2009 Index of Economic Freedom

Quick Facts

Population:

• 0.6 million

GDP (PPP):

• $0.7 billion
• 1.2% growth
• 2.4% 5-year compound annual growth
• $1144 per capita

Unemployment:

Inflation (CPI):

• 3.0%

FDI Inflow:

• $0.8 million

The Union of the Comoros is ranked for the first time in the 2009 Index. Its initial economic freedom score is 43.3, making its economy the world's 172nd freest. Comoros is ranked 43rd out of 46 countries in the Sub-Saharan Africa region, and its overall score is much lower than the world average as well as the regional average.

Comoros scores relatively well in monetary freedom and government size, but its overall economic freedom is shackled by inefficient government policies and regulatory bureaucracy. Poor management of macroeconomic policies, coupled with political crises over the past decade, has hindered overall economic development. Consequently, the fragile economy is highly dependent on foreign aid and remittances.

As reflected in low scores in property rights and freedom from corruption, Comoros's institutional capacity to support economic freedom is very weak. Lack of transparency and unfair or non-transparent practices for government contracts and procurement, demands for bribes by customs and immigration officers, and petty corruption by lower-level civil servants are commonplace. Poor access to credit and the high costs of financing for entrepreneurial activity severely limit the development of a vibrant private sector, driving a large portion of the country's workforce into the small retail services sector.

Background Back to the top

This multi-island nation depends largely on fishing and subsistence agriculture, which employs approximately 80 percent of the population and provides 40 percent of GDP. Though much of the terrain is not suitable for agriculture, Comoros is the world's leading producer of ylang-ylang (a perfume ingredient) and second leading producer of vanilla. Basic infrastructure, such as ports and roads, is severely underdeveloped. After declaring its independence from France in 1975, Comoros experienced political instability and numerous coups. President Ahmed Abdallah Sambi's 2006 election was the country's first democratic transition of leadership.

Business Freedom 46.5 Back to the top

The overall freedom to start, operate, and close a business is constrained by Comoros's regulatory environment. Regulations can be inconsistent, and starting a business takes 23 days, compared to the world average of 38 days. Obtaining a business license requires about the world average of 18 procedures.

Trade Freedom 27.2 Back to the top

Comoros's simple average tariff rate was 28.9 percent in 2006. Import fees, inadequate infrastructure and trade capacity, fragmented and non-transparent customs administration, inefficient regulatory bureaucracy, state trading in low-grade rice and petroleum products, and underdeveloped markets add to the cost of trade. Fifteen points were deducted from Comoros's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 64.6 Back to the top

Comoros has high taxes. The top income tax rate is 30 percent, and the top corporate tax rate is 50 percent. Other taxes include a value-added tax (VAT), an insurance tax, and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 12.0 percent.

Government Size 88.1 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 19.9 percent of GDP. Comoros suffers from a lack of commitment to fiscal policy goals and poor coordination among the different island authorities.

Monetary Freedom78.9 Back to the top

Inflation is relatively low, averaging 3.1 percent between 2005 and 2007. Comoros imports a high proportion of its fossil energy requirements, and higher international oil prices are fueling inflation (although the government controls those prices). Monetary policy remains circumscribed by Comoros's membership in the Franc Zone and the related fixed exchange rate against the euro, which limits the ability of the government to fund sustained budget deficits by printing money and ensures more efficient and effective management and operations by the Banque Centrale des Comores (the central bank). Ten points were deducted from Comoros's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom20.0 Back to the top

The Investment Division of the Ministry of Finance, Budget, Economy, Commerce, and Investments monitors and facilitates investment in Comoros. There are no general incentives; each case is reviewed by the government. Non-transparent investment regulations, corruption, weak enforcement of contracts, inadequate infrastructure, political instability, and underdeveloped markets inhibit investment. Capital transfers are subject to prior approval, and foreign exchange is controlled by the central bank.

Financial Freedom20.0 Back to the top

Access to credit for entrepreneurial activities in Comoros is hindered by the small and underdeveloped financial sector. The banking system consists mainly of the central bank; the Banque de Développement des Comores, which focuses on development lending; and the Banque pour l’Industrie et le Commerce des Comores, which provides full banking services as well as international trade finance. Overall, the financial system lacks an effective regulatory framework that can facilitate dynamic business investment. The government has expressed interest in injecting some competition into the banking sector by opening a new merchant bank. Two of the country’s three islands, Anjouan and Moheli, reportedly have attempted to develop an offshore financial services sector as a means to finance government spending. The central bank manages foreign exchange control, and capital transfers need prior authorization from various government agencies.

Property Rights30.0 Back to the top

Protection of property rights is weak, and registration of real property is time-consuming and expensive. Although women do not have the same legal protection as men, traditional custom grants women favorable inheritance and property rights. The judicial system is ineffective, contracts are weakly enforced, and courts are relatively inexperienced in commercial litigation. Despite an adequate legal regime for the protection of intellectual property rights, the government lacks the capacity and resources to enforce copyright violations.

Freedom From Corruption26.0 Back to the top

Corruption is perceived as widespread. Comoros ranks 123rd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The law provides for criminal penalties for official corruption, but the government does not implement the law effectively, and officials often engage in corrupt practices with impunity.

Labor Freedom31.8 Back to the top

Comoros's inflexible employment regulations hinder overall productivity growth. The non-salary cost of employing a worker is very high, and dismissing a redundant employee is relatively costly. The high cost of laying off workers creates a serious disincentive for companies that would otherwise hire additional staff.