The economy shrank by an estimated 1.5% in 2012 (after expanding by 5.3% in 2011) due to lower production and world prices of cashew nuts and problems after the April 2012 coup d’état. Growth is expected to be 4.2% in 2013 and 3.5% in 2014.
The budget showed a deficit equal to 2.3% of GDP in 2012 (down from a 0.7% surplus in 2011), but deficits are expected to contract to only 0.8% in 2013 and 1.0% in 2014, assuming there is an improvement in economic activity.
Potentially substantial bauxite and phosphate reserves were discovered in the 1970s but have never been mined for lack of infrastructure.
The country’s macroeconomic situation was affected by a coup d’état on 12 April 2012, and the economy is estimated to have contracted by 1.5% of gross domestic product (GDP) that year after having grown by 5.3% in 2011. The slowdown was mainly due to lower production and world prices of cashew nuts, which account for some 30% of the added value in the primary sector. The average price of cashew nuts fell from USD 1 350 (US dollars) a tonne in 2011 to USD 1 081 in 2012. Real GDP growth is expected to recover to 4.2% in 2013 and 3.5% in 2014. Inflation, which was 5.0% in 2011 due to higher import prices, should ease, thanks to expected macroeconomic evolutions, to 2.1% in 2012 (with 3.3% in 2013 and 2.5% in 2014) as the economy slowly recovers and domestic markets are adequately supplied.
The budget showed a deficit of 2.3% of GDP in 2012 after a 0.7% surplus in 2011. Thanks to budgetary discipline and better revenue collection, it is expected to shrink to a deficit of 0.8% in 2013 and of 1.0% in 2014. The current-account deficit worsened to 6.3% of GDP in 2012 but should improve to a deficit of 4.7% of GDP in 2013 and of 4.3% in 2014. Food imports should decline with an expected 5% increase in production and export of cashew nuts in 2013 and a satisfactory 2012/13 crop season.
The social situation is still precarious. Guinea-Bissau has a very low score (0.364) on the worldwide Human Development Index (HDI) and ranks 176th out of 185 countries surveyed in the 2013 report. Per capita GDP was USD 614 in 2010, and more than two-thirds of the population was living on less than USD 2 a day and 33% on less than one dollar a day. The country showed an HDI average annual growth between 2000 and 2010 of 0.9%, compared with 2.1% for sub-Saharan Africa and 1.68% for very low-ranking countries. This bad score was due to widespread poverty, very low incomes because of lack of jobs and a life expectancy of only 48.6 years aggravated by difficult access to good healthcare.
Mineral and oil resources have not been developed, except for some quarrying and small alluvial gold mining operations. Concessions have however been granted in recent years to mine bauxite (2007) and phosphates (1997). Several offshore oil discoveries have been made but their commercial viability is uncertain.
Figure 1: Real GDP growth 2013 (West)
Table 1: Macroeconomic indicators
|Real GDP growth||5.3||-1.5||4.2||3.5|
|Real GDP per capita growth||3.2||-3.6||2.1||1.5|
|Budget balance % GDP||0.7||-2.3||-0.8||-1|
|Current account % GDP||-1.6||-6.3||-4.7||-4.3|
Recent Developments & Prospects
Table 2: GDP by Sector (percentage of GDP)
|Agriculture, forestry & fishing||-||-|
|Agriculture, hunting, forestry, fishing||44.8||47.3|
|Electricity, gas and water||0.4||-|
|Electricity, water and sanitation||-||-|
|Finance, insurance and social solidarity||-||-|
|Finance, real estate and business services||4.8||3.9|
|General government services||-||-|
|Gross domestic product at basic prices / factor cost||100||100|
|Public Administration & Personal Services||-||-|
|Public Administration, Education, Health & Social Work, Community, Social & Personal Services||10.8||11.5|
|Public administration, education, health & social work, community, social & personal services||-||-|
|Transport, storage and communication||4.4||4.9|
|Transportation, communication & information||-||-|
|Wholesale and retail trade, hotels and restaurants||21.8||19.2|
|Wholesale, retail trade and real estate ownership||-||-|
Agriculture, forestry, fisheries and livestock contributed 45.1% of GDP in 2012. The secondary sector, which includes extractive industries, manufacturing and crafts, electricity, gas and water, as well as construction, accounted for 12.4%, and the tertiary sector, mainly commerce, 42.5%. Despite the country’s great economic potential due to its natural resources and very low level of development of some fairly attractive sectors, recurring political instability hampers progress in this direction.
