Housing Finance in Burundi

Overview

Burundi’s population density is estimated at 477/km^2, [1] making it one of the most densely populated countries in the Great Lakes region. After the contested elections and related violence in 2015, many Burundians fled to neighbouring countries. Since 2017, 200 000 refugees have returned, but about 250 000 Burundian refugees remain in Tanzania, Rwanda, the Democratic Republic of the Congo (DRC) and Uganda. Returnees require reintegration support, with many having lost their land and homes. In addition, there are about 116 000 people who have been internally displaced due to floods and landslides. The European Union (EU) allocated BIF 22 billion (US$10.7 million) in humanitarian assistance to Burundi, including cash based assistance for households in 2022. Returnees are helped to register for humanitarian assistance and to acquire essential documents like birth certificates which allow them to access basic social services in Burundi.[2] Years of socio-political unrest, violence, disease, economic crisis and the associated movement of people has had a serious impact on the population’s access to basic services, and recurring floods, landslides and soil erosion have destroyed livelihoods and worsened poverty.[3]

The economy relies chiefly on the agricultural sector, which employs 80% of its 12.3 million population.[4] With a Gross Domestic Product (GDP) of BIF7.2 trillion (USD 3.5 billion)[5] and limited options to grow economically, many Burundians struggle to meet their basic needs. Poverty levels have continued to rise as the population grows at an estimated rate of 3%.[6] Despite the crises, Burundi’s economy has recorded some growth recently, at 1.8% in 2021, compared to 0.3% in 2020. This was largely due to a rebound in services, as well as steady improvement in the agriculture sector alongside the easing of COVID-19 restrictions. The country’s growth outlook points towards a modest recovery in 2022 supported by a pickup in economic activity fuelled by the agriculture sector, which contributes 30% to the country’s GDP. This will be complemented by export earnings on the back of a rise in global demand for coffee, tea, and cotton. Coffee accounted for 19% and tea 13% of total export earnings in 2020. [7] The mining sector remains constrained by the suspension of operations by the authorities and this continues to dampen future investment in the sector, despite its potential.

Further growth prospects were hampered by a rise in inflation to 8.3% in December 2021 from 7.5% in 2020. This was largely driven by food price increases and the monetisation of the country’s fiscal deficit. The deficit has remained relatively high at 5.1% of GDP in 2021, although with a noted reduction from the 2020 position of 6.5% due to growth in public revenue that exceeded the increase in public expenditure. The deficit was financed by borrowing from local and external sources. Subsequently, public debt grew to 71.9% of GDP in 2021 from 67% in 2020. This is likely to cause further strain on the interest rate environment as the government seeks to borrow domestically, mopping up long-term commercial bank liquidity that would support the extension of credit to housing and other deserving sectors of the economy.

Inflationary pressures remain elevated with headline inflation rising to 12.8% in March 2022 compared to 7.3% in March 2021[8]. This increase was largely due to both food inflation (15.1% against 10.7% the previous year) and non-food inflation (10.4% against 3.7% the previous year), particularly following the global impact of the Russia-Ukraine conflict on fuel and commodity prices. Rising inflation has dealt a blow to the housing sector through escalations in prices of building materials and deterioration in the purchasing power of households living below the poverty line.

To boost incomes and reduce the poverty burden, the government suspended the operations of several international mining companies in July 2021. This was aimed at renegotiating mining agreements to deliver better mining benefits for the general population. The suspension affected seven companies of British, Chinese, and Russian origin and was mostly felt by the UK-listed company Rainbow Rare Earths. The Burundi government owns 10% of Rainbow, which operates Gakara, the only rare-earth mine in Africa. Other companies whose operations were suspended mine gold, and coltan, which are used in electronic devices.

Reopening the borders with neighbours DRC and Rwanda, which had closed as a containment measure for the COVID-19 pandemic, will most likely facilitate a growth in cross-border trade as well as the return of refugees. Burundi, however, remains highly exposed to a resurgence of the virus, due to the low levels of vaccination coverage, with only 0.1% of the population being fully vaccinated by December 2021. Even with the provision of a BIF125 billion (US$60 million) World Bank grant for supporting Burundi’s COVID-19 response plan through vaccine purchase, deployment and equipment, the country had registered only around 10 000 fully vaccinated Burundians as at the end of March 2022.

