Figure 1: Real GDP growth (W)

Figures for 2010 are estimates; for 2011 and later are projections.

Figures for 2010 are estimates; for 2011 and later are projections.

Agriculture sector growth has helped offset declines in tourism and remittances. The sector is backward, however, in terms of technology and institutions to promote productivity, with weather the key variable. It is dominated by small-scale rain-fed crop production; semi-commercial groundnut and horticulture production, and artisanal fishery. Employing around 70% of the working population, the sector accounted for some 26.9% of gross domestic product (GDP) and 46.7% of total food supply. Out of total cultivated land, 30% was devoted to groundnuts, the principal export crop, and 18% to rice in 2010. Most households have livestock. The years from 2008 to 2010 experienced good harvests, with agricultural production up 11.9% annually. That performance suggests agriculture could potentially contribute more to the economy.

Farmers have planted more rice in recent years but the country still needs to import the staple. According to the Food and Agriculture Organization, Gambia imported 113 000 tonnes of rice in 2007, or 67% of total cereals imports that year.

Gambia has few natural mineral deposits so mining activity is minimal. Since 2006, however, mineral sands have been exported to China. The government recently awarded offshore and onshore oil exploration licences.

Industry, which accounted for 11.8% of GDP, grew 12.3% in 2010. Bank lending to the construction sector, traditionally driven by remittances, helped sustain growth. There is little foreign interest in manufacturing, which is the preserve of mostly small companies engaged in processing groundnuts, fish and hides for export and bottling beverages for domestic markets. Manufacturing grew 5.7% in 2010. 

Growth in the service sector, accounting for 52.8% of GDP, slowed to 2.3% in 2010 from 7.2% in 2009 as the distributive trade and hotels and restaurants slipped in the wake of the global recession. In particular tourism, accounting for about 12% of GDP, contracted substantially, with revenues down 27.6% during the first nine months of 2010 compared to the corresponding period in 2009. The government is looking to the World Bank and the United Nations World Tourism Organization to help promote the industry.

The government and development partners launched several initiatives to support private sector driven economic development. The government is still working on the Programme for Accelerated Growth and Employment (PAGE) – the successor to the second Poverty Reduction Strategy Paper (PRSP 2007-11). The World Bank’s International Development Association (IDA) meanwhile proposed the five-year Growth and Competitiveness Project (GCP) to support pro-poor growth and employment driven by the private sector.

Figures for 2010 are estimates; for 2011 and later are projections.

The Central Bank of the Gambia focused on containing inflation below its target of 6%. Prices rose 5.8% in 2010 from 4.6% the previous year, reflecting monetary growth and higher energy and food costs. In response to accelerating inflation in the second half of 2010, the central bank hiked its rediscount rate by 1 percentage point to 15% in early September. Food price inflation increased from 2.9% in December 2009 to 8.3% in December 2010. Given that Gambians spend 55% of their income on food, the impact of rising food prices is severely felt. The Gambian Dalasi depreciated 5.7% over the year.

Monetary policy is based on controlling broad money supply as the intermediate target, with foreign reserves at a minimum of USD 125 million, a level set by the IMF’s Extended Credit Facility performance criteria. To manage liquidity, the central bank carries out open market operations through Treasury bill sales and the recent introduction of a 30-year bond. Rates on the 364-day Treasury bill remained around 13%, suggesting that there is some slack in the money markets given the benchmark interest rate was increased to 15%. Broad money growth slowed from 21% in June to 13.7% in December.

The import bill rose to 31.5% of GDP in 2010 from 30.8% in 2009, reflecting higher oil prices and a weaker currency, while exports fell to 9.2% from 9.8% as re-exports, which account for more than half of all exports, slipped. Re-exports continued to decline as tariff harmonisation in the Economic Community of West African States (ECOWAS) and improving efficiency at other regional ports eroded Banjul’s advantages as an entrepot. The current account deficit widened to 12.2% of GDP in 2010 from 10.1% in 2009 and is projected at 11.9% this year and 11% in 2012.

Gambia has applied the ECOWAS common external tariff since 2006, with the mean tariff rate falling from 19% to 14% as a result. As tariffs are an important source of government revenue, the government appears cautious in pursuing further tariff reduction through the Economic Partnership Agreement (EPA) between ECOWAS and the EU. The country has preferential duty free access to the EU under the “Everything But Arms” (EBA) scheme for the 49 Least Developed Countries and to the United States under the African Growth and Opportunities Act (AGOA). So far, however, no exports have been recorded under the AGOA. This poor performance of the AGOA suggests that preferential tariffs alone are not enough to stimulate Gambian exports. Participation in the ECOWAS Trade Liberalisation Scheme (ETLS), which provides various benefits to qualified exporters, also does not seem to have helped much. ECOWAS, the EU and other development partners have launched initiatives to improve the quality of export groundnuts to meet World Trade Organization (WTO) standards.

The services surplus declined to 5.5% of GDP in 2010 from 6% in 2009, mainly owing to a fall in European tourist arrivals. Workers’ remittances fell 17.3% and government transfers declined 15.4% in the first nine months of 2010.  FDI fell 5.3% in the first nine months of 2010 after a sharp increase in the presence of foreign banks the previous year.

