Guinea
Selected Issues and Statistical Appendix
Author: International Monetary Fund
Publication Date:
16 Jan 2008
eISBN:
9781451815344
Language:
English
Keywords:
ISCR; CR; firm; government; Guinea; aluminum firm Alcoa Inc.; government stake; Guinean authorities; firm Alcan Inc.; government share of equity; Canadian aluminum firm Alcan Inc.
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The report gives an assessment on the bauxite and aluminium industry of Guinea. The study assesses the performance, structure, and prospects of the industry as well as transparency and governance issues. The report also show the IMF's estimates on Guinea's social, demographic, economic, and financial indicators, GDP at current and at constant 1996 prices; financial operations of the central government, 2000–06, central government revenue and expenditure during 2000–06, summary accounts of the Central Bank as well as deposit money banks, structure of interest rates, financial soundness indicators of the banking sector, etc.

Abstract

The report gives an assessment on the bauxite and aluminium industry of Guinea. The study assesses the performance, structure, and prospects of the industry as well as transparency and governance issues. The report also show the IMF's estimates on Guinea's social, demographic, economic, and financial indicators, GDP at current and at constant 1996 prices; financial operations of the central government, 2000–06, central government revenue and expenditure during 2000–06, summary accounts of the Central Bank as well as deposit money banks, structure of interest rates, financial soundness indicators of the banking sector, etc.

The Bauxite and Alumina Industry: A Macroeconomic Perspective 1

I. Introduction

1. Guinea is endowed with the world’s largest deposits of bauxite; it accounts for more than one-third of the world’s known reserves. Its production of bauxite, sourced from three mines located at Sangarédi, Kindia and Fria, is among the largest in the world. At present, crude bauxite and alumina constitute about 60 percent of Guinea’s exports and generate a quarter of its tax revenues.2

2. However, Guinea has not realized the full potential of its mineral resources. Annual production of bauxite is very low considering the proven reserves. Production of alumina relative to bauxite is also low compared to other bauxite producing countries. The contribution of the sector to GDP declined from 13 percent in the early 1990s to 10 percent in recent years. The country has one alumina plant and no aluminum refinery. Hence, only about 4 percent of total bauxite production is locally transformed into alumina whereas the rest is exported as unrefined ore.

3. The contribution of the bauxite and alumina industry to government revenue has been falling over the years. Its share in government revenue was 60 percent in 1993, but only 20 percent in 2005. One possible reason for this decline is the persistent fall in Guinea’s bauxite export price since the early 1990s, which appears to be the outcome of price renegotiations in the late 1980s that were conducted at the request of the mining companies. The share of bauxite and alumina in total exports has also fallen, from over 70 percent in 1990 to about 60 percent in 2005. However, the latter trend is expected to reverse in the next few years as several planned large-scale mining projects begin operations.

4. This paper reviews the main reasons for the lackluster performance of Guinea’s bauxite and alumina sector, paying particular attention to taxation and transparency issues. It also examines the structure of the sector and discusses current investment and reform initiatives. The analysis reveals that growth of the sector has been constrained by such factors as inconsistency in mining taxation; lack of transparency in negotiations between the government and mining companies on pricing and taxation issues; and a generally weak investment climate.

5. Section B reviews the performance and structure of the bauxite and alumina industry in Guinea and looks at its medium-term prospects. Section C discusses the current mining tax system and reviews efforts to reform it. Section D highlights the transparency and governance concerns in the sector. Section E draws conclusions.

II. The Bauxite and Alumina Industry in Guinea: Background and Trends

A. Performance, Structure, and Medium-term Prospects

6. The bauxite and alumina sector generates more than 60 percent of Guinea’s exports and at least 20 percent of its tax revenues. The country is a major supplier of bauxite to alumina plants in the United States, Canada, and Europe. However, the relative importance of the sector has been decreasing since the early 1990s and its contribution to the mining sector, domestic output, exports, and revenues has declined noticeably (see Text Table 1).

Text Table 1.

Guinea: Contribution of the Bauxite and Alumina Industry to Guinea’s Economy, 1990–05 1

article image
Sources: Guinean authorities and IMF staff estimates.

Reported statistics are period averages.

7. The performance of Guinea’s bauxite and alumina sector has been very volatile for years (Text Figure 1). While the average annual growth rate of real GDP was 3.4 percent and of the mining sector was 3.7 percent, the bauxite and alumina sector grew on average at 2.5 percent only during 1995–2005. Meanwhile, world production was growing at a fairly stable annual rate of 4 percent (Text Figure 2). Since the sector constitutes over 60 percent of total exports, its volatile performance dampened the overall export growth, and real exports grew on average at 1.2 percent annually in 1995–20053

Text Figure 1.
Text Figure 1.

Real Growth Rates of GDP and Mining, 1995–2005

(Percent)

Citation: IMF Staff Country Reports 2008, 020; 10.5089/9781451815344.002.A001

Source: IMF staff estimates.
Text Figure 2.
Text Figure 2.

Real Growth Rates of Bauxite and Alumina, 1995–05

(Percent)

Citation: IMF Staff Country Reports 2008, 020; 10.5089/9781451815344.002.A001

Sources: U. S. Geological Survey, 2007; and IAI, 2007.

8. Guinea is estimated to have about one-third of the world’s bauxite deposits, most of which are high grade and remain unexploited. A comparison of Guinea’s bauxite reserves and production pattern with other major world producers shows that whereas Guinea has the largest known bauxite reserves in the world, its production is at par with countries like China and India that have only one-tenth of its reserves (see Text Figure 3).

Text Figure 3.
Text Figure 3.

Major Bauxite Producers, 2004

(Million dry tons)

Citation: IMF Staff Country Reports 2008, 020; 10.5089/9781451815344.002.A001

Source: U.S. Geological Survey, 2005.

9. Guinea has the lowest alumina to bauxite production ratio of all the major bauxite and alumina producing countries (Text Figure 4).4 The country has only one alumina refinery plant which has a production capacity of about 0.6 million tons, hence, more than 95 percent of the bauxite is exported raw.

Text Figure 4.
Text Figure 4.

Major Producers: Bauxite and Alumina, 2004

(Million tons)

Citation: IMF Staff Country Reports 2008, 020; 10.5089/9781451815344.002.A001

Source: IMF staff estimates.

10. An important reason for the poor performance of the sector is insufficient emphasis on local transformation. Campbell and Clapp (1995) observe that although the Guinean government had encouraged local transformation in the 1960s and 1970s, the emphasis weakened in the 1980s. This may have been because the international aluminum industry was restructured. Multinational companies diversified their bauxite sources and preferred to build alumina plants in locations that had favorable policy conditions, lower production costs (especially for energy), and proximity to large markets. As a result, bauxite- exporting developing countries like Guinea lost their bargaining power, and had to renegotiate pricing and fiscal arrangements with foreign companies at their request.

11. Power supply constraints and a generally weak investment climate are other possible reasons for low growth in the sector. Power supply, which is vital to production of alumina and aluminum, is a major constraint in Guinea.5 Poor transport infrastructure and lack of human capital and organizational capacity are also serious concerns. The adult literacy rate is only 29 percent; a majority of those employed by mining companies are illiterate. Firms find it difficult to obtain reliable engineering and subcontracting services locally. Political uncertainty and security challenges have also hemmed in the bauxite and alumina sector. For example, one large international bauxite-producing firm complained that it regularly faces problems in securing shipments because the rails are blocked by ordinary citizens who demand compensation to release goods.6

12. Guinea’s bauxite and alumina industry is dominated by three producers: Alumina Compagnie de Guinée (ACG), Compagnie des Bauxites de Guinée (CBG), and Compagnie des Bauxites de Kindia (CBK). CBK and ACG are controlled by the Russian aluminum giant RUSAL; they export primarily to Russia and Ukraine. CBG is a joint venture between the American aluminum firm Alcoa Inc., the Canadian aluminum firm Alcan Inc., and the government of Guinea.7 Its main export markets are North America and Europe (see Box 1 for details).

13. In recent years, a number of large investment initiatives have been proposed to increase bauxite and alumina production in Guinea. These include construction of six new alumina refineries and extension of ACG’s existing alumina refinery. The total investment generated by these projects is estimated at about US$20 billion (see Appendix I for details). Rough estimates show that by 2010 the output of bauxite and alumina would increase almost five-fold for bauxite and ten-fold for alumina if these projects are implemented on time (see Text Figure 4).8 As a result, exports and the tax revenue generated by this sector are expected to rise significantly.

14. The surge in global demand for aluminum is the main reason for the renewed interest of multinational companies in Guinea. World alumina and aluminum demand is expected to increase by at least 4 percent annually in the medium term, driven mainly by the boom in construction, transportation, and manufacturing in China.9 Guinea is expected to play a critical role in meeting this demand because of its unexploited bauxite reserves. International mining companies seem keen to invest heavily in Guinea and enhance its refining capacity. All planned alumina refineries will be built near bauxite reserves to avoid the high costs of transporting bauxite to alumina refineries elsewhere. Investing firms plan to overcome the infrastructural and energy constraints by investing locally in power generation, rail transport, and shipment and storage facilities.

Composition of the Bauxite and Alumina Industry in Guinea

The Compagnie des Bauxites de Guinée (CBG), based at Sangaredi, was established in 1963 as a joint venture between the government, which owns 49 percent of the shares, and an international consortium, Halco Mining, which owns the rest. Presently, Halco Mining is owned by Alcoa World Alumina LLC (45 percent), Alcan Inc. (45 percent), and Dadco Investments Ltd. (10 percent). CBG began mining in 1973 and has exclusive rights to bauxite reserves in the Sangaredi Plateau. It also operates a port in Kamsar for drying and shipping bauxite and exports 11 to 14 million metric tons of high-grade bauxite annually to alumina refineries in North America and Europe.

The Compagnie des Bauxites de Kindia (CBK) began its mining operations as Office des Bauxites de Kindia (OBK) in 1974. OBK was created as a wholly state-owned enterprise but was transformed into a limited liability company, Société des Bauxites de Kindia (SBK), in 1992 after it ran into serious financial difficulties. In 2001 SBK was transferred to a Russian conglomerate, RUSAL, for a 25-year term and it has since been operating as CBK. CBK has annual production capacity of 3.1 million tons of bauxite. It supplies over 65 percent of its total bauxite output to the Nikolaev alumina refinery in Ukraine whereas the rest is exported to other locations.

The Alumina Compagnie de Guinée (ACG), also known as Friguia Alumina Refinery, has a long history of mining operations at Fria. It is a vertically integrated company that refines the bauxite it produces into alumina for export. Its mining operations began in 1957 and were controlled by a French firm, Pechiney Ugine, and then by an international consortium, Fria Company (Frialco), in which Pechiney Ugine had a 26.5 percent share. In 1973, Frialco signed an agreement with the government to create a joint venture, Friguia, in which the government stake was 49 percent. When Friguia faced serious financial difficulties, Frialco sold its share to the Government for a symbolic US$1 in 1998. The government formed ACG as a management company in 2000 to operate Friguia with assistance from Reynolds Metals. The government retained full rights to the refinery and had a 15 percent stake in ACG. However, Reynolds Metals sold its share to RUSAL in December 2002, and in April 2006, RUSAL and the government reached an agreement in which both the Friguia refinery and the government’s 15 percent share in ACG were sold to RUSAL. The current estimated annual capacity of the refinery is 640,000 tons of alumina and 1.9 million tons of bauxite.

Sources: Campbell and Clapp (1995), Bermudez-Lugo (2005), and Africa Research Bulletin (2007).

B. Trends in Bauxite and Alumina Prices and Export Revenues

15. Bauxite prices are only weakly correlated with world aluminum prices (Text Figure 5). 10 This is an outcome of the way bauxite prices are determined in Guinea. As is the norm worldwide, Guinea’s bauxite and alumina producers are vertically integrated in aluminum production chains and sell their output abroad on prenegotiated prices to firms endorsed by their owners. Prices negotiated between mining companies and the government are based on long-term contracts, which typically imply a smaller and slower pass-through of world aluminum price changes.11 Hence, the government does not immediately and fully benefit from any increase in world aluminum prices. This observation is supported by our formal econometric analysis shows that the world aluminum price has no immediate effect on bauxite prices in Guinea (see Appendix II). However, there is a long-run relationship between CBG and world aluminum prices: a 1 percent increase in the latter eventually translates into about an 0.4 percent increase in CBG’s prices.

Text Figure 5.
Text Figure 5.

Guinea: Prices and Export Revenues for Bauxite and Alumina, 1974–2004

Citation: IMF Staff Country Reports 2008, 020; 10.5089/9781451815344.002.A001

Sources: Guinean authorities, IMF (2006).