Agriculture and fisheries, which employ about 72.4% of the working population, are little developed and mainly use rudimentary technology, according to the 2010 light survey for poverty assessment (ILAP 2). Mining and tourism are promising sectors, but government efforts since 1997 to sign contracts with foreign and local firms to develop them have made little progress due to systematic contract violation by the firms, weak legal institutions and, since 1998, social and political unrest.
Agriculture has great potential because of the climate and soil, mostly with cash crops (cashews, groundnuts and cotton), fruit, vegetables and tubers. The country also has more than 300 000 hectares of land suitable for rice-growing, but remains dependent on food imports for having insufficiently developed these resources. Rice production in 2010 only met half the country’s needs. The economy is not very diversified and relies mainly on cashew nuts, which in 2012 were 87.7% – XOF 74.3 billion (CFA franc BCEAO) – of total exports of XOF 84.7 billion.
The agriculture ministry has reported a good 2012/13 harvest, with, compared to the previous season, 15.3% higher gross cereals output of an estimated 248 781 tonnes (net production is expected to be 161 837 tonnes). Local markets are well stocked with food staples such as rice, sugar, wheat flour and cooking oil, but the very poor have difficult access to food because of low incomes and high prices throughout the country.
The economy shrank an estimated 1.5% in 2012 (after expanding 5.3% in 2011), mainly due to lower production and exports of cashew nuts, which account for some 30% of the primary sector. The average price of cashews fell from USD 1 350 per tonne in 2011 to USD 1 081 in 2012. Suspension of a large part of foreign aid also reduced the level of investment.
Prospects for 2013 very much depend on the social and political climate, especially on presidential and parliamentary elections to be held during the year.
Economic activity should be driven by the primary sector provided that sales of cashews are good, with expected 5% higher production as well as export of stocks remaining from the 2012 harvest. Gradual resumption of public projects funded by the country’s development partners should also help and growth is projected at 4.2% in 2013 and 3.5% in 2014.
Economic diversification requires a stronger democratic process and tackling the repeated military intervention in politics, which undermines the economic recovery begun in 2008 and could even threaten the policies and reforms set out in the poverty-reduction strategy paper (DENARP II). Other challenges to diversification are weak institutions, the economy’s vulnerability to external shocks through lack of diversification, inadequate infrastructure, especially in energy, and poor public-finance management.
Also important is to continue efforts to make financial bodies more efficient and curb recurrent spending by better internal monitoring of public bodies and using banks to pay civil-servant salaries and pay for services to the government. This includes strict application of tax and customs regulations, broadening the tax base (including property and land taxes), curbing and monitoring tax and customs exemptions, securing revenue by centralising collection at the main tax office, and developing faster means and procedures to introduce VAT. Spending needs to be internally monitored and also externally by the court of auditors. This is in the context of a strong informal sector. Such reforms are needed to remove regulatory restraints and create conditions for sustainable economic growth.
Efforts to consolidate the budget in the past four years, backed by the Bretton Woods institutions, have focused on reorganising public finances, notably through modernisation, and by collecting revenue and controlling current expenditure.
The government faced new budget challenges in 2012 after the 12 April coup d’état, when scheduled budget support (1.3% of GDP), mainly from the African Development Bank (AfDB) and the World Bank, was suspended. A revised budget in September set budget revenue at 10.6% of GDP, down from a projected 12.8% in 2012 and collection equivalent to 11.6% of GDP in 2011.
Total expenditure was 3.5 percentage points of GDP less as a result of this revised budget but current expenditure increased 2 percentage points to 13.7% (11.7% in 2011), because of spending caused by the death of President Malam Bacai Sanhá, security measures during elections and the fight against drug trafficking. Total expenditure and net loans were 21.0% of GDP in 2012 (20.2% in 2011) and total spending was projected to be 20.6% in 2013 and 20.7% in 2014.
