Africa, Business, invesment, Invesments, news, Uncategorized, World Bank, World Bank Group

Africa News February 01, 2014 at 10:00AM

this blog is spored BY reflex Eco Group

VENTURES AFRICA – A series of crises have dimmed hope in Guinea Bissau, one of Africa most fragile states. The chronic relapse into political instability and violence, including a military coup in April stalls economic growth and distances potential political and economic partners.

However, recent news that November 2013’s postponed elections will go forward in March 2014 is boosting confidence that the country could be at a potential turning point. Nearly 21 months – a milestone for the country in recent times – have passed since the last coup, the fifth in the last decade. The most recent postponement was the result of a gap in funding, which appears to be filled by monies from East Timor and Nigeria. Accordingly, despite the lingering ethnic divide and political volatility, a growing sense of buoyancy and trust is emerging between the local population, civil society actors, and the government.

Elections, Coups and Power Distribution

Building an inclusive government in Guinea Bissau is a never-ending challenge. The Party for the Independence of Guinea-Bissau and Cape Verde (PAIGC) of the ousted former Prime Minister Carlos Gomes Junior, the Party of Social Renewal (PRS) of former president Kumba Yala, and several other smaller parties continue to hash out parameters for an inclusive government ahead of March’s elections. Any decision on the composition of the government and the electoral commission may still be rejected and boycotted by smaller parties immediately before election.

An oversized system of political and economic patronage, amid a noticeable lack of resources, guarantees the victor access to the “local spoils of war” in the winner-take-all system. Control of the office of the presidency is of the highest order. No expense and no trick in the book is too low for victory. Furthermore politicians spend their entire time positioning themselves to either (1) use the newfound riches or (2) undercut the entire electoral process.

Number (1) is evident everywhere in Guinea Bissau where presidential candidates are constantly accused of meddling in the corruption and bribery that still plagues the country. The lack of power authorized in the other branches of government consequently ensures that public expenditures and government appointments reflect the views of the president and perform as an operating arm of the presidency.

Number (2) is best characterized by the army and its reluctance to exit the political system. The Guinea Bissau Armed Forces Chief of Staff General António Indjai persistently objects to any diminished role for the army and recently insisted he would not retire or resign in the near future. Indjai, indicted by a federal grand jury in New York on cocaine and weapons-trafficking charge, oversees the institution that is best described as the “strongest and most vocal voter” in the country.

No elected president has ever completed a term in office with all but one removed by the military. The last coup occurred several days before the April 29, 2012 presidential run-off when the army detained poll front-runner Gomes and then interim president Raimundo Pereira. All indicators pointed to the desire of the army, dominated by the largest ethnic group Balanta, to further input ethnic conflict into the former Portuguese colony’s election after Gomes, of Portuguese-Africa descent, defeated Yala, a Balanta, in the first round of the 2012 polls.

It is believed that one president, Joao Bernardo Vieira, was assassinated in 2009 to avenge the death of the former army chief Jose Batista Tagme Na Waie, who was assassinated earlier in the day. Of the previous five army chiefs of staff, three were murdered and one was forcibly exiled by a rival officer.

Drug Trade and Economics

The accelerating drug trade, with several sources alleging weekly or biweekly shipments of cocaine to country, has destabilized the military, which controls the trade, and the country. During General Na Wai’s years as army chief, cocaine was reportedly discovered in military facilities. In one well-documented incident in July 2008, troops sealed off and unloaded 500-600 kilograms of drugs from a private plane that landed at the country’s main airport from Venezuela.

The former head of Guinea Bissau’s Navy Rear Admiral Jose Americo Bubo Na Tchuto was indicted on cocaine charges after being arrested off the coast of Cape Verde and flown directly to the U.S. According to a New York Times report in 2012, at least 25 tons of cocaine entered the country from April to July of that year, largely during the presidential elections and following the aforementioned military coup during the presidential run-off election.

The country’s political instability and ideal geographic location – including its numerous and often-unmonitored islands – has created an attractive situation for drug traffickers. It is all but impossible to know the actual amount of cocaine that passes through Guinea Bissau or track it across the islands.

Sources estimate that a kilo of cocaine in Guinea Bissau cost approximately €7,500 in 2012, a bump up in recent years due to increase U.S. oversight in the region. The U.S. authorities estimate that 30 tons of cocaine pass through Guinea-Bissau per year. Thirty U.S. tons is equivalent to approximately 27,215.5 kilograms. That means the annual value of the cocaine trade was equal to €204.17 million or $279.29 million. That would amount to more than 15 percent of the 2012 GDP of $1.83 billion (according to the World Bank). The economy has only grown a smidge above 6 percent between 2008 and 2012, as compared an estimated 30 percent growth in the drug trade during the same time.

The country however saw its relatively best period since early 1990s under former President Malam Bacai Sanhá, with Gomes as prime minister and Indjai as military chief of staff, which lasted from late 2009 through early 2012. Sanhá oversaw a period of strong economic growth, with a boost in cashew production and overall exports, and consistent disbursement of salaries to the civil service.

Opportunity for Investment

Although the political situation remains precarious, things are looking up. A crackdown on the drug trade by international forces is forcing certain leaders within the government to come around. But only policing will not change the country’s outlook.

The macroeconomic situation direly felt the effects of the coup in April 2012, as GDP contracted by 1.7 percent after 5.3 percent growth in 2011. The economy is expected to expand by 4.2 percent in 2013 and 3.5 percent in 2014. Inflation is expected to converge to an average of 2.5 percent over the medium term, according to the IMF, accordingly falling below the 3 percent level established by the eight-country West African Economic and Monetary Union (UEMOA).

The mining sector in the country remains vastly undeveloped. The mining firm Bauxite Angola won a bauxite concession in 2007 and invested $321 million investment in Guinea Bissau and paid a $13 million upfront fee to the government. The firm is expected to develop a port in Buba and, despite recent political concerns, is working towards its completion in the near term so as to facilitate exports.

Other mining companies, including Chinalco and West Africa Mine Holding, have won concessions to smaller gold deposits.

Noble Energy and Svenska Petroleum operate in a promising oil sector. Greater stability will likely invite more competition and boost development and production across these sectors.

The financial services sector rolls under the radar but offers growing opportunities, specifically as a capital provider to the mining and oil sector. Angolan Banco Privado Atlântico (BPA) has partnered with Guinea-Bissaun Banco da África Ocidental (BAO), allowing the bank more flexibility in capitalizing government-backed infrastructure and mining projects. Portuguese bank Millennium BCP has partnered with Angolan oil company Sonangol to access the potential returns in the oil sector. Yet the bump in financial players in recent years has failed to fill the capital gap in the country. A lacking capital market still undercuts the productivity of other sectors.

Logistics and related services lack financial capital in spite of an obvious nascent market related to mining. Import substitution in the agro-processing and manufacturing would surely boost the economy. But, until the government displays greater stability and provides increased incentives, investors should approach with caution.

Going Forward

A successful and peaceful election in 2014 is only a start to realizing Guinea Bissau’s economic potential, which is inevitably tied to the ability of elected officials to change the political climate. Also, strengthening the authority of the prime minister and the national assembly will help to balance power. The de-politicization of the military will come in due time as the government considers methods to assume greater control on promotions and increased oversight with the entire military. Better pay would also help, as soldiers reportedly earn between $40 and $50 per month, which makes them vulnerable to bribery and corruption.

Securing stability is securing economic growth. Improving political stability will bring about increased international partnerships, investors and a better drug called hope, which will clear the blinding cloud of white dust.

 

 

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