16. Bauxite prices have been declining since the early 1990s. The sharp fall in the price of bauxite may be the outcome of the negotiations in the late 1980s to restructure the pricing and taxation formulas for crude bauxite. The renegotiations, conducted with CBG and Friguia, favored the mining companies and were aimed at significantly reducing bauxite’s export price. The restructuring of the international aluminum industry in the 1980s when major international companies diversified their bauxite sources resulted in a general decline in the bargaining power of bauxite exporters, especially developing countries, and affected bauxite prices throughout the world. This observation is supported by a comparison of Guinea’s bauxite export prices with those of other major exporters to the United States. Bauxite prices in Guyana, Jamaica, and Suriname—three countries that supply over 50 percent of all the bauxite the U.S. imports—have also been declining since the early 1990s (see Text Figure 6).

Text Figure 6.
Text Figure 6.

Guinea and Major Bauxite and Alumina Exporters to the US: Export Prices, 1974–2004

Citation: IMF Staff Country Reports 2008, 020; 10.5089/9781451815344.002.A001

Source: Guinean authorities, U.S. Geological Survey.

17. The nominal export revenues earned by the bauxite sector were fairly stable in the 1990s because although bauxite prices declined, the exports of CBG increased on average at about 1 percent a year, which somewhat stabilized the earnings of the sector. Recovering since 2000, CBK’s export earnings have increased by about 10 percent. However, in terms of value and volume, they are still below the pre-1990 level.

18. The price of alumina follows the world aluminum price more closely than the bauxite price. The econometric analysis supports this observation and shows that although there is no contemporaneous effect of world aluminum prices on Guinea’s alumina prices, the long-run effect is almost twice that on bauxite prices. Further, the adjustment of prices toward the world aluminum price is also faster for alumina than for bauxite.12 Text Figure 6 shows that Guinea’s export price of alumina is in line with those of other alumina producers, such as Australia, Jamaica, and Suriname.

III. Taxation of the Bauxite and Alumina Industry in Guinea

A. Background and Present Scenario

19. Tax payments made by the bauxite and alumina sector relative to total tax revenues and to total exports of the sector have declined since the early 1990s (Text Figure 7). This may be the result of three factors. First, as noted in the previous section, export revenues of bauxite producers have remained fairly constant as export prices decreased. This, combined with a reported increase in their production costs, has reduced corporate taxable income, which has translated into lower revenues for the government. Second, the tax payments of ACG and CBK declined in the 1990s when they experienced significant financial problems. Third, the renegotiation of individual pricing and taxation arrangements with the major bauxite producers in early 1990s, at their request, reduced their tax payments (Campbell and Clapp, 1995).13

Text Figure 7.
Text Figure 7.

Tax Payments by Bauxite and Alumina Sector, 1990–2005

Citation: IMF Staff Country Reports 2008, 020; 10.5089/9781451815344.002.A001

20. The taxation of mining companies is not uniform. Excise and export duties, and corporate income tax rates differ for the three firms (Table 2). This is because the taxation of companies is regulated by conventions specific to each firm and not by the Mining Code of 1995. The individual conventions were passed at different times and were negotiated on an ad hoc basis, giving different fiscal incentives to each firm. Thus, for example, CBG seems to be taxed more heavily because its payments include the government’s profit share.

Text Table 2.

Current Tax Rates in Bauxite and Alumina Industry

(Percent)

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Sources: Guinean authorities and IMF staff estimates.

CBK is exempt from income tax until 2010.

21. The Guinean Mining Code issued in 1995 is largely irrelevant in the present fiscal environment. The code is not particularly unfavorable for investment compared to the fiscal regimes of other mineral-rich developing countries, but it has been only partially implemented because individual conventions remained in force.14 For example, provisions relating to the reduced government share of equity were implemented when the ownership of CBK and Friguia changed, but other provisions, such as a universal tax rate of 35 percent on mining firms, were not. Similarly, conventions ratified in 2005 with a few new investors grant them tax holidays for 15 years, although the code permits only tax holidays of up to eight years.

B. Reform of Mining Sector Taxation

22. The Government of Guinea has embarked upon mining taxation reform in recent years. It is seeking assistance from the World Bank to pursue the reforms, which aim to streamline the current regime and align it with best international practices.15 The government plans to introduce a standard Mining Convention and a new Mining Code (CM) as part of the reforms, which are expected to modernize and unify mining taxation.16

23. The authorities plan to adopt the standard convention before the new CM to proceed with the planned large-scale mining projects. However, the convention will not be a substitute for the CM; it will apply only to projects with a minimum investment of US$50 million. The draft convention is currently being reviewed by the Ministry of Mines and Geology in order to clarify certain elements, such as methods of granting, renewing, or removing permits for exploration; the surface area of a mining concession; the business income tax rate; social development conventions; and the role of the Ministry of Mines and Geology. The authorities plan to amend the draft in light of the review before it is adopted by the Council of Ministers.

