Contact : info@webguine.site
webGuinée, Camp Boiro Memorial, webAfriqa © 1997-2013 Afriq Access & Tierno S. Bah. All rights reserved.
Summary
At the outset of the Second Republic in 1984, the Government of Guinea undertook an ambitious program of reform, aimed at dismantling the centralized state-run economy of the Sekou Toure years. To this end, the Government of Guinea adopted measures designed to create a stable market economy: ending price controls, privatizing or liquidating a large number of state-owned enterprises, reducing the size of the civil service, promulgating an investment code allowing for private enterprise, devaluing the national currency, and opening the country to trade and investment from abroad. In an affort to rationalize government expenditures, fuel prices and utility tariffs were raised to cost recovery levels and interest rates became positive in real terms. A commercial banking system arose from the ashes of the former government run bank.
The ten-year perspective indicates that the economy has responded well to the measures. Growth averaged 2.4 percent in 1991, 3.0 percent in 1992, 4.0 percent in 1993. Government efforts toward monetary discipline have succeeded in bringing inflation down from 27.1 percent in 1991, to 16.5 percent in 1992, to 4.9 percent in 1993. Initial progress has been achieved in the privatization of the power and oil distribution sectors, and telecommunications and transport have been liberalized. The implementation of final and difficult phases of reform, however, has proven politically difficult. The last few years have been punctuated by periodic lapses in the Government of Guinea's attempts to rationalize its economy in complaince with reform tragets.
In December 1993. the Government of Guinea held its first presidential election since gaining independence in 1958. While not completely transparent, the balloting occurred relatively peacefully with large voter turnout, and culminated in the election of Lansana Conte as president. Inauguration ceremonies in late January 1994 marked the outset of the third republic and presented the Government an opportunity to refoucus on economic issues.
Although endowed with enormous natural resources, Guinea's potential for commercial investments is hampered by infrastructural and legal constraints. Guinea lacks a well trained cadre of managerial and technical personnel and labor productivity is low. Transportation, communications and industrial infrastructure are improving but do not yet meet demand. The commercial banking sector provides limited and expensive services, with limited financing options. Finally, corruption in Guinea is common, and legal and institutional reforms have been slow to take root.
Macroeconomic outlook
In 1993, Guinea's growth trend continued, with an estimated 4.0 percent growth fueled by a recovery of mining sector output (9 percent growth) and increased agricultural production (4.1 percent). (Note: Growth figures should be interpreted with caution since a portion of economic activity in the informal sector is unrecorded.) Inflation remained under control through the end of the year, although levels of domestic debt and unbudgeted expenditures threaten to rekindle inflation in 1994. Exchange rates remained relatively stable, and generally within about ten percent of parallel market rates.
Since 1992, when Guinea successfully met conditions requisite for a Paris Club debt rescheduling, the Government of Guinea has has a "shadow program" with the IMF. To date, the Government of Guinea has shown sporadic performance in meeting revenue and expenditure targets requisite for a full agreement. Of particular concern are consistent revenue collection shortfalls, public expenditure pressures, and, on occastion, a moderately overvalued exchange rate.
In 1993, Guinea remained dependent on mining exports for Government revenue and for foreign echange earnings. In 1993, mining receipts accounted for 35 [ercent of the Government of Guinea's budget revenues.
In 1993, low world prices for bauxite and alumina, combined with shortfalls in projected revenues, left Guinea with a USD 338 million current account deficit (including official transfers), representing 11 percent of GDP. As part of the enhanced structural adjustment facility conditions that the Government of Guinea is negotiating with the IMF, the Government of Guinea is committed to reducing 1994's current account deficit.
In 1993, exports accounted for 18.4 percent of GDP. In terms of volume, diamond exports increased by 39 percent, SBK bauxite by 103.7 percent, with CBG maintaining its levels, and Friguia decreasing its exports by less than one percent. In addition to mining exports, Guinea increased its volume of agricultural exports, with the exception of fresh fruits. Coffee exports increased by 34.5%; cocoa by 250 % and other products --including, largely, cotton--by 300%.
Guinea's principal markets are the countries of mining venture partners: the US, Canada, France, Germany, Norway, the UK. Among non-mining exports, roughly 40% off goods go to the European Community, while about 30% are sold regionally. The devaluation of neighboring countries' currency unit, the CFA, in January 1994, has had a neglibible impact upon Guinean trade partners (to date, May 1994).
In 1993, imports represented 26.6% of GDP, a decrease of 2% from 1992. Guinea's principal imports include capital and intermediate goods, petroleum products, basic food products, and to a lesser but growing extent, consumer goods such as dried or canned foodstuffs and small luxury items. In 1993, importation of consumer goods dropped by 19%, led by a 27% drop in food products. This decrease is largely explained by incrases in local production, donor shipments and the reduction of inventories by local merchants during the electoral period of Nov.-Dec.
