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Economic Diversification in Guinea-Bissau
Guinea-Bissau is a small West African country with a poverty rate of more than 60 percent. Poor infrastructure and a stagnant business climate fostered a reliance on its main income producer, subsistence farming. Despite this, its GDP growth rate has remained fairly high. Real GDP growth rate in 2017 was 5.9 percent, one of the highest in Africa. Though a recession increased debt and caused Guinea-Bissau to seek assistance from the International Monetary Fund (IMF), the country has slowly rebounded. The nation stands to benefit from a diversified economy.

Current State of the Economy

Guinea-Bissau consistently ranks among the top 10 poorest countries in the world. About 80 percent of the population works in agriculture, while industry and services make up the remaining workforce. As is typical for a developing country, many residents rely on subsistence farming. Cashew production is an important export and source of income for Bissau-Guineans, making up more than 80 percent of income. Economic diversification in Guinea-Bissau could add jobs, begin infrastructure developments and lead to further investment in health and education.

A Cashew Economy

In a visit to Guinea-Bissau in January of this year, an IMF team led by Tobia Rasmussen discussed the importance of favorable cashew prices and production. “Ensuring a transparent and competitive cashew marketing season will be critical,” stated Rasmussen. Cashew production and pricing are important to most Bissau-Guineans. The issue, as with most developing countries, is an over-reliance on the agriculture industry.

Although economic diversification in Guinea-Bissau could be partially achieved by emphasizing crops other than cashews, there would still be a more widespread effect by focusing on services and other industries that have been left untapped. Further investment in the agriculture industry, such as through equipment and green technology, could also provide some relief to poverty-stricken residents.

Areas for Development

Guinea-Bissau lacks strong energy infrastructure and general infrastructure. Adding roads, bridges, railways, ports, hospitals and schools are examples of infrastructure developments that don’t just benefit the native population. Both tourists hoping to visit and business people interested in investing in a country that has the potential for growth stand to benefit, as well. Mineral resources, such as phosphates, mineral sands, bauxite, diamond and gold all are untapped. There are currently only small-scale mining of construction materials, such as clay, granite and limestone. Further development, as well as additional funding by the government in infrastructure, would provide a suitable foundation for the basis of a developed country. Infrastructure, such as roadways, is a necessary beginning to a developing economy. To demonstrate the current state of roadways in the country, only 10 percent of the national road network is tarred.

Energy Infrastructure

Only 21 percent of the population has electricity. There are also no telephone lines. Opening investment to the energy sector, especially to external corporations, is often foundational for further development. Current President of Guinea-Bissau Jose Mario Vaz has promised to reduce poverty and drug trafficking, both of which are rampant. At the 73rd United Nations Assembly President Vaz stated he wished to “eradicate poverty and hunger, combat major endemic diseases, as well as guarantee education and potable water for all.”

Promising Ports

The key location of the country is often overlooked. Guinea-Bissau is a western port of Africa that enables it to be a strategic location for trade. Fishing is usually grouped with the agriculture industry but could become a new income source for the 60 percent of Bissau-Guineans in poverty. Advancements in fishing, such as sonar technology that allows the user to find fish, is one example that provides simple and modern solutions to poor countries.

External Investment

China is a major investor in Africa and has announced it would invest more than $60 billion to help developing countries. One way it achieves this is through investment in infrastructure. China has built Guinea-Bissau’s parliament building, a government palace and a national stadium. The most economical investment China has made for Guinea-Bissau is its $184 million investment in a 30-kilowatt biomass power plant. The partnership is a major step in providing electricity to its residents while also adding to economic diversification in Guinea-Bissau.

With a continued focus on economic diversification and energy infrastructure Guinea-Bissau holds the potential for boundless development. The aforementioned initiatives and investment products indicate that positive change is already occurring in the West African nation.

– Lucas Schmidt
Photo: Flickr

Why Is Guinea-Bissau PoorLocated on West Africa’s Atlantic coast, Guinea-Bissau is one of the world’s poorest and most unstable nations. Approximately 69 percent of the population lives below the poverty line, and 25 percent of the population suffers from chronic malnutrition.

Nationally, nearly 11 percent of households in Guinea-Bissau are food insecure. In certain regions, though, the percentage of food insecure households can reach up to 51 percent. Despite the widespread poverty, real GDP growth is projected to reach an average of five percent during the 2016-2018 period if agricultural output remains robust and political stability is maintained. So, if it is projected to continue its trend of economic expansion, why is Guinea-Bissau poor?

In order to answer the question “why is Guinea-Bissau poor?”, the country’s history of severe political instability must be taken into account. Since gaining independence from Portugal in 1974, there have been four successful coups in Guinea-Bissau, and 16 coups that were plotted, attempted or alleged. There have also been frequent changes in government. Led by Umaro Sissoco Embaló, the current government is the fifth Guinea-Bissau has had since elections in 2014. This political instability has put a strain on the country’s fiscal situation and has hindered growth and poverty reduction. Inefficiencies in public spending further inhibit the flow of resources to regions that require improved service delivery in order to access basic services.

Political instability has particularly stalled the reduction of rural poverty. During the civil war that took place from 1998 to 1999, 300,000 urban dwellers fled to rural areas to escape the conflict. Increased competition for land and subsequent poor harvests have diminished both food supplies and rural livelihoods. The economy has also suffered, as agriculture represents 90 percent of all exports.

Approximately 85 percent of Bissau-Guineans rely on agriculture as their primary source of income. Irregular amounts of rainfall and volatile prices of imported rice and exported cashew nuts have made chronic food insecurity a reality for 11 percent of the population. Food insecurity, inadequate health services and poor water and sanitation have contributed to widespread malnutrition.

The reliance on cashew nuts for economic livelihood leaves nearly two-thirds of the population vulnerable to trade shocks. According to the World Bank, the diversification of Guinea-Bissau’s economy is of the utmost importance, as it will bolster the country’s resilience against potential economic shocks. Moving forward, maintaining political stability and addressing rising inequality will also be key in sustaining and accelerating the rate of poverty reduction.

The International Monetary Fund (IMF) also asserts that in order to maintain the current positive economic trajectory, efforts should focus on strengthening fiscal discipline and advancing structural reforms.

“Growth has been supported by high cashew prices, increased construction activity, and continued improvements in the supply of electricity and water,” stated Tobias Rasmussen of the IMF. Rasmussen led the IMF team that visited Guinea-Bissau in May 2017 to conduct discussions on the third review of the country’s IMF-supported program. In an end-of-mission press release, Rasmussen added that the improvement of revenue mobilization and the strengthening of expenditure controls would also be integral to the continuation of Guinea-Bissau’s economic expansion.

With a focus on addressing inequality through such means as the enhancement of resource delivery as well as advancements in technology and market support systems, it is the belief of organizations like the IMF and the World Bank that Guinea-Bissau can continue to reduce its poverty rate over the coming years.

Amanda Quinn

Photo: Flickr