24. The government has also initiated a review of current mining contracts, focusing on taxation obligations. An interministerial committee, Comité Interministériel de Renégociation des Conventions et Accords Miniers (CIRCAM), was established for this purpose in June 2007. The CIRCAM draws its members from the government (ministries of Mines and Geology, Finance, and Justice), the Central Bank, unions, and civil society. Its mandate is to identify shortcomings in individual mining contracts and renegotiate with the companies involved. CIRCAM plans to review and renegotiate 13 conventions and contracts, including the agreement for CBK.

IV. Transparency and Governance Issues

25. As in other mineral-rich countries, transparency and good governance in the management of mineral wealth are crucial for Guinea.17 An important concern for Guinea is transparency in negotiations conducted with individual mining companies. The principles guiding previous negotiations were kept confidential; nor were revenue-sharing and tax arrangements made public. This lack of transparency created a complicated and fragmented mining taxation system in the country. Another concern relates to the principles governing the award of exploration permits and the determination of fees for exclusive rights to explore, which are not clear and potentially undermine government revenue.

26. The government is undertaking efforts to improve transparency and governance in the mining sector. In April 2005 it joined the Extractive Industries Transparency Initiative (EITI). Under the EITI, the government pledged to regularly publish payments made by companies and revenues received by the government; reconcile and audit the two sets of statistics; initiate a participative process in which all stakeholders are actively involved in defining, organizing, and supervising EITI responsibilities; and prepare an action plan to move the initiative forward.18

27. Collection and reconciliation of 2005 payment and revenue data for the EITI were completed in October 2006. 19 A team of independent local and international consultants was recruited for this purpose and a report of the unaudited data was published. The reconciled data shows that the tax payment statistics reported by the companies and the authorities correspond. The payments and revenues were then audited by an independent international consulting firm. Its findings were presented on October 15, 2007, at a press conference in Conakry chaired by the Prime Minister.

28. The process of collecting, reconciling, and auditing the data from 2006 began in April 2007. The authorities have expanded the scope of the audits: the auditors will now also establish if the payments mining companies made in 2006 fulfill their contractual obligations.

V. Conclusions

29. Guinea’s bauxite and alumina industry is underdeveloped and producing significantly below potential. Insufficient emphasis on local processing of bauxite into alumina, power supply constraints, and a generally weak investment climate may have constrained development of the sector. These factors have discouraged foreign investment in the country and adversely affected expansion, productivity, and development of the sector.

30. The export of raw bauxite has made Guinea vulnerable to the persistent decline in its bauxite export prices, which are only weakly correlated with world aluminum prices. This has reduced government revenue substantially. State agreements with individual mining companies on prices, revenue sharing, and taxation arrangements that appear to be unfavorable for the government are another reason for lower government revenue from this sector.

31. However, considering the rising global demand for alumina and aluminum and the potentially high profitability of the sector, its medium-term prospects are encouraging. Several international mining companies plan to invest about US$20 billion in bauxite exploration and alumina refining in Guinea. This will help increase output and exports and improve Guinea’s fiscal situation. The proposed projects could also pave the way for the much-needed industrialization of the economy.

32. To reap the full benefits of the expected increase in revenues, it is imperative for Guinea to accelerate fiscal reforms and adopt a standardized Convention and Mining Code that embodies best international practices. This will unify and streamline fiscal arrangements in the mining sector and improve the efficiency of the taxation regime. Current conventions may then be renegotiated to align them with the new convention and code.

33. The efforts of the Guinean authorities to improve transparency and governance in the mining sector are commendable. Joining the EITI is a step in the right direction and the government should continue to make all necessary efforts to comply with the EITI obligations. It is recommended that the government publicly disclose all future negotiations and agreements with the mining companies. Improved openness will raise public awareness and make both the public and private sectors more accountable on pricing and taxation arrangements.

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Appendix I. Large Projects in Guinea

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Source: Ministry of Mines and Geology. Government of Guinea.

