The Curse of Resources, Coups, and Business

Aluminum is a vital commodity for advanced industrial civilization as we know it. It plays a crucial role in power transmission, construction, transportation, and consumer electronics. Aluminum is extracted from bauxite ore in a two-step process. Ironically, a quarter of the world’s bauxite, a commodity so essential for the functioning of an advanced market economy, is in Guinea – one of the poorest countries on earth.

With bauxite reserves estimated at 7.4 billion metric tons, the country of 12 million-plus people, at current market prices of $40 a ton, sits upon a resource valued at around $300 billion. Besides bauxite, Guinea also has substantial iron ore reserves exceeding three billion metric tons and significant deposits of gold and diamonds. The country also has great potential in agriculture. It currently produces $12.3 billion of total GDP in a year. The future should be bright for Guinea, but it is not clear that it will be.

What many would take as a blessing – an abundance of resources – can act as a curse. Economist Richard Auty coined the phrase “resource curse” as a way of capturing in shorthand how the presence of mineral wealth could distort an economy and do more harm than good for economic development. In a later study, economists Jeffrey Sachs and Andrew Warner found a correlation between natural resource abundance and poor economic growth. Do its abundant resources curse Guinea, and how might that curse be unfolding?

Since declaring independence from France in 1958, Guinea has had six heads of state if we include Colonel Mamady Doumbouya, the September 5th coup leader. Sékou Touré served as the country’s first president, and he stayed in power until his death from a heart attack in 1984. During most of his reign, he ran Guinea as a Marxist party state through the Democratic Party of Guinea. He aggressively opposed the old colonial powers and supported insurgents against the Portuguese colonial government in Guinea Bissau. He cultivated relations with the Soviet Union and the People’s Republic of China. It is estimated that 50,000 people were killed during his rule as a cost of his revolutionary policies. Failing to develop the country under Marxism, Touré shifted to a policy of market liberalization in 1978 and sought to improve relations with France and the United States.

With the death of Touré on March 26th, 1984, Prime Minister Lansana Beavougi became interim President. Given his strong standing with the DPG, he stood unopposed to become the next President of Guinea. Unfortunately, after serving only four days as interim President, Beavogi was overthrown in a coup d’etat. He was imprisoned, and six months later, instead of being President of Guinea, he died of diabetes.

Colonels Lansana Conté and Diarra Traoré led a successful coup, becoming President and Prime Minister of the Republic, respectively. Around one year later, Traoré attempted to overthrow Conté and failed.

Conté led the country as President under the auspices of the Military Committee of National Restoration for six years. With a new constitution approved in 1990, Conté ran for President and won as a candidate for the Party of Unity and Progress in 1993. The political opposition alleged electoral fraud, but Conté’s victory with 51.7 percent of the vote seemed fair and contested compared to his third victory as President with 95.6 percent of the vote – all but one of the opposition parties boycotted that election.

Like the man he replaced, only death separated Lansana Conté from the Presidency. The rewards of leading a mineral-rich country are considerable. In 2006, toward the final years of his Presidency, Guinea was ranked by Transparency International as the second most corrupt country in the world, standing behind only Haiti. Many who were close to the government were able to secure business opportunities, giving them tens of millions of dollars and the potential for billions of dollars from exploiting future mining concessions – Guinea’s GDP per capita is $962.84.

Upon Conté’s death, the National Council for Democracy under the leadership of Captain Moussa Dadis Camara circumvented the constitutional procedures that would have made the President of the National Assembly also the President of the Republic. Another coup promised to undo the harms a corrupt political leader had committed against the People of Guinea. Camara became President and pledged to return the country to democracy with Presidential elections scheduled for December 2010.

Political protests and atrocity marred Camara’s Presidency. His presidential guard killed at least 157 people during protests calling for Camara to step down. The leader of the presidential guard, Abubakar Diakite, later attempted to kill Camara as the massacre blew up their relationship. Camara was wounded, fled to Morocco for medical treatment, and later found refuge in Burkina Faso. Under pressure from the international community, Camara made arrangements to have an election in June of 2010.

A cloud of corruption, real and perceived, hung over the elections that brought Alpha Condé to the office of the Presidency. Condé failed in pressuring the junta to disqualify his political opponents. Condé received 15 percent of the vote in the first round of elections, and his opponent Cellou Dalein Diallo received 40 percent of the vote. The second round of voting had Condé as the victor with 52.2 percent of the vote.

Having achieved victory, he began an ambitious campaign to reform the mining sector and nullified several of the previous junta’s deals with major multinational corporations. The need for reforms of civil-military relations was pressed upon him when some military members attacked his residence in a failed assassination attempt. Electoral violence plagued parliamentary elections in 2013, and charges of electoral irregularities were widespread. If political problems were not enough, outbreaks of Ebola threatened the health and economy of the country.

Despite the troubles of his first administration, Condé won his second term in 2015. His focus on constitutional reform and his potential to serve a third term led his opponents to the streets in protests. Their fears came to pass when the constitutional reforms advanced, and Condé interpreted the new constitution to mean that he would be eligible to serve a third term in office. Despite being a human rights lawyer and pledging to reconcile the nation’s 24 ethnic groups, he masterfully played ethnic divisions, particularly between the Peul and the Malinké, Guinea’s two largest ethnic groups, to secure a third term in office. Protests followed. A coup would come.

