will require more capacity building and institutional support to enable the government institutions to carry out their functions sustainably.
To ensure that the African Development Bank supports the good governance agenda in The Gambia, it is critical that (i) it further enhances its coordination with other partners and that a clear division of labour is obtained, while (ii) using existing operations as stepping stones for future engagement. Going forward, the African Development Bank could envisage operations that contribute positively to macro-economic stability and address the prevailing challenges, using for instance grant financing in budget support to ease the net borrowing requirements of the country.
In tandem with partners, the African Development Bank’s forthcoming budget support operations should strive to reinforce core PFM reforms. As far as SOEs’ reforms are concerned, the World Bank is taking the lead through the preparation of specific operation. On the other hand, the African Development Bank should strive to open a new dialogue front in governance, either on Illicit Financial Flows, fiscal decentralization building from the Bank’s Urban Development and Transport sector projects targeting the city of Banjul. Budget support should be complemented with an institutional support project focusing on PFM on decentralization and broader domestic resource mobilization reforms. Such an operation would greatly benefit from core analytical work. In this regard, it is proposed that a Public Expenditure Review of decentralized entities is conducted.
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Chapter 6: Development Effectiveness and Monitoring and Evaluation
6.1 Capacity Development Actions
The African Capacity Building Foundation undertook a country Capacity Needs Assessment and as premise to the design of a Capacity Development Strategy to support the implementation of the NDP 2018-2021. The report identified capacity gaps at the institutional, organization and individual levels across all levels of government. As it supports The Gambia’s development efforts, the Bank observed that capacity challenges are there that will impede further progress if not addressed beyond the implementation of the Accelerated National Response Plan.
Macroeconomic governance and more particularly the broad policy ecosystem undoubtedly appear as the main area of capacity strengthening. This will primarily entail urgent action for capacity building to achieve sustainable transformation through relevant, informed policy making to address macroeconomic shortfalls and fix the broad development management process. It will also imply capacity strengthening of key institutions established and/or involved in the implementation of the PFM framework a few years back. Specific areas of capacity building also include strengthening debt sustainability policy management, financial regulation and control systems, including sub-areas such tax expenditure management in view to leverage resource mobilization and diversify the sources of development financing. The Gambia will benefit considerably from targeted technical assistance in these core areas.
At the program development level, strengthening fiduciary issues’ management capacity to improve the effectiveness of development interventions is another key area of capacity building that needs to be implemented across the projects and consistently over time. The Bank should provide sustained training of central and line ministry supervisory personnel and the PIUs staff in project cycle management going beyond the traditional fiduciary clinics and the limited training workshop formulas. Furthermore, such capacity building should be coupled with strengthening these frontline stakeholders’ understanding of policy development process, to ensure raising awareness of the need to integrate the project results reporting into the broader national plan. In line with that, a cross-ministerial program coordination support should be provided to spur a culture of results, a sense of shared development impact and accountability. This could be run at the project identification stage.
Another complementary area of support consists of building government officials’ leadership and management capacity and equipping the government with corporate tools to enhance the public service system and improve delivery effectiveness. In this regard, the specific case of public utility management capacity is to be considered as core. At the sectoral level, the portfolio being aligned with all the High Fives, the constraints to capacity should be addressed by targeting institutional support for sectoral policy analysis by strengthening ministerial units dedicated to linking knowledge and policy-making with clear linkages to the national plan. Agriculture, energy, climate change and green growth, private sector development and human capital development are the sectors and areas to be considered under such initiative, through fostering peer-to-peer learning initiatives to spur knowledge and good practice sharing, among other country dialogue solutions. These should be supplemented with hands-on training in M&E to enhance the oversight function of the different sectoral ministries.
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6.2 Civil Society Engagement
The Gambia’s CSOs, silenced under the former regime, has begun to emerge and take a more active role in supporting the democratic transition. The Gambian CSOs are experiencing a new awakening as the emerging democratic space allows for robust advocacy and policy engagement. The 9th edition of the Civil Society Sustainable Index for Sub-Saharan Africa published in December 201854, indicated that “overall number of CSOs registered in The Gambia in 2017 is unknown but is estimated to have totaled well over 1,000 organizations”. The most prominent of these organizations is the Association of Non-Governmental Organizations in The Gambia (TANGO), which is a representative CSOs umbrella organization in The Gambia with about 80 CSO members.