For Burundi, climate change compounds pre-existing risks through rising rainfall and temperature variability, projected to worsen by 2030-50. Extreme weather conditions including heavy rains, high winds and landslides have destroyed homes and livelihoods. Landslides are a constant threat in the mountainous regions. By April 2021, 114 000 people had been relocated because of climate change-related disaster and are mostly in displacement camps.[9] About 30 000 people[10] were displaced by flooding in early 2022 in Cibitoke and Bubanza provinces following the rise of waters in Lake Tanganyika. The flooding is largely attributed to land degradation from persistent deforestation, caused by the growing energy needs of the population. Wood energy, used as charcoal, represents 95.3% of the overall energy consumption.^[11]  In addition, Burundi loses almost 38 million tons of soil each year and it is estimated that 4% of its gross domestic product (GDP) is lost to land degradation annually[12] because of the impact on coffee and tea production.

To counter the environmental threats, the government has identified the National Strategy and Action Plan on Climate Change (2012) as a key focus area. This includes climate risk adaptation and management, capacity-building, knowledge management, and communication. The programmes continue to be implemented with support from donor partners, including the United States Agency for International Development (USAID).

[1] World Bank (2020). Population density (people per sq. km of land area) – Burundi. https://data.worldbank.org/indicator/EN.POP.DNST?locations=BI (Accessed 21 August 2022).

[2] European Commission.(2022) Burundi fact Sheet. https://civil-protection-humanitarian-aid.ec.europa.eu/where/africa/burundi_en#:~:text=In%202022%2C%20we%20have%20allocated,or%20cash%2Dbased%20food%20assistance. (Accessed on 29 September 2022).

[3] Unicef (2021). Burundi. Humanitarion situation and needs. Humanitarian Action for Children. Pg. 2. https://www.unicef.org/media/86636/file/2021-HAC-Burundi.pdf

[4] World Bank (2022). MPO Burundi. April 2022. https://thedocs.worldbank.org/en/doc/bae48ff2fefc5a869546775b3f010735-0500062021/related/mpo-bdi.pdf (Accessed 21 August 2022). Pg. 1.

[5] World Bank (2022). MPO Burundi. April 2022. https://thedocs.worldbank.org/en/doc/bae48ff2fefc5a869546775b3f010735-0500062021/related/mpo-bdi.pdf (Accessed 21 August 2022) Pg. 1

[6] World Bank (2021). Population growth (annual %) – Burundi. https://data.worldbank.org/indicator/SP.POP.GROW?locations=BI (Accessed 21 August 2022).

[7] World Bank (2022). MPO Burundi. April 2022. https://thedocs.worldbank.org/en/doc/bae48ff2fefc5a869546775b3f010735-0500062021/related/mpo-bdi.pdf (Accessed 21 August 2022) Pg. 1

[8] Bank of Burundi (2022), Economic indicators March 2022. https://www.brb.bi/sites/default/files/Publications/Indicator%202022%2003_2.pdf (Accessed 25 August 2022) Pg.2

[9] Buechner, M. (2021) What climate change looks like in Burundi. 19 April 2021. Unicef. https://www.unicefusa.org/stories/what-climate-change-looks-burundi/38477 (Accessed September 28 2022).

[10] UN OCHA (2022). Burundi Situation Report. 5 Sep 2022. https://reports.unocha.org/en/country/burundi/ (Accessed September 26 2022).

[11] Mohamed, F. and Vyizigiro, F. (2015). Presentation: State of the Environment Burundi. Workshop on Environment Statistics in support of the implementation of the Framework for the Development of Environment Statistics. July 2015. UN Statistics. (https://unstats.un.org/unsd/environment/envpdf/unsd_EAC_Workshop/Session%202a_Burundi%20State%20of%20the%20environment%20Burundi.pdf (Accessed 26 August 2022) Pg. 5.

[12] Voegele, J., Kabongo, V and Tall, A. (2021). Building resilience in the land of 3,000 collines: Rooting out drivers of climate fragility in Burundi. World Bank Blogs. https://blogs.worldbank.org/africacan/building-resilience-land-3000-collines-rooting-out-drivers-climate-fragility-burundi (Accessed 26 September 2022).

