(DTIS) Update, Volume 1 – Main report - Enhanced Integrated ...

Executive summaryThe Government of the Republic of Burundi has requested an update of the 2004 DTIS 1 and has askedthe World Bank to take the leading role in this exercise. The update’s objectives are to (a) take stock ofprogress in the implementation of Action Matrix recommendations; (b) complement and deepen theanalysis in selected areas; and (c) revise the Action Matrix accordingly. The aim of the analysis is toassist the Government of Burundi in defining a strategy that strengthens Burundi’s integration withregional and global markets, and mainstreams trade into the general policy orientation defined byBurundi’s Second National Poverty Reduction Strategy (PRSP II).Three key messages emerge from the DTIS update.(i) Overall, important steps have been taken in recent years towards the clarification of Burundi’strade policy objectives, but more reforms and efforts are needed to improve the country’s tradeperformances. While recent trade policy engagements at the regional level, as well as legislative andregulatory developments, undoubtedly express the government’s political commitment to improveBurundi’s trade performance and investment climate, sustaining and effectively implementing suchreforms is a major challenge for a country with limited capacities. Indeed, as recognized in the PRSP II,several recently adopted reforms have not yet produced their expected effects because of lackingapplication texts or insufficient financial, material and human resources for implementation.Furthermore, at least in the short run, the impact of legislative reforms is likely to be limited by the smallproportion of firms operating in the formal sector, and by the poor business climate. Supply-sideconstraints, such as limited access to essential backbone services and the lack of market-relevant skills,prevent the participation of firms and individuals in commercial and trade activities, thus limiting theimpact of trade reforms. Moreover, not all priorities for policy action have been effectively dealt with. Inthis regard, the implementation of the 2004 Action Matrix has been varied: while some progress hasbeen made to stabilize the macro-environment, and reforms to improve the investment framework andincrease productivity in the coffee and the tea sectors have started, there has been limited success onequally important matters, such as export diversification or the elimination of non-tariff barriers (NTBs).Finally, a number of relevant issues, including trade in services and informal trade, have remainedunaddressed in the initial Action Matrix.To improve Burundi’s trade performances and increase the contribution of trade to job creation andpoverty reduction, a comprehensive strategy is needed to (i) remove the internal and external barriersthat affect Burundi’s costs for trade in goods and services, (ii) address supply-side constraints, (iii)improve the incentive framework for trade and investment, and (iv) strengthen institutional capacity andcoordination. This organizing framework is used for the recommendations in the new Action Matrix.(ii) Export diversification remains the top trade priority for Burundi, and has to be driven by acombination of quality improvements of its traditional products (such as coffee and tea) and agradual expansion of non-traditional exports (such as such horticulture and services). Given thelarge part of the population employed in agriculture, diversification into horticulture products is asensible priority for Burundi. Specialty coffee and tourism services are additional areas with highpotential for export diversification. Addressing barriers that directly raise the trade costs of Burundianexporters is a first step, but structural distortions, supply-side constraints, and regulatory and governance1 Burundi’s Diagnostic Trade Integration Study (DTIS) was carried out in 2003 and its draft report validated in anational workshop in December 2003. The final DTIS report and the Action Matrix were adopted by the Council ofMinisters in May 2004.5 / 153