VZCZCXRO1042
OO RUEHMA RUEHPA
DE RUEHCO #0419/01 1971927
ZNR UUUUU ZZH
O 151927Z JUL 08 ZDK
FM AMEMBASSY COTONOU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0432
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0357
RUEHFR/AMEMBASSY PARIS 1286
RUEHLMC/MILLENIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 COTONOU 000419 
 
SENSITIVE 
SIPDIS 
 
STATE FOR AF/W DANA BANKS AND AF/EPS 
TREASURY FOR RICHARD HALL 
LONDON FOR PETER LORD 
 
E.O.12958:N/A 
TAGS: EAGRECONEINVPGOVBN
SUBJECT: GOB BRIEFS DONORS ON ECONOMIC POLICY 
 
REF: (A) COTONOU 255 (B) COTONOU 188 (C) 07 COTONOU 874 
 
COTONOU 00000419  001.10 OF 002 
 
 
1.(U)SUMMARY: On June 24, 2008, President Boni Yayi and his 
ministers briefed the international donors on the country's mid-year 
economic performance.  The meeting focused on the implementation of 
the 2008 budget, donor provision of budgetary assistance, the impact 
of the GOB's measures against the surge in prices, progress on 
structural reforms, and the GOB's efforts to increase agricultural 
production.  The GOB bemoaned the reluctance of budgetary assistance 
donors to disburse their aid while donors remained skeptical of the 
efficacy of the GOB's efforts to combat the rise in food prices and 
boost agricultural production. END SUMMARY. 
 
--------------------------------------------- -------- 
2008 Budget under pressure from supplemental spending 
--------------------------------------------- -------- 
 
2.(U) As of May 2008, the GOB collected revenues of 232.7 billion 
Francs CFA (USD 554 million) with a projection of 260 billion Francs 
CFA (USD 619 million) in revenue by the end of June. This amounts to 
89 percent of the expected revenue for the first six months of 2008. 
 The GOB spent 256.3 billion Francs CFA (USD 610 million) between 
January and May. This is projected to increase to 267.4 billion 
Francs CFA (USD 636 million), by the end of June which amounts to 96 
percent of budgeted spending for the first six months of 2008. 
 
3.(U) The GOB indicated that its measures to alleviate the 
consequences of high food and fuel prices and the increased costs of 
construction supplies resulted in a loss of 48,248,478,989 Francs 
CFA (USD 114,877,331) in revenue (due to the reduction of certain 
taxes on imports) and additional expenditures of 26,431,696,500 
Francs CFA (USD 62,932,610).  The GOB added that it would need 
additional funds to continue this support for the remainder of the 
2008 fiscal year and will submit to the National Assembly an 
amendment to the finance bill to finance these expenditures. 
 
4.(U) The GOB is also missing the 26.7 billion Francs CFA (USD 63.5 
million) in projected donor budgetary assistance for 2008.  The 
budgetary assistance donors, who include the European Union, the 
Netherlands, Switzerland, Germany, Denmark, the World Bank, and 
France, have not yet disbursed their 2008 budget support.  Soule 
Lawani, the Minister of Finance and Economy, stated he did not 
understand the donors' reasons for not providing the budgetary 
assistance even though the GOB almost met the donors' requirements. 
These requirements include the continuation of dialogue with donors, 
the improvement of the government's financial management, and 
approval of the Poverty Reduction Strategy Papers' (PRSP) 
indicators. 
 
5.(SBU) David Quenum, macroeconomist at Netherlands' Embassy in 
Benin, told Post after the meeting that the Dutch did not make their 
budgetary contribution because the GOB kept postponing its 
structural reforms implementation deadline. In addition Quenum said 
that, despite the Minister of Finance and Economy's statement to the 
contrary, PRSP indicators were not yet approved. 
 
------------------------------- 
Status of privatization efforts 
------------------------------- 
 
 
6.(U) In the cotton sector, the GOB plans to put in place a public 
and private partnership which will encourage the development of the 
cotton and textile industries. Note. The GOB failed in its two prior 
attempts to privatize the cotton parastatal Sonapra (Ref C) End 
Note.  The GOB also plans to create a joint public and private 
sector purchasing group for agricultural inputs.  The GOB also plans 
to create an agricultural bank with private sector participation to 
provide loans for agricultural activities. 
 
7.(U) The GOB informed donors that it put in place a recovery plan 
in January 2008 for Benin's public energy company, the Electrical 
Energy Corporation of Benin (SBEE).  An assessment of the results of 
this plan will take place in December 2009.  The evaluation's 
results will determine the privatization plan and date. 
 
8.(U) The GOB stressed that the divestiture of Benin Telecoms, the 
government owned telephone and internet company, is one of its 
priorities.  The company is currently under a recovery plan 
scheduled to end by January 2009.  The GOB envisages opening its 
capital to individuals and private companies in the second quarter 
of 2009.  The GOB asked for World Bank support to audit Benin 
Telecoms to speed the assessment of its assets. 
 
 
COTONOU 00000419  002.8 OF 002 
 
 
------------------------------------------ 
Donors' reaction to the GOB's Presentation 
------------------------------------------ 
 
9.(U) Most of the donors expressed reservations about the efficiency 
of the GOB's measures to address price hikes through price fixing 
and tax cuts.  The donors warned against the creation of an 
agricultural bank as most past attempts to create agricultural banks 
in West Africa have failed.  Many of the donors agreed, in 
principle, to provide the GOB with food aid but asked for statistics 
on food shortages before making a firm commitment. 
 
10.(U) The Chinese Ambassador advocated for the Benin-China joint 
venture textile and sugar companies. He said the textile companies 
were unable to meet growing foreign orders because of insufficient 
supplies of raw cotton. He called for the GOB to guarantee these 
companies a steady supply of cotton. He also urged the GOB to 
allocate land to grow sugar cane to supply SUCOBE (Sucrerie Complant 
du Benin), a Chinese company which operates, on a concession basis, 
a sugary refinery in Benin. 
 
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Comment 
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11.(SBU) Comment: The GOB's engagement with the donor community, 
exemplified by this meeting, is commendable.  The GOB's commitment 
to the privatization process still remains uncertain.  The 
privatization of the state cotton company failed, for what has since 
emerged, as primarily political reasons masquerading as problems 
with the bidding process.  While the GOB states it intends to 
privatize the state telecommunications company and power company it 
has not yet taken the concrete action necessary to do so.  The GOB's 
use of fuel and food subsidies and tax reductions to tackle rising 
prices will begin to present a problem as it strains the GOB's 
ability to meet its budget.  We will continue to urge the GOB to 
adopt realistic policies in response to rising prices and to boost 
agricultural production.  End Comment. 
 
BROWN