Guinea-Bissau is one of the poorest countries in the world, ranking 164 out of 169 countries on the United Nations Human Development Index 2010. Guinea-Bissau has a population of about 1.6 million, with an economy based primarily on farming and fishing activities, which represent about 46 percent of GDP. Agriculture generates 80 percent of employment and 90 percent of exports (primarily through cashew nuts, the main export). The country has poor infrastructure and weak social indicators, and more than two-thirds of the population live under the poverty line.
The country has the natural resources and the geography to grow at a reasonable rate. It has an abundance of high-quality land and favorable rainfall. Its rich mineral deposits, exotic bio-diversity, and fishing and tourism potential could provide diverse sources of income.
Guinea-Bissau has experienced significant conflict both prior to and following independence: A fierce, 13-year guerilla struggle led to late independence (1974) from Portugal, with few structures for effective governance in place. The internal conflict of 1998 to 1999 and a series of military coups have undermined the development of the country’s economic and social infrastructure, and contributed to intensifying the already widespread poverty. João Bernardo Vieira seized power in 1980, ruled the country until he was ousted following the 1998 to 1999 conflict, and returned to power in the 2005 presidential elections. On March 1, 2009, both President Vieira and the Army Chief of Staff, General Tagme Na Waie, were brutally killed within hours of each other. Little more than one year later, after the successful electoral process of June/July 2009 had established President Malam Bacai Sanha, concerns about the security situation were again raised. On April 1, 2010, the (then) Army Chief of Staff General Zamora Induta was detained (and finally released only in December 2010), and Prime Minister Carlos Gomes temporarily arrested by army mutineers led by the (then) Deputy Army Chief of Staff. The political and security situation has remained stable since, despite the controversial subsequent decision of President Sanha to appoint the leaders of the mutiny, General Antonio Indjai and Admiral Bubo Na Tchuta, to top military leadership positions (Army Chief of Staff and Chief of the Navy, respectively) - much to the dismay and disappointment of the international community. This decision was a key factor in a decision by the European Union to suspend a portion of its support to the country pending a dialogue on governance with the Authorities in line with Article 96 of the Cotonou Agreement.
The country is also vulnerable to the influence of drug traffickers who have been using the country as a trans-shipment point in the cocaine trade from Latin America to Europe. An action plan to address the situation was adopted at the ECOWAS Ministerial Conference on Drug Trafficking, held in Praia, Cape Verde, in October 2008. This conference was followed by a round table on Guinea-Bissau's security sector reform in Praia in April 2009. ECOWAS Heads of State, in their Meeting of July 2, 2010, asked the Government of Guinea-Bissau in order to “curb the resurgence of the drug scourge in the region” to explore options to speed up the ECOWAS Regional Action Plan on drug trafficking, organized crime and drug abuse, in cooperation with development partners.
Despite these challenges, a democratic drive had begun to take root in recent years. Legislative elections in 2008 and presidential elections in 2009 were considered free and fair by international observers. The challenge for the months and years to come will therefore be to leverage the gradually emerging confidence in the formal political process into a reliable basis for a broad cooperation among various parties and factions in the country, including the military, to advance on urgently needed reforms in favor of economic development and poverty reduction.
The Economic and Fiscal Situation
Since 2008, following a decade of uneven progress in establishing macroeconomic stability, Guinea-Bissau has managed to achieve significant progress on a basic program of stabilization and reforms. The Government strengthened expenditure controls, especially on an excessive public sector wage bill that in 2007 exceeded domestic revenues collection, and demonstrated a firm commitment to fiscal sustainability. With this track record and progress in other policy areas, the country reached the Completion Point under the HIPC Initiative in December 2010. It was able to secure multilateral MDRI debt relief and qualify for additional “topping-up” assistance.