Gross official reserves, including Special Drawing Rights at the IMF, stood at USD 163.5 million, or 5.1 months of import cover at the end of 2010, down from USD 186 million, or 6.4 months at the end of 2009. The decrease reflects central bank spending on intervention in May and June 2010.

Figures for 2010 are estimates; for 2011 and later are projections.

Gambia’s business environment remains challenging. In the 2011 World Bank Doing Businesssurvey, Gambia was 146 out of 183 countries, down five places. Problem areas cited include poor tax collection and high tax rates. Despite a recent cut of 2 percentage points in corporate tax, effective tax rates in the commercial banking sector were put at 44.8% in the third quarter of 2010. Investors also face problems in getting credit and registering property.

The banking sectorcomprises 14 commercial banks, up from five in 2005 after an influx of foreign groups which now dominate the industry. The largest bank is a local subsidiary of the British-based Standard Chartered Bank while the largest majority locally owned bank is Trust Bank. The commercial banks are heavily involved in government debt financing, allocating assets to the public sector as much as to the private sector. In the third quarter of 2009, the banks earned more interest income from the government than from the private sector. That has since changed, with the share of total interest income from the private sector increasing to 58.1% in the third quarter of 2010 compared to 49.2% a year earlier. The arrival of foreign bank groups increased competition – putting pressure on the cost side as they recruited qualified staff and narrowing interest rate margins. The average net interest rate margin declined from more than 8% in 2005 to around 6% in 2010. Bank liquidity remains high given their reluctance to take on long-term risk.

The loan profile as of September 2010 showed lending to the distributive trade sector taking the largest share at 28%, followed by property on 11%, transportation 8%, tourism 6%, agriculture 6% and manufacturing 5%.

Increased competition has pressured profitability and resulted in a rise in non-performing loans (NPLs). The average NPL ratio rose from 7.2% at the end of September 2009 to 16.2% at the end of September 2010. The average risk-weighted adjusted capital adequacy ratio (CAR) fell from 33.9% in the first half of 2009 to 19.3% at the end of September 2010. Government moves to enforce minimum capital levels at the banks saw the CAR recover, however, to 46.3% by the end of the year.

The microfinance sector is also expanding but remains very small, with a penetration rate put at 8.5% at the end of 2007 and loans outstanding of GDM 243 million (Gambian dalasi) to 144 000 clients at the end of 2008.

In addition to strengthening banking supervision, the central bank has stepped up measures to establish an efficient payments system, including the introduction of a Real-Time Gross Settlement System (RTGS). The project should be completed by end-2011. The Credit Reference Bureau (CRB), established in 2009, also became operational, which should help banks track and verify customer creditworthiness. The central bank is also working with development partners to acquire Electronic Financial Analysis and Surveillance (e-FASS) software to strengthen its capacity for off-site bank supervision. Banking supervision is based on CAR, NPLs, earnings, liquidity and net foreign exchange open positions.

The government implemented public sector reforms. Among these were the Gambia Public Financial Management Reforms Strategy adopted in 2010; the ongoing expansion of the Integrated Financial Management Information System (IFMIS) to improve financial accounting, auditing, and reporting; shifting to a Medium Term Expenditure Framework (MTEF) and Performance Based Program Budgeting (PBB); and strengthening the Gambia Revenue Authority (GRA). The government plans to replace sales taxes with a value added tax (VAT) before January 2013 in concert with the IMF. In addition, the government cut the corporate tax rate by 2 percentage points from 35% and simplified taxes on commercial property rental income.

Gambia is badly lacking in infrastructure – for example, there are not enough bridges across the Gambia river, a major impediment to communications. The country’s Internet backbone is linked with Senegal to access capacity on the SAT-3 submarine cable. The government is committed to the Africa Coast to Europe (ACE) submarine cable project to meet increased demand for bandwidth. The four mobile operators cover more than 90% of the country, with more than 60% of the population counted as subscribers.

In agriculture, the government announced the Gambia National Agricultural Investment Plan (GNAIP 2011-15)in 2010, aimed at improving productivity through commercialisation and private sector participation. Spending on agriculture and land resources will double to 6% of the budget in 2011. Aligned with the New Partnership for Africa’s Development (NEPAD)’s Comprehensive Africa Agricultural Development Program (CAADP), the GNAIP aims to raise the budget allocation for agriculture to 10% in the future. However, the plans do not address the key issue of reforming land ownership and tenure security. Land is traditionally held under communal ownership, making it difficult for individual farmers to reap the returns of investment. This undercuts effective land resource use and productivity, with knock-on effects all through the economy. Significantly, domestic food production has always fallen short of demand. According to the Food and Agriculture Organization, Gambia was producing only 46.7% of its food in 2007 and it is estimated that only 57% of available arable land is being cultivated.  Reform of land ownership and tenure is therefore a key first step to boost agriculture, on which the majority of the population depend for their livelihood.

Environmental concerns are focused on deforestation, desertification and water pollution. Deforestation is the most serious problem, with slash-and-burn agriculture being the principal cause. Although improving, contaminated water supplies are still responsible for many of the life-threatening diseases that contribute to high infant mortality rates.