Burundi has been at war since 1993, and endured sanctions from 1996 to 1999, which exacted a heavy toll on the economy. After two consecutive years of positive real annual GDP growth, growth dropped to -1.3% in 2003, but was forecast to reach 3.0% in 2004. However, recorded real GDP growth has averaged -4% a year since 1993, per capita GDP has halved to an average of US$119 a year and poverty incidence is reckoned to have doubled during the period to 80% of the population. Current poverty assessments seem to be fairly accurate, but the quality of national economic data, particularly for GDP and foreign trade, has deteriorated markedly since the war. Sanctions drove previously official economic activity underground as traders evaded the embargo. Much of these activities did not return to official channels when the embargo was lifted. Unrecorded GDP and foreign trade are undoubted ly substantial, but there are as yet no reliable estimates as to what they might be worth.

The central bank was known for its tight monetary stance during the late 1980s and early 1990s. However, since the war, and under pressure from the government, the bank has loosened its stance considerably in order to keep down the cost of the government's domestic borrowing. This has stoked inflation, which averaged 9.3% between 1998 and 2003. Inflation dropped to 5.8% in 2002 mainly due to favourable climatic conditions and good harvests. However it rose again in 2003, to 10.7%.

Domestic borrowing increased dramatically from 1996 to 1999 as sources of foreign credit dried up and the government resorted to the Burundian banking system for credit, and rocketed once more during 2001. According to the World Bank’s Global Development Finance, Burundi’s total external debt stock reached US$1.2bn in 2002, most of which is owed to the World Bank. The country's debt / export ratio of 39:1 is sufficiently bad for Burundi to qualify for debt relief under the Heavily Indebted Poor Countries (HIPC) programme, but the country will not be eligible for relief until greater economic and political stability is assured.

Labour

 

There were 68 000 civil servants in 2001, according to official figures, down from 73 000 in 1994. Around 5% of the working population is employed in the services sector, which encompasses the civil service, 2% in industry, and 93% in agriculture.

Economic structure

 

90% of the population live in the rural areas, and subsistence agriculture accounts for around 50% of recorded GDP. Commercial agriculture accounts for less than 5% of GDP but generates 90% of official export earnings. Since the early nineties export earnings have been declining, largely due to decreases in the global price for coffee. Exports reached an estimated US$46.8m in 2003. Although this was still significantly below historical earnings, it was a slight improvement over the early 2000’s and was largely attributable to an increase in the international coffee price and a good harvest. Industrial production contributes around 20% of GDP and the balance is provided by the commerce-dominated services sector.

Agricultural production, food security

 

Agriculture is the mainstay of the economy and the war, accompanied by massive population displacement and the forcible regrouping of people into camps by the armed forces, has been particularly harmful to this sector. Poor rains from 1997 to 2000 also dented production, though output has since improved in step with improved rainfall. Most land under cultivation is devoted to subsistence crops - mainly cassava, bananas, sweet potatoes, pulses, maize and sorghum.

The main cash crops are tea and coffee, and there is marginal production of cotton, sugar and palm oil. Over 70% of coffee production used to be top quality, but because of declining inputs, aging trees, and growing producer disinterest because of the continued weakness in the international price, top quality production has fallen to just 20% of the total. Production volumes have also fallen. At just 17 million tonnes, the 2000-01 harvest was only half the average annual harvest during the 1980s. Output improved to 32 million tonnes in 2002-03 but was expected to decline again in 2003-04 due to the ongoing conflict and adverse weather.

 

Official policy is to liberalise the sector, but few practical steps have been taken, and few can be expected until the war ends. Tea production fell in the late 1990s, but has since recovered, and there were bumper harvests in 2001 and 2002. The once-thriving Lake Tanganyika fishing industry is in decline because of the war. The lake is the main conduit for anti-government rebels crossing between the DRC and Burundi, and for substantial volumes of unrecorded cross border trade, and the armed forces periodically ban fishermen from working for "security" reasons.

Mining

 

Burundi is estimated to have at least 185 million tonnes of nickel-bearing deposits, with an average grading of 1.3%. The main deposit is at Musongati, for which an Australian junior mining house called Andover signed an exploration agreement in 1998. Due to the civil war, Andover declared force majeure in 2000. The Canadian mining giant Barrack-Gold and Anglo-American of South Africa have applied for prospecting licences to look into deposits at Muramera and Rotovu however the licences have yet to be granted and conditions are currently judged to be too dangerous for prospecting to proceed.