CSOs in The Gambia have access to diverse sources of funding. Most registered CSOs rely on foreign donors for nearly all of their funding. During the regime change, donors increased financial support to CSOs in order to ensure a smooth political transition. However, many CSOs, especially smaller organizations, find it difficult to meet the requirements imposed by foreign donors. They fundraise locally with little success. Most CSOs have had a long tradition of direct interaction with local and central governments in The Gambia. They take part in consultations on government’s positions and policies and have direct access to the National Assembly and even engage with lawmakers in their oversight function. Unlike the previous administration, the new government as well as private sector have highly positive views of CSOs since the transition period.
In the absence of strong national and local institutions, CSOs have remained key actors in service delivery especially in the domains of education, health, water and sanitation, as well as in agricultural extension and food security, filling gaps of weak and inexistent public services. They have also been involved in the formulation and approval of key public policy strategy documents. Nonetheless, disparities are evident in the persistent dichotomy between CSOs based in and around the capital Banjul, and those based in other parts of the Gambia areas that are particularly more rural. Much effort is needed to In most of the developing nations, donors are support the decentralization and enable access to basic increasingly channeling resources through CSOs to sustain investments services through CSOs in the Basse, Janjanbureh, Kuntaur, and other remote areas.
Given the important role civil society has played and continues to play in the democratic nation building process of the Gambia, the African Development Bank, through the Country Office is strengthening its formal engagement with CSOs in its interventions. For example, the African Development Bank’s Gambia Agriculture and Food Security Project foresees active involvement of the CSO TANGO in the implementation and monitoring of its community-led interventions. The implementation of the Gambia 2018-2021 National Development Plan “Delivering good governance and accountability, social cohesion and national reconciliation and a revitalized and transformed economy for the wellbeing of all Gambians” to which the Bank new CSP will align to, will require the full and active participation of different actors especially the masses themselves that are the ultimate right holders.
54 2017 Civil Society Organization sustainability index for Sub-Saharan Africa developed by USAID, FHI 360 and the International Not-for-Profit Law 72
6.3 Monitoring and Evaluation Framework
The benefits of a strong M&E system have often been emphasised. However, few of The Gambia’s many policy initiatives in past decades have been subjected to M&E to assess the outcomes against stated objectives. Unless there is a robust M&E framework, the policies articulated above will not be effective in transforming The Gambian economy. In particular, a results-based M&E system ensures greater accountability of Bank investments with regard to achievement of the High 5s in The Gambia’s, determining the impact of Bank projects on lives and livelihoods.
6.3.1 Status of the National Monitoring and Evaluation System in The Gambia
The Gambia has developed and is implementing its National Development Plan (NDP) 2018-2021, which is a national document that is results oriented and focused on key strategic priorities and critical enablers to attain the new government’s vision for the people. An M&E framework has been proposed to ensure accountability and it includes involvement of regional, ward and village level structures. The M&E system of the plan is done at two levels: Executive level, through a Presidential Dashboard and Delivery Unit, and a Sector level with M&E processes and mechanisms to strengthen government-citizens’ engagement.
The Presidential M&E System/Presidential Dashboard and Delivery Unit is a key innovation introduced in the national M&E framework for the NDP that allow for the monitoring and tracking of selected key results/outcomes of the NDP at the highest level of the Executive. The Delivery Unit works closely with all MDAs concerned to ensure a successful implementation of the Plan at all sectoral levels. The challenges for the M&E process is how to meet the demand for information at the right time. Indeed, when it comes to M&E, the culture and attitude of most government MDAs is that it is always a kind of addendum and not given the necessary support that is required. It is therefore important that the M&E be costed and budgeted for as it has a significant cost implication. The Gambia Bureau of Statistics (GBoS) plays therefore a crucial role in ensuring that quality data is produced and made available in time to meet the demand for monitoring and reporting of the NDP.
A web-based database was proposed to be housed and managed by the GBoS. The database will provide a common and centrally located database for the storage and easy retrieval of data on key development indicators for the country. Some of the initial suggestions of the High-Level Executive Priorities for the Dashboard were outlined as indicated in Box 4 below.