The budget fell into a deficit of 2.3% of GDP in 2012, down from a 0.7% surplus in 2011. Normalisation of social and political conditions, resumed co-operation with foreign donors and continued reforms in public administration and in the defence and security sector should make for appreciably smaller deficits in 2013 (0.8% of GDP) and 2014 (1.0%).
The government’s 2012 priority programme included better tax collection and management, and tighter management of civil servants by paying salaries through banks. The tax burden is projected at 8.9% of GDP in 2013 and 8.8% in 2014.
Table 3: Public Finances (percentage of GDP)
|Total revenue and grants||25.2||21.5||20.8||18.7||19.8||19.7|
|Total expenditure and net lending (a)||20.9||20.3||20.2||21||20.6||20.7|
|Wages and salaries||5.1||6.2||6.1||5.1||5||4.8|
Guinea-Bissau’s monetary policy is in the hands of the Central Bank of West African States (CBWAS), as with other member states of the West African Economic and Monetary Union (WAEMU). Recent monetary changes include a drop in 25 base points in CBWAS bank intervention rates on 16 June 2012, which reduced the minimum interest rate for liquidity auction bids from 3.25% to 3%. The minimum bank reserve requirement has been 5% since 16 March 2012.
Banking conditions have improved in the past eight years with the arrival of new banks, but interest on overdrafts is still high (around 10% in 2012) and out of line with the lowered intervention rates of the central bank and rates in the money markets.
The country’s membership of the franc zone, with its tight budget rules and limited access to monetary means to make up deficits, has kept prices stable. Average year-on-year inflation at the end of December 2012 was 2.1% (5.0% a year earlier), which showed greater control of its causes, including fewer food-price increases in 2012.
Inflation, measured by the harmonised consumer price index, should be 3.3% in 2013 and lower in 2014 (2.5%) if world food and oil prices are stable.
Economic Cooperation, Regional Integration & Trade
Guinea-Bissau’s trade policies come under the WAEMU and the Economic Community of West African States (ECOWAS). Its tariff regime conforms with the WAEMU common external tariff (CET).
Exports in 2012 were 23.6% of GDP and imports 27.8%, making a trade deficit of 4.2% of GDP. This is projected to improve slightly to ‑4.1% in 2013 and ‑3.1% in 2014, with higher exports (especially greater cashew production and demand) than imports.
Nearly all the country’s unprocessed cashews are bought by India. The euro area remains the chief source of Guinea-Bissau's imports (an average 45.5% between 2005 and 2011), with Portugal the source of about 30% between 2000 and 2011. Foreign direct investment (FDI) increased 84% in 2006-07 to XOF 42.3 billion, mostly from Portugal (32.6%), Senegal (26.4%) and Lebanon (22.9%), according to a 2010 CBWAS survey. The country is very dependent on foreign aid, especially to fund public investment. Grants were almost 44% of the entire budget in 2011. The country adhered to the Paris Declaration in August 2010 and took part in the 2011 survey on the Paris Declaration and fragile states, and also the December 2011 Busan Conference on aid effectiveness, which launched the New Deal for Engagement in Fragile States.
The current-account deficit worsened in 2012 to 6.3% of GDP (down from -1.6% in 2011) but is projected to improve in 2013 to ‑4.7% and in 2014 to ‑4.3%.
Table 4: Current Account (percentage of GDP)
|Exports of goods (f.o.b.)||14.3||14.7||14.8||24.3||23.6||23.4||24.3|
|Imports of goods (f.o.b.)||15.6||24.5||23||25.4||27.8||27.5||27.4|
|Current account balance||2.6||-5.7||-8.3||-1.6||-6.3||-4.7||-4.3|
Relief obtained under the Heavily Indebted Poor Countries (HIPC) Initiative on 31 December 2010 reduced the country’s nominal public debt to 43.7% of GDP in 2011 (including arrears), 17.5% of which was external and 26.2% internal. It should fall further in 2012 (to 42.1% of GDP) and 2013 (to 39.8%). The internal debt should drop from 24.3% of GDP in 2012 to 22.1% in 2013. The net present value of the external debt, in terms of exports, fell from 53.4% of GDP at the end of 2010 to 37.4% in 2012.
