Mining sector faces protest risks in Guinea

01 April 2019

Mining sector faces protest risks in Guinea Guinea is home to the some of the world’s largest high-grade and untapped reserves of bauxite and iron ore, presenting significant investment opportunity in the medium to long-term. Despite an improving investment environment, challenges remain in the form of a weak infrastructure base and concerns over political and social stability.

Security Environment

Social unrest risks will remain high following the decision to indefinitely postpone legislative elections scheduled for January 2019.

The risk of protest, riots and civil commotion is also likely to increase in the run-up to the 2020 presidential election, with road blockades and damage to private property likely in the ethnically Peul-dominated areas of the capital, Conakry.

This ethnic group votes heavily for the opposition Union of Democratic Forces of Guinea (UFDG). The collapse of a political agreement ahead of the legislative elections raises the risk that political rivalries will provoke an armed insurgency in the near-term.

Guinea has witnessed episodes of social unrest in recent years, which are likely to affect mining operations. Violent protests over poor electricity provision and a lack of jobs disrupted mining operations in the country as recently as September 2018.

Mining sector faces protest risks in Guinea Foreign mining firms may be specifically targeted during protests. During unrest in Boké in April 2017, vehicles belonging to Société Minière de Boké (SMB), a majority-Chinese owned bauxite mining firm, were burned.

Riots are commonplace in the cities of Boké and Siguiri, where anti-government protests have closed rail lines, disrupted bauxite shipments and paralysed the operations of mining firms such as Alcoa, Rio Tinto Alcan and Dadco.

Trading Environment

The Guinean economy recorded robust growth of 5.9% during 2018, driven primarily by the buoyant mining sector, which grew by 15.3% y-o-y. Growth is forecasted at an annual average of 6.0% between 2019 and 2020.

Guinea has some of the world’s largest high-grade reserves of iron ore and bauxite, the ore used to produce aluminium.

The country holds in excess of a quarter of global bauxite reserves and has large quantities of high-grade iron ore, with most reserves exceeding a 60% grade. Impressive growth in Guinean bauxite production is forecasted, rising from 62.9 million tonnes (mnt) in 2019 to 97.8 mnt in 2028.

Growth in bauxite output will be a key determinant of macroeconomic performance, as the mining sector accounts for over 22% of GDP.

However, a weak infrastructure base will constrain broad-based economic growth and hamper investment opportunities in Guinea in the near-term.

The USD 23.9 million second instalment of an IMF Extended Credit Facility (ECF) programme was disbursed in December 2018 will support infrastructure investment and stimulate private-sector activity.

Investment Environment

Pricing outlook GuineaGuinea has made some progress in improving the legal environment and regulatory certainty for investors, with the mining sector of strategic importance. Guinea’s National Transition Council (CTN) amended the mining code in April 2013 in an effort to improve its investment record.

The amendments brought profit taxes down to 30% from 35%, and cut the tax on bauxite to 0.15% of the international market price for aluminium, from 0.55%.

However, the mining code still contains a controversial clause that grants the government a 15% stake in mining projects, as well as the option of purchasing an additional 20% stake.

The clause is designed to encourage companies to process raw materials in Guinea.

Expropriation risks have declined under the current government. However, contracts awarded under previous administrations remain at risk of review by the Condé government. Simandou, the world’s largest iron ore deposit, has been the focus of a protracted expropriation dispute over the last decade.

The northern mining blocks of the Simandou site were expropriated from the control of Rio Tinto in 2008 on the grounds of failing to meeting development deadlines and awarded to BSG Resources and Brazilian mining firm Vale S.A.

One of the first acts of the Condé government in 2010 was to initiate an investigation into the circumstances under which BSG Resources were awarded the contract. In March 2019, the two-year arbitration case was dropped by both parties.

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5 Key Takeaways

  • Guinea holds some of the world’s largest high-grade and untapped reserves of Bauxite and iron ore
  • The security environment remains weak with attacks on foreign mining firms likely in 2019
  • Politically motivated protests will intensify in the run-up to the 2020 Presidential election
  • A weak infrastructural base will constrain investment opportunities in the near-term outlook
  • Expropriation risks have declined but investigations into contract awards will continue in 2019.

A number of the countries in this month’s Risk Outlook are the recipient of elevated Chinese investment, with some participating in the Belt and Road Initiative (BRI). Increasingly, our focus is on the implications of BRI for the risk environment within emerging markets.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Myanmar, Peru, Senegal and Djibouti all of which have been the subject of recent enquiries from our client base.

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If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0) 121 514 8307.