At the end of 1993, Guinea's external public debt totalled USD 2,135 million, or 65% of GDP. The debt service ratio (relative to exports) was 28% (scheduled) and 12% (actual) in 1993. Debt servicing in 1993 represented 21% of total Government of Guinea budget expenditures. Guinea was successful in obtaining a Paris Club rescheduling in 1992 and must meet reform targets in 1994 in order to obtain further official resecheduling. Guinea has no significant commercial debt.
Guinea received official grants and loans totalling US$ 240 million in 1993. Much of this consisted of programmatic or project level assistance for infrastructural development and advisory services, provided in conjunction with the Government of Guinea's public investment program (PIP). PIP's target areas include infrastructural development such as urban works, transport, and communications (34.6%), rural development including agriculture and natural resources (32.6%), energy and mining (12.3%), and social sector projects in education and health (13%). The US Government provided US $ 37.1 million in assistance in 1993, largely for rural development, agricultural marketing and export, health, and education projects. Other important donors in Guina are the World Bank, African Development Bank, European Community, the Canadian Government, the French Government, and the Islamic Development Bank.
The official exchange rate for the Guinean Franc has been set at a weekly fixing at the Central Bank since 1986. This initially permitted an orderly depreciation of the overvalued GF, and has generally reduced the disparity between the official and parallel market exchange rates. The Central Bank still intervenes in setting the exchange rate, however, and at the end of 1993, there was an estimated 18% gap between the official and parallel market exchange rates. This gap has since declined to under 10%.
Restriction remains on the export of capital by Guinea nationals and foreign investors in Guinea. The Government requires importers requesting import authorization to deposit in GF with the Central Bank the equivalent of the foreign exchange value of the import plus the custom duties owed.
Guinea's commercial banking sector was legalized by reforms of 1985 and 1986. Guinea's formal financial sector consists of the Central Bank and six commercial banks. The seven banks generally limit their activities to short and medium term finance, with very limited lending practices. Only the largest of the banks ahs an extensive network of branches outside of Conakry. Acceptance of modern banking practices has been slow to take root in Guinea, with only a small percentage of the population, centralized in Conakry, utilizing the system. Commercial banks established between 1985 and 1993 included three French banks, a Moroccoan bank, and an Islamic bank.
In 1993, the World Bank provided technical assistance for restructuring of two of the banks, both of which were in precarious financial positions due to unsound lending practices. Efforts to recapitalize and reform portfolio management are ongoing. In conjunction with ongoing reform efforts in the financial sector, the Government of Guinea is preparing regvised commerical banking legislation to initiate provisions for tightened lending restrictions, higher reserve requirements, and more strictly administered borrower qualification.
Guinea's geographical and climatic advantages, and historical production patterns, demonstrate its strong but under-utilized potential to supply domestic and internationa markets. At independence, Guinea held sizeable shares of international agricultural markets, ranking as the world's leading exporter of bananas (100,000 tons per year), and substantial supplier of palm kernels (23,000 tons), pineapple (16,000 tons), and coffee (16,000 tons). The agricultural sector provided 60% of export earnings. Under the socialist policies of the Sekou Toure regime, production dwindled under minsmanaged state farms; although smallholder farms were left in private hands, a lack of market pricing incentives and predatory taxation discouraged all but subsistence-level production.
Currently, although Guinea's agricultural sector employs approximately 75% of the labor force, production accounts for merely 28% of the country's GDG, and 5% of export revenues. The large majority of production is at the smallholder level. With 2/3 of Guinea's arable land currently uncultivated, agricultural development and marketing is a critical element for development and growth.
Since 1985, the free market policies of the Second Republic have addressed these gaps, encouraging growth in agricultural production, with slow but steady increases in output. Agricultural exports have demonstrated corresponding increases, and recent efforts at systematic marketing of the sector have imporved the performance of cash crops -- notably pineapples, coffee, cocoa, and cotton.
The trend toward improvement is likely to continue due to a national agricultural support program which, with heavy donory involvement, aims to provide extension, credit, and access to marketing services. Further, the Government of Guinea and international donors have undertaken to imporve rural road and transport structures crucial for efficient agricultural exploitation. In addition to World Bank, UNDP, and French projects, USAID is currently funding a private sector agricultural marketing and export foundation. In addition to donor involvement, a few joint expatriate-Guinean ventures have undertaken commercial production and/or processing.
The World Bank estimates that Guinea's annual ocean fisheries potential exceeds 200,000 metric tons. Many of the species found in Guinean waters are of high commercial value. Since 1990, several small scale commerical fishing. Since 1990, several small scale commercial fishing ventures have been established under the regulation of the Government of Guinea's office for the Promotion of Artisanal Fisheries. These include shrimp farming, development of privately held cold storage facilities in 14 of the country's prefectures, and several small scale commercial fisheries trade ventures.
