**the LICs (4.3%) (** Figure 2 **).** IMF (2009b) predicts a GDP growth rate of 1.7% in 2009, which corresponds to a 0.8% fall in per capita terms.<sup>6</sup> This means a continued divergence compared to other low‐income countries. Predictions for 2011, given commitments to planned reforms, are slightly more positive with a 4% GDP growth (IMF, 2009a), corresponding to a per capita growth rate of 1.5%. However, that is still a very low pace for a country that wishes to achieve higher income standards within in the span of one generation. In fact, for Togo to reach a middle income status by, say 2030, it would need to grow at per capita growth rate of 4.1%, which would correspond to a GDP growth of 6.6% (see further comparisons in Table A1 in Appendix I).<sup>7</sup>

**In the 2000s Togo has had more success in terms of both political stability and economic reforms, even if a significant impact on growth is not yet seen.** Increasing political liberties coupled with higher macroeconomic discipline<sup>8</sup> have restored cooperation with the international financial community. As a consequence, total aid grew from 8.2 current USD per capita in 2001 to 18.4 in 2007, which is still low compared to the average aid per capita in LICs (37) and SSA (44) the same year. Moreover, at the end of 2008 Togo qualified for the HPIC debt relief and normalized relations with the international donor community. The Government of Togo has in 2008 achieved nearly all of its structural reform targets agreed with IMF. Missed growth targets are in part due to the global financial crisis and the negative impacts from food and energy price increases, but one needs to take into consideration the nature of the reform so far. Up till now the focus has been on getting some fundamentals correct, such as reinforcing public finances and reforming state‐owned banks and enterprises. Next steps involve policy actions expected to have more direct effects on the private sector and growth. However, as will be further argued, this will depend on to what extent the government manages to target Togo’s _binding_ constraints to growth.

**The purpose of this study is to better understand the structural problems that remain in Togo and binding constraints for higher, sustainable growth.** The growth analytics is based on a number of approaches and methods, covering the more traditional tools combined with a growth diagnostic approach _à la_ Hausmann, Rodrik and Velasco (2005). A central question asked is why the levels of private investment and entrepreneurship are not higher. Possible answers include limited investment and entrepreneurship because of high financing costs or low returns to capital, defined in a broad sense. The latter will in turn point to problems either in the underlying potential of the country in terms of complementary factors (social returns), market failures or government failures such as lack of public investments or involvement in the market that causes distortion. In order to answer this question different types of data are needed, macro and micro, firm and household level, quantitative and qualitative, data will be thoroughly used. To search for the underlying questions as to what constraints to economic growth in Togo today are, involves first an understanding of the negative growth in the 1980s and its consequences today in terms of the investment environment of Togo. In addition, further understanding is reached by looking at what happens to economic actors that manage to circumvent the constraints that are still present.

# **2 Methodology**

**The growth analytics in this study is based on a number of approaches and methods ‐ it will cover the more traditional tools combined with the HRV growth diagnostic approach (Hausmann, Rodrik and Velasco, 2005).** There are three main steps involved in this growth analytics:

> and Togo) plus Guinea Bissau created the West African Economic and Monetary Union (WAEMU or UEMOA from its French name), an organization established to promote economic integration among countries that share a common currency, the CFA franc.

> 6 Assuming a constant population growth of 2.5 % per year.

> 7 Authors’ calculations using the Atlas method and World Bank, DDP data. The income group limits are assumed constant at the values in 2007.

> 8 See for example the letter on intention with IMF in April 2009.

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