Guinea: resource nationalism, or just getting things straight?

Boston Drums
Simandou

Resource nationalism is a growing threat for companies in many emerging markets. The challenge for investors lies in distinguishing between arbitrary or predatory interventions, and legitimate attempts to clean up a broken system.


In Guinea, a mining code reform, an unchecked executive and simmering political tensions have prompted some risk analysts and lawyers to raise alarm bells. Are they justified, or is this a case of the country getting things straight?


Risk consultancy Maplecroft put the west African state in the ‘extreme risk’ category in their 2013 Resource Nationalism

Index. Guinea ranked second bottom for investor protection in the World Economic Forum’s 2012-2013 Annual Competitiveness Index.


The mining code, announced in September 2011, mandates the state a 15 per cent stake in all new mining projects with the right to purchase a further 20 per cent. Mining companies are also subject to higher fees for concessions and increased import duties. 


“Despite the Conde regime’s apparent commitment to transparency throughout the mining review process, a lack of consultation with business and slow implementation of the mining code has prolonged rather than eliminated regulatory uncertainty,” says Sian Bradley, Africa analyst at Maplecroft. The recent dispute between Rio Tinto and the government highlights the confusion surrounding the state’s stake in extractive industries.


But some donors and commentators support the government’s approach. The IMF describes the new mining code as “a key achievement” in Guinea’s progress with structural reform, and argues that use of a windfall mining revenue in 2011 proved critical to restoring public infrastructure investment. 


Overall economic performance, meanwhile, has been good. Growth is improving, rising inflation has been halted, international reserves have increased and arrears with multilateral institutions have been cleared.


Paul Collier, economist at Oxford University, believes that President Conde and ‘distinguished’ finance minister Kerfalla Yansane are “struggling against an inheritance of systemic plunder” – specifically, they are trying to rectify the calamitous fire-sale of Guinea’s mining resources by the previous military rulers.


“This was a DRC-style scenario where people moving on from government [before elections in 2010] signed many mining deals in a hurried process and then when a new administration comes into power, invariably there will be dispute about whether some concessions have been properly given away or not,” says Ola Bello, head of the Africa resources programme at the South African Institute of International Affairs. 


Guinea is also reviewing around $2bn worth of questionable procurement contracts signed between 2009-2010, with support from the World Bank. Collier says: “Investors in Guinea should distinguish clearly between the reasonable concerns of a democratic government for legitimate process and accusations of aggressive nationalism.”


Patrick Heller, legal adviser at the Revenue Watch Institute, is optimistic about the reform agenda, which includes a government decision to publish all mining contracts online. “Everything the government has laid out so far in terms of process and the way it is going to be carried out is – in our view – going in the right direction. 


The government has announced clearly the terms of references, they have named a respected and politically neutral individual [Nava Toure] to head the technical committee that is responsible for the analysis of the contracts” he says. “They have technocrats leading the process”.


Heller believes the government is responding to companies’ concerns. It announced amendments to the 2011 law after a consultation with businesses, and most international companies do not seem to object to the reform. “I think we’ve seen an evolution of the views of large multinational mining companies to recognise that a fundamentally one-sided deal is not a stable deal in the long term. It is important to reach agreements with government that can hold up to public scrutiny,” he says.


The mining reform concerns raised by companies are therefore mostly procedural, rather than existential, says Heller. The government “needs to do this [reform] in a way that is systematic, that puts all players on an equal footing, that enables companies to understand what the rules are going to be,” says Heller. Bello believes there is room for improvement here. While Conde’s intentions are “certainly progressive”, deal reviews and new mining codes could be done in a “more deliberative process”.


But it is the political backdrop, and not just the mining code review, which concerns some, since a fragile institutional environment can be as bad for business as growing government involvement in projects. “You have a sitting president whose power is not checked by a sitting parliament,” says Bello. Legislative elections have been repeatedly delayed, with polls now set to take place on 12 May 2013, but opposition parties have rejected the new date over alleged electoral irregularities.

 

In this environment “investors feel it is not a safe environment to put their money in” he argues.

 

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