In response to the risk of overfishing by foreign commercial fleets operating within Guinea's 200 mile coastal shelf, the Government of Guinea has commenced a regioal dialogue with neighboring coastal states. Comprehensive coastal surveillance measures, however, have yet to be implemented, and enforcement of industrial fishing agreements is lax to non-existent. Although several donors have made specific efforts, to date, surveillance programs to protect fisheries resources are lacking.
Guinea's considerable mineral and metal resources have long been the critical source of budget revenues and an enormous potential area for future wealth. Guinea possesses 1/3 of the world's known bauxite reserves, one of the last high grade iron ore deposits, as well as a untapped reserves of gold, diamonds, and other gemstones and precious metals. Mining activies account for 35% pf Government revenues. The recent decline in bauxite and alumina markets affectd Govt revenues adversely. Currently, only bauxite and diamonds are mined industrially, although several gold exploration initiatives are underway. In 1993, the Government of Iran signed an agreement with the Government of Guinea to undertake a bauxite mining project in Upper Guinea, for an estimated 18 million US$ investment over five years. In 1992, the Government of Guinea promulgated a policy of liberalization in the sector, allowing wholly private mining ventures. Since then, several private groups have obtained licenses for exploration and exploitation, and artisanal mining has expanded greatly. Although the Government currently still retains a major interest in previously existing bauxite and diamond mining operations, ranging from 49% to 51%, it is investigating options for divestiture.
CBG exploits high-grade deposits near Boke in Northwestern Guinea. As Guinea's largest bauxite producer, CBG mines for export over 12 million tons of bauxite annually. The CBG operation is a joint venture between Halco Mining, Inc., a consortium of North American and European investors (51%) and the Government of Guinea (49%). In 1993, CBG undertook a program for upgrading and extension of facilities. The new project, with a total forecast investment of US$ 170 million (70% funded by the ADB), will include the start up of the Bidi-Koum deposit, to compensate for declining output from the Sangaredi site, and the renovation of the Kamsar plant.
Friguia, a bauxite mining and alumina refining company in the Western coastal prefecture of Fria, is a joint venture between Frialco, an international consortium (51%), and the Government of Guinea (49%). Since 1989, Frialco has included Alumina Pechiney of France, one of the project's founders and supplier of the alumina production technology (30%); Noranda Aluminum with US and Canadian shareholders; (30%) British Alcan, and Norsk Hydro Aluminum. Although Friguia has undertook extensive infrastture upgrades in the early 1990s to incrase production levels to 700,000 metric tons, annual production averages 650,000 tons, most of which is sold to Frialco partners. Profitability has been adversely affected by the drop in world alumina prices and high production costs. In 1993, Frigua exported 611,000 metric tons, a decrease of less than 1% from 1992. Likely sales in 1994, however, are estimated in the 500,000 ton range.
The Soviet Union-constructed and staffed Office des Bauxites de Kindia (OBK) located in the southwestern prefecture of Kindia, has an annual production capacity of 3 million metric tons. Until 1992, when the Government of Guinea issued a liquidation decree, OBK was wholly Government of Guinea-owned, and financed largely by Soviet loans, with bauxited exported to the Nicolayev alumina-processing plant in the Ukraine in exchange for repayment on loans and barter trade. With the breakup of the Soviet Union, the World Bank assisted the Government of Guinea in restructuring OBK from its previous "Office" Status into a Limited Liability Company run by the Government of Guinea . SBK is currently struggling to finance its operations through commercial sales of its annual 2-3 million tons of poor quality bauxite (46% alumina content) to the Ukraine. In 1993, export volumes recovered from the disruptions of the early 1990s, increasing its shipments by 103.7% over the previous year to 2.415 metric tons. Although the reestablishment of export of SBK ore boosted revenues, with dwindling bauxite reserves, the mine is estimated to have a maximum of five to eight years of remaining productivity.
Diamonds are second to bauxite as Guinea's most important source of income. Until 1994, industrial mining of diamonds was carried out near Banankoro by Aredor. Since incorporation in 1978, the venture was equally owned by the Government of Guinea and Aredor Holdings Ltd., an Australian company whose shareholders are Bridge Oil Ltd, Bankers Trust (Australia) Ltd., and Simonius Vischer. Production averaged 150,000-200,000 carats annually, 93% of which are gem quality. Throughout 1991 and 1992, Aredor experienced difficulties with security, and disruptions in production. Although in 1993, prduction and export levels recovered -- increasing by 39% over 1991-92 levels--, the foreign Aredor partners announced their withdrawal from the venture. The Government of Guinea will continue operations until another private consortium enters production. In 1993, the Government of Guinea began to grant licenses for other commercial ventures interested in diamond mining. None of these is yet beyond the exploration stage, Conakry is also the site of several diamond purchasing operations, including Diacor of the U.K., the largest local purchaser.
