Guinea: Economy

Richly endowed with minerals, Guinea possesses over 25 billion metric tons (MT) of bauxite--and perhaps up to one half of the world's readily exploitable reserves. In addition, Guinea's mineral wealth includes more than 4 billion tons of high-grade iron ore, significant diamond and gold deposits, and undetermined quantities of uranium. Guinea has considerable potential for growth in the agricultural and fishing sectors. Soil, water, and climatic conditions provide opportunities for large-scale irrigated farming and agro industry. Possibilities for investment and commercial activities exist in all these areas, but Guinea's poorly developed infrastructure and rampant corruption continue to present obstacles to large-scale investment projects.

Joint venture bauxite mining and alumina operations in northwest Guinea historically provided about 80% of Guinea's foreign exchange. The Compagnie des Bauxites de Guinea (CBG) is the main player in the bauxite industry. CBG is a joint venture, in which 49% of the shares are owned by the Guinean Government and 51% by an international consortium led by Alcoa and Rio Tinto-Alcan. CBG exports about 14 million MT of high-grade bauxite every year. The Compagnie des Bauxites de Kindia (CBK), a joint venture between the Government of Guinea and Russki Alumina (Rusal), produces some 2.5 million MT annually, nearly all of which is exported to Russia and Eastern Europe. Dian Dian, a Guinean/Ukrainian joint bauxite venture, has a projected production rate of 1 million MT per year, but is not expected to begin operations for several years. The Alumina Compagnie de Guinee (ACG), a subsidiary of Rusal which took over the former Friguia Consortium, produced about 2.4 million MT of bauxite in 2004, which is used as raw material for its alumina refinery. The refinery supplies about 750,000 MT of alumina for export to world markets. Both the Alcoa-Rio Tinto-Alcan consortium and the Guinea Alumina Corporation (GAC), whose stakeholders include BHP-Billiton, the Global Alumina Corporation, the Dubai Alumina Corporation, and the Mubadala Development Company, have signed conventions with the Government of Guinea to build large alumina refineries with a combined capacity of about 4 million MT per year.

Diamonds and gold also are mined, though Guinea’s potential in these two industries has been historically underdeveloped. By far, most diamonds are mined artisanally. The largest gold mining operation in Guinea is a joint venture between the government and Ashanti Gold Fields of Ghana. Societe Miniere de Dinguiraye (SMD) also has a large gold mining facility in Lero near the Malian border as does SEMAFO, a Canadian-based gold mining company.

The Guinean Government adopted policies in the 1990s to return commercial activity to the private sector, promote investment, reduce the role of the state in the economy, and improve the administrative and judicial framework, after decades of socialism under President Sekou Toure. Despite the initial success of these programs to promote economic growth, changes in policy over the following decade up to the time of President Conte’s death made little headway in addressing the structural problems afflicting Guinea’s private sector, although there was some growth. Though growth has since slowed, the informal sector continues to be a major contributor to the economy.

The government revised the private investment code in 1998 to stimulate economic activity in the spirit of free enterprise. The code does not discriminate between foreigners and nationals and provides for repatriation of profits. While the code restricts development of Guinea's hydraulic resources to projects in which Guineans have majority shareholdings and management control, it does contain a clause permitting negotiations of more favorable conditions for investors in specific agreements. Foreign investments outside Conakry are entitled to more favorable benefits. A national investment commission has been formed to review all investment proposals. The United States and Guinea have signed an investment guarantee agreement that offers political risk insurance to American investors through the Overseas Private Investment Corporation (OPIC). In addition, Guinea has inaugurated an arbitration court system, which allows for the quick resolution of commercial disputes.

Until June 2001, private operators managed the production, distribution, and fee-collection operations of water and electricity under performance-based contracts with the Government of Guinea. However, both utilities are plagued by inefficiency and corruption. Foreign private investors in these operations departed the country in frustration.

In 2002, the International Monetary Fund (IMF) suspended Guinea's Poverty Reduction and Growth Facility (PRGF) because the government failed to meet key performance criteria. In reviews of the PRGF, the World Bank noted that Guinea had met its spending goals in targeted social priority sectors. However, spending in other areas, primarily defense, contributed to a significant fiscal deficit. The loss of IMF funds forced the government to finance its debts through Central Bank advances. The pursuit of unsound economic policies has resulted in imbalances that are proving hard to correct.