 

Burundi has minute gold deposits, but has for many years exported gold smuggled from South Kivu in the DRC. The gold trade declined in the late 1990s, but received a boost from the collapse of the colombo-tantalite (coltan) boom in eastern DRC, which pushed many artisanal miners into gold instead.

Industry

 

The industrial sector consists mainly of agricultural processors, with the main company the monopoly brewer Brarudi, in which Dutch company Heineken has the major stake. Brarudi's beer has a good reputation in the region, and Brarudi is the country's largest and most reliable tax payer. Without Brarudi's contribution, it is said that the government could not afford civil service salaries each month. In addition to agricultural processing, there are small chemicals, construction and textiles sub-sectors, which primarily supply the domestic market, but also export to the DRC. Industrial production has declined in every sector since 1993. Sanctions had a particularly negative impact, driving up the cost of inputs, while reducing the availability of foreign exchange with which to pay for them, and reducing further Burundians' already enfeebled purchasing power. Output has recovered to some extent since 2001, particularly in the construction industry, which has been boosted by a spate of new projects in the capital, Bujumbura.

Commerce and tourism

 

The tourism industry is moribund, with Burundi rightly considered by most as far too dangerous. Once-elegant Bujumbura sports a small selection of hotels, and an impressive variety, given the circumstances, of good restaurants. The city has traditionally been a regional commercial hub, though this role was undermined by the regional economic embargo, and has retained a strong wholesale and retail sector despite all the difficulties of the past decade.

Economic policy

 

In keeping with current donor orthodoxy, the official aim of economic policy is poverty reduction. An interim poverty reduction strategy paper (PRSP) was drawn up in mid-2002, which outlines strategies for improved growth, and proposes greater budget allocations to sectors with the maximum impact on poverty reduction. The interim PRSP advocates privatisation of state assets, but only as a long term goal, as the document notes that the chances of attracting serious investors under current conditions are poor. The PRSP also envisages tighter monetary and fiscal policy, with a sustained effort to contain the fiscal deficit and rein in domestic borrowing, and to ensure that real interest rates turn positive. The PSRP was reviewed in late 2003 and lowered poverty reduction and resettlement targets. However it retained annual growth forecasts of above 5% for the period from 2004 to 2006, increasing to 6% in 2007-2010.

Little progress in poverty reduction can be expected until the war ends and donor aid resumes in earnest. The government is pursuing negotiations with anti-government militia, which have met with some success, but fighting nonetheless continues. International donors have been making substantial aid commitments since 2000, but disbursements have lagged far behind and this will continue until a comprehensive ceasefire is in place.

Burundi was in a six-month IMF-monitored programme from late 2001 to early 2002, and, in an act of political faith, the IMF agreed a post-conflict emergency programme (PCEP) in October 2002, despite the fact that the conflict continues. The mainstays of the PCEP are improved fiscal management, a more active monetary policy, the liberalisation of the foreign exchange sector, where there is a large differential between official and parallel rates, and liberalisation of the coffee sector. The PCEP paved the way for a fully-fledged poverty reduction and growth facility (PRGF) which was approved by the IMF in January 2004. the PGRF amounts to US$104 million which are to be disbursed over the course of three years. The first review took place in September, though no information is yet available. The cornerstones of the PRGF are: reigning in the fiscal deficit, reducing the civil service wage bill and widening the revenue base, in part through the introduction of value-added-tax in 2005.

 

Total external debt is estimated at US$1.2 billion. In March 2004 the Paris Club cancelled US$4.4 million of debt, consisting mainly of interest arrears, while payments on a further US$81 million were rescheduled. This reduced Burundi ’s annual debt-servicing requirement from US$20 million to US$2.1 million in 2004-06.

Foreign aid and donors

 

Following the lifting of sanctions, international donors reengaged in Burundi and aid levels rose to US$93 million in 2000. In late November 2002, donors pledged US$905 million for the next three years, which, if disbursed, would go a long way to funding the government's PRSP spending plans, which cost US$1.2 billion. However, since then official transfers reached only US$72 million in 2002 and US$105 million in 2003, less than one third the total amount pledged. The main reason for this shortfall was the continued civil war, as donors reasoned that development projects were impossible to implement in conditions of such political and military insecurity.