The recent military putsch adds to political uncertainty in Guinea, raising questions both for existing mining operations and for the future of major untapped mineral deposits. Following Ebola and Covid-19, the coup may be another in a series of setbacks to the country’s broader economic and institutional development. This brief explores possible short- and long-term implications.
The 5 September coup d’état in Guinea caused a spike in aluminium prices and was met with condemnations from the likes of the UN, African Union, United States and China. Its immediate impact on business continuity for the country’s operating mines has however been trivial. Coup leader Colonel Mamady Doumbouya swiftly re-opened ports and pledged to uphold mining contracts a day after seizing power, and mining operations have continued normally. The sector’s role in generating foreign exchange and revenue has often shielded companies from political turbulence. Compagnie des Bauxites de Guinée (CBG), part-owned by Alcoa, has operated successfully since the 1970s having witnessed two previous coups in 1984 and 2008. Existing investors will now be questioning how they manage the reputational risk of appearing to support or enable the military junta while trying to keep operations up and running.
Alpha Condé’s 11-year tenure, while beginning with great optimism, was marred by corruption allegations, human rights concerns associated with his violent suppression of opposition protests and his decision to change the constitution to run for a third term. However he also governed over strong growth in the mining sector, fixed the country’s perilous public finances and introduced a wave of younger business-minded ministers who won praise from investors. The coup represents a blow to efforts to improve Guinea’s attractiveness to foreign investors. Existing mining operations are likely to continue without significant disruption but the country will struggle to attract western investment at a crucial time for major iron ore projects which investors had already been somewhat nervous of. Other players may be less daunted by reputational concerns, which could serve to enable kleptocratic behaviour by the transition regime.
One benefit of the putsch may be that, with Condé’s gambit of changing the constitution having unravelled, future presidents may be more inclined to stick to democratic norms. However, it is unclear when new democratic elections will take place and there are some early signs which point to a possibly drawn-out transition period that could raise concerns of the risk of corruption or human rights abuses. The SEC is still working through major corruption cases which had their origins in the last transition government, and victims of a massacre under the previous coup leader’s regime still await justice. While Doumbouya has promised an ‘inclusive and peaceful transition’ and initiated talks to form a national unity government, previous experience in Guinea and its neighbours provides grounds for scepticism about a rapid transition.
In Mali, 2020 coup leader Assimi Goïta’s administration has promised to hold elections in February 2022 but is showing little drive to stick to this pledge. Doumbouya, like Goïta the head of his country’s special forces, is said to know Goïta personally and is an admirer of Jerry Rawlings, the former president of Ghana who led a military junta for eleven years before re-establishing democracy in 1992. Sceptics will question whether an extended period of transition government would be intended to ‘correct past mistakes’ or simply provide sufficient time for military elites to enrich themselves.
A major positive has been the security situation post-coup, which has been calm with no violence reported and moves by Doumbouya’s junta to soothe tensions – for example, it released dozens of political prisoners soon after seizing power. Mining companies in Guinea have emphasised continuity and spoken favourably of his initial statements regarding the sector. Without clarity on how the situation will develop, they will have to tread a fine line between overt support for some of the junta’s stated goals and avoiding overly close alignment with it. One key question for mining operators is whether they can continue to do business in a military-run Guinea. Companies will be mindful of possible reputational implications and pressure from home governments, NGOs and consumers, and the compatibility of corporate human rights-related commitments with operating in Guinea will face particular scrutiny. Companies that are locked in by existing investments will need to undertake a scenario analysis considering the different paths post-coup Guinea could take and ensure their strategies provide protection and resilience against the more negative potential outcomes.
It is unclear how the junta will approach governance of the mining sector. In a meeting with mining executives on 16 September, Doumbouya again pledged to respect contracts but also urged mining companies to help alleviate poverty, stressing the need for more local content and a shift towards greater in-country beneficiation. Long-time opposition leader Cellou Dalein Diallo, who in the event of a rapid transition could be one of the main contenders for the presidency, has suggested he would seek an audit of mining contracts due to corruption concerns, given that only a small elite has benefited substantially from the mining boom of the past years. But he has also emphasised that the aim would not be to cancel contracts, rather to ensure the country receives a fair share of added value. President Condé launched a similar review on entering office which resulted in a number of licenses being revoked. During a tumultuous period in 2011 following his taking power, Rio Tinto also had to make a $700m payment to government in order to keep a reduced concession.
Internationally, the response to the coup has not gone much further than calls for a reinstatement of civilian rule. Ecowas has imposed asset freezes and travel bans but has little leverage as Guinea has its own currency and its trade is largely seaborne. The events in Guinea have reinforced fears of a new wave of instability in West Africa with two recent coups in Mali, an attempt in Niger and an irregular transfer of power in Chad. Should there be human rights violations and a further deterioration of governance in post-coup Guinea, there may also be a greater risk of it becoming embroiled in regional challenges, including terrorism, smuggling and migration.
The coup has served as a reminder of the major impacts of sudden shifts in countries that have a disproportionate share of certain minerals, and the uncertainty it has generated will have a bearing on resource investments for years to come. Most international investors will be reluctant to finance new large-scale mineral developments in the country as long as there are doubts about stability. This will affect Simandou in particular, which will require $15bn to be brought into production. The prospect of bilateral cooperation to export iron ore from Guinea’s southeast through Liberia has also become more remote.
A consequence of recent events may therefore be that non-Western investors consolidate their presence in Guinea, with potential political and geopolitical knock-on effects. The governance of the country’s resource sector will likely improve little if there is limited pressure for improving transparency. Internationally, players such as China and Russia could enhance their strategic leverage, which could skew the business environment against Western investors.
There remains much to be seen about how the crisis will develop. Yet with this latest blow to political stability, one of the most fundamental sources of stakeholder risk for mining companies looks set to endure – the disconnect between their fortunes and those of Guinea’s people.