Guinea-Bissau: New Beginnings After Troubled Past

Guinea-Bissau has largely fallen off the map of dynamic Africa but this small country has no shortage of investment opportunities. In November, a British All-Party Parliamentary Group and Ecobank organised a summit where Guinea-Bissau leaders met potential UK investors.

Guinea-Bissau is one of Africa’s smallest states with a population of a little over 1.5m. It is tucked away between Senegal and Guinea on the West Coast of Africa and is composed of the mainland part and thousands of small islands on the Atlantic shore.

Guinea-Bissau won independence from the Portuguese in 1974 after a long struggle led by the African Party for the independence of Guinea and Cape Verde (PAIGC). Luis Cabral presided over the country for the next six years before he was overthrown by army chief Joao Vieira. This precipitated a period of political instability.

Although constitutionally a multi-party democracy, the country has experienced two coups, a civil war, an attempted coup and a Presidential assassination.

It is considered one of the poorest countries in Africa with an economy reliant principally on the export of cashew nuts in raw form, potash mining and subsistence fishing and farming.

But the country is now determined to turn over a new leaf and join the growing band of African nations that are rapidly moving up the economic gears.

With its miles of unspoilt white beaches, good arable land and virtually untapped mineral resources, Guinea-Bissau is looking for investors in the tourism, agriculture and mining sectors.

It is also seeking private partners to run its telecommunications, the port, electricity, water, the national airport, forestry, timber and printing. But the government is aware that the country suffers from a poor image. Despite ‘free and fair’ elections in 1994, 2000, 2005 and 2009, the military interventions, including the assassination of the former President João Vieira and the civil war of 1998, have branded the country as unstable, thereby discouraging investors.

In addition, organised crime has contributed to the instability. The many remote islands and run-down security forces have made Guinea-Bissau a key link in a global drugs route, estimated at $1.8bn a year. It has been used as ‘stopover’ point for mostly Colombian-controlled cocaine from South America heading to markets across Europe.

A vividly-written 2008 report by the UN Office of Drugs and Crime highlights the impact of the trade on countries with a small GDP and weak institutions. According to the IMF, Guinea Bissau’s GDP is about $938m this year and annual exports are worth $141m. The UN report says a single 600kg shipment of drugs could fetch $33m on the European wholesale market.

The situation was so bad that in April 2010, the US imposed financial sanctions on the heads of Guinea-Bissau’s navy and airforce under a ‘drug kingpin’ act.  

Guinea-Bissau’s current political leaders know they have to move fast to build the economy, strengthen law enforcement, improve security reforms and change the image.

The current government won a large parliamentary majority in legislative elections in 2008 and Presidential elections in 2009, which were both considered free and fair. The government is led by President Malam Bacai Sanhá and Prime Minister Carlos Gomes Júnior.  

Plenty of potential

Poverty is a major challenge after scores of years when instability blocked development and investment. Social indicators are very weak, with more than two thirds of the 1.6m people living under the poverty line. Guinea-Bissau ranked 164 out of 169 countries in the UN’s Human Development Index 2010.

Farming and fishing represent 46% of GDP, and farming creates 80% of jobs and 90% of exports – chiefly cashew nuts.

Infrastructure, such as electricity and water supply, is decrepit. However liberalisation brought two private operators to compete against the state-owned enterprise and mobile telecommunications are growing fast.

Nevertheless, Guinea-Bissau has considerable potential. According to the World Bank: “The country has the natural resources and the geography to grow at a reasonable rate. It has an abundance of high-quality land and favourable rainfall. Its rich mineral deposits, exotic biodiversity, and fishing and tourism potential could provide diverse sources of income.” The tourism department highlights the country’s attractions as including  a warm and welcoming people, unspoilt societies and pristine parks, with less harassment and theft in cities compared to some countries.

Over the last few years, the economy is improving with fiscal revenue rising and government spending contained. Progress is also being made in public-sector reform and other policy areas.

In May 2010, the International Monetary Fund issued an Extended Credit Facility; and last December the country reached ‘completion point’ under the World Bank-IMF Heavily Indebted Poor Countries (HIPC) initiative, leading to $1.2bn in debt reduction and other debt relief.

In May-June 2011 the Paris Club of lenders agreed to write off $283m in debts and further cuts are being discussed. The latest IMF mission, in September 2011, concluded that performance is satisfactory and “implementation of structural reforms is on course to meet most structural benchmarks”.

A range of donors is helping. These include an Angolan mission to modernise the military and a $12m Angolan grant. Donors are also backing steps to improve the business environment – in May, a Centre for the Formalisation of Enterprises with a one-stop registration office was launched.

Other positive steps include a new Commercial Tribunal, adopting laws from the Organisation for the Harmonisation of Business Law in Africa (OHADA) and creating other business-oriented legislation such as codes for public-private partnership and investment.

Growth in 2010 was 3.6%, buoyed by export prices, infrastructure projects and housing construction. The IMF anticipates 5.3% growth in 2011, based on a good harvest and solid prices for cashews as well as more liquidity in the banking system. “Growth is projected to remain robust in 2012, reflecting expectations of sustained cashew production/exports, and buoyant construction activity, on the back of a return of confidence,” it said.

Unexplored territory

Minerals are still largely unexplored. The Angolan government is part owner of a bauxite mining company, which has also pledged to build a railway and port.

A Toronto-listed company has a production licence for phosphorus and oil companies are exploring offshore. China has built a new fishing port in Bissau and signed a deep-water fishing agreement for up to 15 vessels. There is a fisheries agreement with the EU, and several countries involved; unfortunately, a few countries are still fishing illegally in the 200-nautical-mile economic exclusion zone. India is the main importer of cashews. Brazil backs capacity-building, including in education.

The EU was a key development partner, but withheld budget support in 2010 after military unrest led to the government to replace the head of the army with the leader of the uprising. Normalisation talks with the EU are progressing and in February 2011 UN Secretary-General Ban Ki-Moon reported: “I am encouraged by the noticeable progress that Guinea-Bissau has made to reverse the negative effects of the civil-military events.”

Guinea-Bissau’s political leaders hope to use this ‘window of opportunity’ to widen partnerships and push reforms that can transform politics and the economy.