Guinea-Bissau: Economy

Guinea-Bissau is among the world's least developed nations and depends mainly on agriculture and fishing. Guinea-Bissau exports some fish and seafood, although most fishing in Guinea-Bissau's waters is presently not done by Bissau-Guineans and no fish or seafood is processed in Guinea-Bissau for export. The country's most important product is cashews. License fees for fishing provide the government with some revenue. Rice is a major crop and staple food and, if developed, Guinea-Bissau could potentially be self-sufficient in rice. Tropical fruits such as mangos could also provide more income to the country if the sector were developed. Because of high costs, the development of petroleum, phosphate, and other mineral resources is not a near-term prospect. However, unexploited offshore oil reserves may possibly provide much-needed revenue in the long run.

The military conflict that took place in Guinea-Bissau from June 1998 to early 1999 caused severe damage to the country's infrastructure and widely disrupted economic activity. Agricultural production is estimated to have fallen by 17% during the conflict, and the civil war led to a 28% overall drop in gross domestic product (GDP) in 1998. In 2009 Guinea-Bissau made progress stabilizing its economy. Economic growth was low at 3%, reflecting political instability and an unfavorable external environment, but inflation slowed and budgetary stability was regained. The global financial crisis in 2009 resulted in lower prices for cashews, the major cash crop. Fiscal performance was satisfactory. Annual inflation averaged 1.0% in 2009, an improvement from the 10.4% in 2008. This dramatic drop was caused by lower food and fuel prices. In 2009, the external current account deficit (excluding grants) widened to 6.5% of GDP. This higher deficit reflected a combination of lower cashew prices, a surge in imports of oil and construction material, and a decline in remittances. Total revenue in 2009 (excluding grants) increased by more than 16.4%, 2.4% more than forecast. Agriculture accounts for over 60% of GDP, employs over 80% of the labor force, and comprises about 90% of exports.

In May 2010, the IMF Executive Board approved a 3-year Extended Credit Facility (ECF) arrangement of $33.3 million to support Guinea-Bissau’s medium-term economic program. An International Monetary Fund (IMF) mission visited Guinea-Bissau in September 2010. Guinea-Bissau reached the Heavily Indebted Poor Countries (HIPC) Initiative completion point in December 2010. Tax revenues exceeded predictions by 2% of GDP, reflecting a good cashew harvest. The government contained spending and kept domestic arrears on target. On May 10, 2011, the Paris Club of creditors canceled $283 million in debt owed by the Government of Guinea-Bissau; the United States was not a creditor. Guinea-Bissau joined the West African Economic and Monetary Union (WAEMU) in 1997, and has made efforts to harmonize its policies with the standards of the WAEMU, including a switch to a single value-added tax (VAT) rate. The Government of Guinea-Bissau’s priority has been to solicit bilateral donations to cover immediate operational expenditures such as payment of salaries. Although fiscal transparency has improved, the Court of Accounting lacks funding and the necessary independence to effectively audit the government’s budget and expenditures.

The country is open to foreign private investment, but infrastructure and political instability are significant disincentives to potential investors. Operating a business in Guinea-Bissau has been challenging; in the 2010 World Bank’s “Doing Business” survey, the country ranked last out of 183 economies for starting a business. In response, the government’s new Business Formation Center has reduced the time it takes to register a business from 216 days to just 1 day. Private investment is subject to complex administrative regulations, although the government often is unable to enforce them.

On June 8, 2011, Houston-based Noble Energy announced it had joined a venture to explore for oil and gas 65 miles off the coast of Senegal and Guinea-Bissau beginning in summer 2011. The Kora prospect may hold up to 450 million barrels of oil.

Sources: