Guinea Can’t Shake the Resource Curse or its Political Woes

(Bloomberg Opinion) -- For many Guineans, the scenes that played out on Sunday were a blast from the not-so-distant past: A military officer in dark glasses and fatigues on television dissolving the government and the constitution, unauthenticated videos of a disheveled-looking, apparently overthrown president, gunfire on the streets of Conakry.

The trouble for the West African nation is that the failure to make the most of its mineral resources is not just one of the causes of this latest coup — there’s a risk it could also be the consequence of the deep-rooted shortcomings on display.

President Alpha Conde came to power just over a decade ago pledging to be the country’s answer to Nelson Mandela. He was Guinea’s first democratically elected leader, taking the helm after two years of military rule and nearly a quarter century under authoritarian leader Lansana Conte. He made promises to turn around the decrepit state and clean up mining, which did prompt some logistics and governance improvements and helped Guinea become the world’s top exporter of bauxite, which is made into aluminum.

But not enough beyond that. Increasingly, Conde cracked down on opponents and dissenting voices, and last year was sworn in for a third term (after pushing through changes to the constitution to allow him to do so) despite accusations of fraud from his rival, following a worrying trend in the wider region. Little has been done to move Guinea up the value chain and to diversify the economy, which ranks 132 out of 133 on the Economic Complexity Index. Bauxite, the reddish ore which has to be refined into alumina and then smelted to produce aluminum, accounts for most of Guinea’s mining exports — it vies with Australia as China’s largest supplier — and yet poverty remains endemic.

There is much of the traditional resource curse here. Weak institutions, allegations of mismanagement, concentration of power, wasted potential and, now, turmoil likely to batter an economy that had otherwise proved reasonably resilient to the pandemic.

But there’s a Guinean twist. The very nature of the country’s mineral wealth means its version of the resource curse is not just about failures immediately visible in the disruption on the streets today. It’s a double curse, because Guinea’s untapped wealth is less in gold and a smattering of diamonds — which is more easily lifted from tricky spots — but in bulk commodities that are shipped by the metric ton and require roads, rail and ports. They require multi-billion dollar, long-term investments and the shareholder backing to take on the governance and operating risk.

If Guinea becomes unstable in part because of past resource failures — especially if contracts and the very continuity of institutions are called into question — it will only become harder to turn it around.

Granted, there’s been some success when it comes to bauxite. Production has soared more than four-fold since Conde came to power, hitting 82 million metric tons last year and accounting for nearly a quarter of global output. In the bauxite-rich Boke region north of Conakry, half a dozen jetties have been built over the past decade to handle those growing trade volumes.

Look deeper, though, and that infrastructure is an admission of defeat. Bauxite, even of the high-grade variety found in Guinea, costs only around $40 a ton. Alumina, produced by cooking the ore in caustic soda, is worth 10-times as much, and aluminum hit a 10-year high of $2,734.50 just days before the coup.

Guinea could make orders of magnitude more from its bauxite if it were able to turn it into these higher-grade products, as Australia, Brazil and Indonesia do — but such complex infrastructure on a sufficient scale is far out of the reach of Guinea’s state. Its single aluminum refinery — built with the help of the Soviet Union in the first flush of postcolonial optimism in 1960 — was out of operation for much of the past decade. Even its gradual restoration by current owners United Co. Rusal will only allow it to process a few percentage points of Guinea’s bauxite production.

Iron ore poses an even greater conundrum. Simandou, in the country’s south, is one of the world’s largest untapped deposits, but has for years been caught up in expropriation rows and corruption investigations, not to mention tangled in the sheer complexity of the infrastructure required. It is divided into four blocks, two held by SMB-Winning, a consortium backed by Chinese and Singaporean companies, while blocks 3 and 4 are held by Rio Tinto and Aluminum Corp. of China, known as Chinalco. There have lately been, after a long wait, signs of progress.

China’s appetite for iron ore means there is little chance the mine will remain untapped. But if anger over mismanagement and insufficiently distributed wealth results in fresh questions over contracts — indeed anything other than institutional continuity —  there could be years more to wait for any of those riches.

For this long-suffering nation, a curse indeed.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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