Guinea - Economy
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 six months in power against large international mining companies including Rio Tinto, Rusal, and AngloGold Ashanti. Since September 2009, the insecurity created by government hostility toward investment has been compounded by violent political crackdowns and fracturing within the military. Many companies already operating in Guinea have slowed exploration efforts considerably in fear that falling prices and government intervention could precipitate massive investment losses. New investments also decreased significantly in 2009. Though the political situation seemed to be improving as of March 2010, the health of Guinea’s economic future remained unclear.
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 Touré. Despite the initial success of these programs to promote economic growth, changes in policy over the following decade up to the time of President Conté’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 Guineas 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 Guineas 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 three-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’état, the status of the HIPC program remains unclear. In 2009, both the World Bank and the IMF stopped their programming to Guinea. By the end of February 2010, 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 countrys 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.
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