2009 Index of Economic Freedom

Quick Facts

Population:

• 8.2 million

GDP (PPP):

• $2.7 billion
• 5.1% growth
• 2.8% 5-year compound annual growth
• $333 per capita

Unemployment:

Inflation (CPI):

• 8.4%

FDI Inflow:

• $290.0 million

Burundi's economic freedom score is 48.8, making its economy the 153rd freest in the 2009 Index. Its overall score is 2.6 points higher than last year, reflecting improved scores in trade and investment freedom. Burundi is ranked 32nd out of 46 countries in the Sub-Saharan Africa region and scores worse than the world average.

As a developing economy recovering from years of civil strife, Burundi faces significant economic challenges. Enforcement of the rule of law is highly politicized, inefficient, and arbitrary in much of the country. Burundi is significantly below the world average in seven of the 10 economic freedoms: business freedom, trade freedom, government size, investment freedom, financial freedom, property rights, and freedom from corruption.

Virtually all aspects of business, from obtaining licenses to firing inefficient workers, are subject to intrusive regulations that inhibit business formation or survival. Investment regulations are burdensome and discourage private foreign investment.

Background Back to the top

Since gaining full independence in 1962, Burundi has suffered from tension between the dominant Tutsi minority and the Hutu majority. The 1993 assassination of the first Hutu president, Melchior Ndadaye, by a faction of the Tutsi-dominated armed forces sparked a civil war. The death of his successor, Cyprien Ntayamira, and Rwandan President Juvenal Habyarimana in a 1994 plane crash led to intensified violence in Burundi, with an estimated 300,000 deaths and hundreds of thousands of refugees, and the beginnings of the Rwandan genocide. A peace accord was not signed until 2000. A new constitution was adopted in a popular referendum in 2005, and President Pierre Nkurunziza was elected by the National Assembly later that year. Burundi remains very poor. A majority of the population is engaged in subsistence agriculture, and agriculture accounted for 45 percent of GDP in 2006.

Business Freedom 34.4 Back to the top

The overall freedom to start, operate, and close a business is seriously limited by Burundi's regulatory environment. Despite new regulations, continuing instability and massive, corrupt bureaucracy make it difficult to conduct entrepreneurial activity. Obtaining a business license requires more than the world average of 18 procedures and 225 days.

Trade Freedom 63.0 Back to the top

Burundi's weighted average tariff rate was 13.5 percent in 2006. The government has removed most quantitative restrictions on imports, but numerous fees and taxes, inadequate administrative capacity, and corruption in customs and excise administration add to the cost of trade. Ten points were deducted from Burundi's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 72.5 Back to the top

Burundi has relatively high tax rates. The top income and corporate tax rates are 35 percent. Other taxes include a tax on interest and a general sales tax, to be replaced by a value-added tax (VAT) in mid 2009. In the most recent year, overall tax revenue as a percentage of GDP was 17.4 percent.

Government Size 55.8 Back to the top

Total government expenditures in Burundi, including consumption and transfer payments, are high. In the most recent year, government spending equaled 38.4 percent of GDP. Deadlock in the National Assembly has held up planned privatizations, especially in the coffee industry.

Monetary Freedom72.7 Back to the top

Inflation is rising, averaging 7.5 percent between 2005 and 2007. The government influences prices through state-owned enterprises, subsidies, and agriculture-support programs. Ten points were deducted from Burundi's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

Foreign investment is officially welcome and receives equal treatment. There is mandatory screening of foreign investment if a company seeks any of the special incentives provided through the Investment Code. While investment policies are transparent, some are obsolete, and bureaucratic procedures are cumbersome. There is no limitation on the flow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs. In principle, there are no restrictions on converting or transferring funds associated with foreign investment; in practice, limitations depend on the availability of hard currency. Residents and non-residents may hold foreign exchange accounts and withdraw funds up to a set limit upon presentation of documentation. Central bank approval is required for accounts held abroad. Most capital transactions, including credit operations, direct investment, and personal capital movements, are subject to restrictions or authorization requirements.

Financial Freedom30.0 Back to the top

Burundi's small financial sector provides a very limited range of financial services. In 2007, there were nine commercial banks, including four with access to private capital. The two largest commercial banks are dominated by the state. It is not easy for small enterprises to get credit, and the lack of domestic investment opportunity has also hindered bank development. The many loans made to the government and to state-owned enterprises have resulted in a large number of non-performing loans. Banking regulation is bureaucratic and arduous. The insurance sector remains small, but there are private as well as partially government-owned companies. Burundi has no stock or bond market.

Property Rights30.0 Back to the top

Private property is subject to government expropriation and armed banditry. The constitution guarantees the independence of the judiciary, but judges are appointed by the executive branch and generally have proved to be strongly influenced by political pressure. Judicial personnel are predominantly Tutsi, however, and have shown increasing signs of independence under Hutu presidents. A large number of refugees and internally displaced persons are blocked from resettlement by weak land tenure and property rights systems and by the lack of ownership records.

Freedom From Corruption25.0 Back to the top

Corruption is perceived as pervasive. Burundi ranks 131st out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. From senior government officials demanding large kickbacks on procurement tenders to low-level civil servants demanding petty bribes for services, licenses, or permits, corruption is present in every area of life. The ruling party has been accused of using arbitrary arrests, detentions without trial, and even torture against its political adversaries.

Labor Freedom64.3 Back to the top

Burundi's rigid employment regulations hinder employment creation and productivity growth. The non-salary cost of employing a worker is low, but dismissing a redundant employee is relatively costly. The difficulty of laying off a worker creates a disincentive for companies that would otherwise hire more people.