Guinea - Overview of economy

Guinea is a small economy in terms of the total value of its output. The population is small, at around 7.6 million, and not very productive: the amount of output produced per person is very low at US$540 a year (by way of comparison the U.S. figure is US$29,340 per person, per year). This low output level, combined with poor educational prospects and inadequate access to health care and other human services, has earned Guinea a place near the bottom of the United Nations (UN) Human Development Index, with a ranking of 162 out of 174 countries. The population is growing fairly rapidly, at 1.96 percent a year, with the average woman giving birth to 5.5 children during her lifetime, and this rate adds to the problems of generating higher incomes. Most people— 80 percent—depend on agriculture for their livelihoods, mainly on small family farms. Despite these limitations, in the last several decades Guinea's economic output has increased more rapidly than its population, and average living standards have improved. The agriculture and services sectors have performed better, with industry doing less well.

Following independence from France in 1958 all opposition was ruthlessly crushed, and Guinea pursued a Marxist development strategy, which continued until 1984. Inefficient public companies controlled all economic activity, discouraging all private enterprise, and the economy was centrally planned. Vestiges of the old system remain, despite 15 years of support from the International Monetary Fund (IMF) for economic reforms. Only the mining sector remained productive over this entire period, as it operated mainly in enclaves isolated from the rest of the economy.

Some liberal policies were brought in towards the end of President Ahmed Sékou Touré's First Republic, but his death in March 1984 brought a fundamental change in policy. The new government embarked on an economic and financial reform program with IMF support and foreign creditor banking. Phase One of the program concentrated on removing the worst distortions in the economy. This task involved a massive devaluation of the Guinean franc; the privatization or liquidation of government-owned enterprises; trade liberalization and the removal of price controls ; the abolition of state marketing boards; the creation of a commercial banking system; and the review of civil service employment. The initial success of the program won Guinea partial debt rescheduling in 1986 and further IMF funding in 1987.

A second phase of reforms was designed to change attitudes in the public and private sectors . It included reorganizing the Customs Service, widening the tax net, and introducing stricter budgetary controls. Guinea failed to secure an extension to the 1987 loan, however, because of budgetary overspending, inadequate revenue generation, privatization delays, and a failure to cut public sector employment. Some of the more serious structural problems were addressed in the early 1990s on the signing of a new loan agreement which brought further support and debt relief from the donor community.

In 1992 the IMF had again to address the government's inability to reach targets, and in 1994 it extended its lending for 12 months while it constructed a new package. Performance was good in early 1995 but fell again later in the year. An army mutiny in February 1996 compromised donor aid and business confidence and caused the government to be unable to balance the budget after it gave in to the mutineers' demands for pay increases.

When Sidya Touré, an economist by profession, became prime minister in mid-1996, he led a sustained attempt to stick to IMF targets, especially in the field of budgetary shortfalls, public expenditures, and revenue collection. Thus, the structural adjustment loan was renewed in 1997, and lenders rescheduled Guinea's debts on exceptionally generous terms. However, the appointment of a new prime minister, Lamine Sidime, in 1999 led to further IMF and donor problems because, despite allowances being made for the exceptional circumstances of the period, the reform program had drifted off-track and had been suspended. By late 1999 the donor community felt that the situation had improved enough to release further funds to Guinea, under tight conditions. By the turn of the century, however, Guinea had labored for twenty years to improve the structure of its economy and had little to show for its efforts. Despite millions of dollars of foreign aid and loans, the government is still unable to stick to budgetary schemes, unemployment remains high, and the country remains overly dependent on the mining sector.

Agriculture accounted for 22 percent of the GDP in 1998, but it offered employment to 80 percent of the population. Most people involved in the agricultural sector are engaged in some form of subsistence agriculture, which means that they are producing goods for their own consumption or for barter . Mining provides the largest source of foreign exchange earnings and government revenue, but its share in the economy is declining due to under-investment and falling world prices. Due to the poor state of the government-owned industries, there has been little interest in the government's privatization program, and only 4 percent of the GDP is generated by formal manufacturing. Altogether, industry provided 35.3 percent of the GDP in 1998. There has, however, been large growth in services, with banking reforms stimulating the financial services sector and external financing bringing a boom in trading and utilities. Services contributed 42.4 percent to the GDP in 1998. Together, industry and services employed 20 percent of the workforce in 2000. The informal sector , comprising small-scale manufacturing and services operating from no permanent premises, is also thriving.

Consumer inflation has run in single figures since 1992, after hitting a high of 72 percent in 1986. This rate is mainly due to low price rises for local goods and necessities, a fall in the price of imported rice, and the tight monetary policy of the government.

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Apr 29, 2020 @ 1:13 pm
I have a question. Is Guinea a market, traditional, command, or a mixed economy?

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