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Improvement of Guinea's Economy and Impacts on the Lifes of the Population

Term Paper 2015 8 Pages

Business economics - General

Excerpt

Introduction

The Republic of Guinea is a poor country in the West Africa region. It is endowed with considerable, unexploited resources. It has the world's largest reserves of bauxite(2/3 of global reserves as well as large deposits of iron ore, gold and diamonds. It also has the potential to develop other metals, oil and gas.

However, persistent structural and institutional weaknesses have prevented Guinea from developing a strategic vision and implementing the types of policies needed to reap the full benefit of its mineral wealth. Added to this, rampant corruption, dilapidated electricity and other degraded infrastructure, and political instability have drained and eroded investor confidence. Over the second half of the last decade (2010-2015), Guinea's economy has undergone major transformations with ups and downs. In 2013, economic growth was estimated at 2.0%, down from 3.9% in 2012 due to political dispute over the holding of parliamentary elections, a drop of investment in the mining sector and a recent ebola outbreak in the Forest Guinea region . Growth, driven by agriculture, improved electricity supply and construction, is expected to increase to 4.3% in 2015 as follows in the table below.

Due to major efforts deployed by the public authority of Guinea in overcoming a number of major obstacles underlined above, reforms which started earlier in 2010 still continue in 2015 so as to transform positively the economy of Guinea in reducing poverty, promoting economic development and building a strong, stable political environment suitable to promote private investment and improve the business climate.

Macroeconomic stabilization policies and the conduct of profound economic reforms to jumpstart the reeling economy of Guinea did not show enough progress in reducing critical poverty which still plagues 55.2% of the population. Governance in the public sector is still a major issue, with the country ranking in Transparency International Corruption Index 164th out of 182 countries and 178th out 187 countries in UNDP Human Development Index. In order to improve the development indicators, the Government of Guinea has adopted major policy actions embedded in the third poverty reduction strategy in 2013 conceived to speed up policy reforms in natural ressource management and the growth-driven productive sectors (agriculture, mining, energy and water supply, investment and business) to remove major economic obstacles to transfoming Guinea's economy in the near future. These obstacles include low farm labor productivity. In order to improve the prospects for the economy of Guinea, there is the need to undertake economic reforms in the following: industrial sector, infrastructure, and poor energy supply limits in order to increase the opportunity for the country to participate in the Global value Chains. Another block that limits the country inclusion in the Global Value Chain is the low capital productivity and a large, inefficient and unmotivated bureaucracy.

The central question to be debated over this paper is How is the economy of Guinea improving or not improving?

Even though the answer is not an easy exercise, there is no doubt that prospect seem promising for the improvement of the economy despite the exogenous factor of ebola irruption in the stage in Guinea in 2014. The projected economic growth rate for 2015 projected to reach 4.3%, high enough to curb severe rural and urban poverty.

Body

The improvement of the Guinean economiy depends on the economic reforms undertaken by public policy authorities since the 2010 presidential election. These courageous and forwardlooking reforms are backed by the International Monetary Fund's Extended Credit Facility, and aimed to clarify relations between the Cemtral bank (BCRG) and the tresory, improve business environment, update mining laws, make energy prices more flexible and revive the energy sector. GOG has also undertaken policy measures aimed at clarifyingthe Central Bank of Guinea( BCRG) role as agent of econmic development. The wider goal of the major reforms is to allow the private sector to become a major force in economic growth.

Reduction in mining investment combined with opposition parties protest over parliamemntary elections in 2013-2014 reduced growth prospect from the expected 4.8% to nearly 2.0% . The adoption of a new investment code in 2010 then renewed again in 2011 contributes greatly to improving business climate in Guinea, necessary to build investors' confidence. As the result of the renewed confidence in the country investment sector, the mining sector giant Rio Tinto has planned to invest USD 20 billion in Guinea to generate an annual turnover of USD 7.6 billion with production to beging in 2013 and exports in 2015. Unfortunately, the ebola outbreak has suspended some major operations by Rio Tinto and darkened the good prospects of the economic situation in Guinea.

Growth in manufacture sector, commerce and transport slowed because of political unrest, with manufacturing expansion only 2.5% down from 4.8% in 2012, commerce 2.5% from 4.5% and the transport 3.5% from 5%.

Notewithstanding the ebola outbreak in Guinea, the economy is expected to grow faster in 2015 at 4.3% spurred by the secondary sector up to 5.3% and almost doubled 10.4% in 2015 and the tertiary sector up 3.7% (3.9% in 2015). Industry and services should benefit from expansion of public construction, along with water, electricity and gas, manufacturing and commerce. Continuing governement support should also boost agriculture. This improves the prospect of the economic situation related to poverty reduction, economic growth and political stability.