Support from the AfDB and the United Nations Development Programme (UNDP) helped strengthen and monitor the government’s debt-management unit through the computerised debt management and financial analysis system (DMFAS) supplied by the UN Conference on Trade and Development (UNCTAD), and operations are being brought up to date, with bilateral negotiations under way for this. The government plans to maintain a sustainable debt level and if need be only seek soft loans.
The government will continue its medium- and long-term repayment of pre-1999 internal arrears. Technical-assistance missions arrived in November 2012 so the debt-management unit now has the means to produce reports on the public debt.
The government has also begun a diplomatic campaign aimed at its financial partners to obtain all the debt relief agreed on after the country reached the HIPC Initiative completion point. Arab funding bodies lobbied in 2012 included the Islamic Development Bank (IsDB), the Arab Bank for Economic Development in Africa (ABEDA), the Kuwait Fund and the Saudi Fund. Agreements were signed with the ABEDA and the Kuwait and Saudi funds, and talks are still on-going with the IsDB.
Figure 2: Stock of total external debt and debt service 2013
Economic & Political Governance
Guinea-Bissau joined WAEMU in 1997. Member countries of the union, which is pegged monetarily to the euro, have adopted a free-trade policy to encourage trade competition within the union and internationally. A 2010 CBWAS survey showed that labour, market access and government policies were key factors in attracting FDI to Guinea-Bissau.
Frequent coups have however prevented the government from establishing effective economic and legal conditions to boost the private sector. Political instability, a dysfunctional legal system and corruption all keep investors away.
Progress since 2011 in improving institutions and setting up a one-stop shop (funded by the AfDB, UNDP and the World Bank) has greatly helped reduce the time needed to start a business. The one-stop shop has all services in one place and is properly staffed. This and a more attractive investment law encouraged the creation of businesses in 2012. The national water and electricity company, EAGB, also began introducing prepaid meters to make customer billing more transparent. New mining laws opened possibilities to develop the sector and XOF 46.1 billion of new local and foreign private investment was recorded in 2012, up from 16.0 billion in 2011, according to the economy ministry. This was not enough, however, for Guinea-Bissau to improve its performance rankings in the World Bank report Doing Business 2013, where it fell to 179th place (from 178th in 2012) out of 185 countries.
The government has promised to continue private sector reforms, including setting up a private-investment promotion agency embracing all the sector’s support structures, drafting a policy framework for the cashew nuts sub-sector, and boosting the sector’s efficiency and improving the business climate by passing and implementing a new investment code.
The financial sector has only four banks, two insurance companies and 18 officially registered decentralised financial services (DFS) institutions. Sector stability is ensured through supervision and monitoring by CBWAS, which is in charge of WAEMU’s monetary and financial policy, and through the WAEMU Banking Commission.
The major role of the informal economy means the banks have excess liquidity as very few firms are able to supply the data and guarantees needed for getting bank loans (under the West African Accounting System known as SYSCOA), so banks have few lending opportunities and cannot play their full role in the private sector. Excess liquidity also shows the inadequate legal framework, which makes it hard to raise mortgages and provide security for credit. Loans to the private sector were thus only 13.2% of GDP in 2012 (10.9% in 2011) with a projected 12.3% in 2013.
Bank-account penetration is still low (about 4%), but efforts by the central bank and recent measures such as paying salaries of more than XOF 50 000 through bank accounts should improve things. The ratio of the money supply to GDP was 0.33 at the end of December 2012 (0.37 in 2011) and the market-preferred liquidity ratio rose to 0.52 (0.49 in 2011).
Microfinance is still in its early stages, with more than 150 microfinance institutions part of the DFS, but despite the strong growth of microfinance institutions in recent years, only 18 of them are legal and only 6 report their accounts to the supervisory financial authority, the Cellule d’appui au développement de l’économie solidaire, épargne et crédit. Five are affiliated to the sector’s professional body AP‑SFD‑GB (though only two help to keep it going). These bodies need serious institutional support to ensure their development.