Box 4- Key NDP High Level Executive Results/Priorities • % of the population below the national poverty line • % Rate of unemployment between the age brackets of 15-35 years • A new constitution adopted and amended criminal code • Electricity generation capacity to fully meet demand • Macroeconomic stabilization, through reduced domestic borrowing to 1% of GDP • Close the gap in services between urban and rural Gambia • Boost productive sectors – especially agriculture, fisheries and tourism • Improvements in the quality of education • Improvements in maternal and child health • Security Sector Reform
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6.3.2 Capacity the National Statistical System
The Gambia has made significant strides through the GBoS in terms of statistical data collection, but there is a need to improve statistical governance, coordination of the National Statistical System (NSS) and data quality, quality human resources, ICT and statistical infrastructures, statistical production, dissemination of quality data, and the forging of partnerships for sustainable funding. Apart from the GBoS, there are other key players among the stakeholders (MDAs) in The Gambia that engage in the generation and use of statistics, such as the Ministry of Finance and Economic Affairs (MoFEA), CBG, the Ministry of Education, the Ministry of Health, the Ministry of Agriculture, the community of Development Partners, Research Institutions and the University of The Gambia. At that end, the GBoS ensures that international and national standards are adhered to so as to capably audit all the statistics produced and certify them as official. Currently, the country is implementing its 2nd generation of the National Strategy for the Development of Statistics (NSDS II 2018-2022), which is aligned to the country’s development agenda: the NDP 2018-2021, sectoral development agenda and the Sustainable Development Goals
6.3.3 Data Generation in the National Statistics Systems to Support Monitoring and Evaluation
The Gambia’s first NSDS I covered the period 2007-2011. An assessment of the NSDS I highlighted a number of problems emanating from its implementation which included a singular focus on GBoS, lack of a comprehensive and sustainable human resource development program and poor ICT infrastructure. The NSDS II which covers the period 2018-2022 has refocused its scope to deal with the weaknesses identified and to expand its scope to cover ten-line MDAs in government in addition to the GBoS. The NSDS II is aligned to the NDP 2018-2021. A Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis was done to inform the process of coming up with a time-bound vision, mission and strategic goals. The NSDS II has six Strategic Goals and each goal has a number of strategies and activities to achieve it. The vision and mission are listed Box 5 below.
Box 5– Vision and Mission of NSDS II Vision: A well-coordinated statistical system that timely produces quality statistics in response to user needs by 2021. Mission: Establish an integrated and well-coordinated NSS producing official statistics of high quality in a transparent and timely manner and advance their effective use for both public and private policy decision-making.
An estimate of the budget indicates that an amount of USD 29.3 million would be required for the implementation of the NSDS II. The largest amount will be spent on the generation of relevant data sets in response to user demands (61.3%) followed by the enhancement of physical and ICT infrastructure (17.6%) and building capacity in human resources through training and recruitment of more staff which takes up 17.0% of the funds. Despite limited funding, GBoS has conducted on a regular basis and periodically large-scale surveys and censuses such as the Population and Housing Censuses, Economic Census, Integrated Household Survey (IHS), Multiple Indicator Cluster Surveys (MICS) and Enterprise Surveys. The country has also conducted two Demographic and Health Survey (DHS) first in 2013 and a second one in 2019, as well as Labour Force Survey (LFS) in 2012 and 2018. The Ministry of Agriculture has regularly conducted Agricultural Census as well as annual National Agricultural Sample Survey (NAS). However, new surveys are required to cover subject areas such as the informal sector, migration, tourism, cross- border surveys, while more frequent IHS, MICS, LFS, DHS, NAS and Business surveys are needed. 74
6.3.4 Challenges in the National Statistical System
The first challenge that faces the NSS in the Gambia, is to ensure inter-ministerial coordination in data production that feeds into the NSS system. Secondly, there is a need to make all these data accessible to the public for useful consumption, a concept that is regarded as Open Data. The NSS should therefore work towards building capacity in the area of Big Data management in order to harness the big volume of data being produced.
