Risk spotlight



Legislative elections postponed until September

Guinea’s long-delayed legislative polls have been pushed back to 24 September under a new agreement between President Alpha Condé of the Rally of the Guinean People (Rassemblement du Peuple Guinéen, RPG) and the opposition alliance led by Cellou Dalein Diallo and his Union of Democratic Forces of Guinea (Union des forces democratiques de Guinee, UFDG). Postponed repeatedly since 2010, the polls are seen as the key milestone of Guinea’s transition from military rule to civilian democracy, but the prospects for a smooth electoral process remain dim.

The elections had already been postponed twice this year, amidst growing political violence involving security forces and supporters of the two camps.

Opposition leader Diallo has objected to the involvement of a South African firm (Waymark) contracted by the government to revise the voter register. The firm was first hired to assist with the presidential run-off in 2010, which Diallo’s supporters claim was rigged to ensure their leader lost to Alpha Conde, after a dramatic reversal of the first round results. The opposition says the government extended the contract to secure a similar outcome.

In addition, Diallo demanded Guineans living abroad be given the right to vote. The government argued this was impossible due to time constraints (the fact that Guinean diaspora is widely believed to be leaning toward the opposition may have played a role in the calculus). Conde has also refused to release opposition supporters arrested during recent unrest, dismissing opposition claims that security services selectively targeted Diallo’s loyalists. 

New agreement, old divisions remain

Under the latest agreement between the two sides, the government conceded the diaspora’s right to vote, though how the expats are going to be registered in time has not been reported. A compromise has been reached on Waymark’s contract: the opposition accepted the company’s oversight of the voter register, while Conde pledged to contract a different provider for the 2015 presidential election.

Behind these disputes lie deeper antagonisms that run through Guinean society. Political competition is fueling ethnic tensions, chiefly between Conde’s Malinke ethnic group (which constitutes an estimated 30-40% of the population) and the opposition Peul who command a slight plurality in numbers. Conde is accused by the opposition of favoring his own ethnicity when offering key government positions; the military, too, is mostly of Malinke origin.

Dozens of people were killed and hundreds injured in clashes in capital Conakry since February, with reports of government-hired mobs helping the security forces target Diallo supporters. Random attacks based on ethnic profiling have become standard, creating an explosive climate of fear. Diallo himself is said to have come under attack by pro-government crowds in June, which led to UFDG’s temporary pullout from talks with Conde.

The habitual abuse of power by groups in government makes politics in Guinea a zero-sum game, with a say in the distribution of lucrative mining contracts being the main prize. Conde has recently accused the Geneva-based Beny Steinmetz Group Resources of financing the opposition’s campaign. The claims came as a government commission launched a new investigation into the legitimacy of the company’s stake in blocks 1 and 2 in Simandou iron ore mine project (sold in 2008 by the administration of late Lansana Conte).

Internal conflict

High risk of violence and instability

None of these underlying factors of instability will be removed in the near future, prompting fears of another military intervention if civilian politicians lost control of the streets. Guinea has a long tradition of military rulers and restoring civilian oversight over the army has been one of Alpha Conde’s chief objectives.

Four-thousand officers were retired since 2011 as part of efforts to streamline the force.

However, though divided between rival commanders, the army remains a potent political force, particularly due to the weakness of state institutions. Forced retirements won Conde few friends in the officer corps, and government officials accuse the opposition of actively seeking the military’s intervention against the president. The veracity of these claims is difficult to assess. The top rank of army officers is undoubtedly aware that a coup would terminally damage Guinea’s chances of securing donors’ aid and investment for the mining sector, key preconditions for any political group to prosper in the coming years.

That said, the situation remains highly unpredictable. Sidya Toure, former prime minister and head of the opposition Union of Republican Forces, warned the international community that Conde’s intransigence was radicalising some elements in the opposition elements, raising the risk of descent into widespread violence. The European Union is threatening to withhold US$180 million in aid if the polls were postponed beyond 31 October, but if brandishing the stick of cuts to foreign assistance so far kept the two sides at the negotiating table, it has also patently failed to clinch the final deal.

Investment profile

New mining regulation seeks to woo back investors

A stalled political process has also jeopardised modest economic gains since the 2010 presidential polls. Uncertainty over Guinea’s policy profile and lower commodity prices led to a withdrawal of investment commitments by Rio Tinto, BHP Billiton and Vale, among the largest operators in the country. The 2015 start date for the flagship Simandou project has been delayed again after fresh disagreements between the government and Rio Tinto over the construction of rail and marine infrastructure.

To attract more foreign capital, the interim parliament (National Transition Council) passed in April revisions to the 2011 mining code, softening profit taxes and other conditions for new joint ventures. The 2011 regulation was formulated during a commodity boom cycle which drove African governments to extract a larger share of revenue from the operators. Guinean government’s appropriation of a 15% minimal share in all mining projects was at the time roundly dismissed by foreign miners as unfeasible.

But, a projected 30% annual drop in domestic mining investment in 2013 forced Guinea to review its mining regime. Under the revised code, profit taxes will be cut to 30% from 35%, and taxes on bauxite exports will drop to $4 per ton from the $11-13 charge tabled in 2011. Plus, the minimum investment threshold of $1 billion has been reduced to $500 million, though only for low-capital-intensive minerals, such as gold or diamonds.

Guinea is also following the example of other regional governments who have shifted from focusing solely on tax revenue to plans to develop the capacity for higher-end exports. According to the Mining Ministry, the state will retain the minimal 15% stake in projects, but with the possibility of reducing its share to as little as 2% if miners committed to local processing of raw resources. The new regulation also prohibits the government from selling on its original stake.

Mixed reaction due to political risks

Guinea has given companies until 2015 to accept the terms regarding taxes on capital gains and mining title transfers of interests, along with the regulation on transparency and anti-corruption. But the timeframe for other chapters such as the state’s stake in mining companies will be “subject to negotiations” between contract holders and the government, said officials at the Mining Ministry.

The reaction by foreign operators was mixed. Bellzone Mining, which in December started first iron ore exports from Guinea since 1966, endorsed the amendments, along with smaller companies such as Sable Mining Africa. Rio Tinto and Vale, on the other hand, refused to comment, while Rusal – whose Friguia aluminum plant is still shut over labor disputes – flatly rejected the new code, saying that since the amendments would not be applied retroactively, it made no difference to the company’s existing holdings in the country.

The 2011 mining code was praised in some quarters for establishing the basic rules of the game. The recent revisions recognized a new reality on the market.

However, there is no knowing whether the next elected parliament might push for another review of the regulation. Without stable state institutions and some degree of continuity in the policy formulation, the impact of the new regulation on Guinea’s competitiveness on global markets will likely be marginal.

By Christopher McKee, PRS Group

Christopher McKee, PhD, is CEO and Owner of the PRS Group Inc, a US-based, quant-driven, country and political risk rating and forecasting firm in operation since 1979. A former academic and current private equity investor, Chris is the author of several publications dealing with international business and risk, and has lived and worked in a range of emerging markets, including Latin America, South East Asia and North Africa.

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