The achievement of large-scale multilateral and bilateral debt relief has dramatically improved the country’s external debt profile, while a program initiated under the IMF’s Extended Credit Facility (ECF) has allowed the Government to begin the process of clearing domestic and international arrears and to better control the issuing of domestic debt. In May and June 2011, The Paris Club wrote off $283m in debts. Although Guinea-Bissau remains vulnerable to external shocks, its risk of debt distress has been reduced from high to moderate.
GDP growth has been resilient to the effects of the global financial crisis. In 2009, growth fell slightly to 3 percent (from 3.2 percent in 2008) following the deterioration in terms of trade and a strong decline in exports. However, as world market prices for cashew rebounded, in 2010, overall growth, export earnings, and domestic revenue recovered. Good cashew harvests and high prices have led to significant boost in exports, and the Government is preparing to negotiate an increase in fishing license revenues with the EU. Chinese and Angolan government support is on the rise, as is private investor interest from India and Cape Verde. The consistent growth in export volumes and improved terms of trade together with construction activity have contributed to a projected rise in GDP to 4.5% for 2011. However, high food and fuel prices will push inflation up to a projected 5.2% this year. The Government adopted its PRSP-2 known as DENARP II (National Poverty Reduction Strategy Paper) early in July in a public event chaired by the Prime Minister and attended by cabinet members, donors and civil society. Donor partners (principally UNDAF, AfDB) are finalizing their assistance strategies in preparation for a possible donor round table early in 2012.
The Government’s track record allowed the IMF Board to approve a three-year Enhanced Credit Facility (ECF) program for 2010-2012. The First Review of the Government’s economic performance under ECF program was successfully concluded in December 2010. The second review that took place in May 2011 was also positive. The official statement at the conclusion of the IMF’s mission indicates that the Government’s performance continues to be satisfactory, and as of end- December 2010, all structural criteria and quantitative targets had been met for the second review. The ECF program, which was preceded by a series of two Emergency Post-Conflict Assistance programs, focuses on reinforcing public finances, modernizing public administration, and raising the quality of public services. It also seeks to promote job creation by removing impediments to private sector development and enhancing the provision of financial services.
Despite enormous challenges, both economic and political, the current administration has been able to initiate a far-reaching structural reform agenda under its National Poverty Reduction Strategy. The Government has already made significant progress in public financial management and public sector reform, as well as in the ongoing effort to bring the wage bill under control. A biometric census of all public employees was recently completed, allowing the Ministry of Finance to identify thousands of inappropriate recipients (“ghost workers” and “double-dippers”), which it has begun purging from the public payroll. Further, different measures have been initiated to increase capacity in the public administration. A diagnostic study on capacity-building activities has been conducted with the view of transforming the National Center of Training on Administration into a National Administration School. The elaboration, adoption and promulgation of the law on the National Statistics System in 2008 will contribute to increasing the capacity of the public administration. The government completed the general population census, and the preliminary results were published in July 2009.
Creating the conditions for more robust private-sector growth is a policy priority. As of August 2011, Guinea-Bissau still ranks near the bottom of the Doing Business indicators (176th out of 183 countries in the 2011 report), but significant achievements have been made, with the opening of a one-stop shop for business registration and a first wave of simplification reforms in licensing requirements and other administrative procedures. These actions, coupled with the implementation of the recently adopted Organization for the Harmonization of Business Law in Africa (OHADA) Acts, a new investment code, a new telecommunications law—with 3 large firms now competing in a rapidly-expanding domestic telecom market—a new public-private partnership law, and the establishment of a Commercial Tribunal, are expected to substantially improve the country’s business climate. In terms of public infrastructure, considerable efforts need to be made to restore electricity, at least in the capital city Bissau, after the collapse of the power system in 2007; and the Port of Bissau will require major rehabilitation and capacity expansion in order to meet the demands of a growing private sector.