In addition, the NSS shall ensure that all producers adhere to national and international principles and standards in the production of their data and introduce appropriate protocols for their aggregation and release. On another hand, it should be pointed out that statistical capacity in the Gambia remains low mainly due to following reasons: Limited funding for sustainable human resource development program, inadequate ICT infrastructure, lack of statistical programs, inadequate and inconsistent financial resources for comprehensive statistical activities and services, lack of adequate coordination strategy across the National Statistical System, poor administrative recording systems, Poor management information systems for proper capture of administrative data, absence of a data development strategy, lack of attention to statistical advocacy resulting in lack of awareness on the importance of statistics, absence of database network between the GBoS and the NSS
6.3.5 Proposed Measures for Capacity Building
The shortcomings in Nigeria’s country data, especially at sector level, originate from weaknesses in the NSS. These can be addressed by the Bank using the following means:
(i) Strengthening of the NSDS II in general and existing Sectoral Statistic Systems (e.g. Strategic Plan for Agricultural and Rural Statistics) for The Gambia in particular, reveal to be a critical vehicle through which capacity building should be provided to ensure adequate and timely data delivery; (ii) Ensure better coordination of development partners’55 funding that is deployed to several surveys and censuses as to ensure better effectiveness and sustainability; (iii) Furthermore, it would be important that ECST be fully involved in designing development projects which are handled by operation departments of the African Development Bank, so that any project is developed with an M&E system which ensure a sustainable production of related statistics; (iv) Undertake a comprehensive and in-depth assessment of statistics technical assistance needs to identify priorities and ensure that the statistics capacity building delivery is country-driven.
In the field of agricultural statistics, the three top technical assistance priority needs have been identified as the following: (i) Agricultural Cost of Production statistics system, (ii) Post harvest losses, and (iii) Use of Computer Assistant Personal Interviewing. And this could be a good starting point to focus on in further building the statistical capacity of the country.
55 These partners include the United Nations Population Fund (UNFPA) which has been supporting Population and Housing Census undertakings in The Gambia, the World Bank, UNDP, UNICEF, WHO, Global Fund, FAO, WFP and the African Development Bank. 75
Chapter 7: Conclusion
The Gambia’s economic growth has been positive although volatile over the past decade. Annual GDP growth averaged 3.9% over 2009 to 2019, resulting in an overall GDP of GMD 88.7 billion (USD 1.736 billion) in 2019. This translates to a GDP per capita of USD 785. Growth has been driven by agriculture and tourism services which are the most important sectors and employ the majority of the workforce. This pattern of economic growth has been vulnerable to exogenous shocks, notably persistent droughts, as agriculture remains highly dependent on rainfall, crop yield is subject to frequent variation due to low use of mechanization and yield-enhancing inputs. The tourism sector has been systematically impacted by exogenous factors, notably the Ebola outbreak of 2014-2015 and more recently the COVID-19 pandemic.
Since 2016, the government led by President Adama Barrow has put in place an ambitious macroeconomic reform program to rebuild the economy, restore diplomatic relations with the international community and improve the business environment to attract FDI. The reforms are beginning to bear fruits as evidenced by the decline of the overall fiscal deficit from 5.4% of GDP in 2015 to 4.1% in 2019 and similarly the public debt to GDP fell from 105.3% in 2015 to 82.5% in 2019. Nevertheless, there persist a number of special tax regimes and tax exemptions which hampers tax revenue collection and the country’s dependence volatile and unpredictable FDI and foreign loans and projects grants for financing the private investment program, undermines the implementation of structural projects. Lack of economic linkages and dependence on exports of primary products has limited the creation of value addition and resulted in a jobless economic growth and relatively high poverty and income inequality rates which, if unaddressed, may undermine social cohesion. Furthermore, economic growth has been weakened by structural constraints, including inadequate infrastructure (transport, energy, ICT) and lack of skills and weak human capital accumulation.
To cope with this situation, the country must continue the structural transformation of its economy, by further reforming the governance and public financial management systems and improve the business environment. Beyond the reforms related to improving the business climate and governance, the authorities must take the necessary measures to address the energy crisis by diversifying the energy-mix, including investments in renewable energy. Regional integration and trade hold a great potential in The Gambia in the advent of the AfCFTA. Therefore, investment in trade facilitation and skills developments supporting manufacturing will be key to boost productivity and growth. As agriculture employs 46% of the labour force, notably in the rural poor areas, there is an increased urgency to invest in agriculture value chains and processing of local produce to be supplied to the tourism sector and export markets, generate foreign exchange savings, boost incomes of the rural farmers and reduce poverty. The investments in agriculture must be carried out in conjunction with the policy to combat food insecurity and malnutrition affecting the most vulnerable populations. It must also include the adoption of climate-smart technologies to reduce vulnerability to climate change and build resilience.
