The economy of Benin is dependent on subsistence agriculture, cotton production, and regional trade. Cotton accounts for 40% of GDP and roughly 80% of official export receipts. Growth in real output has averaged around 5% in the past seven years, but rapid population growth has offset much of this increase. Inflation has subsided over the past several years. Benin uses the CFA franc, which is pegged to the euro.
Benin’s economy has continued to strengthen over the past years, with real GDP growth estimated at 5.1% and 5.7% in 2008 and 2009, respectively. The main driver of growth is the agricultural sector, with cotton being the country’s main export, while services continue to contribute the largest part of GDP largely because of Benin’s geographical location, enabling trade, transportation, transit and tourism activities with its neighbouring states.
In order to raise growth still further, Benin plans to attract more foreign investment, place more emphasis on tourism, facilitate the development of new food processing systems and agricultural products, and encourage new information and communication technology. Projects to improve the business climate by reforms to the land tenure system, the commercial justice system, and the financial sector were included in Benin's US$307 million Millennium Challenge Account grant signed in February 2006.
The Paris Club and bilateral creditors have eased the external debt situation, with Benin benefiting from a G8 debt reduction announced in July 2005, while pressing for more rapid structural reforms. An insufficient electrical supply continues to adversely affect Benin's economic growth though the government recently has taken steps to increase domestic power production.
Although trade unions in Benin represent up to 75% of the formal workforce, the large informal economy has been noted by the International Trade Union Confederation (ITCU) to contain ongoing problems,
