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Guinea-Bissau: Selected Issues

Author(s):
International Monetary Fund. African Dept.
Published Date:
July 2015
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The Costs of Fragility in Guinea-Bissau: Chronic Political Instability1

Guinea-Bissau is one of the most fragile countries in the world. Behind its fragility condition lays a history of chronic political instability in its most extreme form: recurrent ruptures of the constitutional order through coups d’état. This note aims at identifying some of the main channels of transmission through which political instability feeds and foster fragility, and provide an estimate of the “fragility gap” that haunts the Bissau-Guinean society.

A. Introduction

1. While experts agree that fragility hinders growth and development prospects, its definition is not straightforward. Fragility is a difficult-to-define concept, mainly because it has a multidimensional nature. For example, a country could be fragile due to its size (e.g. a small island), unprivileged geographical position (e.g. prone to earthquakes or hurricanes), structure of its economy (e.g. low diversification), low educational level of its inhabitants, poor infrastructure and public services, weak institutions, internal conflicts, etc. According to Naudé and McGillivray (2011) the major causes of state fragility are conflict, low development status, vulnerability, and the lack of a developmental state. Moreover, the importance of each factor varies over time for a given country and between countries, and many could be at work at the same time. More importantly, while some factors require a long time to tackle or overcome others, in principle, could have a faster resolution. Despite the multitude of fragility concepts, they all lead to the same conclusion: fragility hinders growth and development prospects

2. To tackle fragility in Guinea-Bissau it is useful to analyze both, its causes and its costs. Guinea-Bissau is one of the most fragile countries in the world. As a consequence, it has barely progressed in the last decades, mainly when compared to its peers. In order for a fragile country to overcome this condition, it is crucial not only to identify the main causes behind its fragility but also to assess their costs. The latter can be seen as opportunity cost for a failed security sector reform.

3. This paper argued that, until today, due to chronic political instability, Guinea-Bissau has been in a costly fragility trap. This analytical piece argues that the major factor behind Guinea-Bissau’s fragility has been the chronic political instability. It also uncovers some of the main transmission channels from political instability to fragility, and provides simple estimates about the cost of instability.

B. Fragility and Conflict

4. The literature on the causes and costs of fragility has paid particular attention to violent conflict as one of its major causes. The bulk of that literature focuses on the costs of violent conflicts, typically civil wars. Undoubtedly, the harmful consequences of violent conflicts are self-evident, be it in the destruction of physical capital or in the loss of numerous lives. In this regard, Abadie and Gardeazabal (2003) estimated the costs of the terrorism in the Basque country, and found that over 30 years the region’s GDP per capita could have been 10 percent higher. Lopez and Wodon (2005) concluded that, had the 1994 genocide not existed, Rwanda’s GDP (back in 2001) could have been 25 percent higher. Collier (1999) estimated that, on average, during civil conflicts the economy’s annual growth rate reduces by about 2.2 percent. Moreover, Bigombe et al. (2000) found that, in Africa, there is a 50 percent chance of civil conflict recurrence within the ten years after reaching peace. In its turn, Akkaya et al. (2011) estimated the monetary costs for Palestine of the long Israeli-Palestinian conflict and found them to be very significant.

5. Nonetheless, there is another type of conflict—many times not involving any loss of lives—that also impinges large costs on an economy and on a country’s social fabric. This type of conflict stems from political instability in its most extreme forms: a coup d’état. Its costs are not as explicit as those stemming from longer violent conflicts are, even so it is a powerful growth deterrent as well. It stands out for three main reasons. First, like civil wars, coups d’état are discrete events that can produce important throwbacks on growth and development prospects. Second, unlike civil wars, its true costs are not obvious to the general population, which makes it harder for a society to build an effective social technology (or consensus) to curb it. Third, in spite of that, like civil wars, chronic political stability is subject to sudden stops if a wide internal understanding about its harmful effects emerges.

