2009 Index of Economic Freedom

Quick Facts

Population:

• 6.4 million

GDP (PPP):

• $5.0 billion
• 4.1% growth
• 2.5% 5-year compound annual growth
• $776 per capita

Unemployment:

Inflation (CPI):

• 1.0%

FDI Inflow:

• $56.7 million

Togo's economic freedom score is 48.7, making its economy the 154th freest in the 2009 Index. Its score is 0.2 point lower than last year, reflecting declining scores in four of the 10 economic freedoms, particularly labor freedom. Togo is ranked 33rd out of 46 countries in the Sub-Saharan Africa region, and its overall score is well below the world average.

Togo's competitiveness has continued to suffer from a poor business environment and slow private-sector development. The country still depends significantly on foreign aid. Government spending is moderate, but improved public management and privatization are needed to stimulate broad-based economic growth. Inflation is low, and prices are relatively stable, but the government controls the cost of petroleum. Foreign direct investment is allowed only in certain sectors, and regulatory and judicial systems lack transparency and are corrupt. Formal and informal barriers to trade are high, and the financial system is rudimentary.

Background Back to the top

Togo has an agrarian economy, and a majority of the population is engaged in subsistence agriculture. The principal exports are cement, cotton, and phosphates. Services are also important, particularly the re-export of goods from the Lomé port facility to landlocked states in the region. Faure Gnassingbé was appointed by the military to serve as president in 2005 following the death of his father, who had ruled the country for almost 40 years. A period of political turmoil that followed ended with legislative elections in 2007 that were widely regarded as free and fair and that cemented Gnassingbé’s hold on power.

Business Freedom 36.6 Back to the top

The overall freedom to conduct a business is seriously limited by Togo's regulatory environment. Starting a business takes an average of 53 days, compared to the world average of 38 days. Obtaining a business license takes more than the world average of 225 days, and costs are high.

Trade Freedom 70.6 Back to the top

Togo's weighted average tariff rate was 9.7 percent in 2006. Import restrictions, numerous import taxes and fees, import permit requirements, export-promotion programs, and weak enforcement of intellectual property rights add to the cost of trade. Ten points were deducted from Togo's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 53.7 Back to the top

Togo has burdensome tax rates. The top income tax rate is 55 percent, and the top corporate tax rate is 37 percent. Other taxes include a value-added tax (VAT), a property tax, and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 15.5 percent.

Government Size 86.6 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 21.1 percent of GDP. Continued fiscal reform is needed. Togo relies heavily on donor aid, much of which is contingent upon improvements in public management and privatization.

Monetary Freedom81.5 Back to the top

Inflation is low, averaging 1.8 percent between 2005 and 2007. The government controls the prices of petroleum products and influences prices through regulation and state-owned enterprises and utilities. Ten points were deducted from Togo's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom30.0 Back to the top

Investment is permitted only in certain sectors, must be of a minimum value, and is screened on a case-by-case basis. Among other conditions for approval, at least 60 percent of the payroll must go to Togolese citizens. The lack of transparency and predictability in the regulatory and judicial systems inhibits investment. Residents and non-residents may hold foreign exchange accounts with prior government approval. Payments and transfers to certain countries are subject to authorization and quantitative limits in some cases. Most capital transactions are subject to controls or government approval. Purchases of real estate by non-residents for non-business purposes are subject to controls.

Financial Freedom30.0 Back to the top

Togo was once a local trading center, but government involvement has caused banking to deteriorate. A substantial number of loans issued to state-controlled companies are considered non-performing. The Central Bank of West African States governs Togo's financial institutions. Four of the eight commercial banks are state-controlled. Privatization of financial institutions has begun, but only one of the four state-owned banks has attracted private-sector interest. Togo participates in a small regional stock market based in C'te d'Ivoire.

Property Rights30.0 Back to the top

The judicial system does not protect private property sufficiently and is subject to strong influence from the executive. Contracts are difficult to enforce. Ownership of physical property is frequently contentious because of poorly defined inheritance laws. Real and chattel property disputes are further complicated by judicial non-transparency, which often favors domestic entities. Togo has a large informal market in pirated optical media, computer software, video and cassette recordings, and counterfeit beauty products.

Freedom From Corruption23.0 Back to the top

Corruption is perceived as widespread. Togo ranks 143rd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The executive and legislative branches are subject to corruption. Government procurement contracts and dispute settlements are subject to bribery. Bribery of private or government officials, while technically a crime, is generally expected.

Labor Freedom44.7 Back to the top

Togo's restrictive labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is high, and the difficulty of firing a worker creates a disincentive for additional hiring. Regulations related to the number of work hours are rigid.