The development of the social sector must go in parallel with economic and sectoral reforms, as the country continues to face many challenges in terms of gender equality, and access to quality education and primary health care amid the challenges posed by the COVID-19. Finally, the success of all these reforms remains conditional on improved economic and financial governance, and the African Development Bank could play a critical role in assisting The Gambia achieve its defined development path towards inclusive growth.
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Annex 1: Methodology Used for Estimation of Growth-Employment Elasticity
The most basic definition of employment elasticity is the percentage change in the number of employed persons in an economy or region associated with a percentage change in economic output, measured by gross domestic product. Within this broad definition, two methodologies are frequently utilized for calculating elasticity. The first technique, given in equation 1 below, gives the arc elasticity of employment, ɛi:
(퐸푖1−퐸푖0)/퐸푖0 휀푖 = ( ) (1) (푌푖1−푌푖0)/푌푖0
The numerator simply gives the percentage change in employment in country i, Ei; between periods 0 and 1, while the denominator gives the corresponding percentage change in output, Yi. While this methodology is computationally very simple, Islam and Nazara (2000) and Islam (2004) have demonstrated that the year-over-year employment elasticity calculated using this method tend to exhibit a great deal of instability and may therefore be inappropriate for comparative purposes. As a result, in this country diagnostic note uses a second method based on a multivariate log-linear regression model, with 퐷푖 representing a dummy variable to capture eventual structural changes on employment due to changes in policy regime. This is given in the equation 2.
푙푛퐸푖 = 훼 + 훽1푙푛푌푖 + 퐷푖 + 푢푖 (2)
In equation 2, the elasticity of employment with respect to GDP is given as 훽1. This is calculated by differentiating both sides of equation 2 and solving for 퐸/휕푌 :
휕퐸 휕푌 휕퐸 푌 ( ) = 훽 ( ) → ( ) = 훽 (3) 퐸 1 푌 휕푌 퐸 1
Using this econometric method, 훽1represents the change in employment associated with a differential change in output. Thus, an elasticity of one implies that every one-percentage point of GDP growth is associated with a one-percentage point increase in employment. An elasticity of 0.4 implies that every one-percentage point of GDP growth is associated with employment growth of 0.4 percentage points, and so forth. In order to capture differences in the employment-output relationship among different subsets of the population (total employed, youth, females and males), the equation 2 was used to generate these elasticities. Employment elasticity by economic sector (agriculture, industry and services) were also calculated using equation 2, whereby Ei represents employment by sector and Yi represents total GDP. The last three employment elasticity by value-added were generated using equation 4:
푙푛퐸푖 = 훼 + 훽1푙푛푉푖 + 푢푖 (4)
Ei again represents employment by sector and Vi represents the value-added by economic sector. Thus, equations 2 and 4 were used to calculate the two types of elasticity: the elasticity of employment with respect to total output, and secondly, with respect to value-added in the given economic sector. The examination of the specification 2 and 4 together is particularly useful for showing the patterns of structural economic change, as well as for providing insights into the relationship between productivity growth and employment growth in various economic sectors.
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The relationship between employment elasticity and labour productivity can be established starting from the following arithmetic identity:
푌푖 = 퐸푖푥푃푖 (5) were 푌푖 and 퐸푖, are, as before, output and employment, while 푃푖 is equal to labour productivity (output per worker). Equation 5 implies that for small changes in output, the following holds:
훥푌푖 = 훥퐸푖 + 훥푃푖 (6)
That is, for a given amount of output growth, 훥푌푖, any increase in the rate of employment growth must be met by an equal and opposite decrease in labour productivity growth. The significance of this employment elasticity-productivity relationship is critical in formulating conclusions about elasticity, and one must necessarily consider the productivity side of the relationship. Dividing the equation 6 by output growth, 훥푌푖 , we derive the following:
∆푃 ∆퐸 휀 = 1 − , where 휀 = (7) ∆푌 ∆푌
Using equation 7 with different GDP growth scenarios clarifies the relationship between employment elasticity, 휀, and actual employment growth and productivity growth.
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