Guinea

Guinea enjoys considerable, varied and unexploited economic potential, but is having difficulty making an economic breakthrough. Growth is structurally weak and slow, with inflationary episodes. It has also been hard hit by the oil crisis (2007/08), food crisis (2008) and the financial crisis (2009).

From 1985 to 2002, the country was committed to a process of liberalisation and economic change, which created average real growth in gross Ddmestic product (GDP) of 4% a year (representing a growth in income of 0.8% per head), while also stabilising prices and the exchange rate.

After the implementation of the reforms of 2003‑06 veered off course, with a resultant  drop in income of 0.6% per head, the economic slump was aggravated by the world crisis in 2007. Inflation rose to more than 22%, along with a depreciation of the currency of 18%.

This was followed by a deterioration in living standards, reflected in a rise in the poverty rate from 49.1% in 2002/03 to 53% in 2007/08. In the face of these difficulties, Guinea launched reforms in 2007 under its second Poverty Reduction Strategy Paper (PRSP 2), supported by the Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF) and the intervention of other technical and financial partners.

The reforms bore fruit in 2008, despite a difficult international context: public and private investment rose by 14%. Growth accelerated from 1.8% in 2007 to 4.9% in 2008, driven by the improvement in the terms of trade resulting from the surge in mineral raw material prices and the fall in the price of oil.

Reorganisation of the macroeconomic framework and public finances and improvements to key production and transport infrastructure have encouraged new operators to enter the promising sectors of agriculture, mining and construction. Real GDP per head rose from 375 US dollars (USD) in 2007 to USD 382 in 2008 while inflation fell by four points.

Reaching the completion point of the Highly Indebted Poor Countries (HIPC) Initiative, a huge task almost achieved at the end of 2008, was delayed until 2010 with the advent of the National Council for Democracy and Development (NCDD), the military junta that took power after the death of President Lansana Conté, on  23 December 2008.

The economic situation in 2009 was marked by a socio-political crisis caused by the massacre by the regime of protesters in September 2009  and an assassination attempt on its leader Moussa Dadis Camara in December, which led to a new political transition from January 2010.

These crises, reflecting bad governance, were the consequences of the break in dialogue internally between political actors, around a consensus on the strategy for concluding a national pact to deal with the challenges and major issues of the country; and externally with technical and financial partners. Overall, the political instability has not helped the implementation of the two cycles of the Poverty Reduction Strategy (PRS) in 2001/02 and 2007‑10, and has impeded appreciable progress in the achievement of the Millennium Development Goals (MDGs).

It was in this context of political and economic uncertainty that the Ouagadougou accords were concluded. These provide the basis for a resumption of internal talks on a smooth political transition to free, fair and transparent elections in 2010.

The overall objective of the economic and political road-map of the 2009/10 transition is to strengthen internal social and political dialogue, which should lead to a new constitutional order, to the return to barracks of the defence and security forces (DSF) and to their conversion into a national force in the service of peace, democracy and development.

This objective breaks down into three specific sub-aims:  to organise free, fair, open and credible elections;  to implement the basic programme of reform of the DSF; and to build on the results of the measures taken in 2007‑09 under the implementation of the PRS, the PRGF and the HIPC Initiative, as part of an Emergency Economic Recovery Programme (EERP).

Against a background of internal tensions, 2009 saw the start of a political transition towards the first free and transparent elections in the country's history. In the economic context, with the global economic and financial crisis, the country is faced with a dramatic drop of more than 40% in the price of aluminium, its principal export.

The real rate of GDP growth is estimated at 0.6% in 2009, a significant drop in real income of 2.6% per head for the population.

The agricultural sector recorded growth of 3.2%, compared with 2% for the tertiary sector. Falls in the growth in the secondary sector (down 1.8%) and of excise duties (down 1.9%), were the main reason for the drop in the growth of the economy in 2009.

More specifically, agriculture and livestock have benefited from government emphasis, supported by development partners, on reform, agricultural techniques and inputs. In particular structuring agricultural trade has enabled regulation of the supply of local products and the stabilisation of prices. Rice imports received government aid.

During the third quarter, cross-border agricultural trading resumed. In the mining sector, the fall in production of 5% in 2009 (against a rise of 14.2% in 2008), was mainly due to the drop in bauxite prices of 40% and the slowdown in the growth of the construction and public works sectors (from 7.5% in 2008 to 1% in 2009), which contributed to the drop in growth in the secondary sector.