Appendix II. Econometric Analysis of the relationship Between the World Aluminum Price and Prices for Guinea’s Exports of Bauxite and Alumina

1. An error correction model (ECM) is used to analyze the short- and long-run dynamics of the relationship between the world aluminum price and the prices of bauxite and alumina exports from Guinea. The ECM is estimated in two steps. First, unit root and cointegration tests are conducted on the relevant variables (logs of price of CBG (prCBG), price of CBK (prCBK), price of ACG (prACG), and world price of alumina (prALM)) to determine their integration order and to test for the existence of long-run relationships between world aluminum price and Guinea’s bauxite and alumina prices. The results suggest that all prices are nonstationary and integrated of order 1 (Table II.1).

Appendix Table II. 1.

Augmented Dickey Fuller Regression Results of Stationarity Tests, 1974–2007

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Notes: Values correspond to the estimated t-statistic on the coefficient of the lagged dependent variable in the Augmented Dickey Fuller (ADF) regression; lag length is based on the Akaike Information Crietrion (AIC); trend and constant included in all regressions; * and ** represent significance at the 5 and 1 percent levels, respectively.

2. To test for cointegration between the variables, Johansen’s VAR approach is used and the structural break in the CBG and CBK series that occurred in 1990 is accounted for by including a dummy variable in the equation. The optimal lag length in each case is determined by using the standard Akaike Information Criterion. The cointegration results show that the hypothesis of no cointegration can be rejected in each case (Table A.2).

Appendix Table II. 2.

Cointegration Results for World Aluminum Price and Guinea’s Export Prices, 1974–07

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Notes: Time series for prCBG and prCBK begins from 1976; results are based on Johansen’s Vector Autoregressive (VAR) analysis; a dummy variable for 1990 onwards included in the VAR for Log(prCBG) and Log(prCBK); trend included in the VAR for Log(prACG); lag-length selected on the basis of AIC; * and ** indicate significance at the 5 and 1 percent levels, respectively.

3. The long-run equilibrium conditions or cointegrating vectors that are obtained from the cointegration analysis are given in equations A.1–A.3. A 1 percent increase in the level of world aluminum prices causes the level of CBG export prices to increase by 0.45 percent (equation A.1).20 The dummy variable for the years 1990 and onwards is negative, indicating that on average CBG export prices are 35 percent lower than before 1990. Equation A.2 indicates a negligible long-run causal effect of world aluminum prices on CBL export prices. The dummy variable for 1990 onwards is negative and the estimated coefficient suggests that CBK prices are 96 percent lower than before 1990. Equation A.3 shows that a 1 percent increase in world aluminum prices increases ACG prices by about 0.80 percent. This indicates a higher pass-through in the long run of an increase in world aluminum prices to alumina prices than to bauxite prices and supports the observation made in Section II of a low correlation between world aluminum and bauxite prices.

Log(prtCBG)=0.27(1.85)+0.45(0.26)Log(prtALM)-0.35(0.11)D1990;S.E.=0.25,X2=11.19**(A.1)
Log(prtCBK) = 3.41(4.72)⁢-0.01(0.65)⁢Log(prtALM) - 0.96(0.32)⁢D1990⁢; S.E.⁢= 0.56, X2⁢= 9.75⁢**(A.2)
Log(prt ACG) = -0.43(1.92) +0.79(0.28)⁢Log( prtALM)- 0.01(0.00)⁢ Trend⁢  ;S.E.⁢=  0.24,  X2⁢= 13.52⁢**(A.3 )

4. Since the existence of cointegration between variables implies an ECM, in the second step, a single-equation ECM is estimated to examine the short-run dynamics of the relationship between (i) prALM and prCBG, (ii) prALM and prCBK and (iii)prALM and prACG21 The estimation results for the ECMs show that any change in the world price of aluminum has no contemporaneous effect on CBG, CBK, or ACG export prices (see Table A.3).22 However, the estimated coefficients of the error correction terms implied by the cointegrating vectors are negative and significant. This indicates that the long-run equilibrium conditions hold and Guinea’s bauxite and alumina prices respond to any deviations from equilibrium in a stable manner. For CBG, on average, about 0.35 percent of the deviation is eliminated every year. This implies that if there are no further changes in the world aluminum price, about half of the gap would be closed in two years. For CBK, about 0.29 percent of the deviation is eliminated every year, implying that the half life of deviation is 2.5 years. However, for ACG the long-run effect occurs at a faster rate of 0.52 percent, which reduces the half-life of deviation to 1.3 years.

Appendix Table II.3.