6. Chronic political instability has been a hallmark of the Guinea-Bissau’s society (Figure 1). An important hurdle behind fragility, chronic political instability, could, in principle, be overcome not within a generation but rather within a much shorter time span. Unfortunately, despite this theoretical possibility, the assessment made by Bigombe et al. (2000) on the high probability of recurrence of civil wars has also proven to be valid to coups d’état. Indeed, at least in the Guinea-Bissau case, coups d’état and attempts to break the constitutional order have been pervasive.

Figure 1.Guinea Bissau: A Graphical Profile of Systemic Political Instability

7. Guinea-Bissau is one of the most politically unstable countries in the world. As Figure 2 shows, back in 2010, that is, before the last coup, the country had already been ranked among the 20 most vulnerable countries to political instability (panel A). Moreover, other instability proxies show that the situation has deteriorated further in recent years. Since early 2000s, there has been an increase in the probability assessment of political instability (panel B), and last year Guinea-Bissau was considered to be among the 10 percent of countries with the lowest levels of peace.

Figure 2.Chronic Political Instability in Guinea-Bissau

C. Chronic Political Instability and Fragility

8. Recurrent coupsd’état lead to a failing state. The reasons why political instability—in the form of recurrent coups d’état—is so harmful lies in the very fact that the motivation behind breaking the constitutional order is the worst possible. Recurrent coups d’état reflect a society in which the relentless pursuit of power, and rent seeking at any cost, are pervasive, leading to the dismantling of the state or, in other words, to a failing state. It reflects the de facto absence of any meaningful and binding social contract.

9. The transition period after coupsd’état is particularly harmful. From the moment a coup d’état takes place to the resumption of democratic normalcy, corruption and rent seeking soar, vested interests prevail, governance shatters, and weak institutions degrade further. During this transition period, adverse selection works at its best (or, better, at its worst). Corruption becomes epidemic and materializes in several ways, from plain stealing of public resources to loose enforcement of the law (e.g. less fiscalization). In addition, laws and regulations change or are overlooked to benefit groups and individuals (e.g. tax exemptions and fiscal amnesty).

10. The incentives facing transition governments do not align to those of the population. Governance sharply worsens during transition periods, as regardless of whether the government does a good job or not, it is not entitled to reelection. Indeed, a successful transition government is precisely a short one, but the agenda behind the coup is about staying in power. Accountability is also impaired, as the transition government was not elected through voting. Finally, chronic political instability means that public policies are often discontinued hampering reforms and long term planning.

11. Transition periods often last long. Adverse (self) selection and perverse incentives help to explain why transition governments often stay so long in power. The most recent transition period in Guinea-Bissau persisted for more than two years, while the country was slowly sinking. It also helps in understanding the low effectiveness of some advocated responses to tackle fragility. For example, one suggestion found in the literature is for the international community to invest in state capacity building. The recent Bissau-Guinean experience, however, has shown that even intense technical assistance is unable to get traction in helping building institutions2 in an environment where low human capital melts with brittle institutions, widespread rent seeking behavior and corruption.

12. Guinea-Bissau has failed to provide basic public services to its citizens. Figure 3 shows striking evidence on the failure of a fragile state to provide basic public services to its citizens. Guinea-Bissau not only remains as one of the most fragile countries in the world (panel A), but also has not been able to keep up with its peers. Poverty has increased in the last decade, in sharp contrast to the regional evidence (panel B). Consequently, human development has stalled, and the country is increasingly lagging behind its peers (panel C). The above results are even more meaningful when one realizes that these rankings also include countries involved in wars. It should be clear by now that Guinea-Bissau will miss the Millennium Development Goals.

Figure 3.Fragility Has Severely Hindered Social Development in Guinea-Bissau

Source: United Nations

13. Guinea-Bissau’s Per Capita GDP has stagnated since 2000. Given that social progress depends on economic performance, one should expect very modest figures for Guinea-Bissau’s GDP growth. Disregarding the sharp drop and recovery due to the 1998–99 civil war, real GDP per capita growth has been hovering around zero since 2000 (Figure 4). More specifically, note that the heightened instability in 2000 had a clear impact on growth, and the GDP loss associated with the 2012 coup was significant.