The slowdown was limited in part by restructuring and inspection activities in the mining sector, by the renovation of barracks and universities, and by the implementation of the emergency programme “water and electricity for all”. The decline in the secondary sector led to a contraction of import volumes and a consequent fall in duty and indirect taxes (down 1.9%).

The reduction in domestic demand (down 5.3% in 2009), related to the difficulties in the mining and construction sectors, affected the level of economic activity and the import of goods and services in 2009. The wait-and-see policy witnessed after the sudden drop in aluminium prices, coming after the effects of the international financial crisis, had the effect of reducing gross fixed capital formation in the private sector by 14.6%.

The fall was somewhat compensated for by the variation of stock and the growth in public sector investment (up by 26.6%) in infrastructure and utilities, water and electricity in particular. The rise in consumption took place in a depressed context marked by pressure on food prices (the price of rice in particular) and social instability.

The residual growth in GDP is accounted for by the external trade balance, characterised by a steeper fall in imports (down 7.2%) compared with exports of goods and services (a drop of 3.7%): changes due mainly to the financial crisis and a reduction in the state’s resources.

Prospects are good for 2010 and especially 2011, with a return to a new constitutional order, the rebuilding of trust with development partners and improved stability in the sub-region.

These developments will help to improve the business climate and the attractiveness of investing in Guinea. The decisive signal will come from a revival in OECD countries, economic recovery in developing countries, especially in Asia, and greater relaxation of mining markets.

Aluminium prices will gradually increase. The revival in the mining sector will boost related sectors (construction, services and indirect taxes), and foreign direct investment (FDI) in the agricultural, infrastructure and utility (communication and energy) sectors.

In 2009 FDI represented only 7% of its 2008 value, estimated at 434 million euros (EUR). The transition authorities envisage relaunching the economic forum on private investment in Guinea, while learning lessons from World Bank studies on the ease of doing business and restructuring of the mining sector.

Boosted by external demand and the international situation, growth should increase with the help of internal drivers: the emergence of internal demand, the maintenance of a healthy macroeconomic framework supported by the promotion of good governance, the pursuit of public finance reforms and the increased mobilisation of public resources.

The consolidation of the monetary sector through a rigorous money creation policy and the management of foreign assets should ease the servicing of the national debt and help with paying off arrears to the main development partners, whose re-engagement is needed to enhance social stability. Net financial flows collapsed with the withdrawal of financial partners.

On the foreign exchange markets, greater visibility in the rebuilding and management of foreign assets will contribute to market regulation and support imports by the sectors leading growth (agricultural inputs and food products, such as rice and sugar, the mining sector, infrastructure and energy).

Foreign exchange savings are necessary on imports of oil products, where distribution has already been disturbed. The government increased the pump price of oil products by 30% across the whole country from 1 March 2010. At the same time, public sector pay has been increased by more than 50%.

Social calm reinforced by a policy to combat poverty through decentralisation and microfinance will have a certain impact on growth, especially in the food production, livestock, traditional fishing and gold prospection sectors. These initial short-term measures will send a positive signal for the resumption of talks on conditions for reaching the completion point of the HIPC Initiative.

The projections forecast an increase in growth from 0.6% in 2009 to 4.3% in 2010, stabilising at 4.5% in 2011.

The macroeconomic objectives for the period comprise growth of 5% a year from 2010 arising from a rate of investment of 28% of GDP, single-figure inflation limited to 8% and a 10% variation in the exchange rate relative to the US dollar, reducing the currency premium; the balance of trade to grow at a rate of 4%; and the currency should converge with the growth in nominal GDP of around 15% a year, with credit to the private sector limited to the real rate of GDP.

These objectives are constrained by the primary balance of 3.5% of GDP and international reserves of three months' imports. Projections are on the same lines as these core objectives, the implementation of which depends on the economic policies over the relevant period (2010/11), in particular the maintenance of a healthy macroeconomic framework with prudent policies for the public finances and the pursuit of structural reforms in budgetary transparency, securing public resources, and improvement in the business climate.

Following the financial crisis, the fall in growth to 0.6% in 2009 has led to a drop in tax revenue and to the focusing of public expenditure on infrastructure and the fight against poverty. The government’s priorities focus on increased mobilisation of domestic resources based on tax efficiency, through the control and strengthening of tax administration in the light of weak growth and, failing that, a short-term increase in the tax base; and  the reduction in state spending and the prudent use of public resources with openness in the execution of budgetary procedures. In the face of difficulties due to the weak global demand for mining products, the primary balance shrank in 2009.

