Everyone knows that rich resource endowment is not necessarily a blessing for any poor country as it often leads to the ‘resource curse’. But Guinea – despite the additional difficulties of the Ebola virus – has made great attempts to shake off the past.
The government of Guinea made extensive economic reforms, since 2012, to qualify for World Bank debt relief. The new mining code was rewritten and enacted in 2013 after a negative response to the first draft by investors in 2011. Most importantly perhaps, the 2010 presidential contest was the first democratic election in the country in nearly half a century.
Guinea possesses the world’s biggest untapped iron ore resource, one of the world’s largest reserves of bauxite (aluminium ore), as well as gold, diamonds, fertile soil, good rainfall and some of West Africa’s most sizeable rivers. Yet it is one of the globe’s poorest countries, ranked 182 out of 188 in the 2014 UN Human Development index.
Recent progress – especially in the energy sector – suggests that Guinea may have turned a critical corner. In early 2016, however, a renewed flare-up of Ebola in the region has sounded a cautionary note. The nation was the epicentre of the 2013 outbreak and suffered about 2 500 deaths. That tragic episode curtailed economic growth, which had slipped to 2.3% in 2013 and just 0.9 % in 2015.
If there is a key to the problems that the citizens and economy of Guinea have had to endure, it is poor governance. With a population of 11 million, the country has been under civilian or military dictatorships for most of its independent existence.
Guinea – not to be confused with the two other African countries with similar names, neighbouring Guinea-Bissau and oil-rich Equatorial Guinea in western Central Africa – was under dictatorship, from independence in 1959 to a military coup in 2008.
Its first post-independence leader, Ahmed Sékou Touré (in power from 1959 to 1984) was an iconoclastic figure who refused to join the French African Community after indepen-dence. Consequently, the country became something of a pariah, experiencing almost no direct foreign investment or infrastructural development for more than four decades.
Recent progress – especially in the energy sector – suggests that Guinea may have turned a critical corner
In 1985, life expectancy of the average citizen of Guinea was 38.8 years. The opening of the country is reflected in the increase of this indicator to 53.3 years in 2013. It’s certainly a decent improvement, especially bearing in mind the impact of Ebola but Guinea still has a long way to go. There are, however, other signs of movement in the right direction.
In 2014, Transparency International (TI) ranked Guinea 145 out of 175 in the annual update of its corruption perceptions index. Although that doesn’t look terribly good, it’s a figure that is steadily improving. Guinea was 19 places lower in the 2010 ranking (164 out of 178).
More importantly, an extensive TI survey published in December 2015 found Guinea to be one of the few countries in Africa where local respondents said they had experienced less corruption at the time of the interview than a year previously.
Guinea’s past struggles and current potential are illustrated by its energy sector. With access to three major rivers – the Niger, the Senegal and the Gambia – it would appear to be tailormade for hydroelectricity. Yet until last year, Guinea had a generation capacity of only 226 MW, much of which was unreliable or out of commission.
In May 2015, however, the 240 MW Chinese-built Kalata hydroelectric facility came on-stream, more than doubling Guinea’s capacity. Energy security is a much-needed part of the equation required to enable Guinea to take advantage of its resource endowments, especially in bauxite and iron ore.
The company responsible – the China International Water and Electricity Corporation – is investigating another plant, a 550 MW facility at Souapiti. The government of Guinea has announced that an MOU for the US$1.5 billion project has been signed.
The main value-add potential in the country’s bauxite industry lies in the processing of the mineral locally rather than simply exporting it wholesale.
However, smelting aluminium is one of the most energy-intensive industrial processes. Guinea is not in this game yet, although the effort in energy is a positive sign.
Iron ore raises another matter. The Simandou iron ore deposit has – according to what are probably conservative estimates – the potential to produce 100 million ton/year, with a value of US$4 billion. The right to mine is currently owned by mining major Rio Tinto, which also had outright possession of it in 2008. Events surrounding this have become much-talked about in the mining industry.
In 2008, then president Lansana Conté signed ownership of the (richer) northern half of Rio Tinto’s asset over to Israeli diamond dealer Beny Steinmetz, who promptly sold it to their rival Vale. On discovering that the claim it had bought was shaky, Vale stopped paying Steinmetz. He then sued Vale, and Rio Tinto sued Vale and Steinmetz. In turn, Steinmetz filed for arbitration against the government of Guinea.
Auditors EY were dragged into the fray and accused of malpractice. In the middle of it all Rio Tinto had to pay a further US$700 million to regain rights to the Simandou asset.
This year, Rio Tinto seems to be back in the saddle but the moment has been lost. The international price of iron ore (which had soared sixfold from US$30/ton to US$180/ton) after 2003, on the back of rampant Chinese demand, has fallen steadily over the past two years and is now little better than when it started the ‘super cycle’. The truth is that there is far too much supply in the global iron ore market and it would be irrational for any company to develop a major new asset at this point. Rio Tinto is trying to retain the asset without developing it in the immediate future.
The government of Guinea, on the other hand, would clearly like to show a dividend to the people of the country. It cannot be happy to see its international business partner simply ‘sit’ on the Simandou asset. The cost of bringing Simandou closer to production is estimated at US$20 billion – most of which is required for railway and harbour development.
In the ongoing resources meltdown, Rio Tinto has been the most stable of all the major companies. Previously considered ‘boring’ by comparison, with more glamorous players such as Glencore, BHP Billiton and Anglo American, the comparative stability of its share price is testimony to the way in which conservativism in business pays off when times get hard.
Guinea is at a turning point. The future of the country may be affected by such external ‘shocks’ as the drop in iron ore prices but determining future direction is now firmly in the hands of its citizens and their leaders.