While Guinea-Bissau remains one of the world’s poorest countries, significant progress has been observed in a number of key social indicators. While the country ranked 164th out of 169 countries on the 2010 United Nations Development Program (UNDP) Human Development Index, progress is being made in some indicators, although not rapidly enough to attain any of the MDGs. School enrollment rates have risen dramatically since the elimination of school fees (from 45 percent in 2006 to 65 percent in 2010), and educational outcome indicators, such as literacy rates, also show strong gains. A Multiple Indicator Cluster Survey conducted in July 2010 revealed improvement in health outcomes since the previous survey in 2006.
Governance and Accountability
By mid-year 2011, the country’s Security Sector Reform (SSR) process had recorded significant progress with the endorsement by most stakeholders and partners of the road map. The process aims at reducing the size of the armed and security forces, and at establishing a smaller but more professional army, while providing adequate pensions to retiring member of security forces, notable independence-era combatants and members of the armed forces, and improving conditions in military barracks. The government of Angola has committed considerable financial support for the rehabilitation of housing, sanitary and health facilities in military barracks, training and technical assistance to military staff, and the establishment of a pension fund for retired military staff (which is one of the key elements of the envisaged SSR).
Most recently, a series of opposition-led protests called for the PM’s resignation, accusing him and his government for rising food prices, and governance shortcomings. In response, the President, in a public statement of August 12, explicitly backed-up and confirmed the PM’s position, but reshuffled the cabinet and appointed a new Prosecutor General in response to protests about the lack of progress in resolving the murders of leading political figures in 2009.
Indeed, in the aftermath of the violent incidents of the years 2009 and 2010 (see above), external observers and donors have articulated concerns regarding the rule of law in the country, and stressed the importance of strengthening the legitimate civilian government as a necessary basis for a transition from the conflict situation status and the effectiveness of the economic reforms. This is critical because external assistance – which is so needed for the country’s economic and financial stability – is linked to good governance performance. In view of recent developments related to SSR, following consultations related to Article 96 of the Cotonou Agreement launched in March 2011, the EU has announced its intention to gradually resume support based on progress against a matrix of actions - with some challenging actions still lying ahead.
The UN Secretary General’s Representative to Guinea-Bissau and Head of the United Nations Peacebuilding Support Office (UNOGBIS) together with the UN Peacebuilding Commission’s Guinea-Bissau Configuration are maintaining a constant dialogue with the country’s authorities on issues and concrete actions related to maintaining peace and stability in the country.
Guinea-Bissau joined the World Bank in March 1977, three years after independence. The first operation was approved in 1979 for a road construction/rehabilitation project. Since then, IDA has approved 33 projects for Guinea-Bissau amounting to about US$383 million.
Guinea-Bissau was the third-smallest recipient of IDA 15 in the Africa Region with an overall IDA-15 allocation of SDR 12 million (about US$18-19 million). The Indicative IDA-16 allocation for Guinea-Bissau for the period of July 2011 through June 2014 is SDR16.3 million (about US$26.3million).
World Bank operations in Guinea-Bissau are based on an Interim Strategy Note (ISN) approved in June 2009. The ISN is based on two pillars: (i) Strengthening Economic Management and Laying the Foundations for Improvement in the Productive Sectors; and (ii) Increased Access to Basic Services. Capacity development for efficient governance and project implementation is a cross-cutting topic. The ISN is intended to pave the way to a more substantial high-impact program of World Bank support which, in partnership with other donors, would address key strategic challenges with a view to helping the country escape from its current vicious circles of low macroeconomic performance, weak governance and political instability.
The ISN was to bridge the time until Guinea-Bissau reached the HIPC completion point, and a second PRSP was prepared – which has both been completed by mid 2011. The World Bank has now started the preparation of a full, 4-year Country Assistance Strategy which will lay out the World Bank’s contribution to a multi-donor high-impact program for transformative change in close collaboration with the international donor community.