Figure 4.Chronic Political Instability and Per Capita GDP Growth

Source: IMF

D. Chronic Political Instability: Key Channels of Transmission

14. Chronic political instability is detrimental to growth in several ways, but measurement is challenging. Some channels, by their own nature, are hard to measure, such as wasted resources due to corruption and rent seeking, or the inefficiency caused by non-optimal decisions due to bad governance. Corruption, bad governance and policy discontinuity are also powerful deterrents to reforms. In their report on structural reforms in customs, Russell and Calvet (2014) warn: “This mission could not observe any progress in resolving identified recurrent problems since 2012 [the year of the last coup]”.3 The growth effects of the non-implementation of reforms are difficult to measure, despite their large importance to economic performance. On the other hand, other channels are easier to capture.

15. Financing and investment are two key transmission channels from political instability to fragility. During periods of acute political instability domestic revenues and grants decline, particularly the latter (Figure 5, panels A and B). That further reduces the already limited government’s capacity to spend and invest (panel C). The decline in public investment is particularly steep in the three years following the 2003 coup. In addition, after a rebound, public investment sharply declined again during the turbulent 2008–13 period. Although the dynamics of private investment is not as timely as that of public investment, note that its level remains low throughout the sample, reflecting the endemic uncertainty that entrepreneurs face in Guinea-Bissau. Moreover, the microeconomics of both types of investment is different. Public investment dynamics basically mimic the availability of resources (i.e. grants); while on the other hand, one would expect the funding of private investment to decline before it takes place.4

Figure 5.Chronic Political Instability and Fragility: Channels of Transmission

E. The Cost of Chronic Political Instability

16. Until today, Guinea-Bissau has been stuck in a fragility trap. Economic growth has stalled since 2000. This outcome is per se appalling evidence. However, it does not say anything about Guinea-Bissau’s relative performance, or to put it differently, about the true economic cost of political instability. Figure 6 compares Guinea-Bissau’s economic performance with those of former Portuguese colonies in Africa. While other former colonies managed to grow, Guinea-Bissau has stagnated.

Figure 6.GDP Per Capita (Constant Prices; 1990 = 100):

Former African Portuguese Colonies1

Citation: 2015, 195; 10.5089/9781513541518.002.A001

Source: World Bank and IMF

17. Guinea-Bissau’s development path could have been similar to other former African Portuguese colonies. Obviously, even though each country has its own history and characteristics, those differences can sharpen this qualitative assessment, and some are worth mentioning. First, Guinea-Bissau was the first Portuguese colony in Africa to become independent. One would expect this to have a positive effect on growth. Second, even though São Tomé and Príncipe and Cabo Verde did not have civil wars—which evidently helped their development—both Angola and Mozambique went through very long and destructive civil wars, while Guinea-Bissau’s civil war lasted only eleven months.5 Moreover, unlike Guinea-Bissau, after the war ended those two countries began to grow faster, catching up with their peers.6 In Guinea-Bissau, after the end of the civil war, growth, that had already been poor before the war, deteriorated further.

18. What could have been the economic performance in GNB in the absence of chronic political instability? A reliable answer is very difficult, but two simple and feasible counterfactuals could be very useful in providing an idea on the magnitude of the “instability gap”. The first one assumes that Guinea-Bissau’s real GDP per capita could have grown, on average, at the same pace as the average real GDP per capita growth in the other former Portuguese colonies, during 2000–13. The second counterfactual assumes an average growth rate equal to the one achieved by the so-called low-income countries (LIC). This is a sensible counterfactual, given that those countries have faced several constraints and challenges relevant for Guinea-Bissau. They should provide a plausible interval estimate of what could have feasibly been the average growth in Guinea Bissau in the absence of chronic political instability during the 2000–13 period.

19. The estimated “instability gap” is substantial (Table 1). Without a history of chronic political instability Guinea-Bissau’s GDP per capita at constant prices in 2013 could have been higher between 65% and 90%. Note that this interval reflects a difference built since 2000 (i.e. after the end of the civil war). The loss in GDP growth would be even more significant if we also included in the estimate the effects of the civil war.

