Niger - Overview of economy

Niger has a predominantly rural and poorly diversified economy, which is very vulnerable to outside factors (including swarms of locusts, drought, the exhaustion of natural resources, and world prices). Some improved prosperity was experienced in the 1970s due mainly to revenue from uranium. The decline in world uranium prices, the lack of rainfall, poor governance, and economic turmoil in a major trading partner, Nigeria, led to an economic decline in the 1980s. In the 1990s there was a modest improvement, with the gross national product (GNP) per head rising at 0.8 percent a year.

Niger is one of the 20 or so poorest countries in the world. The GNP per head measured by the exchange rate conversion is US$190 (in the United States, by way of comparison, it is US$29,340 per head). The purchasing power parity conversion (which makes allowance for the low price of many basic commodities in Niger) estimates the GNP per head at US$830. Similarly, the gross domestic product (GDP) per head was estimated at US$1,000 in 2000.

The economy depends heavily on agriculture, which accounted for 40 percent of the GDP in 1998. More than 90 percent of the population depends on subsistence agriculture (even urban dwellers maintain strong links to the countryside) and on the export of uranium. The main food

crops are groundnuts, millet, sorghum, cassava, rice and cowpeas, and cotton is grown for industrial use. Livestock reared includes cattle, sheep goats, and poultry. Industry, which provides 18 percent of the GDP, is small and consists mainly of uranium mining, the manufacturing of construction materials, textiles, the processing of agricultural products and brewing and soft drinks. In 1998 retail and wholesale trade, hotels and restaurants generated 17 percent of the GDP, transport and communications 5 percent, and with the rest of the services sector 20 percent.

Such low income means that 84 percent of total expenditure in Niger goes to consumption. Saving is very low at 3 percent, and, even with international aid, this in turn limits investment to 10 percent of the GDP—barely enough to maintain the capital stock at its current level. This means that worn-out machinery can be replaced and buildings, roads, ports, and airports kept in repair, but no increase in these can be made available. As more machinery and infrastructure are necessary for economic growth, production stagnates.

The major challenges are to restore flows of foreign aid (which have been cut as a result of the period of military rule from 1998 to 1999) and to implement the liberalizing reform program demanded by the international donors. The major demands on the public purse are to pay 40,000 civil servants and service the country's external debt . The government has pleaded for the early resumption of aid, and although some bilateral aid has been forthcoming, institutional and multilateral aid has been far more problematic. The prime minister has sought to reassure donors that poverty is the government's main concern, and the revival of the $580 million poverty eradication policy has won support from some key donors.

The government has instituted a series of economic reforms, mainly in the area of public finances, by streamlining the civil service, accelerating privatization , and increasing revenue collection. The government has also introduced many redundancies (duplication designed to prevent failure of the entire economic system because of the failure of one component). A weakness is the narrowness of the tax base, which extends to no more than a third of the country's economic activities. Most trade is dominated by a dozen families, who are widely suspected of avoiding taxes. Despite more than a decade tax reforms backed by the International Monetary Fund (IMF), little has improved, with fiscal revenue less than 10 percent of the GDP. But with the threat of civil unrest, the government finds it difficult to increase taxes while decreasing public wages. Thus deficits have been covered by creating arrears , putting a strain on donor relations.

Only 3 out of 12 major public companies have been sold in the period from 1996 to 1999, but to appease the IMF the government has declared that it is determined to continue to privatize. Sonitextil (textiles) has been sold to a Chinese corporation; Olani (milk production) has been sold to a private Nigerian company; Société Nationale de Ciment (SNC) (cement) has been sold to a Norwegian company. However, the disposal of further services (including the post service, petrol, and electricity) looks to be held up by a lack of external funding to prepare these sectors for privatization.

Niger has never suffered the same high rates of inflation as some of its neighbors, due to its membership of the Franc Zone (the use of a fully convertible currency , the CFA franc, pegged to the French franc) and the tight monetary and fiscal rules imposed by the Banque Centrale des États de l'Afrique de l'Ouest (BCEAO). However, the devaluation in 1994 of the CFA franc was a major inflationary problem for Niger, which imports most of its manufactured consumer goods . The government struggled to bring remuneration in the public sector under control, which delayed a new agreement being signed with the IMF. However, the government's efforts to curb inflation were successful in bringing inflation down to 36 percent, rather than seeing it reach the feared 100 percent. Inflation began to slow in 1995 and became negative in 1999 due to an excellent harvest.