 

Access to Finance

Access to financial services continues to pose a serious development challenge for Burundi as the economy takes firm strides towards full recovery from the effects of COVID-19. The financial sector has been resilient throughout the challenging times of 2020 and 2021 as indicated by the 12.6% improvement in portfolio quality as measured by a reduction in the Non-Performing Loans ratio to 4.1%.[1] However, income poverty rose to 87.1% in 2021 from 85% in 2020.^[2]

To alleviate poverty then president of the Republic of Burundi inaugurated the Investment Bank for Young People (BIJE)^[3] in April 2020. The bank’s mission is to reduce youth unemployment, which makes up over 66% of citizens in Burundi. Moreover, the Investment and Development Bank for Women (Banque d’Investissement et de Développement pour les Femmes) was launched in February 2020 specifically to increase access to financial services for women.^[4] Additionally, Burundi’s Guarantee and Support Impulse Fund supports cooperatives for young people. The Fonds d’Impulsion de Garantie et d’Accompagnement (FIGA) was reinvigorated in 2019^[5] to improve access to finance through guarantees. FIGA was established to promote access to financing for micro, small and medium-sized enterprises, cooperatives and industries. These initiatives are aimed at increasing the level of financial inclusion in Burundi by targeting segments that are unlikely to access formal finance. This will further lessen poverty levels in Burundi’s largely agrarian population and support the acquisition of basic services, including housing.

The formal banking sector comprises 14 commercial banks, which have focused on specific lending segments for their business growth. Most offer deposit facilities but few offer long-term lending facilities suitable for housing. Despite the sharp decline in growth induced by COVID-19, the banking industry has remained strong. The capital ratios are relatively robust at 20% against a regulatory minimum of 14.5% to support lending operations.

With a strong capital base, the banking sector has improved, as indicated by the increase in total assets following the rise in loans to support economic recovery, as well as investment in Treasury securities. Total sector assets grew by 28.7% year-on-year at the end of March 2022 compared to March 2021, amounting to BIF5 224.6 billion (US$2.54 billion). Such an increase was mainly driven by a 49.1% increase in loans to the economy to reach BIF2 140.3 billion (US$1.04 billion). Overall, the proportion of loans to the economy in total assets rose by 5.7%, accounting for 41.0% of banking sector assets at the end of March 2022 from 35.3% at the end March 2021. This trend is supported by the rise in customer deposits and central bank refinancing to improve the liabilities’ side of the industry balance sheet and support various forms of lending. Aggregate customer deposits increased by 23.8% year-on-year to BIF3 064.7 billion (US$1.49 billion) at the end of March 2022.

The growth in aggregate bank deposits enables commercial banks to increase their lending operations across several sectors. This is bolstered by the improvements made in loan recoveries amidst better economic prospects. Between March 2021 and March 2022, the amount of non-performing loans fell by 8.1% to BIF62.8 billion (US$30.5 million). The loan portfolio’s overall default rate fell by 1.9% and stood at 2.9% from 4.8%. This was mainly attributed to drops in default rates of sector portfolios of construction (2.9% from 4.3%), trade (3.3% from 4.1%), agriculture (3.0% from 18.1%), tourism (10.0 from 12.6%), and equipment (2.6% from 5.3%).

Significant growth recorded by commercial banks in the advancement of credit was strongly associated with recovery initiatives implemented by the central bank, the Bank of the Republic of Burundi (BRB). To support economic recovery, BRB increased the provision of liquidity and long-term resources through providing favourable refinancing terms to commercial banks. Between January and August 2021 BRB supported the banking system through a marginal lending facility which increased by 164.9%. In addition, the BRB used the temporary advances on bills as collateral instruments to further support to commercial banks. To stimulate long-term credit to the private sector, the BRB launched a new instrument (named advance on bills), as collateral. This instrument provides longer maturity of up to five years, allowing banks to provide long-term loans to domestic investors. BRB has also been providing loans to priority sectors through conventions guaranteed by the government. These loans were largely for the promotion of agriculture and youth employment.

However, even with the noted interventions to boost access to credit for private sector investment, the housing sector remains underserved with only 17.6% of the aggregate credit portfolio as at December 2021.^[6]. The trade sector holds the largest share at 30.2%, while the main economic sector, agriculture, holds a paltry 7.1%. Despite the noted increase in credit, the share of short-term credit (less than 2 years) in total credit remains high at around 40%. This accentuates the difficulty of obtaining credit to finance long-term ventures, including housing sector developments.