Tax governance, the principal means of mobilising resources, has favoured tax controls and related constraints over tax expenditure on exemptions. Mobilising tax revenue remains a major preoccupation: the ratio is consistently 2.5 points below the average level of countries termed “fragile African states” and of West African Economic and Monetary Union (WAEMU) states.

Public expenditure is rising, with a particular emphasis on social spending, spending on infrastructure (water, electricity and renovating barracks) and interest payments which, despite their relatively low level, represented twice capital expenditure in 2009.

Monetary policy is elaborated and conducted by the central bank of the Republic of Guinea (BCRG) in close collaboration with the minister of the economy and finances, aided by the oversight committees for prices, foreign exchange, banks and microfinance. The BCRG, which enjoys only relative autonomy, has played a decisive role in the whole reform process and the economic and financial transformation that the country has experienced.

The monetary sector was characterised by an average economic liquidity rate (expressed by monetary volume as a percentage of GDP) of 23% in 2006‑09, compared with 15% in 2002‑05, and by an excess of liquidity that limits its effectiveness in combating inflation and the depreciation of the currency, as well as its ability to appropriately fund the economy.

The period 2003‑06 was particularly affected by difficulties due to slackening of the reforms and was characterised by rash monetary funding of the public deficit, the practice of multiple exchange rates, followed by the erosion of foreign assets (one month’s imports against an objective of three to four months').

The measures taken in 2007‑08 under the PRGF have helped contain the mistakes. In that period growth in monetary volume, associated with a slowdown in currency circulation, was an average of 21.5% converging towards the average growth in nominal GDP of 18%.

In 2009, average net monthly foreign assets fell, under the influence of the drop in prices and export revenues, and the monetary base shrank under the effects of a rise in bank reserves and a growing demand for fiduciary money for precautionary reasons in a period of socio-political instability.

Private sector credit rose by 2.4%; more rapidly than the public sector (1%) although it only represents 38% of public sector credit. On a monthly basis, the monetary base and public sector credit contributed to an average growth of 0.8% in the monetary volume; changes in the structure in favour of bank deposits demonstrate the confidence of the banking system. Such a development shows the interest and determination of the monetary authorities in maintaining the path of reforms, and reinforces the principle of the ndependence of the BCRG, especially in a context characterised by inflationary and currency pressures in a phase of political transition.

For 2010/11, the main aims of monetary policy remain: the maintenance of the economic framework and the pursuit of the PRGF measures, partly to improve price stability, the currency and the financial system, and partly to create an environment favourable to rebuilding foreign exchange reserves to one month and then three to four months of imports; growth in the money supply (15% on average) at the rate of nominal GDP; inflation reduced to single figures; and a capped exchange rate, fluctuating within  a snake of 15%. In this way, monetary policy will be constrained by the performance criteria of the PRGF and the convergence criteria of the West African Monetary Zone (WAMZ).

Guinea’s balance of trade is structurally positive, especially in 2008 with the impact of investment in rehabilitation and renewal of mining equipment. The structure of external trade (of goods) is dominated by mining exports (15% of GDP), made up mainly of bauxite (around a third of the world’s reserves) which in the period to 2008 represented an average of 60% of export revenue and 20% of tax revenue. Imports break down into intermediary goods and equipment (33.5%), food products and other consumables (24%), oil products (11.9%).

Service exports (13.8%) and service imports (30.5%) are respectively the third greatest source of export revenue, ahead of agricultural products, and the main source of imports.

Since 2009, with the collapse of aluminium prices by more than 40%, gold has taken over to become the main source of export revenue (more than 48%) compared with 29% for bauxite.

In total, exports of goods dropped by 11.9% by value in 2009 compared with rises of 17% in 2008 and 11.8% in 2007, corresponding to a drop in GDP of 5.5% in 2009. Imports went from 25.5% of GDP to 22%. The balance of trade lost two points and contributed to a worsening of the current account budget deficit, which rose from 6.9% to 9.3% of GDP.

The absence of external aid due to the financial and political crises contributed to the rise in the balance of payments deficit and to the exhausting of gross foreign reserves, which dropped from 1.1 month’s imports in 2008 to less than one month's in 2009. The easing of the mining market and the revival of activity during a smooth transitional period are factors that could help to boost investment through the implementation of large mineral exploitation projects for export in 2010/11.

