**Figure 43: Returns to Education in Togo (Mincerian Analysis) (LHS), and Wages vs Primary Education Rate in Togo and benchmark countries (RHS).**

<!-- Start of picture text --> 0.6 700<br>Education and Wages in WAEMU Countries BEN<br>0.5 600 COT<br>0.4 500 SEN<br>0.3 400<br>0.2 300 BUR MAL TOGO<br>0.1 200 NIG<br>0.0 100 GNB<br>1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19<br>0<br>Years of Education 0 10 20 30 40 50 60 70<br>Primary Completion Rate (%)<br>E a rn in g s<br>% C h a n g e in<br>Avg.Monthly Salary (USD) .<br><!-- End of picture text --> Source: Authors’ calculations, LSMS data, and IMF (2009b).

**Finally, the ICA data reveals that none of the interviewed firms had any concerns regarding skills of the labor force.** In fact very low proportion of interviewed enterprises revealed much concern regarding the availability of skilled workers or labor regulations in Togo. In addition to this it is worth mentioning that over the long run, as the economy of Togo deteriorated, human capital has improved – suggesting a low correlation between human capital and growth for Togo at this point in time. In light of this, we cannot conclude that education is currently binding constraint to growth in Togo. That, of course, does not exclude a need for specific skills or a need for reforms given expected future demand as the economy develops.

# **6.6 Macroeconomic Stability**

**Togo has been affected by the financial crisis, but its impact has been moderate.** Before analyzing potential macroeconomic constraints it needs to be clear what in the current situation is due to the global crises and what is due to actual constraints in the Togolese economy (see Box A 1 in Appendix 1 for more details on the effect of the crises).<sup>40</sup> Growth has been estimated at 3.1% in 2009, 0.9 percentage points lower than the previous growth projection for 2009. The dependence on commodity exports and official and private capital inflows has to some extent constrained growth during the crisis (IMF, 2009a). Remittances, a significant source of income for Togo (almost 10% of GDP), are expected to be further affected by lower global demand as well as unemployment and lower wages in Europe and the US. Another possible negative impact is a lower than expected level of FDIs. On the other hand, Togo’s limited integration with international finance and cross‐country linkages within the banking system may soften that negative impact of the crisis. Also, donor support is not expected to drop significantly. Finally, even though the potential growth rate will be affected, this may not translate into lower overall growth than pre‐crises as public investments and a rebound in agricultural production is expected. Hence, the impact of the financial crises on Togo is expected to be more of a delay in rapid growth and poverty reduction ‐ but this can be serious enough given the current low levels of economic activity (IMF, 2009b).<sup>41</sup>

**As mentioned, Togo has made significant progress in terms of macroeconomic stability.** Togo is in line with the PRGF targets and the membership in WAEMU, as well as the regional central bank (BCEAO) that controls its monetary policy creates stability in terms of both monetary and fiscal policies. Table 12 confirms what was already discussed in the section on cost of capital ‐ that Togo has a current account deficit that needs to be covered from

> 40 The trade balance and the current account is according to IMF expected to improve in 2010 as global demand recover in combination with increased productivity, led by sectors such as phosphate and cement (IMF, 2009a).

> 41 The current financial crisis is expected to hurt low‐income countries as a second wave after the more advanced economies have been hit affecting the demand on the global market.  However, to what extent different low‐income countries will be affected by this lower demand and lower commodity prices depends on factors as the level of international integration (goods, services, migration, etc), the import or export dependency of affected commodities (such as oil, food, and minerals), tax structures, etc. Also, the short term effect may be very different to the medium term effects as country‐specific factors may aggravate, mitigate or offset the direct effects.

41