Results of the ECM for Guinea’s Bauxite and Alumina Export Prices, 1974–2007

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Notes: Values in parentheses are reported standard errors; a dummy variable was included both regressions to capture the effect of persistently declining bauxite prices since 1990 but was found to be insignificant inall cases; *, ** and *** indicate significance at 10, 5 and 1 percent levels, respectively.

Appendix III. Key Characteristics of the Mining (non-oil) Fiscal Regime in Guinea and Selected Developing Countries

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Sources: Baunsgaard (2001), Guinean authorities.

Resource rent tax is based on the rate of return. See Baunsgaard (2001) for discussion.

Investment incentives include tax holidays (H), accelerated depreciation (A), tax credit (Cr), current expensing of exploration and development cost (E), exemption of imports of equipment and capital goods (I), unlimited loss-carry forward (U), and other (O).

The maximum equity share that the state can select to take, often on a carried basis (C).

For CBK and Friguia.

This is known as the Additional Benefits Tax in Guinea.

Tax holidays of 3–8 years.

Appendix IV. IMF’s Principles on Good Fiscal Transparency Practices for Resource Revenue Management

Realizing the distinct issues and challenges faced by the natural-resource-rich countries, the IMF’s Guide on Resource Revenue Transparency puts forward principles of good fiscal transparency practices for these countries. These practices are based on the experience of individual countries and include elements that are critical for resource-revenue transparency and fiscal management design.

The practices are grouped into four categories:

1. Clarity of Roles and Responsibilities

  • Define government’s ownership of resources and its legal power to grant exploration, production and selling rights

  • Disclose the policy and legal frameworks for taxation or production-sharing agreements with resource companies and government’s equity stake in the companies

  • Specify fiscal authority and disclosure of resource revenue and borrowings in the law

  • Clearly define the ownership structure of national resource companies, their fiscal and commercial roles, and their quasi-fiscal activities

  • Clearly define how resource revenues are shared between the central and subnational governments

2. Open Budget Process

  • Specify the rate of exploitation of resources and the management of resource revenues in the budget

  • Specify mechanisms for coordinating the operations of any resource-revenue management funds with other fiscal activities; operational rules applied to resource-related funds; and investment policies for assets accumulated through resource-revenue savings

  • Report government resource revenue receipts in the government accounting system

3. Public Availability of Information

  • Report all resource-revenue-related transactions

  • Disclose government receipts of company resource-revenue payments

  • Present the (primary) nonresource fiscal balance in budget documents

  • Publish direct and indirect collateralization of future resource production in debt reports

  • Disclose government’s domestic and foreign financial assets and estimates of resource asset worth

  • Report government contingent liabilities and the cost of resource company quasi-fiscal activities arising from resource-related contracts

  • Account for the risks associated with resource revenue in annual budget documents

4. Assurances of Integrity

  • Disclose internal control and audit procedures for resource-revenue receipts

  • Ensure that resource companies understand their obligations and rights

  • Ensure that resource companies comply with international accounting and auditing standards and publish accounts

  • Ensure that a national audit office or an independent organization reports revenue flows regularly

Source: IMF (2007).

Statistical Appendix

Table 1.

Guinea: Selected Social and Demographic Indicators

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Source: World Bank, World Development Indicators, September 2007.

Data refer to 2005.

Data refer to 2004.

Data refer to 2000.

Data refer to 1999.

Data refer to 1991.

Table 2.

Guinea: Selected Economic and Financial Indicators, 2000–06

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Sources: Guinean authorities and IMF staff estimates and projections.

Percent of broad money stock at the beginning of the period.

Includes expenditure for restructuring.

Gross foreign assets of the central bank less its foreign liabilities.

Excluding imports for large mining projects and those financed by project loans from donors.

Table 3.

Guinea: GDP at Current Prices by Demand Component, 2000–06

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Sources: Guinean authorities; and IMF staff estimates.

The GDP data for 2003-05 may be subject to revision in line with the recommendations of the West AFRITAC technical assistance on compilation of the national accounts.

Table 4.

Guinea: GDP at Constant 1996 Prices by Sector, 2000–06

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Sources: Guinean authorities; and IMF staff estimates.

The GDP data for 2003-05 may be subject to revision in line with the recommendations of the West AFRITAC technical assistance on compilation of the national accounts.

Table 5.

Guinea: Consumer Price Index, 2000–06

(Period average)

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Sources: Guinean authorities and IMF staff estimates.

Change in CPI methodology in 2003 resulted in break in the data series.