The prospects are for a slight improvement in the balance of trade in 2010, with the possibility of stable gold and diamond prices on one hand, and the modest improvement in aluminium prices (compared with the downward trend) seen over the past decade on the other.

The services deficit should be slightly more marked, in direct relation to the revival of economic activity and mining imports and, in total, the current account deficit could record a slight downturn in 2010.

It is likely that, if the authorities decide to accelerate the growth process in the new climate of calm, entropy could lead to a bigger deficit in the current account balance from 2011.

The authorities should create conditions favourable to greater flows of external funds in the form of FDI and development aid. A stricter monetary policy will contribute to financial stability and rebuilding reserves to a level compatible with currency and foreign exchange stability (three to four months' imports).

A big breath of fresh air should come with the achievement of the completion point under the HIPC Initiative, for which the country has been eligible since 2003, and which has been delayed since 2008. The country is facing a heavy burden in external debt, the level of which (both payments due and arrears) is estimated at EUR 3.05 billion (66.8% of GDP) in 2009, compared with EUR 3.11 billion (68.8% of GDP) in 2008.

The debt is mainly public and multilateral (65%). The accumulated arrears represented around 10% of stock in 2008‑09. The cost of servicing external debt is estimated at EUR 196.2 million, 18% of the export value of goods and services, which is a rise of two points compared with 2008.

The debt situation could stabilise over the next 18 months to avoid the accumulation of arrears. The change in the political situation offers good prospects for restoring mutual trust and for the resumption of dialogue with the international community, with a view to implementation of the PRS and pursuit of reforms in the extension of the PRGF in 2010/11.

The main challenge at the economic level lies in speeding up achievement of the completion point, to become eligible for the resources of the Multilateral Debt Relief Initiative (MDRI).  At the level of regional co-operation, Guinea should also meet its obligations under its membership of the Economic Community of West African States (ECOWAS), the Mano River Union (MRU) and the WAMZ. ECOWAS supports member countries in negotiating Economic Partnership Agreements (EPAs) with the European Union (EU).

Integration projects for implementation 2010‑14 are being identified and jointly prepared with development partners in the irrigated agriculture and infrastructure sectors, especially transport and energy, focusing on the improvement, integration and security of food and energy.

In terms of macroeconomic and financial stability, Guinea should improve on its weak convergence performances. In 2007‑09, the country fulfilled only two criteria by group, a total of four out of ten.

 

Guinea is considered a fragile state, with a limited ability to implement the institutional and structural reforms that are nevertheless necessary to increase growth and combat poverty.

The main reforms undertaken since 2007, under the PRSP and the PRGF, have focused on improving management of public finances, the currency and foreign exchange; securing mining and tax income through the Extractive Industries Transparency Initiative (EITI); raising ethical standards in economic and social life and improving accountability through audits and fighting corruption; improving the business climate for the private sector; and support for decentralisation. There are also reforms of the DSF, the justice sector, and the organisation of free, fair, open and credible elections.

The government is committed to improving public sector openness and governance, after the hard lessons learned in 2003‑06, followed by the implementation of the PRGF in 2007/08. The government is committed to maintaining a healthy macroeconomic framework and to fighting poverty and unemployment through better use of public resources to improve the effectiveness of public spending.

A multi-annual strategic plan was adopted in 2008. It is a programme of priority actions, followed up by the implementation of the recommendations of ministry audits including the priority sectors of the PRSP. The Medium-Term Expenditure Framework (MTEF), a multi-annual programming tool, is improving as a means of prioritising and rationalising activities among the priority sectors of the PRSP, reinforced by the adoption of management rules and budgetary control, (simplified and detailed terminology, computerised process, integrated accounting system at central and local level, public procurement policy, stronger controls, audits and transparency, and the establishment of laws and regulations).

Treasury management is taking a new direction with the adoption of cash accounting (budgeting on a cash basis), the availability of monthly budgets and the ending of monetary budget funding by the central bank and the use by the state of treasury bills to cover the deficit. The effectiveness of budgetary management depends on the increased ability to mobilise domestic and foreign resources.

Equipping and strengthening tax and customs management effectiveness using period performance contracts brought satisfactory results in 2008/09. These measures were supported by fiscal controls, reduction of exemptions and inspection of public revenue collection in the mining, forestry, fishing and property sectors.

