ECONOMY
Richly
endowed with minerals, Guinea possesses over 25 billion metric
tons (MT) of bauxite--an estimated one-third of the world's proven
reserves of bauxite--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 provide 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 Alcan. CBG exports about 14 million metric tons of high-grade bauxite every year. The Compagnie des Bauxites de Kindia (CBK), a joint venture between the Government of Guinea and Russki Alumina, 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 Guinée (ACG), which took over the former Friguia Consortium, produced about 2.4 million tons 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 Global Alumina and Alcoa-Alcan 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 also mined and exported on a large scale. AREDOR,
a joint diamond-mining venture between the Guinean Government
(50%) and an Australian, British, and Swiss consortium, began
production in 1984 and mined diamonds that are 90% gem quality.
Production stopped from 1993 until 1996, when First City Mining
of Canada purchased the international portion of the consortium.
The largest gold mining operation in Guinea is a joint venture
between the government and Ashanti Gold Fields of Ghana. SMD also
has a large gold mining facility in Lero near the Malian border.
Other concession agreements have been signed for iron ore, but
these projects are still awaiting preliminary exploration and
financing results.
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. Guinea has the potential to develop, if
the government carries out its announced policy reforms, and if
the private sector responds appropriately. So far, corruption
and favoritism, lack of long-term political stability, and lack
of a transparent budgeting process continue to dampen foreign
investor interest in major projects in Guinea.
Reforms since 1985 include eliminating restrictions on agriculture and foreign trade, liquidation of some parastatals, the creation of a realistic exchange rate, increased spending on education, and cutting the government bureaucracy. In July 1996, President Lansana Conté appointed a new government, which promised major economic reforms, including financial and judicial reform, rationalization of public expenditures, and improved government revenue collection. Under 1996 and 1998 International Monetary Fund (IMF)/World Bank agreements, Guinea continued fiscal reforms and privatizations, and shifted governmental expenditures and internal reforms to the education, health, infrastructure, banking, and justice sectors. Cabinet changes in 1999 as well increasing corruption, economic mismanagement, and excessive government spending combined to slow the momentum for economic reform. 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 have continued
to battle inefficiency, corruption, and nepotism over the past
year, and foreign private investors in these operations have departed
the country in frustration.
In 2002, the 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. Exchange rates have been allowed to float, price controls on gasoline have been loosened, and government spending has been reduced while tax collection has been improved. These reforms have not slowed down inflation, which hit 27% in 2004 and 30% in 2005. Depreciation is also a concern. The Guinea franc was trading at 2550 to the dollar in January 2005. It hit 5554 to the dollar by October 2006.
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.
Even though there are many problems plaguing Guinea’s economy, not all foreign investors are reluctant to come to Guinea. Global Alumina’s proposed alumina refinery has a price tag above $2 billion. Alcoa and Alcan are proposing a slightly smaller refinery worth about $1.5 billion. Taken together, they represent the largest private investment in sub-Saharan Africa since the Chad-Cameroun oil pipeline.
GDP (2005 est.): $3.38 billion.
Annual economic growth rate (2005 est.): 3.3%.
Per capita GDP (2005 est.): $363.40.
Avg. inflation rate (2005): 30.9%.
Natural resources: Bauxite, iron ore, diamonds, gold, water power, uranium, fisheries.
Industry (30.9% of GDP): Types--mining, light manufacturing, construction.
Agriculture (19.5% of GDP): Products--rice, cassava, fonio, millet, corn, coffee, cocoa, bananas, palm products, pineapples, livestock, forestry. Arable land--35%. Cultivated land--4.5%.
Trade (45.1% of GDP): Exports (2005)--$806.6 million: bauxite, alumina, diamonds, gold, coffee, pineapples, bananas, palm products, coffee. Major markets--European Union, U.S., Commonwealth of Independent States, China, Eastern Europe, Japan, Saudi Arabia, Morocco.
Official exchange rate (May 2006): Approximately 4833 Guinean francs=U.S. $1.
Fiscal year: January 1-December 31.
