III. ECONOMIC TRENDS AND OUTLOOK MAJOR TRENDS AND OUTLOOK AT THE OUTSET OF THE SECOND REPUBLIC IN 1984, THE GOG UNDERTOOK AN AMBITIOUS PROGRAM OF REFORM, AIMED AT DISMANTLING THE CENTRALIZED STATE-RUN ECONOMY OF THE FIRST REPUBLIC. TO THIS END, THE GOG ADOPTED MEASURES DESIGNED TO CREATE A STABLE MARKET ECONOMY AND OPEN THE COUNTRY TO TRADE AND INVESTMENT FROM THE PREVIOUSLY CLOSED OUTSIDE WORLD. AN INVESTMENT CODE ALLOWING FOR PRIVATE ENTERPRISE WAS PROMULGATED TO OFFER A STRONG SET OF INCENTIVES TO THE NASCENT PRIVATE SECTOR. THE GOVERNMENT UNDERTOOK A PROCESS OF PRIVATIZING OR LIQUIDATING A LARGE NUMBER OF STATE-OWNED ENTERPRISES, AND A COMMERCIAL BANKING SYSTEM AROSE FROM THE ASHES OF THE FORMER GOVERNMENT RUN BANKS. TO STIMULATE MARKET FORCES, GENERAL PRICE CONTROLS WERE ENDED, THE NATIONAL CURRENCY WAS DEVALUED, AND INTEREST RATES BECAME POSITIVE IN REAL TERMS. IN AN EFFORT TO RATIONALIZE GOVERNMENT EXPENDITURES, FUEL PRICES AND UTILITY TARIFFS WERE RAISED, AND CIVIL SERVICE ROLLS WERE GREATLY REDUCED. THE TEN-YEAR PERSPECTIVE INDICATES THAT THE ECONOMY HAS RESPONDED WELL TO THE MEASURES. GROWTH AVERAGED 2.4 PERCENT IN 1991, 3.0 PERCENT IN 1992, 4.0 PERCENT IN 1993. GOVERNMENT EFFORTS TOWARD MONETARY DISCIPLINE HAVE SUCCEEDED IN BRINGING INFLATION DOWN FROM 27.1 PERCENT IN 1991, TO 16.5 PERCENT IN 1992, TO 4.9 PERCENT IN 1993. INITIAL PROGRESS HAS BEEN ACHIEVED IN THE PRIVATIZATION OF THE POWER AND OIL DISTRIBUTION SECTORS, AND TELECOMMUNICATIONS AND TRANSPORT HAVE BEEN LIBERALIZED. THE LAST FEW YEARS, HOWEVER, HAVE BEEN PUNCTUATED BY PERIODIC LAPSES IN THE GOG'S ATTEMPT TO RATIONALIZE ITS ECONOMY IN COMPLIANCE WITH REFORM TARGETS. IN 1993, GUINEA'S GROWTH TREND CONTINUED, WITH AN ESTIMATED 4.0 PERCENT GROWTH. (NOTE: GROWTH FIGURES SHOULD BE INTERPRETED WITH CAUTION SINCE A PORTION OF ECONOMIC ACTIVITY IN THE INFORMAL SECTOR IS UNRECORDED.) INFLATION REMAINED UNDER CONTROL THROUGH THE END OF THE YEAR, ALTHOUGH LEVELS OF DOMESTIC DEBT AND UNBUDGETED EXPENDITURES THREATEN TO REKINDLE INFLATION IN 1994. EXCHANGE RATES REMAINED RELATIVELY STABLE AND GENERALLY WITHIN ABOUT TEN PERCENT OF PARALLEL MARKET RATES. PRINCIPAL GROWTH SECTORS MINING: GUINEA'S ECONOMY IS HEAVILY DEPENDENT ON THE MINING SECTOR. 1993'S GDP GROWTH OF 4.0 PERCENT WAS FUELED BY A RECOVERY OF MINING SECTOR OUTPUT (9 PERCENT GROWTH). (NOTE: 1993'S HIGH MINING GROWTH RATE REFLECTS LARGELY THE DISTORTIONS CREATED BY THE RECOVERY OF THE GOG-OWNED BAUXITE MINING COMPANY, SBK.) OTHER CONTRIBUTORS WERE CONSTRUCTION (6.5 PERCENT), TRADE (4.9 PERCENT), AGRICULTURE (3.5 PERCENT), INDUSTRY AND MANUFACTURING (3.0 PERCENT), FISHERIES (15 PERCENT). GUINEA'S CONSIDERABLE MINERAL AND METAL RESOURCES HAVE LONG BEEN THE CRITICAL SOURCE OF BUDGET REVENUES AND AN ENORMOUS POTENTIAL AREA FOR FUTURE WEALTH. GUINEA POSSESSES ONE THIRD OF THE WORLD'S