[1] IMF (2022). Report on Burundi Banking Sector https://www.imf.org/en/News/Articles/2022/03/17/IMF-Staff-Completes-2022-Article-IV-Consultation-Mission-Burundi (Accessed 25 August 2022)

[2] AFDB Reports 2022 https://www.afdb.org/en/countries/east-africa/burundi/burundi-economic-outlook (Accessed 25 August 2022).

[3] BIJE. Banque d’Investissement pour les Jeunes https://www.bije.bi/qui_sommes_nous/Historique (Accessed August 25, 2022).

[4] BIDF. Banque d’investissement et de Developpement pour les Femmes. https://bidf.bi/ (Accessed 25 August 2022).

[5] FIGA. Le Fonds d’Impulsion , de Garantie et d’Accompagnement. https://www-figa-bi.translate.goog/presentation-du-figa/?_x_tr_sl=fr&_x_tr_tl=en&_x_tr_hl=en&_x_tr_pto=sc (Accessed 26 August 2022).

[6] BRB Statistics https://www.brb.bi/en/content/real-sector (Accessed 25 August 2022).

Affordability

With a GDP per capita of BIF487 468 ($236.80) in 2021,[1]  living standards in Burundi are low compared to other member states of the East African Community. The proportion of the country’s population living in rural areas is estimated at 87% and is largely reliant on subsistence agriculture. Access to adequate land for agriculture continues to rise in importance for both human settlements and local livelihoods as the population continues to increase at 3.1%, fuelled by a high fertility rate – which was 5.4 births per woman in 2020 and a high rate of refugee inflows, estimated at 3% in 2020.[2] The country is rated as one of the poorest countries in the world, with a poverty rate of 72.8 percent,^[3] with rampant food insecurity and malnutrition, especially among children, as shrinking and overworked household farmland parcels continue to deteriorate in productivity and agricultural yields. This has largely contributed to the country’s low Human Capital Index at 0.39 (on a scale of 0 to 1) and a high rate of stunted growth among children at 50.9%[4] of Burundi’s children under five.

Whereas the economy is posting strong recovery signals supported by a revamp in trade, exports and infrastructure after the COVID-19 pandemic, housing affordability remains a challenge across larger parts of the country.

Many Burundians are peasants and can hardly afford decent housing and sanitation facilities. This is compounded by poor access to clean drinking water: in 2017, only 61 percent of the population had such access. The lower middle-income poverty rate based on BIF6 176 (US$3) is extreme at 89.3% while the upper middle-income poverty rate based on BIF11 322 (US $5.5) is even higher at 96.8%. It is no surprise then that the country’s housing market suffers from low levels of demand for decent housing.

Policy directives to improve national household wages have not yielded much. In June 2021, the government implemented a new fair wage policy in the public sector, where salaries are standardised across the classification and rating of jobs, as opposed to the previous policy where similar categories of jobs could earn different salaries. To support this, an allocation of BIF34 billion (US$ 16.5 million) was set aside in the 2021/22 budget to pay for the wage policy. It is hoped that these reforms will help boost household incomes, spur effective demand for goods and services and drive an upsurge in economic activity, including the housing sector.

On the supply side, financing options for housing-related investments have remained unaffordable for both housing developer companies and individual consumers. The available formal providers of finance have maintained high interest rates, largely on account of a depressed long-term finance market as well as increased competition with government cash requirements for infrastructure projects. Whereas long-term loans to finance equipment purchase are charged an average interest rate of 10.9%, loans to the housing sector attract the highest rate of 19.36% in 2021, rising sharply from 15.94% the previous year,[5] making financing of housing developments the most expensive across all sectors. This is largely attributed to a wide fiscal deficit, which continues to be financed by domestic borrowing.

