World > Africa > Niger > Economy (Notes)

Niger - Economy (Notes)

ECONOMY One of the poorest countries in the world, ranking last on the United Nations Human Development Index in both 2005 and 2006, Niger's economy is based largely on subsistence crops, livestock, and some of the world's largest uranium deposits. Drought cycles, desertification, a 3.4% population growth rate, and the uncertainty of world demand for uranium keep Niger's already marginal economy vulnerable to crisis. Traditional subsistence farming, herding, small trading, seasonal migration, and informal markets dominate an economy that generates few formal sector jobs. Niger's agricultural and livestock sectors are the mainstay of all but 20% of the population. Fourteen percent of Niger's GDP is generated by livestock production--camels, goats, sheep, and cattle--said to support 29% of the population. The 15% of Niger's land that is arable is found mainly along its southern border with Nigeria. Rainfall varies and when insufficient, Niger has difficulty feeding its population and must rely on grain purchases and food aid to meet food requirements. In 2004 localized drought and locust infestations contributed to a drop in global harvests of 11% and led the Embassy to make a disaster declaration. This decrease, combined with chronic structural food insecurity, high malnutrition, and other market factors, triggered a food crisis which began in May-June of 2005. Although food security continues to be a concern, the food crisis has ended thanks to good cereal harvests in 2005 and 2006. Millet, sorghum, and cassava are Niger's principal rain-fed subsistence crops. Cowpeas and onions are grown for commercial export, as are limited quantities of garlic, peppers, gum arabic, and sesame seeds. In the past, foreign exchange earnings from livestock, were second only to those from uranium. As a result of the recent drought, however, earnings from livestock dropped to fourth place behind uranium, onion, and gold exports. Because earnings from livestock exports are difficult to quantify, in all likelihood actual exports far exceed official statistics, which often fail to detect large herds of animals informally crossing into Nigeria. Some hides and skins are exported, and some are transformed into handicrafts. Therefore, livestock continues to be one of Niger's most important trade commodities. Recent rapid global price increases have led to higher revenues for Niger's uranium sector, which provides approximately 30% of national export proceeds. The nation enjoyed substantial export earnings and rapid economic growth during the 1960s and 1970s after the opening of two large uranium mines near the northern town of Arlit. When the uranium-led boom ended in the early 1980s, however, the economy stagnated, and new investment since then has been limited. As a result of higher world prices, Niger's two uranium mines--COMINAK's underground mine and SOMAIR's open-pit mine--are expected to increase uranium output in 2007. These two companies are owned by a French-led consortium and operated by French interests; however, Canadian and Chinese companies are currently studying the feasibility of opening mines in Niger. Output from any potential new mines probably could not occur until the end of 2008 at the earliest. Exploitable deposits of gold are known to exist in Niger in the region between the Niger River and the border with Burkina Faso. On October 5, 2004 President Tandja announced the official opening of the Samira Hill Gold Mine in the region of Tera and the first Nigerien gold ingot was presented to him. This marked a historical moment for Niger as the Samira Hill Gold Mine represents the first commercial gold production in the country. Samira Hill is owned by a company called SML (Societe des Mines du Liptako), which is a joint venture between a Moroccan company--Societe SEMAFO Inc.--and a Canadian company--ETRUSCAN. Both companies own 80% (40% - 40%) of SML and the GON 20%. In 2005, gold was Niger's third most important export, accounting for 12.8% of the country's total exports. Substantial deposits of phosphates, coal, iron, limestone, and gypsum also have been found in Niger. Niger has oil potential. In 1992, the Djado permit was awarded to Hunt Oil, and in 2003 the Tenere permit was awarded to the China National Petroleum Company. An ExxonMobil-Petronas joint venture holds the rights to the Agadem block, north of Lake Chad, but ceased exploration activities in 2006. The parastatal SONICHAR (Societe Nigerienne de Charbon) in Tchirozerine (north of Agadez) extracts coal from an open pit and fuels an electricity generating plant that supplies energy to the uranium mines. There are additional coal deposits to the south and west that are of a higher quality and may be exploitable. The economic competitiveness created by the January 1994 devaluation of the Communaute Financiere Africaine (CFA) franc contributed to an annual average economic growth of 3.5% throughout the mid-1990s. But the economy stagnated due to the sharp reduction in foreign aid