2009 Index of Economic Freedom

Quick Facts

Population:

• 9.2 million

GDP (PPP):

• $10.6 billion
• 2.2% growth
• 2.7% 5-year compound annual growth
• $1149 per capita

Unemployment:

Inflation (CPI):

• 22.9%

FDI Inflow:

• $108.0 million

Guinea's economic freedom score is 51, making its economy the 144th freest in the 2009 Index. Its overall score is 1.8 points lower than last year, reflecting in part large declines in property rights and financial freedom, as well as declines in labor and business freedom. Guinea is ranked 30th out of 46 countries in the Sub-Saharan Africa region, and its overall score is below the world and regional averages.

In recent years, Guinea has pursued a series of reforms to improve macroeconomic stability and achieve much-needed steady economic growth. These measures include reforming fiscal policies, strengthening management of public finance, and implementing other institutional reforms. However, overall progress has been sluggish.

Guinea faces severe challenges in business freedom, monetary freedom, property rights, and freedom from corruption. The application of commercial law is non-transparent and inconsistent. Bureaucratic inefficiency and corruption affect virtually all areas of the economy, and the lack of basic infrastructure slows investment and growth. The judiciary is subject to pervasive political interference and corruption at all levels.

Background Back to the top

Guinea possesses rich mineral resources, including iron, gold, diamonds, and perhaps half of the world’s bauxite reserves, but infrastructure is poor, electricity and water shortages are common, and much of the population is engaged in subsistence agriculture. President Lansana Conté, who seized power in 1984 following the death of long-time dictator Ahmed Sékou Touré, has ruled with little regard for human rights or civil liberties. Labor strikes in 2007 led to the delegation of some executive power from the president to the prime minister. Fighting and instability in Côte d’Ivoire, Sierra Leone, and Liberia has spilled into Guinea, and the country has hosted hundreds of thousands of refugees, though many have repatriated in recent years.

Business Freedom 45.2 Back to the top

The overall freedom to conduct a business is very restricted by Guinea's burdensome regulatory environment. Starting a business takes an average of 41 days, compared to the world average of 38 days. Obtaining a business license requires more than the world average of 18 procedures and 225 days.

Trade Freedom 59.6 Back to the top

Guinea's weighted average tariff rate was 12.7 percent in 2005. Import taxes, pre-import and export authorization requirements, subsidies, non-transparent and potentially corrupt customs administration, a lack of foreign currency for transacting formal trade, state-owned import and export monopolies, and inadequate infrastructure add to the cost of trade. Fifteen points were deducted from Guinea's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 71.1 Back to the top

Guinea has high tax rates. The top income tax rate is 40 percent, and the top corporate tax rate is 35 percent. Other taxes include a value-added tax (VAT), a tax on insurance contracts, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 8.2 percent.

Government Size 91.9 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 16.4 percent of GDP. Poor spending management and excessive reliance on the declining mining sector have contributed to fiscal deficits. Privatization of state-owned enterprises has progressed only marginally.

Monetary Freedom57.4 Back to the top

Inflation is high, averaging 26.5 percent between 2005 and 2007. The government influences prices through the regulation of state-owned enterprises and through administrative price controls for cement, petroleum products, water, and electricity. It also subsidizes rice importers. Ten points were deducted from Guinea's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

Foreign investment and domestic investment generally receive equal treatment; however, foreign majority ownership in radio, television, and newspapers is restricted. Investment is deterred by bureaucratic inefficiency, inadequate infrastructure and regulatory capacity, and opaque procedures that allow for significant corruption. Residents (with some restrictions) and non-residents may hold foreign exchange accounts. Payments and transfers are subject to government approval in some cases, and repatriation is controlled. All capital transfers through the official exchange market and many capital transactions must be authorized by the central bank.

Financial Freedom40.0 Back to the top

Guinea's small financial system is dominated by banking. The banking sector, supervised by the Central Bank of Guinea, has a high level of foreign ownership, particularly ownership by French financial institutions. With less than 10 commercial banks operating in the country, banking services are largely concentrated in the capital. A considerable proportion of the country's economic activity remains outside the formal banking sector. Branches and subsidiaries of foreign or regional banks play a relatively important role in financial intermediation. The microfinance sector has expanded rapidly, and five institutions operate in the country. Commercial banks are the main source of financing for private businesses, and capital markets are underdeveloped. There have been no corporate issuances in the Guinea debt market.

Property Rights20.0 Back to the top

Property is only weakly protected. Poorly trained magistrates, high levels of corruption, and nepotism reportedly plague the administration of justice. The government has expressed its intention to reform the judiciary with the help of international donor agencies, but there are few cases to demonstrate that the system can provide effective protection of real or intellectual property rights.

Freedom From Corruption19.0 Back to the top

Corruption is perceived as rampant. Guinea ranks 168th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption is encouraged by the business and political cultures, low salaries for most civil servants, and a very large informal economy, and all are obstacles to foreign investment. Payment of bribes in order to conduct business is the rule.

Labor Freedom66.3 Back to the top

Guinea's relatively flexible labor regulations could be further improved to enhance employment opportunities and productivity growth. The non-salary cost of employing a worker is high, and regulations on the number of work hours remain rigid.