Breaking Africa's "Resource Curse" Through Eco-System Investing - A Guinea-Conakry Case Study
The West African country of Guinea-Conakry is home to one of the world’s least complex economies. With a ranking of 122 (out of 129 countries assessed) in the Economic Complexity Index , its exports consist mainly of natural resources, notably bauxite and gold. Given its troubled history – civil instability stemming from election disputes, and the 2014 Ebola crisis – this will probably come as no surprise to many.
But the country has also begun to make positive strides. Owing to its relatively more stable political leadership, the country managed to deliver growth every year in decade just ended, barring the period in which the economy ground to a standstill as a consequence of the Ebola outbreak.
However, despite its rich abundance in natural resources, the country has remained trapped in what is frequently described as the “Resource Curse”; where such an abundance of natural resources can act more as a brake to socio-economic development to a developing country, rather than as a catalyst for broad-based prosperity.
This comes as a direct consequence of an elementary economic model of extracting raw materials and investing only in the infrastructure that exports these resources, resulting frequently with the exportation of goods at the bottom of the cost curve with no value add. Often, some of this is then reimported back into the same country once manufactured, costing the country a multiple of what they received for the raw materials. This system is not only unsustainable, it hinders development. As the country progresses on its development path, critical to creating growth will therefore be achieving economic diversification and complexity to break this “curse”.
Given Guinea-Conakry’s rich endowment of natural resources, its decade of relative political stability, and a renewed interest in exploration activities in the country by mining giants such as Rio Tinto, where better to start than in the country’s natural resources sector to achieve this complexity?
As one of Africa leading mining sector investors, Africa Finance Corporation (AFC) has had first-hand experience of doing just this in the country. In 2017, AFC made its maiden investment into Guinea-Conakry by participating in a consortium that provided USD205 million alongside Orion Mine Finance and Resource Capital Funds, for the development of the Bel Air mine high-grade bauxite mine in the country.
At the time of investment – bauxite accounted for 24% of the value all exports, and since has increased to 60% – the Bel Air mine represented the largest investment made into the country following the Ebola crisis.
Most notably however, AFC’s investment in the project also included 40 community projects, all of which completed. These included infrastructure projects in power, water, and waste management sectors, as well as the first seaport to be built onshore West Africa in the last two decades.
AFC’s eco-system investing approach therefore focuses on maximising the development impact of its investments by diversifying growth leading projects away from the often-insular natural resources sectors. By taking a wholesale approach that seeks to invest in every step of the value chain, not only does it increase the investment impact of the project, it also improves profitability.
Moreover, by investing in all aspects of the value chain i.e. power, supporting infrastructure, transport and logistics etc., the project becomes significantly more de-risked. AFC’s investment strategy is therefore differentiated from other traditional investors as it looks at the entire value chain, which then has the knock-on effect of delivering socio-economic benefits.
As Guinea-Conakry begins to harness the benefits of its natural resources, the country has a blank sheet opportunity to lead where so many others in Africa have stumbled, and perhaps even to provide a template for the continent to follow.
Indeed, using the success of this “eco-system” approach, AFC has rolled out similar strategies elsewhere, notably in Gabon’s Special Economic Zone (now called Arise Port & Logistics) where AFC invested USD140 million for the construction of two ports as well as additional supporting infrastructure.
Our experience therefore provides a blueprint not only for job creation, such as the 4,000 skilled and semi-skilled job created in the Gabon Special Economic Zone, but also for ensuring high value creation within the countries where the resource in question is extracted, as well as long term sustainable economic growth and development.