KNOWN BAUXITE RESERVES, ONE OF THE LAST HIGH GRADE IRON ORE DEPOSITS, AS WELL AS UNTAPPED RESERVES OF GOLD, DIAMONDS, AND OTHER GEMSTONES AND PRECIOUS METALS. MINING ACTIVITIES ACCOUNT FOR 35 PERCENT OF GOVERNMENT REVENUES. CURRENTLY, ONLY BAUXITE IS MINED INDUSTRIALLY, ALTHOUGH SEVERAL GOLD EXPLORATION INITIATIVES ARE UNDERWAY. IN 1992, THE GOG PROMULGATED A POLICY OF LIBERALIZATION IN THE SECTOR, ALLOWING WHOLLY PRIVATE MINING VENTURES. SINCE THEN, SEVERAL PRIVATE GROUPS HAVE OBTAINED LICENSES FOR EXPLORATION AND EXPLOITATION, AND ARTISANAL MINING HAS EXPANDED GREATLY. ALTHOUGH THE GOVERNMENT CURRENTLY STILL RETAINS A MAJOR INTEREST IN PREVIOUSLY EXISTING BAUXITE AND DIAMOND MINING OPERATIONS, RANGING FROM 49 PERCENT TO 51 PERCENT, IT IS INVESTIGATING OPTIONS FOR DIVESTITURE. AS NOTED ABOVE, INDUSTRY, MANUFACTURING, AND PUBLIC WORKS ARE ALSO IN AN UPWARD GROWTH TREND.(SEE SECTION II AND APPENDIX B). AGRICULTURE: ALTHOUGH GUINEA'S AGRICULTURAL SECTOR EMPLOYS APPROXIMATELY 75 PERCENT OF THE LABOR FORCE, PRODUCTION ACCOUNTS FOR MERELY 16.4 PERCENT OF THE COUNTRY'S GROSS DOMESTIC PRODUCT, AND FIVE PERCENT OF EXPORT REVENUES. THE LARGE MAJORITY OF PRODUCTION IS AT THE SMALLHOLDER LEVEL. WITH TWO THIRDS OF GUINEA'S ARABLE LAND CURRENTLY STILL UNCULTIVATED, AGRICULTURAL DEVELOPMENT AND MARKETING IS A CRITICAL ELEMENT FOR DEVELOPMENT AND GROWTH. SINCE 1985, THE FREE MARKET POLICIES OF THE SECOND REPUBLIC HAVE ADDRESSED THESE GAPS, ENCOURAGING GROWTH IN AGRICULTURAL PRODUCTION, WITH SLOW BUT STEADY INCREASES IN OUTPUT. SLOW BUT STEADY GROWTH IS PREDICTED THROUGH 1996, AT AN AVERAGE OF 3.5 PERCENT ANNUALLY. AGRICULTURAL EXPORTS HAVE DEMONSTRATED MORE SUBSTANTIAL INCREASES, AND RECENT EFFORTS AT SYSTEMATIC MARKETING HAVE IMPROVED THE PERFORMANCE OF CASH CROPS -- NOTABLY PINEAPPLES, COFFEE, COCOA, AND COTTON. IN 1993, GUINEA CONTINUED TO INCREASE ITS VOLUME OF AGRICULTURAL EXPORTS, WITH COFFEE EXPORTS INCREASING BY 34.5 PERCENT, COCOA BY 250 PERCENT, AND OTHER PRODUCTS -- INCLUDING, LARGELY, COTTON -- BY 300 PERCENT, IN EACH CASE FROM A VERY LOW BASE. FISHERIES: THE WORLD BANK ESTIMATES THAT GUINEA'S ANNUAL OCEAN FISHERIES POTENTIAL EXCEEDS 200,000 METRIC TONS. MANY OF THE SPECIES FOUND IN GUINEAN WATERS ARE OF HIGH COMMERCIAL VALUE. SINCE 1990, SEVERAL COMMERCIAL FISHING VENTURES HAVE BEEN ESTABLISHED, INCLUDING SHRIMP FARMING, DEVELOPMENT OF PRIVATELY HELD COLD STORAGE FACILITIES IN 14 OF THE COUNTRY'S PREFECTURES, AND SEVERAL SMALL COMMERCIAL FISHERIES TRADE VENTURES. THESE HAVE CONTRIBUTED TO AN AVERAGE ANNUAL GROWTH RATE OF 15 PERCENT IN THE FISHERIES SECTOR AND EXPORTS OF MORE THAN 23 MILLION USD IN SEAFOOD IN 1993. THE GROWTH TREND IS PROJECTED TO CONTINUE, WITH EXPORTS AVERAGING 16 PERCENT GROWTH ANNUALLY. BALANCE OF PAYMENTS SITUATION IN 1993, GUINEA REMAINED HEAVILY DEPENDENT ON MINING EXPORTS FOR