Although the Government of Guinea's gold mining venture in the northwestern prefecture of Siguiri -- Aurifere de Guinee -- has been closed since 1992, the industrial mining venture produced 1.4 metric tons of gold annually during its years of operation. In 1993, the Government of Guinea authorized a private company to undertake exploration at the site, after its previous joint venture partner withdrew from operations. In 1993, Cyprus Minerals Co. signed an agreement with the Government of Guinea for exploration in the Prefecture of Mandiana in Upper Guinea.
Guinea's iron deposits are potentially among the most important worldwide. Geologists estimate more than 9.4 billion tons, with 350 million tons of proven resources at Nimba in southeastern Guinea. Although a prject involving a consortium of private investors has done initial work in preparing the xxMiferguixx project, the Government of Guinea's hopes to exploit the Nimba iron ore deposits are currently on hold pending resolution of the conflict in neighboring Liberia, through which iron ore shipments would flow to the port of Buchanan.
Guinea's manufacturing sector contributes only a small percentage to GDP. The bulk of manufacturing activities consist of assembly of imported components or light industrial activities. Successful ventures include a borad range of activities such as saw milling and plywood manufacture, production of paint, bricks, cement, cigarettes, and carbonated beverages. Substantial growth in this sector is inhibited by a lack of capital investment, skilled workers, and properly trained managers. Infrastructure constraints include regular supplies of fuel, water, electricity, and underveloped transport services. Government of Guinea efforts to promote development of manufacturing include an array of incentives in the 1987 investment code, implementation of liberalized commercial legislation, and promotion of judicial reforms to adapt the system to the needs of a market economy. Although donor programs have actively enforced these efforts. the Government of Guinea will need to make serious efforts to improve Guinea's competitiveness in these areas.
Guinea has enormous potential with large domestic and regional markets, and diverse opportunities exist for investment. Principal areas include telecommunications, energy, transport services, tourism, and standard services associated with a market economy.
U.S. firms should be aware that the cost of doing business in Guinea are high, and only a few foreign firms have penetrated the market successfully. Guinea suffers from serious obstacles to private sector development, including an inadequate legal, regulatory, and judicial framework, poor infrastructure, a bloated public sector, and severe constraints to credit. Development of transport, communications, and rural roads is ongoing, with considerable improvement in accessibility of major regional centers by newly paved roads. In 1992, the Government of Guinea passed a land tenure code, clarifying the legal land ownership and title system; efficient implementation, however will require dissemination and acceptance of standard practices.
The 1987 investment code offers liberal taxation and regulatory privileges to companies investing in geographically or economically strategic regions. The Government of Guinea, however, has recently implemented revisions to the tax code, including income and importation taxes which are higher than those originally codified. Aimed at raising revenue, the new code will hit medium to large expatriate ventures most immediately, and diminishes the margin of benefits originally intended to compensate investor for Guinea's poor infrastrucure and difficult work environment.
Public works projects funded by multilateral donor organizations are a continuing area for U.S. service providers. The ability to conduct businesse affairs in French is critical, as only a small percentage of Conakry's business and Government sector is equipped with English language skills.
Although France has traditionally been Guinea's strongest trading partner, U.S. investors and exporters profit from a strong public and private interest in U.S. goods, services, and technology.
In the area of manufactured goods, American-source machinery and equipment will see increasing demand as the pace of local business activity increases. To date, heavy mining equipment and agricultural machinery have successfully penetrated the market; with upgrading and expansion efforts over the next 12 to 18 months, there may be an opportunity for expansion in this area. There is also a constant demand for construction materials such as clinker and asphalt. High technology products and services may also see a small market niche opening over the medium term.
Guinea imports much of its food. Traditionally, this has consisted of rice, flour, oil, and sugar. Over the past 18 months, activities by private Guinean traders have increased import of widely popular supermarket goods, primarily for sale in Conakry. The prospects for further expansion of American products to gain a larger market share are good.
U.S. exporters are encouraged to insist upon an irrevocable letter of credit before shipping products to Guinea.
Any U.S. firm seeking to export to Guinea or needing information on Guinean economic policies, investment laws, and customs regulations should contact Mr. Philip Michelini, senior country specialist, Western and Equatorial Africa, the U.S. Department of Commerce; the Embassy of the Republic of Guinea in Washington, DC; or the Economic/Commercial Officer, U.S. Embassy in Conakry, Guinea.
Source: United States Embassy - Conakry
Contact : info@webguine.site
webGuinée, Camp Boiro Memorial, webAfriqa © 1997-2013 Afriq Access & Tierno S. Bah. All rights reserved.