The government has firmly committed itself to developing microfinance with various measures and the central bank has established a microfinance department to help them.
Public Sector Management, Institutions & Reform
The major obstacles faced by government services in Guinea-Bissau are lack of institutions, an inadequate legal and regulatory framework, untrained or unsuitable staff, low motivation amongst civil servants and lack of a career-advancement plans.
Their efficiency is also hampered by poor use of administrative systems and procedures and incompetent personnel. Rules for recruiting, paying and promoting civil servants are vague and this greatly harms transparency. The social-security and pensions system is not strong enough to reassure either military or civilian officials, who have to fight for their pensions.
Lack of material and financial means, contradictory bureaucracy, inadequate handling of cases and little interest by civil servants in private-sector concerns and ordinary citizens do not create conditions for long-term economic development or provide efficient public services. The defence and security sector is also plagued by overstaffing, with no control over the number of retired soldiers and how much they are paid.
The government has taken steps for a gradual improvement, modernisation and strengthening of public institutions, administration and services to make them more effective and more responsive to the public. It approved a road map in March 2011 to reform the defence and security sector, drafted with support from ECOWAS, the Community of Portuguese Speaking Countries (CPLP, Comunidade dos Paises de Lingua Portuguesa), the European Union (EU) and Angola, but after the April 2012 military coup, the EU, CPLP and Angola suspended their backing. Only ECOWAS remained, announcing in November 2012 a grant of USD 63 million to implement the programme.
Natural Resource Management & Environment
Guinea-Bissau has great biodiversity, with vast hydraulic resources, more than 2 million hectares of forests and very diverse fauna and ecosystems. The government is aware that it needs to develop a legal and regulatory framework to open up this economic potential while minimising damage to the environment. A series of environmental laws were passed in 2011, including one on forests (Law No. 5/2011) for sustainable resource management, and another (Decree-Law No. 5A/2011) updating the framework measure about protected areas, for viable and community-based development and use of biological natural resources.
The government set up an Institute for Biodiversity and Protected Areas in September 2010 with World Bank support and continues efforts to raise awareness amongst local communities about sensible use of natural resources. Laws on climate change were approved in early 2011.
With social and political normalisation, the government aims to resume drafting a minerals development plan with the support of UN agencies. Laws were passed in 2012 governing oil, minerals and quarry extraction. A national plan to develop natural resources is being prepared at the request of the Extractive Industries Transparency Initiative (EITI) in compliance with its transparency requisites.
President Malam Bacai Sanhá died on 9 January 2012 and early presidential elections were held as the national constitution required. The result was rejected by the five of the candidates.1 The army seized power on 12 April, splitting the political class and the country, and the international community condemned the coup unanimously. ECOWAS mediation produced a political agreement and transition accord, signed in Bissau on 16 May. The Angolan military mission (Missang), in the country since 2011, was replaced by an ECOWAS peacekeeping mission, ECOMIB.
The majority African Party for the Independence of Guinea and Cape Verde (PAIGC) refused to join a transitional government put together mostly by parties with no parliamentary base. After lengthy negotiations, PAIGC members of parliament resumed their posts in November 2012, normalising the social and political situation and the work of parliament. An 11-member PAIGC-led parliamentary commission was formed to draft a new transition charter.
The supreme court organised an election to renew the judiciary bodies in November 2012. An ECOWAS summit voted on 17 November to extend ECOMIB’s mandate for another six months. A new and more inclusive agreement was signed by all political parties on 17 January 2013, opening the way for a peaceful transition.
Thematic analysis: Structural transformation and natural resources
Guinea-Bissau’s economy is mainly agricultural and dominated by cashew-nut cash crops, its chief source of foreign exchange. It is not very diversified and industrial processing is very basic. Minerals and oil have not yet been extracted, except for quarries and a few small alluvial gold mining operations. Potentially large reserves of bauxite and phosphates were discovered in the 1970s but have never been mined for lack of infrastructure, and because of low world prices and persistent political instability. In recent years, however, mining concessions have been granted for bauxite (2007) and phosphates (1997).
