Africa > West Africa > Guinea > Guinea: Financial Sector Profile

Guinea: Guinea: Financial Sector Profile

2012/03/13

 

The International Finance Corporation (IFC) is helping Guinea in the dispute and negotiations should be complete in the first half of 2014 to allow a quick start to the project and the return of sub-contractors. Growth in manufacturing, commerce and transport slowed because of the political unrest, with manufacturing expansion only 2.5% (down from 4.8% in 2012), commerce 2.5% (from 4.5%)and transport 3.5% (from 5%).


The economy is expected to grow faster in 2014 (4.2%) and in 2015 (4.3%), with the secondary sector up 5.3% and almost double that (10.4%) in 2015 and the tertiary sector up 3.7% (3.9% in 2015).
Industry and services should benefit from a projected 13.5% expansion of public construction, along with water, electricity and gas (+8%), manufacturing (+5%) and commerce (+4%). Continuing government support should also boost agriculture by 5.2%.


Investment (especially private) fell in 2013 to 19.0% of GDP (from 21.9% in 2012), below the 2011 level of 19.6%. Private and public funding was down because of the slowdown in mining and in foreign investment as caution continued until the end of the political transition and the holding of parliamentary elections. The sluggish growth reduced government revenue and overall capital spending was cut to maintain budget balances. Prospects for 2014 have improved with the new parliament and revival of mining investment should boost growth in other sectors.


Overall demand fell in 2013 due to less investment and lower exports (down to 25.4% of GDP, from 28.2% in 2012 and 33.7% in 2011) because of smaller mineral exports and unchanged agricultural exports, which were not offset by a slight increase in services exports. Final private consumption rose to 91.5% of GDP (from 90.8% in 2012), due to good agricultural performances and a steady fall in inflation, while final public consumption was 8.5% (9.2% in 2012).

Remittances from Guineans abroad also boosted consumption.

Mining dominates the economy, mainly bauxite, gold and diamonds. Expected completion of negotiations in the first half of 2014 over the projected Simandou iron mine should draw greater investment that will benefit the services sector. At a conference of the country’s aid donors and private investors in Abu Dhabi in November 2013 with the support of the African Development Bank (AfDB), the World Bank and the UNDP, a production agreement was signed by the Guinea Alumina Company (GAC) with the Abu Dhabi investment firm Mubadala and the project is expected to go forward in 2014.

Despite being a mineral-rich country, whose resources include as much as half of the world’s known bauxite reserves, Guinea is one of the poorest countries on the continent. Infrastructure is poor, electricity and water shortages are common, the political climate is unstable, and much of the population is engaged in subsistence agriculture.

Guinea’s economy and government expenditures are largely reliant on world prices for bauxite and other minerals, and investments in the mining sector are the main driver of growth. The sector grew by 11 % in 2008, due to large foreign investment, estimated at USD 1.4 billion, and higher bauxite prices on the world market.

The country’s dependency on an undiversified export base has led to systemic fragility, exacerbated by high inflation, poor governance and regional instability.

Guinea's financial system is small and dominated by the banking sector. Ten commercial banks, a large part of which is foreign-owned, operate in the country. Despite recent volatility, commercial banks continued to meet minimum capital requirements and their foreign exchange exposure remained within prudential limits. Nonperforming loans, however, are as high as 30 %, based on 2007 data.

Commercial banks offer a very limited range of affordable consumer credit products and, as of 2007, credit to the private sector stood at less than 10 % of GDP.

Due to the difficulty of accessing funding from commercial banks, small commercial and agricultural enterprises have increasingly turned to microfinance, which has been rapidly growing. As of 2007, eight microfinance institutions (MFIs) reported nearly 100,000 active borrowers and portfolios totaling nearly USD 12 million.