During his rule, Condé increased investment in the mining sector, attracting capital from Chinese investors. Despite a commitment of 15 percent of mining revenues to the National Agency for the Financing of Local Communities, the development of mining had a minimal impact on the well-being of most Guineans. Of course some people became very rich because of these deals, yet others were harmed by the loss of land and the pollutants produced by mining sector activities. Managing harms to ecological services done by mining and disruptions to the economy by rapid influxes of capital are significant issues for countries seeking to grow their economies through investments in resource extraction industries.

It is not uncommon for investments in the mining sector to push prices up for all citizens. Guineans faced rising food prices made worse by crop failures in Russia and Canada – a source of wheat the Guineans import as a staple for their diets. Food riots ensued, with the government waffling between allowing bread bakers to raise prices and caving in to the public’s outrage about high bread prices and reimposing price controls. Not permitting prices to rise, as might be expected, resulted in shortages of bread. Combined with rising prices across the board and the disruption of the economy created by the Covid-19 pandemic, the people of Guinea were on average less happy than their normally unhappy state.

Amidst this crisis, President Condé sought to increase the budgets of the National Legislature and the Office of Presidential Services while raising taxes and cutting the budget of the police and military. It is hard to imagine a dafter strategy for someone seeking to maintain power in a developing state in crisis.

On September 5th, forces led by Colonel Mamady Doumbouya attacked the Presidential Palace and captured President Condé. Shortly after, Doumbouya announced that the National Committee of Reconciliation and Development would oversee a transition period to a government that would represent the people rather than the interests of a corrupt clique of politicians. The familiarity of the script would warrant some scepticism about how this transition will eventually play out.

The international community promptly condemned the coup and called for the restoration of President Condé. The rule of law is an important international value and essential for developing institutions that contribute to economic development. Corrupt leaders test this commitment. Colonel Doumbouya quoted Jerry Rawlings, a former President of Ghana and past coup leader, stating, “If the people are crushed by their elites, it is up to the army to give the people their freedom.”

What exactly is freedom? Is it somehow tapping into the vast mineral wealth of the society and sharing it with the people? On the surface, this looks very tempting, but to exploit the country’s mineral wealth, the Guineans will need substantial outside capital. For example, tapping into the iron ore wealth of the Simandou Hills requires a capital investment of $20 billion to build a railroad to Conakry and expand the port to bring the iron ore to market. Given that consumption is 80 percent of Guinea’s $12 billion economy expenditures, $2.4 billion seems all the Guineans have for investment and government services. It appears developing these resources requires negotiations with multinational corporations willing to risk capital in Guinea.

Australian, Brazilian, Chinese, Israeli, Russian, and Singaporean multinationals are the major players in Guinea’s mineral market. Geopolitical concerns make Guinea’s bauxite and iron ore deposits a vital hedge for China against its loss of access to Australian minerals. Guinea is an important link in the supply chain of China’s Belt and Road initiative. These geopolitical overtones do not eclipse the fundamental motivation of multinational corporations’ involvement in Guinea – profit. Businesses want a great rate of return. To get it, they need to negotiate deals with the government of Guinea that put more money in their coffers than other investment opportunities would.

A successful business venture may add $3 billion to Guinea’s mineral exports in five years. If this were divided evenly among Guinea’s 12 million-plus people, it would come out to roughly $250 per capita. Investors may be expecting an 8 percent rate of return on their capital, taking $1.6 billion off the top, leaving Guineans with $1.4 billion to divide among themselves. Were costs entailed in mining and shipping the ore? Of course. Did the government provide any services that facilitated mining activities? Certainly. What if 15 percent of the revenues can be set aside for the Guinean people? That leaves them with $450 million to divide among themselves or $37.50 per capita. This amount may seem small, but it is roughly 3.75 percent of the country’s per capita income.

These numbers are estimates of costs and revenues, but they give us a sense of what development of the mining sector is likely to accomplish for the well-being of the Guinean people. Shifts in market demand or supply of iron ore can either make this scenario better or worse for the Guineans.

The complexities and risk of this situation should also reveal how tempting it might be for well-positioned politicians or friends to direct some of the above money to themselves by seeking bribes, consulting fees, and jobs with mining companies. It is so tempting that almost all mineral-rich states are plagued with corruption and accusations of corruption. Coups abound, and the virtuous soon succumb to vice.

Poor governance is a heavy drag on a developing economy. The overestimation of what a natural resource can do for an economy raises hopes easily dashed by market realities. The prospect of doing great good for the people or oneself and one’s friends tempts ambitious politicians to ignore the rule of law. These unruly ambitions degrade the institutions and norms that would contribute to successful negotiations with multinational firms and investors essential for the development of the economy.

Colonel Doumbouya and the civilian government that follows him will face the challenge of managing the mineral sector of the economy and the revenues generated by that sector in a way that does the most for the development of Guinea’s economy. Developing a sovereign wealth fund that would share dividends with the people of Guinea and building capacity in health care and education are critical conditions for bolstering the rule of law and enhancing the workforce’s productivity. They will also need to lead the people and help them to recognize that all wealth does not come out of the ground but is generated from meeting the needs of the people around them by producing valued goods and services.

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