Public debt increased by 15.1% at the end of March 2022 compared to March 2021, settling at BIF4 529.8 billion (US$2.2 billion). This was largely driven by the increase of domestic debt by 11.5% and external debt by 25.0%, particularly after the lifting of sanctions by the United States and the European Union in 2021 and 2022 respectively. Domestic debt increased by BIF332.7 billion (US$161.6 million) at the end of March 2022 compared to March 2021, rising to BIF3 222.1 billion (US$1.6 billion, mainly due to an increase of government debt to the banking sector by BIF329.54 billion (US$160.1 million). The borrowing channel from the banking sector was implemented through several calls for Treasury securities that generally saw an increase in securities held by BIF184.4 billion (US$89.6 million). Overall, the government’s debt to the banking sector through Treasury securities increased by 9.5% to BIF1 823.6 billion (US$885.9 million) in March 2022 from BIF1 665.1 billion (US$809.9 million) in March 2021.

To support increased domestic borrowing, interest rates on 2-to-10-year Treasury bonds are relatively high, averaging 11.34% between April 2021 and April 2022, compared to bank deposits which generally attract a lower rate of up to 6.12% over the same period. This effectively redirects both public and financial institutions’ liquid funds toward high yielding government securities, making customer borrowing less affordable in formal financial institutions.

[1] World Bank. Data – Burundi. https://data.worldbank.org/country/BI (Accessed 25 August 2022).

[2] IMF (2022). Burundi – Selected Issues. Country Report No. 22/258. July 2022.  (Accessed 25 August 2022) Pg. 9.

[3] World Bank (2022). Macro Poverty Outlook. April 2022. https://thedocs.worldbank.org/en/doc/bae48ff2fefc5a869546775b3f010735-0500062021/related/mpo-bdi.pdf (Accessed 25 August 2022) Pg.1

[4] World Bank. Data – Burundi. https://data.worldbank.org/country/BI (Accessed 25 August 2022).

[5] Bank of Burundi (2022).  https://www-brb-bi.translate.goog/fr/content/monnaie-et-crédit?_x_tr_sl=fr&_x_tr_tl=en&_x_tr_hl=en&_x_tr_pto=sc (Accessed 26 August 2022)

Housing Supply

Burundi’s supply of housing units is in dire need of improvement. The country has few providers of multiple housing units for large scale projects, especially in the urban centres of Bujumbura, Gitega (the new political capital city), and the traditional administrative centres of Muyinga, Ngozi and Cibitoke in the North and Bururi in the South. These areas have not been attractive for large scale property development due to low levels of affordability arising from suppressed economic activity and high levels of poverty.

To improve infrastructure, the government has undertaken several initiatives to improve the road network by establishing a road maintenance fund, particularly through the “Zero Potholes” initiative. The budget allocated to road maintenance increased to BIF28 billion (US$13.6 million) in the financial year 2021/22 from BIF8.2 billion (US$3.9 million) three years earlier. To limit the cost of rentals for the Burundi Road Agency as part of this campaign, new machinery and equipment were declared tax exempt.

Further infrastructure initiatives have been introduced to improve access to hydropower for rural areas. The FY 2021/22 budget aimed to accelerate the implementation of electrification projects in rural centres and hard-to-reach areas. This will improve living conditions and support economic activities and the establishment of decent settlements. Currently, only 13% of the Burundian population have access to electricity, compared to other member states of the East African Community at 42.1% for Uganda, 71.4% for Kenya, 46.6% for Rwanda and 39.9% for Tanzania[1].

These initiatives are likely to provide foundational infrastructure to boost economic activity for housing, agriculture, and industry in the country. However, prospective housing sector developers still face challenges, including a lack of appropriately priced financing products for developer support, scarcity of foreign currency for import of non-domestic intermediate construction materials, and lack of support infrastructure for housing sector developments.

[1] World Bank (2020). Access to electricity (% of population). https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=TZ (Accessed 26 August 2022).

Property Markets

The recent redesignation of Burundi’s second largest city, Gitega, as the new capital city in 2019 has breathed new life into the district. Gitega is home to the Presidency of the Republic, the Senate, and other political offices. Overall, the rebound in economic activity brings renewed hope in the property market. Urbanisation is likely to be grow as more and more citizens take up jobs in the emerging service industry. Few new housing units arrive in the property market annually. Most properties are usually secondary transactions. Given the absence of large-scale property developers, pricing of residential housing units is mostly unstandardised and influenced by buyer-seller negotiations. Little affordable housing is available, presenting opportunities for mass delivery of appropriate units for the segment.

