2009 Index of Economic Freedom

Quick Facts

Population:

• 14.4 million

GDP (PPP):

• $16.2 billion
• 5.5% growth
• 6.0% 5-year compound annual growth
• $1130 per capita

Unemployment:

• 77.0%

Inflation (CPI):

• -0.2%

FDI Inflow:

• $25.9 million

Burkina Faso's economic freedom score is 59.5, making its economy the 85th freest in the 2009 Index. Its overall score is 3.8 points higher than last year, reflecting improvement in five of the 10 economic freedoms. Burkina Faso is ranked 8th out of 46 countries in the Sub-Saharan Africa region, and its overall score is equal to the world average.

Burkina Faso scores relatively well in fiscal freedom, government size, and monetary freedom. The overall tax burden is low, and the stalled privatization process has been resumed.

Burkina Faso has systemic weaknesses in business freedom, property rights, investment freedom, and freedom from corruption. Extensive regulations prevent a flexible commercial environment, and licensing and bankruptcy procedures are costly. The lack of universal access to an equitable judicial system means that property rights cannot be guaranteed or adjudicated effectively. As with most other nations in the region, Burkina Faso suffers from significant corruption.

Background Back to the top

Landlocked Burkina Faso is a very poor agrarian country beset by frequent drought, and over 80 percent of the population is engaged in subsistence agriculture. Many Burkinabé work abroad, with hundreds of thousands migrating annually to the Ivory Coast and Ghana for seasonal agricultural work. Remittances are a substantial source of income. Rates of HIV/AIDS infection are high, and inadequate communications, poor infrastructure, and high illiteracy have slowed development. Burkina Faso has been ruled for over two decades by former army officer Blaise Compaore, who seized power in a 1987 coup and executed his predecessor. Compaore won a third term as president in November 2005, though a constitutional amendment that entered into force that same year should limit the presidency to two terms in the future.

Business Freedom 58.7 Back to the top

The overall freedom to start, operate, and close a business remains constrained by Burkina Faso's regulatory environment. Starting a business can be costly. The government has made progress in streamlining business registration, and obtaining a business license requires slightly less than the world average of 18 procedures. The process for closing a business can be lengthy.

Trade Freedom 70.4 Back to the top

Burkina Faso's weighted average tariff rate was 9.8 percent in 2006. The government is in the process of improving its customs procedures, but supplementary taxes on imports, targeted import bans, and restrictive licensing rules add to the cost of trade. Inadequate infrastructure also limits trade. Ten points were deducted from Burkina Faso's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 80.7 Back to the top

Burkina Faso has high tax rates. The top income tax rate is 30 percent, and the top corporate tax rate is 30 percent, to be reduced to 25 percent. Other taxes include a value-added tax (VAT) and a tax on insurance contracts. In the most recent year, overall tax revenue as a percentage of GDP was 11.5 percent. Burkina Faso has temporarily suspended the VAT on foodstuffs. Simplifying and consolidating the tax code is a major item on the government's reform agenda.

Government Size 83.7 Back to the top

Burkina Faso's total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 23.3 percent of GDP. The national telecommunications enterprise was privatized in 2007, and the national electric company is expected to follow suit.

Monetary Freedom83.7 Back to the top

Inflation is low, averaging 1.0 percent between 2005 and 2007. Inflationary pressures continued to subside in 2007 on the back of a strong cereal harvest for the third successive year. The sound monetary policy of the regional central bank, Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), helped to contain inflationary pressures. The market determines most prices, but the government maintains price supports for the cotton sector and influences prices through the public sector. Ten points were deducted from Burkina Faso's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

The Investment Code guarantees equal treatment of foreign and domestic investors. The government screens investments only to determine eligibility for incentives. Inadequate infrastructure, a weak legal system, and corruption deter investment. The government is in the process of adopting more refined and transparent laws to foster competition. Foreign investors are guaranteed the right to transfer abroad any investment-associated funds, including dividends, receipts from liquidation, assets, and salaries. Residents may hold foreign exchange accounts with permission of the government and the BCEAO. Payments and transfers over a specified amount require supporting documents, and proceeds from non–West African Economic and Monetary Union countries must be surrendered to an authorized dealer. All capital investments abroad by residents require government approval, as do most commercial and financial credits.

Financial Freedom50.0 Back to the top

Burkina Faso's financial system is small and underdeveloped. Microfinance plays a key role, and its institutions have expanded rapidly, with more than 600,000 people using the services of the network. Banking reforms aimed at tightening supervision and improving credit access are ongoing. In 2005, the financial system was composed primarily of 11 banks and five other financial institutions. The government has pursued banking privatization and restructuring since the 1990s and limits its direct participation. In general, credit is allocated on market terms, but government still influences lending decisions. The insurance sector is small and dominated by three domestic providers. Burkina Faso participates in a regional stock exchange.

Property Rights30.0 Back to the top

Burkina Faso's judicial system is weak. Villagers have their own customary or traditional courts. The executive has extensive appointment and other judicial powers. Systemic weaknesses include the arbitrary removal of judges, outdated legal codes, an insufficient number of courts, a lack of financial and human resources, and excessive legal costs.

Freedom From Corruption29.0 Back to the top

Corruption is perceived as pervasive. Burkina Faso ranks 105th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The government's anti-corruption units are fragmented and lack autonomy and sufficient funding.

Labor Freedom69.0 Back to the top

Burkina Faso's labor market is guided by relatively flexible employment regulations that should enhance employment and productivity growth. The non-salary cost of employing a worker is high, but dismissing a redundant employee is generally costless.