 

Since 2006, Guinea has taken measures under the EITI and the Kimberly process which have facilitated investment in the mining sector in particular. In respect of the financial system, the issues of liquidity management, credit operations and adopting management norms and ratios, reinforced by liberalising exchange rates and establishing an inter-bank foreign exchange market, have all contributed to the reduction of the currency premium in the parallel market and to rebuilding, or at least securing, reserves.

BCRG reforms continue with the adoption of international standards, the application of fixed mechanisms for reorganising exchanges and consideration of new statutes for the bank. These measures, among others, should strengthen its autonomy and internal governance (accounting, financial management and internal control).

As part of the WAMZ, Guinea has enjoyed the support of partners, including the Bank Group, in modernising making international payments. The project is at an advanced stage.

The privatisations effected after 2000 are being reinforced by measures aimed at improving the private sector business climate. The World Bank study  Doing Business 2008‑10 reports on the country’s progress from 173^rd in 2007 to 171^st in 2008 (out of 180 countries), and to 173^rd out of 183 in 2009.

Under the 11 headings, the reforms implemented in 2008/09 were satisfactory in six cases (ease of doing business, taking on staff, cross-border international business, winding-up and bankruptcy procedures, registering and transferring property and the completion of contracts); mixed in three cases (business start-up, investor protection, payment of duty and taxes); and need to be monitored and strengthened in two cases where the effects cannot yet be seen (access to credit and management of permits and licences).

The results are satisfactory overall in the sectors that have benefited from investment: mining, agro-industry, housing and utilities (telecommunications and energy).

Measures have also been taken in the areas of competitiveness and the judicial system. The changes announced regarding mining contracts focus on using international best practice and implementing mining tax incentives.

In respect of the mining sector in particular, the government intends to strengthen transparency and monitoring in close collaboration with development partners and through its involvement in the EITI.

With the establishment of a single ministry responsible for the private sector, the action plan integrates a peer monitoring and evaluation system with development partners, in accordance with the recommendations of the Foreign Investment Advisory Service (FIAS), of the Diagnostic Trade and Integration Study (DTIS) and the conclusions of reports on competitiveness and ease of doing business. Since 2008, the state’s budget has been protected from the financial management of public enterprises or majority state participation getting out of control, especially in the utility sector (telecommunications, water and energy).

The country should expand its efforts on the issues of political governance, reform of justice and of the DFS. Socio-political crises limit the effects of structural policies.

Questions of political governance, especially security, worry most technical and financial partners. They are addressed with the African Union (AU) and ECOWAS, and with the United Nations (UN) agencies and bilateral partners, while reform of the judicial sector, a study of which was led by the EU, should constitute one of the priorities in the transition road map.

The daily actions of government and the consultations between stakeholders (the state, judiciary, the bank and business) aim to create a context favourable for exploiting Guinea’s economic potential. The ethical improvement in public life, one of the government’s main objectives, should be pursued through audits in the sectors of activity under state control.

The measures are set out in the good governance action plan (2007‑10) put in place by the National Agency for Combating Corruption (NACC). The process was speeded up at the institutional level in 2009.

Guinea moved up from 173^rd place to 168^th place in Transparency International’s Corruption Perceptions Index table. Since 2009, the country has been preparing to organise the first free, open, multiparty and transparent elections in its history.

Long-term financing of growth and development is a major challenge for the Guinean economy which is vulnerable and fragile and exposed to the uncertainties of international circumstances. Its structure is characterised by a narrow investment and production base dominated mainly by an essentially primary mining extraction sector, alongside a relatively large informal sector. Fiscal resources are an essential element of funding.

Guinea’s fiscal system is that of an economy in the process of monetisation and full restructuring. The most important tax and duty categories are: taxes on goods and services (around 60% of tax receipts), followed by those on foreign trade transactions (24%) and taxes on earnings  and profits 14% on average).

Inheritance tax (0.2%) and other tax receipts (1.2%) are negligible compared to non-tax receipts (7% of current receipts). Over the past three years (2006‑08), the main specific taxes include: VAT, which accounts for 4.3% of GDP, tax on mining products (3.5% of GDP), oil products tax (0.7% of GDP) and foreign trade tax (2.8%), which by themselves represent 12% of GDP, more than 80% of fiscal receipts.

Taking into account the integration of economic activities and the extent of taxation across the categories (cited above), the tax base depended mainly on three sectors in 2008: mining (26.5% of fiscal receipts), foreign trade (16%) and oil (14%).