Policy and Legislation

The country’s budget for the financial year 2021/2022 introduced new tax and non-tax measures to boost revenue. However, widening of the rental tax base to include land leases is likely to reduce attractiveness to an already struggling housing sector.

In 2008 Burundi developed a land policy letter followed by a Land Code which sought to introduce land certificates and a decentralised system of land administration. Article 411 of the Land Code recognises the right of land ownership exercised through land title, land certificate, an administrative title or a customary mode of acquisition. While the code legitimates land rights acquired under local land allocation systems, it still requires that all such rights must be registered. This is a challenge for customary land occupiers since this land carries no official document of title and is not easily accepted as collateral to support borrowing in the banking industry.

To deal with this problem, 93 municipalities out of a total of 119, now issue relatively affordable communal land certificates. This has been largely supported by the World Bank and the Burundi Landscape Restoration and Resilience Project (PRRPB) 2021-2024 with initial funding of BIF62 billion (US$30 million), topped up by an additional BIF12 billion (US$6 million). The project led by the Burundian Ministry of Environment, Agriculture and Livestock, aims to clarify and secure land rights, resolve land tenure disputes, and restore land productivity in devastated landscapes. It is estimated that land disputes constitute more than 70% of the cases brought before the Burundian courts. Securing land tenure and reducing land conflict is therefore one of the most important factors that can support sustainable agricultural and rural development. Project results have included the planting of over 1 million forest and agroforestry seedlings in local communities and the issuing of land certificates to 466 beneficiaries; 355 of these have been registered in the name of both spouses and 33 in the wife’s name only. Of the 466 certificates, 82.6% include the women’s name. The project has also created jobs, which has enabled beneficiaries to build houses and buy plots of land with their income.[1]

The government passed a new law in February 2020 aimed at fixing land registration fees. The law also makes it compulsory for any buyer of a certified landed property to convert the land certificate into a land title within 60 working days of signing a deed of sale. The wide scale implementation of this law will likely support mortgage banking business in a country where validating ownership of landed properties used for collateral to support housing sector developments has been difficult.

[1] World Bank. Burundi Landscape Restoration and Resilience Project. https://projects.worldbank.org/en/projects-operations/project-detail/P160613 (Accessed 29 September 2022).

Opportunities

The recent pick-up in economic activity on the back of a full reopening of the economy after Covid-19, provides a glimmer of hope for accelerated developments in the housing sector. Additionally, new budgetary allocations to the transport and energy sector can improve connectivity and open up new settlement areas – this will provide the necessary supporting infrastructure for the housing sector. A lot more is still needed to attract large scale developers to the affordable housing space where most of Burundi’s prospective homeowners lie.

Availability of Data on Housing Finance

Information on financing housing sector developments is available from the Bank of the Republic of Burundi publications on private sector credit. Interest rate movements and general changes in price levels are also tracked on a quarterly basis by the central bank. Access to information on the number of new properties developed within a period of time remains difficult. However, engagements with key sector players including mortgage banks offer insights into the state of the sector and prospects for growth.

Green Applications for Affordable Housing

Approximately 13% of Burundians have access to electricity and most of the population still rely on kerosene for domestic lighting and wood fuel for their energy needs. In October 2021 a pioneering 7.5MW commercial solar plant started to generate clean power for tens of thousands of households and businesses. The plant, near the village of Mubuga, supports international efforts to increase renewables and climate finance, especially for the world’s most vulnerable communities. The plant was built over six years and was developed by an independent power producer, Gigawatt Global, with financing from a consortium of pan-African private equity investors “Inspired Evolution”, the UK government-funded Renewable Energy Performance Platform (REPP – managed by Camco Clean Energy), and Gigawatt Global. These initiatives are likely to foster improved living standards through development of decent affordable houses in areas that had earlier been marginalised because of limited access to clean energy.

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Websites

Bank of Burundi. www-brb-bi.

Youth Investment Bank (Banque d’Investissement pour les Jeunes) www.bije.bi

Investment and Developmnet Bank for Women (Banque d’investissement et de Developpement pour les Femmes). www.bidf.bi

Guarantee and Support Fund (Le Fonds d’Impulsion , de Garantie et d’Accompagnement). www-figa-bi.

Unicef. www.unicef.org

UNHCR. www.unhcr.org