GOVERNMENT REVENUE AND FOR FOREIGN EXCHANGE EARNINGS. IN 1993, MINING RECEIPTS ACCOUNTED FOR 35 PERCENT OF THE GOG'S BUDGET REVENUES. IN 1993, LOW WORLD PRICES FOR BAUXITE AND ALUMINA, COMBINED WITH SHORTFALLS IN PROJECTED REVENUES, LEFT GUINEA WITH A USD 338 MILLION CURRENT ACCOUNT DEFICIT (INCLUDING OFFICIAL TRANSFERS), REPRESENTING 11 PERCENT OF GDP. AS PART OF THE ENHANCED STRUCTURAL ADJUSTMENT FACILITY CONDITIONS THAT THE GOG IS NEGOTIATING WITH THE IMF, THE GOG IS COMMITTED TO REDUCING 1994'S CURRENT ACCOUNT DEFICIT. IN 1993, EXPORTS ACCOUNTED FOR 18.4 PERCENT OF GDP, AND IMPORTS 26.6 PERCENT. AT THE END OF 1993, GUINEA'S EXTERNAL PUBLIC DEBT TOTALLED USD 2,153 MILLION, OR 65 PERCENT OF GDP. THE DEBT SERVICE RATIO (RELATIVE TO EXPORTS) WAS 28 PERCENT (SCHEDULED) AND 12 PERCENT (ACTUAL) IN 1993. DEBT SERVICING IN 1993 REPRESENTED 21 PERCENT OF TOTAL GOG BUDGET EXPENDITURES. GUINEA WAS SUCCESSFUL IN OBTAINING A PARIS CLUB RESCHEDULING IN 1992 AND MUST MEET REFORM TARGETS IN 1994 IN ORDER TO OBTAIN FURTHER OFFICIAL RESCHEDULING. GUINEA HAS NO SIGNIFICANT COMMERCIAL DEBT. GUINEA RECEIVED OFFICIAL GRANTS AND LOANS TOTALLING USD 240 MILLION IN 1993. MUCH OF THIS CONSISTED OF PROGRAMMATIC OR PROJECT LEVEL ASSISTANCE FOR INFRASTRUCTURAL DEVELOPMENT AND ADVISORY SERVICES, PROVIDED IN CONJUNCTION WITH THE GOG'S PUBLIC INVESTMENT PROGRAM (PIP). MAJOR LOCAL AND THIRD COUNTRY COMPETITORS IN SPECIFIC SECTORS FRANCE IS GUINEA'S STRONGEST TRADITIONAL ECONOMIC PARTNER. THE FRENCH GOVERNMENT PROVIDES EXTENSIVE DEVELOPMENT ASSISTANCE, AND FRENCH BUSINESSES ARE REPRESENTED IN A VARIETY OF SECTORS, INCLUDING BANKING, INSURANCE, SHIPPING, COMMUNICATIONS, CONSTRUCTION, AGRICULTURAL EXPORT, AND MANUFACTURING. CANADIANS AND BELGIANS ALSO HAVE A STRONG LOCAL PRESENCE. ANOTHER VERY VISIBLE BUSINESS PRESENCE IS THAT OF THE INFORMAL SECTOR LEBANESE TRADERS. IN ADDITION TO TRADE, THIS GROUP IS EXTENSIVELY INVOLVED IN REAL ESTATE, SMALL MANUFACTURING ENTERPRISES, AND TELECOMMUNICATIONS. GUINEA'S LEADING IMPORT SUPPLIERS IN 1993 WERE SPAIN, FRANCE, BELGIUM, CHINA, AND THE IVORY COAST. PRINCIPAL EXPORT MARKETS -- INCLUDING THOSE ABSORBING LARGE QUANTITIES OF MINERAL EXPORTS -- ARE FRANCE, THE U.S., CANADA, THE FORMER SOVIET UNION, CAMEROON, NORWAY, ITALY, AND BRAZIL. INFRASTRUCTURE GUINEA'S INFRASTRUCTURE IS POOR BUT IMPROVING. THE COUNTRY'S PRINCIPAL CENTERS ARE NOW ACCESSIBLE BY PAVED ROADWAY, ALTHOUGH COMMUNICATION LINKS BETWEEN CONAKRY AND THE INTERIOR ARE STILL UNRELIABLE. ELECTRICITY PRODUCTION AND WATER SUPPLY STILL FALL FAR SHORT OF DEMAND. LOCAL PRIVATE TRANSPORT IS PLENTIFUL, THOUGH NOT ALWAYS HIGH IN QUALITY. MAJOR INFRASTRUCTURE PROJECTS UNDERWAY INCLUDE RURAL ROAD CONSTRUCTION, WATER SYSTEMS INSTALLATION, EDUCATION, HYDROELECTRIC POWER, ENERGY EXPANSION, AND TELECOMMUNICATIONS REHABILITATION AND PRIVATIZATION.