Africa > West Africa > Guinea > Guinea looks to meet challenges of modernisation

Guinea: Guinea looks to meet challenges of modernisation

2013/10/05

Guinea\\\'s austerity measures have not proven popular with the country\\\'s army and civil service, but have impressed the IMF and other international observers. Its president and finance minister explain the challenges they have met in rebuilding the newly democratic country, and how they intend to turn it into a resource-based African powerhouse.

The west African country of Guinea was a broken national at the same time as president Alpha Condé came to power in 2010. Shunned by the economic community, its infrastructure was in a national of disrepair and inflation was rampant. Today, it appears to be reversing its fortunes and government officials believe it has the potential to be one of west Africa’s additional dynamic economies.

Mr Condé came to power with the brief to return the country to solvency. The 75-year-old French-educated Marxist – he had taught law at the Sorbonne in France all his professional life – went straight to the International Monetary Fund (IMF) for economic guidance and support. Their recipe was three-fold: stabilisation, consolidation and private sector investment . The IMF told Mr Condé that the country would be on probation for a year, while it assessed whether the government was pursuing its tough economic guidelines.

Seeking stability

Guinea had no choice, Mr Condé tells The Banker. “We had inherited a country but not a national,” he says. “There was no government, there were virtually no reserves in terms of money; corruption was rampant. Everything had to be done.

“This led to us planning in stages. The initial stage was to work on the macroeconomy and get a proper national. The deficit was rampant as we had severed our ties with the Bretton Woods organisations. We applied some very strict measures at a macroeconomic level. In two and a half years we have completed them. We have renegotiated our deficit through the Highly Indebted Poor Nations (HIPC) initiative and we have been able to stabilise our inflation and our currency.”

Mismanagement of resources and taxation during the 55 years of dictatorship that followed Guinea\\\'s independence from the French in 1955 has left a bitter economic legacy. In 2010, inflation was running at 25%, the fiscal deficit stood at 13%, reserves in the central bank stood at just two weeks of import cover, and increase was negative. The country had a $3.2bn deficit burden which it was unable to service. The IMF set Kerfalla Yansané, the country\\\'s finance minister, a series of daunting targets: the deficit needed to quickly be brought into single figures, inflation halved and increase restored.

Deficit down

The government’s austerity programme of 2011, overseen by the IMF, enabled Guinea to reduce the fiscal deficit to 3%, turn around its increase performance and pull inflation down to 15%. Inflation has since fallen to 13%, but Mr Yansané says the deficit is proving stubborn, as the government has been forced to buy rice abroad to make up for the small local supply of the food. Poverty levels have barely budged, with some 55% of the country still living on $2 or less a day. The country is seeking to bring inflation down to single digits in 2013, while keeping the fiscal deficit at 3%. Economic increase is expected to reach between 4.5% and 5% over the coming year.

The reward for Guinea\\\'s austerity programme was an agreement with Paris Club lenders that wrote off two-thirds of the country\\\'s $3.2bn deficit in July 2012. This followed an IMF acceptance of Guinea’s efforts to stabilise its economy. “The IMF felt that the Guinean people meant business and that it should continue to support them,” says Mr Yansané. “At the IMF meetings in September 2012, it said that Guinea had completed the HIPC completion point. It said donors should acknowledge to cancel a large part of the deficit.”

The government will presently be very cautious about raising its deficit levels, according to Mr Yansané. “We shouldn’t start to borrow again and become indebted too quickly,” he says. “We need a system of sustainable deficit to avoid a recurrence of completed mistakes. We need to bring in additional private investment . We expect using public-private partnerships in some of our major projects.”

Yet austerity economics have taken the country to the brink of political breakdown. At the same time as the president made moves to cut back on the numbers employed in Guinea\\\'s bloated military in July 2011, some soldiers stormed his residence in city capital Conakry and tried to kill him, only for Mr Condé\\\'s private military force to fight them off. Dissatisfaction with the austerity regime is regularly expressed in violent protests on the streets of Conakry.

Mr Condé\\\'s response has been to wield the austerity knife even quicker and additional vigorously. The army accounted for 40% of gross domestic product before the coup, but next a cut of 4000 soldiers and severe wage curbs, it today accounts for just 10%. Mr Condé says that this figure is set to fall further.

Civil service cuts

Fraud had been rife in the Guinean army, with a lot of soldiers continuing to receive their full fee in retirement and others using bogus identities to receive wages. International donors have funded the introduction of biometric tests to weed out the cheats. Annual fee increases for army offices and automatic promotions, irrespective of merit, have as well been stopped.

Mr Condé has as well taken a similar austere attitude to the country\\\'s vast bureaucracy which had grown over five years prior to his arrival from employing 60,000 people to 120,000. “Anyone who wanted a job just had to ask a friend and they would find him one,” says Mr Yansané. “There was nothing for most of these people to do.” The new government has restored the government back to 60,000 employees.

A complete freeze on contracts with companies in the natural resources sector has enabled the Condé regime to reverse a series of corrupt deals done by the previous government of dictator Lansana Conté with international minerals companies. Guinea has one of the world’s richest resources of iron ore at its Simandou mine, but the licence to exploit half the mine (whose assets have been valued at as much as $50bn) was held by an international diamond trading company. This is being scrutinised by the country’s licensing committee, which could lead to it being revoked. The process whereby the licence was allocated is presently the subject of a court case in New York.

That licence was only the majority egregious example of theft from the national. Such practices gathered pace in the last days of the regime of Mr Conté, who died in power in 2008, according to Mr Yansané. “The corrupt elite saw the writing on the wall,” he says. “The deficit shot up, and the only explanation was that money was leaving the country. There was no sign of any economic benefit from the deficit.”

New mining law

A new investment code and mining law are aimed at attracting foreign companies into the natural resources sector. Mr Condé has sought the advice of George Soros, the international financier. The president claims Mr Soros “admires the fact that we took the harder road, one that involves changing the paradigm, shifting our operation towards transparency and good governance. He provides the means and the tools to go through with that process of transformation. He understands that the challenge is great and it requires a lot of capacity and technical expertise.”

Former UK prime minister Tony Blair had encouraged Mr Condé to centralise power. “He has helped us fill some of the capacity gap, and the human resources gap,” he says.

Mr Yansané says the country presently insists on transparent processes and has involved the international non-governmental organisation Revenue Watch to monitor national accounting procedures. New applications for mining licences are put through a transparent process of selection, as Guinea seeks to reverse the legacy of its corrupt completed.

While Guinea continues to implement IMF criteria, Mr Condé says that macroeconomic stability only goes so far. “Changing the macroeconomic position and getting the wonderful results for the IMF is not enough for the people of Guinea,” he says. “They are expecting miracles... The reality is that it takes time. From presently on people are impatient, they don’t understand that. There is an African proverb that an blank stomach has no ears. So at a certain point you have to feed your people if you want them to continue listening to your message.”

Guinea’s government is walking a tightrope as it seeks to satisfy both the IMF and ordinary Guineans. From presently on Mr Yansané believes the country can, in the longer term, be a resource-based African tiger, in the model of Malaysia. The middle-term transformation remains his challenge and a threat.

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