Phosphate reserves were discovered in 1978 by a UNDP survey, and pre-viability studies seven years later by the firm Sofremines confirmed their presence at Farim, in the north. Exploration in 1997 by a Canadian firm, Champion, showed an estimated 100 million tonnes of high-grade clay and 400 million tonnes of low-grade limestone, but government efforts since then to sign national or international contracts to mine these reserves have not been very successful due to systematic violation of contracts and social and political unrest since 1998. High-grade mineral extraction could last some 40 years and lower-grade minerals 200 years.
Bauxite was found by the Dutch in the early 1950s and then by the Soviet Union in the late 1970s. Five reserves were discovered at Boé, in the southwest, and surveys showed reserves of 113 million tonnes (44.9% of which of alumina and 3.7% of silica). Little progress was made in mining until 2007, when the government signed a concession with the Angolan firm Bauxite Angola, which announced it would invest USD 321 million in the region, including USD 200 million for roads and ports before it began operations. The mine is owned by Bauxite Angola (70%), the Angolan government (20%) and Guinea-Bissau (10%). After the April 2012 coup, work stopped and the parties are renegotiating how to share the resources.
The opening of these two mining centres (Farim and Boé) is likely to have significant effects on the country’s economy. Even if 86% of the goods and services needed come from abroad, the projects could generate 20 000 direct jobs, in addition to the spinoffs linked to upgrading the related infrastructure, and produce annual tax revenue of USD 40 million, according to the World Bank. The country could count on USD 70-80 million in export earnings (equivalent to 60-70% of current exports) and a GDP volume increase from USD 90 million to 170 million USD (or from 11% to 21% of estimated 2010 GDP).
Oil has been discovered in several places offshore, but no assessment of its commercial viability has been announced. The north and south of the country could also have oil reserves, shared with neighbouring Senegal. Several oil firms, including Italy’s Eni, Britain’s Sterling Energy and Malaysia’s Marmore, have test-bored in the north. Large reserves of oil have been found, but more tests are needed to determine their commercial worth before they are exploited. Several foreign companies have become involved in the oil sector in recent years through joint ventures with the local firm Petroquim. Some industry experts think Guinea-Bissau could produce between 30 000 and 60 000 barrels a day.
The only extractive industries in the country at present are small firms quarrying for construction materials such as limestone, clay and sand. Instability and lack of political will mostly account for delays in developing all Guinea-Bissau’s mineral resources. Political stability, a strategic vision, strong institutions and viable programmes are needed to develop the sector better and ensure social and economic benefits for the country.
In the late 1980s, the government launched a programme that set up an institutional framework with the directorate of geology and mining (DGGM), provided an inventory of 12 minerals, produced a mining policy and trained local managers. The government also instituted an environmental-impact assessment body the Cellule d'évaluation de l'impact environnemental – initially under the prime minister but then transferred to the environment ministry – to require or conduct impact studies previous to any prospection or mining. Its structure is however flimsy. Neither does civil society play much of a role, though it did demand that the government halt operations at the Saliquinhé (Farim) phosphate mine until measures were taken to protect local inhabitants and offer them resettlement.
A law governing mining, quarrying, oil and oil derivatives was recently passed, and the authorities also want to work with the EITI to improve good practices and management in the sector. Recommendations have also been made to set up a mining fund, boost tax collection from mining companies, continue development of the Boé bauxite reserves jointly with neighbouring Guinea, develop mineral resources for construction (quartzite and dolerite) and continue prospecting for diamonds and gold. Unfortunately, political instability has so far prevented all this.
1. These were former President Kumba Yalá (backed by the Partido da Renovação Social), Manuel Serifo Nhamadjo (first vice-president of the Assemblea Nacional Popular, the country's legislative body, running as an independent), former President Henrique Perreira Rosa (independent), Afonso Té (backed by the Partido Republicano para Independência e Desenvolvimento) and Serifo Baldé (Partido Jovem).