The fiscal system has been through three phases of reform, in 1990, 1995 and 2005. There was the adoption of the investment code, which marked the process of economic liberalisation, with the introduction of VAT in 1995; the revision of the investment code in 1997; and the separation of the tax collection and treasury functions and the creation of the National Tax Directorate, the introduction of a standard VAT rate of 18% in 2005, followed by the adoption of the WAEMU common external tariff, the strengthening of tax and customs management and the audit of tax and customs loopholes with the aim of closing them.

The government has adopted specific mechanisms contained in the general tax code, the investment code and the mining code to deal with tax breaks and incentives. The first reforms yielded satisfactory results. Despite historical problems and the country’s initial development conditions, the fiscal structure has stayed relatively simple and stable over a long period, with a reversal between mining and non-mining taxation, between indirect and direct tax and between domestic and customs taxation.

Before 1995, the fiscal structure was dominated by the mining sector, with 60% of receipts (8.4% of GDP) from Special Taxes on Mining Products (STMP). In 2008, mining taxation only accounted for 25% of state revenues, or 3% of GDP.

This drop is linked to the underlying downward trend in aluminium prices and the effects of the world economic and financial crisis, which have strengthened the position of other mining products and precious stones (gold and diamonds), livestock and trade, especially in 2009.

Nevertheless, taxation receipts (total and specific) have shown an upward trend overall, with growth rates above the nominal GDP (of 12.2%) from 1995 to 2008, with the exception of the mining sector, the oil sector and excise duties.

This outcome is confirmed by looking at the stability and tax performance, which show that the revenue-elasticity of tax revenues was relatively stable from 1995 to 2008: an increase of 1% in revenue brings a growth in fiscal receipts that is significantly greater than 1% except for the mining sector and hydrocarbons.

The low level of budgetary revenue (low also when compared with WAEMU countries and fragile states) clearly demonstrates that there is still much to do, and the upward trend confirms that there is fiscal capacity there to harness and exploit.

There are numerous constraints arising from the effects of the economic situation, from the low level of income and its distribution, poor administrative capacity (tax administration in particular) and from bad governance.

The platform of PRGF reforms concluded in 2007‑08 constitutes a basis for the authorities in view of the rapid resumption of talks with development partners, especially on tax issues. These concern the establishment of an efficient system of incentives to encourage increased mobilisation of fiscal resources, to deal with the spending priorities of combating poverty (in search of equity) but also to attract more investment in growth (to improve economic performance).

The main challenges with this objective are in deciding appropriate rates of tax to speed up growth, and in building a modern and effective tax administration, a genuine tax collection centre.

In the short term, from 2010, the authorities should put their efforts into meeting the requirements of socio-political stability, a prerequisite for implementing economic policies; re-engaging with development partners to speed up reforms restoring the macroeconomic framework (price and exchange stability and rebuilding foreign assets); re-examining post-crisis development conditions in the mining sector, especially its investment potential; becoming more involved in respecting Guinea’s commitments under the EITI to strengthen financial governance; promoting an appropriate communication strategy to reduce tax abuse and improve tax controls.

The prospects are promising with the return of calm on the socio-political front and with progressive economic recovery in OECD and developing countries. The authorities should also draw lessons from the practices of countries where levels of tax pressure are relatively high but do not weaken investment and consumption.

Measures already taken will be strengthened: performance indicators for market access, especially the Trade Restriveness Index (TRI) that measures both access to the market and the impact of tariffs imposed by Guinea, have been stable (13.4) and demonstrate the government’s commitment to achieve a relatively greater openness of the economy and trade.

Guinea faces no obstacles to speeding up its integration into the sub-region with the WAEMU countries, nor into the second economic zone being developed (the WAMZ). It already applies the common WAEMU external tariff and does not expect shortfalls in revenues, after taking into account agricultural trade earnings. Besides, the country still benefits from the Generalised System of Preferences (GSP) and the African Growth and Opportunity Act (AGOA) while awaiting the conclusion of the EPA with the EU on a regional basis with ECOWAS.

In the medium term, with the support of partners, the authorities should further pursue improvement in the private sector business environment and undertake a review of the system of incentives, to speed up diversification of sources of growth for the agricultural sector. They should further address the shortcomings in the tax system, namely, the risk of over-taxation, the strong perception of corruption, the lack of transparency in giving exemptions amounting to 3% of GDP, the slowness and high cost of tax administration, the multiplicity of tax instruments and opacity in the distribution and processing of tax information.

