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Guinea-Bissau - Economy

One of the poorest countries in the world, the value of the illicit narcotics trade in Guinea-Bissau is a significant contributor to its economy. Traffickers from Latin America and collaborators from the region continue to take advantage of the extreme poverty, unemployment, political instability, lack of effective customs and law enforcement, and general insecurity to make the country a major transit point for cocaine destined to consumer markets, mainly in Europe.

Growth in the gross domestic product (GDP) for 2017 was projected at about 5 per cent, slightly lower than the 5.1 per cent level of 2016, but much higher than the Sub-Saharan African average of 2.6 percent. This is the combined result of an increase in cashew nut production and exports, growth in the construction sector, a more stable macroeconomic framework, increased public revenues (by 32.4 per cent), and enhanced discipline in the management of public finances. Total production of cashew nuts is estimated to exceed 170,000 tons, with prices at historically high levels (producers were being paid an average of 1,050 CFA francs ($1.75) per kilogram as at the end of June 2017). Despite the continued suspension of direct budget support, the Government has paid salaries on a regular basis and has covered some basic expenditures.

Despite the political crisis, Guinea-Bissaus economic performance had been remarkable. The economy expanded by an estimated 5 per cent in 2016, reflecting the impact of another bumper cashew nut harvest. On the social front, the Government paid several months in salary arrears, particularly in the health and education sectors.

Food production decreased by 8 percent during 2016 in comparison with the previous five years. However, food availability remained adequate, owing mainly to the successful cashew nut campaign and favorable international prices. To reverse the trend of the poor harvest in the agricultural season of the previous year, the Ministry of Agriculture and Rural Development, with the support of international partners, assisted farmers by providing agricultural inputs and pesticides and by promoting food-for-work activities.

Almost ten years after the 1998/99 armed conflict and the political instability that followed, the economic and social situation in Guinea Bissau remained largely fragile. Two thirds of Bissau-Guineans live in absolute poverty and achievement of the MDGs by 2015 was unlikely. The country is ranked 175 out of 177 countries in the UNDP Human Development Report for 2007-2008. Guinea-Bissau equally displayed low economic performance, with a growth rate of 1.8 % in 2006 and 2.7% in 2007.

Dependence on one single economic export commodity, cashew, the rise in prices of oil as well as of basic products such as rice, milk and flour affect economic growth and the purchasing power of the population, in particular the most vulnerable. The effective per capita GDP was 153 in 2006 and 163 in 2007. Inflation was estimated at 3.8% in 2007, in a context marked by the accumulation of outstanding internal payments, including salary arrears.

The economy remains heavily dependent on cashew nut crops and related exports. Poor cashew management practices have resulted in a high percentage of those crops going unsold or being sold at a price well below the international average. In addition, the financial sector, although crucial for sustained economic recovery, is underdeveloped. Fostering a favourable business climate with a legal and regulatory framework that is conducive to increasing savings and investment, together with the improvement of political stability and the required basic public sector, was crucial to economic recovery.

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-Bissaus 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-Bissaus 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 governments 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 Banks Doing Business survey, the country ranked last out of 183 economies for starting a business. In response, the governments 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.

Maintaining peace and security is crucial for concerted and sustained efforts to fight poverty. In order to eradicate poverty there has to be economic growth, while in order to have growth there has to be a well-functioning and adequate infrastructure, most notably in energy, which was essential to the increased production of goods and services. The lack of diversification in the economy and the countrys poor economic performance, compounded by high unemployment rates, led to a fragile fiscal condition, which, in turn, prevented the Government from providing the basic services that were critical for the maintenance of sustainable and long-lasting peace. Breaking such a vicious circle, in which recurrent economic, institutional and political instabilities are intricately linked, is crucial for addressing peacebuilding challenges in the country.

Food deficit was widely reported by households despite the availability of farmland. Food shortages are caused by limited access to agricultural equipment and fertilizers, poor soil quality and impacts on productivity by local salt water intrusion from the River Cacheu. Some of the produce that is cultivated in home gardens and fields is consumed by the growers and the remainder sold. Peanuts, cashews, cassava and beans are particularly important cash crops.

Forest products are used as food products, for home building material, and for medicinal products. Edible fruit (baobab fruit, palm fruit) is harvested in season, as are fibres, leaves (baobab leaf), sap extracts (palm wine), wood (90% of domestic energy), honey, and several medicinal plants. Products that are used and marketed include charcoal, baobab fruit, palm wine and palm fruit. Houses are built using material directly harvested from the natural surroundings (e.g., thatch, palm leafs, and wooden poles).

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