Under then-Prime Minister Diallo, the government began a rigorous reform agenda in December 2004 designed to return Guinea to a PRGF with the IMF. Although exchange rates temporarily improved, these reforms did not slow down inflation, which hit 27% in 2004, 30% in 2005 and, according to the Economist Intelligence Unit, 34.7% in 2006 and 23.4% in 2007. Exchange rate stability is an ongoing concern. The Guinea franc (GNF) was trading at 2,550 to the dollar in January 2005, reached a low of 5,554 to the dollar in October 2006, and averaged approximately 4,500 to the dollar in 2007 and 2008. The official exchange rate was approximately 5,000 GNF to the dollar in July 2009, but the unofficial exchange rate was about 7,000 GNF to the dollar. In 2007, the IMF launched a new Poverty Reduction Growth Facility for Guinea to support a 3-year IMF program with the objective of reducing poverty and securing debt relief for the country under the Heavily Indebted Poor Countries (HIPC) initiative. As of late 2008, Guinea was on track to achieve debt reduction under the HIPC initiative. However, after the December 23, 2008 coup d’etat, the status of the HIPC program was unclear. In 2009, both the World Bank and the IMF stopped their programming to Guinea. By the end of February 2011, Guinea was officially $16 million in arrears to the World Bank.

Despite the opening in 2005 of a new road connecting Guinea and Mali, most major roadways connecting the country's trade centers remain in poor repair, slowing the delivery of goods to local markets. Electricity and water shortages are frequent and sustained, and many businesses are forced to use expensive power generators and fuel to stay open.

In 2004, the Guinea Alumina (GAC) joint venture (with investments by Global Alumina, BHP Billiton, Dubai Aluminum, and Abu Dhabi’s Mubadala Development) began feasibility studies on a 650 sq. km bauxite mining site. In 2008, the company started the “early works” phase of their project, which includes infrastructure construction on the mining site, the refinery facility, and a transportation network. Alcoa and Rio Tinto-Alcan are also in the early construction phase of a smaller refinery in the area. Taken together, they represent the largest private investment in sub-Saharan Africa since the Chad-Cameroun oil pipeline, and could see a 40% increase in Guinea’s bauxite production upon completion. The $5 billion GAC project is currently moving slowly due to falling commodity prices and massive government intervention. Though production from the site was originally scheduled to commence in mid-2012, it is not likely to reach the production stage until 2014 or 2015. GAC announced in November 2009 that they planned to continue with the construction of their refining plant in 2011.

Rio Tinto signed an agreement with the Government of Guinea in 2003 to develop a 110 sq. km iron mine in Simandou. The company has invested nearly $500 million to date in feasibility studies and early development of their mining site. In December 2008, the government announced that it would be revoking part of Rio Tinto’s Simandou contract. The case is still under consideration in Guinean court. Due to the security situation, government interference, and global commodity prices, Rio Tinto has temporarily slowed its operations at Simandou.

Investment and economic growth slowed considerably in 2009 due to falling commodity prices, the global economic crisis, and CNDD economic mismanagement. After seizing power, CNDD President Moussa Dadis Camara declared that all commercial contracts negotiated under the former regime would be subject to immediate audit and review. True to his word, Camara waged several contract campaigns in his first 6 months in power against large international mining companies including Rio Tinto, Rusal, and AngloGold Ashanti. From September 2009, the insecurity created by government hostility toward investment was compounded by violent political crackdowns and fracturing within the military. Many companies already operating in Guinea slowed exploration efforts considerably for fear that falling prices and government intervention could precipitate massive investment losses. New investments also decreased significantly in 2009.

In the wake of Guinea’s first democratic elections, international interest in Guinea is on the rise. Mining companies are beginning to restart their projects, and investors are arriving with interest in Guinea’s overall economic potential and opportunities in the minerals sector. The government is currently $52 million in total arrears (at official exchange rates) to the IMF and the World Bank. As President Conde has only been in power for 2 months, it is difficult to assess whether government accountability and respect for economic rights will continue to improve.

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