Table 1.Estimates of the Cost of Chronic Political Instability on GDP Per Capita during 2000–13(in percent)
GDP GrowthAnnual Growth CostTotal Growth Cost
Actual−0.3%
Counterfactual 14.3%4.7%89.5%
Counterfactual 23.3%3.6 %65.2%

F. Conclusion

20. Until today, Guinea-Bissau has been stuck in a fragility trap. Although fragility is a multidimensional condition, chronic political instability—in the form of recurrent coups d’état—has been a major factor hampering growth and social progress in Guinea-Bissau. GDP per capita has been stagnant for more than two decades. Not surprisingly, peer countries have increasingly left Guinea-Bissau behind.

21. The incentives behind recurrent coupsd’état are the worst possible. They reflect a society in which the relentless pursuit of power and rent seeking at any cost is the norm. There is a clear problem of (self and forceful) adverse selection. After a long transition period—which truthfully reveals the main drivers behind coups d’état—Guinea-Bissau finds itself, once again, at a decisive moment: can it this time break from its past of instability?

22. Estimates based on reasonable assumptions reveal that, considering only Guinea-Bissau’s post-war period, without chronic political instability real GDP per capita could have been at least two thirds higher than its 2013 level. This assessment shows the crucial importance of the security sector reform (and other governance-increasing, rent-seeking inhibiting reforms). It also shows that the current estimated cost of the security sector reform is modest in comparison, since it puts into perspective its monetary costs—which are easy to calculate and mostly front-loaded—vis-à-vis its wide and deep benefits, which are not as explicit and accrue over time.

References

    AbadieA. and J.Gardeazabal (2003); “The Economic Costs of Conflict: A Case Study of the Basque CountryAmerican Economic Review Vol. 93(1).

    AkkayaS.N.FiessB.Kaminski and G.Raballand (2011); “Fragility and Conflict in Palestine: The Costs of the Closures Regime on West Bank and Gaza”; in W.NaudéA. U.Santos-Paulino and M.McGillivray (eds). Fragile States: Causes Costs and ResponsesOxford University PressOxford.

    BigombeB.P.Collier and N.Sambanis (2000); “Policies for Building Post-Conflict Peace”;Journal of African Economies Vol. 9 No. 3.

    CollierP. (1999); “On the Economic Consequences of Civil War”;Oxford Economic Papers Vol. 51.

    KoneB.B.WiestA.Benbrik and D.Mendes (2014); “Guiné Bissau: Aperfeiçoar a Execução e o Controlo do Orçamento do EstadoFiscal Affairs DepartmentInternational Monetary FundJanuary.

    LopezH. and Q.Wodon (2005). “The Economic Impact of Armed Conflict in RwandaJournal of African Economies14(4).

    NaudéW. and M.GcGillivray (2011). “Fragile States: An Overview” in W.NaudéA. U.Santos-Paulino and M.McGillivray (eds). Fragile States: Causes Costs and ResponsesOxford University PressOxford.

    PialarissiD. R.J. C.de la Fuente and S. L. M.de Lima (2014); “Guiné Bissau: Planeamento e Recomendações Estratégicas”; Fiscal Affairs DepartmentInternational Monetary FundSeptember.

    RussellJ. and B.Calvet (2014); “Republique de Guinée-Bissau: Compte-Rendu de Mission D’Assistance Technique en Administration DouaniereAFRITAC de l’OuestInternational Monetary FundSeptember.

This note was prepared by Tito Nicias Teixeira da Silva Filho.

See findings in technical assistance reports Kone et al. (2014); Pialarissi et al. (2014); Russell and Calvet (2014).

Author’s translation.

There are serious data limitations as private investment is often a residual.

On the other hand, São Tomé and Príncipe is a very small island, which certainly hinders its growth prospects.

Angola’s economic performance has benefited from oil discoveries.

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