A Comparison with Australia

Reality Check

Looking at the Ivorian government budget, I thought it would interesting to compare it to a developed country.  To avoid adjusting for population size, I checked if there were any developed countries with about the same population as the Ivory Coast:

Turns out Australia at 22.9 million comes very close.  The latest available budget for Australia is for 2010-2011 (the one for 2012-2013 is published tomorrow) and the total budget size is 356 billion aussie dollar which, using the current AUD/EUR exchange rate, is equivalent to 276.8 billion euro.

The 2012 budget for the Ivory Coast on the other hand comes in at 3.16 trillion CFA Franc which is 4.8 billion euro. That makes the Australian budget 57 times greater than Ivory Coast’s.

So there we have it, while the gap between the developed and developing world is narrowing, especially for indicators such as life expectancy or child mortality, there is still a pretty big gap in economic terms, at least for Sub-Saharan Africa.

I kind of like budget figures, because they are much more precise than GDP.  I looked at GDP as well, and I would have expected a smaller gap there as tax collection in the Ivory Coast captures a smaller part of the economy than in Australia leading to a smaller budget.  However, the Australia – Ivory Coast GDP gap using IMF figures turned out to be about the same as the  budget gap.  Explanations could be that I’m only looking at the federal level in Australia – not including regions, that Ivory Coast’s budget is augmented by support from international bodies and/or that Ivory Coast’s GDP is underestimated.

Receipts and Expenses

Looking at tax receipts, Australia took in 302 B AUD (234.8B EUR) in 2011, whereas the Ivory Coast budgets to bring in 1949 B CFA Franc (2.97 B EUR) in 2012. That makes Australia’s receipts 79 times greater.

Here’s where the receipts (largest categories) came from:

The thing is income tax, company tax and VAT only touch the formal economy in the Ivory Coast, whereas everybody have to pay import and export duties. With time I would expect Ivorian receipts starting to look more like the Australian.

Now for expenses (largest categories):

Australia’s profile is pretty typical for a modern western liberal democracy, with the welfare sector dominating expenses.  First I didn’t find anything at all resembling social security in the Ivorian budget, but at the end there was a small “Affaires sociales” post with contributions to orphans, social centers, war victims, but most of it to administration.

Going back 100-200 years the budgets of western countries looked more like present day Ivory Coast than Australia. (See US historical budgets in the Customs post.)  What’s remarkable about the Ivory Coast budget, and sets it apart from 19th century US budgets, are the investments – in among other things the third bridge over the Abidjan lagoon.   Despite the Australian budget being 57 times greater, Ivory Coast’s investments are actually comparable to the Australian ones in absolute numbers. And that should be a good sign for the future!

Podcast with the Finance Minister

Charles Koffi Diby speaking

Today I  listening to an IMF podcast [in French] with the Ivorian Finance Minister Charles Koffi Diby. Quite interesting – at least for readers sharing my somewhat geeky interest in Ivorian economics and politics.

Diby says:

There is a tendency to fantasise or imagine that there is a lot of money [in the public finances] and that it’s only the privileged who benefit  and that the managing of public finances is something sacred.  We have opened it up. Lets take an example; we make a budget release where we  invite the entire population, all social strata,  the civil society, economic operators, the public sector – everybody – and we present the budget with all its components and ask people to ask questions. And then we publish the entire budget on our website. Every quarter we present a follow up on the budget in the Council of Ministers which is made available online. That is, it becomes available to everybody. I think that also reduces social tensions, because everybody knows what’s in the state coffers and what we do with it.

I like that he stresses transparency, and the budget is really available –  in reasonable detail – at the Ivorian government’s website.  Though, I’d say that the main reason for transparency of the budget is linked to having strong/inclusive institutions and to reduce corruption – not to improve people’s perception.  Well, guess when you are in government you can’t say “we need to be transparent with the budget, because otherwise we’ll steal from it”.

Dooo -ing eeeh bisness

We are accompanying a process  so we can move from the primary agriculture sector to the secondary sector, ie food production. We are working on attracting direct foreign investments by improving the business climate, the security for people and property, and all procedures and especially that we can,   with regards to, doing business, be as good ranked as possible. So, it’s an improvement of our investment code increasing transparency and offering more opportunity. To summarise, it’s about improving the competitiveness of our economy.

Good stuff, and from what I have seen this looks to be more than empty words.  And I love it that scoring high on the World Bank’s Doing Business Index appears to be an outspoken government priority. It’s also an added bonus to hear French-educated Ivorian Ministers struggling with mid-sentence English words:  au niveau de  dooo -ing eeeh bisness etre mieux classe…

Interviewer: What’s your vision for the Ivory Coast in 5 years?

Diby: In 5 years we’ll be a country with positive double digit growth. We have the capacity. The President has outlined it clearerly in the actions we’ll take. The Ivory Coast will surprise the world positively.

Given that Ivory Coast’s population increases with 2% per year, even just a sustained growth in the 5%-8%  range would be great, and double digit growth is possible, but I’m not as confident as Charles Diby that it will happen. Reuters had a pretty upbeat article a couple of days ago where a bank analyst at Standard Chartered expressed the view that high growth is sustainable in the Ivory Coast. By high growth he means 5% – 6% though, not double digits.

For my investment case for the the Ivory Coast – especially for real estate – I think it’s actually enough if governance goes from  disastrously bad (as under Gbagbo) to just plain bad – fundamentals (demography etc) are that good.  My Cocody house had a good rental return and was increasing in value already under Gbagbo  – that is, until the crisis/war happened and the shops next to it were burnt down.

Now it’s looking like governance is going to somewhere in the ok to excellent range. The jury is still out on this one.