The current lending portfolio consists of six IDA-funded projects totaling around US$49.25 million equivalent, and focusing on infrastructure rehabilitation (notably energy and water in Bissau), natural resources management, economic governance, community-driven development and fisheries (regional). Trust-funded grants - drawing on European Union funds, the State and Peace-Building Fund, and the Global Environmental Facility - provide an additional US$20 million for emergency food security, including rice production and school feeding/food-for-work programs in collaboration with the World Food Program (WFP), as well as coastal and biodiversity management, participatory rural development, and technical assistance for economic management , for the emerging extractive industries sector, and for the health sector. An important multi-donor Education sector operation is currently under preparation to be submitted to the Education for All-Fast-Track Initiative (EFA-FTI) for funding.
The World Bank also has an important non-lending program in Guinea-Bissau, and it has recently, for example, completed a Public Expenditure Management and Financial Accountability Review (PEMFAR), drawing in part on an EU-funded PEFA diagnostic and covering public financial management and procurement performance, as well as a review of public expenditures in education. An Education Country Status Report (in preparation of the EFA/FTI funding proposal), an Investment Climate Assessment, a Diagnostic Trade Integration Study, and a Debt Management Performance Assessment were also completed during the last two years.
The Multilateral Investment Guarantee Agency (MIGA) has a portfolio of two projects in Guinea-Bissau. The guaranteed investments by Senegalese and Malian investors are in the country’s infrastructure (telecommunications) and tourism sectors, and result in a combined gross exposure of $26.5 million. MIGA is currently engaging with British and French investors, with a view to providing coverage for three projects in the infrastructure (water) and tourism sectors.
Emergency Food Security Support Project
The Emergency Food Security Support Project (EFSSP) has been in effect in Guinea-Bissau since October 2008. At the request of the Government of Guinea Bissau, the World Bank implemented the project as a response to the 2008 international food price crisis. The objective of EFSSP is to improve food security for the most vulnerable populations, including children, and increase smallholder rice production in project areas.
The project is designed to support the most vulnerable populations through: (i) school feeding; and (ii) food-for-work program to rehabilitate land for rice production. The implementation of school feeding programs started on March 4, 2009 in most schools and the food-for-work program started on April 2, 2009. At the moment, the school feeding program is being implemented in 116 schools in five regions.
As of August 2011, the project is well on its way to achieving the project objective. The number of students receiving one meal a day on average was 14,102 and about 49 percent of them were girls against a target of 14,000 meals a day. The project has also generated 285,000 work days against a target of 160,000 workdays initially planned for the duration of the project. About 9,100 tons of paddy rice is estimated to have been produced on the rehabilitated rice land under the project, exceeding the project target of 7,500 tons.
The satisfactory progress towards achieving the project objective is mainly due to the successful implementation of the school feeding program, rehabilitation of land and rice production in 2009 and 2010. It is expected that the project will further contribute to rice production in 2011 since more support will be provided through micro-projects.
The support under this project has been strengthened by a second parallel operation funded by the European Union Food Crisis Rapid Response Facility Trust Fund (EUFRF). This project has similar development objectives and project components with the original project. However, there are some minor differences between the two operations, related to implementation periods, and the type of infrastructure work done through food-for-work: Instead of rehabilitation of new rice lands, the food-for-work program under EUFRF deals with the rehabilitation of rural feeder roads which is critical to enhancing welfare by improving access to the project areas.
As of August 2011, the number of students receiving one meal a day under EUFRF on average was 28,030 and about 48 percent of them were girls. The project generated 165,000 work days against a target of 162,000 work days planned. The direct beneficiaries under the food for work program were 7,310 participants and indirect beneficiaries were 43,860, with a total of 51,170 beneficiaries against a planned target of 18,900 beneficiaries at the end of the project. Data related to the rice produced will be available at the end of the agricultural season in January 2012.
There has also been considerable progress in the rehabilitation of feeder roads. In February 2011, only 67 km of roads were completed and by end of June 2011 a total of 205 km of roads, out of a total of 300 km, have been completed. In addition, the procurement of seeds, fertilizers and agriculture equipment and tools, planned under this project, has been completed.