All these issues will be central to talks with development partners that will be intensified in 2001/11. The measures will be mainly directed at improving governance and the business environment as a core objective; establishing multi-sector technical assistance and an incentive system for tax and financial administration (backed by performance contracts), and accompanied by penalties for under-performance; removal of unjustified tax and duty exemptions, keeping only those that are effective, with regular audits.

The challenge of mobilising resources is firstly that of fiscal transition, which consists of developing taxation with robust internal indirect and direct components (VAT in particular) in favour of customs duties. But the government also needs to strengthen its capacity to mobilise non-fiscal resources, through royalties and concessions (9% of revenue in 2008), and grants (2.4% of revenue).

The authorities face a major challenge in realising the criteria necessary to meet the achievement point necessary to benefit from the resources of the HIPC. Guinea has considerable potential but still has the characteristics of a poor country.

Good prospects exist within the framework of public-private partnership for developing infrastructure and promoting large utility sector projects (energy, water and telecommunications). The country can also count on the Guinean diaspora, despite the effects of the crisis, inspired by the experience of countries that have developed a "neutral" system supported by incentives (Cape Verde, Ghana, Mali and Morocco). In most of these countries it has been shown that the financial contribution of expatriate workers is equivalent to or greater than that received as public development aid.

The weakness of governance and of public institutions and the absence of separation of powers have affected the business environment and limited the opportunities for growth and the reduction of poverty. The socio-political situation is improving and the medium-term prospects, for 2011, are promising if the political class decides, as part of this transition, to build a consensus on the major political reforms, which must be completed by free democratic and transparent elections; and if the country continues to enjoy effective support from the African institutions (AU, ECOWAS and African Mediation), from the EU and from the wider international community.

Since the economic reforms from 1986 to 2002, and the subsequent loss of direction of 2003‑06, the political situation has in part been characterised by the non-application of the rule of law and control of corruption. There has also been an absence of an enlightened leadership on the central issues of a national and democratic consensus to deal with the major challenges of growth and combating poverty in a country that has a huge, barely exploited economic potential.

Over the past ten years in particular, the indicators of institutional governance (political process, effectiveness of government and public service, rule of law and regulatory quality, perception of corruption) have been among the lowest in the sub-region. The Corruption Perception Index (CPI) has put Guinea in the bottom fifth of countries for over ten years.

Poor management of the democratic political process (especially the elections of 1998, 2001/02 and those initially expected in 2009), added to the effects of the different military and political crises of the sub-region (2006-07, 2009), has worsened the political situation. These crises maintained periodic tensions between the political class, dominated by the presidential majority, and an unorganised opposition (composed mainly of the social and trade union movements, and parts of the political class, with diverging interests). The opposition was reduced to silence; it was regularly exposed to the violence of the state, especially between 2007 and 2009.

Guinea’s political indicators, the levels of which fell between one and four points in 2009, show poor scores compared to those of the sub-region (WAMZ, WAEMU and ECOWAS). The country entered a political crisis fed by the expectations of all interested parties of a change of regime.

The NCDD seized power on 23 December 2008 following the death of President Conté. Its difficult handling of the political transition in 2009, faced by a social movement determined to see democratic progress, ended with a decisive shift towards calming tensions. This should lead to free, open, fair, democratic and multiparty, transparent and credible elections in 2010 in which none of the participants in the transition will take part.

Since January 2010, new transitional authorities have been set up to drive the process, with the task of organising elections for a return to a new constitutional order; adopting and putting in place a strategy to reform and convert the DSF into democratic and professionalised forces; and taking steps aimed at improving price stability, the currency and public finances; and creating economic conditions favourable to re-engagement with development partners.

The political climate is getting back to normal with governance that is consensual, nationally unified, broadly representative and neutral. Reconciliation is under way; the split between government and opposition is giving way to the association “transition authorities and political class”.

The transition authorities maintain they “are not clinging to power,” and state that they “want to undertake actions leading to calm, unity of all Guineans, and the reform of the state and its political system.”

The political landscape is occupied by around 100 political parties of a wide range and variety of tendencies, the political agendas of which are not clear in the medium term; they have not adequately communicated their value systems, political choices and the model of society that they offer.