Prospect for 2014 and 2015 has improved with the new parliamentary elections and the revival of mining investment will boost growth in the productive sectors.

As the result of the adoption of the new mining code, a conference of the Guinea's aid donors and private investors in Abu Dhabi in November 2013 with the help of the African Development Bank (AfDB), the World bank and the United Nations Development Program, a production agreement was signed by the Guinea Alumina Company (GAC) with Abu Dhabi investment firm giant Mubadala and the project is expected to increase revenues for the population, thus reducing poverty and promoting economique growth among the poorest. The end of the political transition and the installation of the new assembly has had a paramount importance on easing the political tension, improved social peace and raised prospects for 2014 and 2015. Even though the prospect is good, tensions over the holding of local elections

and a presidential vote scheduled in the last quarter of 2015 are another risks, including the inability and difficulty for the country to effectively implement economic reforms policies. In order to promote economic development for the benefit of the population, a way of improving the economy of the country, the GOG should implement drastic macroeconomic policies under the auspices of the financial institutions, notably the IFM and the WB. These reforms include fiscal policy, monetary policy, foreign trade and investment at regional and international level. In the area of budget/fiscal policy, GOG's efforts should focus on managing and improving public finance management of the government revenues and debt. These efforts should also include a better monitoring of investment projects in major productive sectors and an effective management of government debt to private and foreign donors. The reorganization of the economy and the governement structure and ministerial spending has allowed to save more money and invest in the vital sectors for the economy. The debt reconversion programs linked to Guinea reaching the completion point under Heavily Indebt Poor Countries Initiative has made the tax revenue a major component of governement revenue. The overspending by the GOG has slowed increasingly, which gives room to more public investment in water and energy supply, road construction, etc. In monetary poilicy implementation, the main objective is to cut inflation and maintain foreign exchange reserves. Year on year inflation was 15.2% in 2012, down from 20.8% in 2010, and the end of 2013 was 12.2% with projections of 6.8% in 2015. Thanks to the BCRG ending monetary funding of the budget deficit, tighter control of money creation and better management of public finances, notably spending. The real interest rate became positive, helped by lower inflation, the BCRG raising its intervention rate to 22%, along with its minimum reserves requirement, to mop up excess liquidity created by the transitional military rule in Guinea. In the view of the improvement of the Guinean economy, the cut in the intervention rate to 16% in February 2013, and of the reserves requirements from 22% to 20% in December of 2013 so as to ease funding constraints without causing inflation did not affect this trend. Better interest rates were matched by improved banking intermediation indicators and loans to the economy increased drastically, thus contributing to improve the state of the economy.

In the area of trade liberalization policy, the import and export policy reforms envisioned by the GOG aim at enhancing export capabilities of the agricultural sector by increasing productivity and promoting modernisation and competitiveness. The measures to facilitate export growth include allowing the import of capital for the agricultural sector, reducing the list of agricultura products that cannot be exported, and removing the minimum export price from a number of products.

Guinea is also a contributing partner in the African Growth and Opportunity Act (AGOA) program since 2011. AGOA, known as the major trade liberalisation policy ever enacted by the US government(USG) , was signed into law by the USG to promote trade and investment between the US and African countries engaged in promoting peace, democracy and freedom of expression, market-based reforms, not involved in arms and drugs trafficking, etc. In this perspective, Guinea was able to export growth-driven products to the US duty free and quota free. The major beneficiaries of this legislation are the rural producers. Therefore, the economy of Guinea is improving in the benefit of the population.

Conclusion

Reforms in the above productive sectors has greatly contributed to the improvement of economic performance of Guinea, reduced the external debt and and the huge fiscal deficit inherited from the military and transitional era. In view of these reforms, the economy of the country continues to improve by creating decent jobs for the workforce, promoting economic growth, promoting economic cooperation and trade relationn at regional and international level.

Table. Macroeconomic indicators

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Bibliography

-Keita, Youssouf. “External Debt Crisis and Government Overspending during the Transitional Period and Economic Reforms in Guinea.” Consultancy Africa Intelligence 17 October 2011.
- Manlan, Olivier. “African Economic Outlook, Guinea.” http://www.africaneconomicoutlook.org.
- US Geological Survey “Bauxite and alumina”, Mineral Resources Program. http://www.minerals.usgs.gov.
- “Guinea Analysis: Economic Environment”, Guinea Mining http://www.guinea-mining.com.
- Guinea: Poverty Reduction Strategy Paper http://www.aideffectiveness.org.

Details

Pages
8
Year
2015
ISBN (Book)
9783656953807
File size
509 KB
Language
English
Catalog Number
v299109
Institution / College
Atlantic International University – School of Business and Economics
Grade
B
Tags
improvement guinea economy impacts lifes population

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Title: Improvement of Guinea's Economy and Impacts on the Lifes of the Population