in 1996 (which gradually resumed from 2000) and poor rains in 2000. Reflecting the importance of the agricultural sector, the return of good rains was the primary factor underlying economic growth of 5.1% in 2000, 3.1% in 2001, 6.0% in 2002, and 3.0% in 2003. In 2005, the economy showed strong growth (7.1% real GDP growth) as a result of the agricultural sector's recovery from the poor harvests of 2004, and the continued growth of non-agricultural sectors. In 2006, real GDP growth rates stabilized at an estimated 4.5%. In recent years, the Government of Niger drafted revisions to the investment code (1997 and 2000), petroleum code (1992 and 2007), and mining code (1993), all with attractive terms for investors. The present government actively seeks foreign private investment and considers it key to restoring economic growth and development. With the assistance of the United Nations Development Program (UNDP), it has undertaken a concerted effort to revitalize the private sector. Niger shares a common currency, the CFA franc, and a common central bank, the Central Bank of West African States (BCEAO), with seven other members of the West African Monetary Union. The Treasury of the Government of France supplements the BCEAO's international reserves in order to maintain a fixed rate of 656 CFA to the euro. Economic Reform In January 2000, Niger's newly elected government inherited serious financial and economic problems, including a virtually empty treasury, past-due salaries (11 months of arrears) and scholarship payments, increased debt, reduced revenue performance, and lower public investment. In December 2000, Niger qualified for enhanced debt relief under the International Monetary Fund (IMF) program for Highly Indebted Poor Countries (HIPC) and concluded an agreement with the Fund on a Poverty Reduction and Growth Facility (PRGF). In January 2001, Niger reached its decision point and subsequently reached its completion point in 2004. Total relief from all of Niger's creditors is worth about $890 million, corresponding to about $520 million in net present value (NPV) terms, which is equivalent to 53.5% of Niger's total debt outstanding as of 2000. The debt relief provided under the enhanced HIPC initiative significantly reduces Niger's annual debt service obligations, freeing about $40 million per year over the coming years for expenditures on basic health care, primary education, HIV/AIDS prevention, rural infrastructure, and other programs geared at poverty reduction. The overall impact on Niger's budget is substantial. Debt service as a percentage of government revenue was slashed from nearly 44% in 1999 to 10.9% in 2003 and will average 4.3% during 2010-19. The debt relief cut debt service as a percentage of export revenue from more than 23% to 8.4% in 2003, and decreases it to about 5% in later years. In 2005, the IMF canceled all of Niger's debts to it (approximately $111 million), incurred before January 2005. In 2006, the African Development Fund canceled $193 million in debt for Niger. Furthermore, the World Bank announced that approximately $745 million in debt relief for Niger would be phased in over the next 37 years. In addition to strengthening the budgetary process and public finances, the Government of Niger has embarked on an ambitious program to privatize 12 state-owned companies. As of January 2005, seven had been fully privatized, including the water and telephone utilities, with the remainder to be privatized in 2005. A newly installed multisectoral regulatory agency will help ensure free and fair competition among the newly privatized companies and their private sector competitors. In its effort to consolidate macroeconomic stability under the PRGF, the government is also taking actions to reduce corruption, and as the result of a participatory process encompassing civil society, has devised a Poverty Reduction Strategy Plan that focuses on improving health, primary education, rural infrastructure, agricultural production, environmental protection, and judicial reform. Foreign Aid The most important donors in Niger are France, the European Union, the World Bank, the IMF, and UN agencies--UNDP, UNICEF, FAO, WFP, and UNFPA. Other donors include the United States, Belgium, Germany, Switzerland, Japan, China, Italy, Libya, Egypt, Morocco, Iran, Denmark, Canada, and Saudi Arabia. While the U.S. Agency for International Development (USAID) does not have an office in Niger, the United States is a major donor, contributing on average $12 million each year to Niger's development. In 2006 Niger qualified for Millennium Challenge Account threshold status, raising the prospect of significant U.S. Government investment in sectors including basic education. The United States also is a major partner in policy coordination in food security, education, water management and HIV/AIDS sectors. The importance of external support for Niger's development is demonstrated by the fact that about 45% of the government's FY 2002 budget, including 80% of its capital budget, derived from donor resources.