The NCDD and the National Transitional Government (NTG) will be aided by a national transition council  in a consultative and legislative role in the revision of electoral texts. The collective challenge for both those governing and other political actors lies in strengthening the climate of peace for free, fair and peaceful elections and codifying the rules and mechanisms that will help the political groupings to develop communication strategies in line with peaceful democracy. The challenge also includes the need to create conditions for good governance and the fight against corruption, which is a core element of stability, growth and the fight against poverty.

The population of Guinea was estimated at 10.28 million in 2008 and will increase to more than 11 million during 2011, with a growth rate of 3.2% a year, and a fertility rate of 5.4 children per woman; this rate is falling but is still well above the regional average of 4.6.

The country faces population challenges: it is 34.4% urban, around 50% are under 20 years old and only 48% are active. With the precariousness of infrastructure and jobs, social demand and political instability constitute real challenges for the government and political class.

In spite of Guinea’s considerable economic potential, the country is paradoxically poor. Real average income per head is falling by 1% a year; the level of poverty is around 55% (the national threshold in 2008), compared with 49% two years earlier. Almost 70% of the population live on less than USD 1 per person per day, with huge inequalities in income; the gap between the top and bottom 10% of consumers is growing.

The real rate of growth in GDP fell from 4.9% in 2008 to 0.6% in 2009, which represents a drop in income per head in 2009 of 2.6% a year in real terms. The UN Human Development Index (HDI) is improving by 1.6% a year, but Guinea has stayed in 160^th place out of 177, at the West African average.

For several years inflation stayed above 20%, partly because of excess money supply and the increase in food and oil prices in 2007-08, to the point where the country needed the support of development partners in the form of food and humanitarian aid.

Well-being indicators of education and health are fragile and often below the regional average. Basic social services are far from adequate: this situation, which has not changed over the past ten years, could deteriorate if priority is not given to stability, openness and development issues.

The level of poverty, together with the dilapidated infrastructure (housing, transport, energy, water and telecommunications), constitute a real challenge in the context of political, economic and monetary instability. The resources needed for faster growth are on the scale of a veritable “Marsall Plan”.

In the field of education, Guinea has made efforts to improve primary education, in gender parity and in balance between regions and towns. The gross enrolment ratio (GER) rose by 20 points between 2001 and 2009, from 62% to 82%. The improvement is most marked for girls, with a rise of 5% a year, from 51% to 73%.  The gender parity index (GPI) rose by 0.66 to 0.81 over the period.

The rate of graduation from primary school has risen from 27% to 62%. A GER of 100% and reaching gender parity by 2015 are realistic objectives that will be achieved.

In coming years, as part of the PRS, the authorities envisage focusing on improving the quality of teaching, of coverage and access (strengthening infrastructure and the pupil/teacher ratio); and restoring infrastructure and developing programmes to improve employability in the other areas of teaching (secondary, higher, technical teaching and professional training), an important factor in growth and competitiveness.

Life expectancy, at 56 years, has risen by two years since 2004. But performance is stagnant in the health field. Over ten years, infant mortality has fallen by 7 points and child mortality by 14 points in urban areas, while in rural areas, the results are worrying: infant, child and maternal mortality rates are still high (118 per 1 000, 204 per 1 000 and 980 per 100 000 respectively).

In terms of prevention, the rate of vaccination is rising, even if disparities persist depending on the region and place of residence, leading to the persistence and spread of certain endemic illnesses. The high prevalence of HIV/AIDS seen in 1996‑2001 has begun a downward trend (from 2.8% in 2001 to 1.5% in 2009). Women are more affected, at a ratio of 2.1 women for every man. The government has taken steps to improve epidemiological monitoring, voluntary testing and prevention of mother-child transmission, and to improve access to antiretroviral medicines with a reduction of the cost of treatment by a factor of 20.

In the future, the government is committed to free antiretroviral treatment, biological monitoring and the treatment of opportunistic infections. The government also intends to maintain its vigilance and determination to deal with endemic illnesses such as malaria and tuberculosis. These illnesses continue to be public health problems and in some cases are spread by poor hygienic conditions: 25.9% of Guinean households do not have toilets and use poorly designed latrines or drains. Only 7.7% of households are connected to the public drinking water supply.

Guinea has many watercourses and the highest rainfall in the sub-region: the country is nicknamed “the water-tower of West Africa”. Even so, much-desired water and sewerage infrastructure improvements are proving hard to put in place and supply levels remain well below the regional average: 19% for electricity and 35% for drinking water, with provision that has dropped from 47 litres to seven litres a day since 2005.