Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).

GUINEA-BISSAU

FY 1998 Development Fund for Africa
..........
 $2,500,000
FY 1998 P.L. 480 Title II
..........
 $562,000

Introduction

Guinea-Bissau is a model for West Africa showing that an emerging private sector leads to a vibrant civil society. The capacity of the private sector to lobby for their economic and political interests is becoming increasingly evident to observers; more important, the private sector of Guinea-Bissau is realizing that they can influence economic and political decision-making. Many of these private sector groups are USAID nurtured non-governmental organizations formed for their common economic benefit. The position of Guinea-Bissau on the United Nations Security Council, where they could influence decisions on issues worldwide, makes Guinea-Bissau an important interlocutor and potential ally for the United States.

The Development Challenge

Although the gross domestic product of Guinea-Bissau continues to grow at a consistent rate of at least 3% per year, the current estimate of the annual per capita income of Guinea-Bissau is $235 which places it among the least developed nations of the world. An official external debt load of more than three times the gross domestic product makes the country one of the most heavily indebted in the world.

Economic development will occur with: 1) improved trade and investment policies; 2) an effective, independent judicial system to guarantee contracts and resolve business conflicts; 3) increased savings and investment in the country; 4) natural resources managed in a sustainable manner and 5) infrastructure that adequately supports growth in production, marketing and export.

The 1994 election was the completion of a peaceful transition from a one-party Marxist system to multi-party democracy. The elections meant surprisingly drastic changes within the government and the state and the political commitment to economic reforms appears strong. Progress was made in implementing structural reforms. In the area of civil service reform about 8% of the total non-military employees were retrenched under the voluntary departure scheme along with military staff reductions. Seven public enterprises were liquidated and eight were put up for tender. In the agricultural sector, the minimum shipment requirements for agricultural commodities were abolished and all administered farm prices for primary commodities were eliminated. Reforms directly attributable to the USAID program include formation by the Minister of Fisheries of a public/private sector advisory committee which now participates in developing the schedule of catch quotas to be assigned to domestic and foreign fishing firms. USAID has worked with the private sector as well as several ministries to bring about the enactment of three packets of legislation which simplify bureaucratic procedures bearing on licensing and permits which govern access to commercial activity, operation of commercial establishments and the price system. Because of USAID support two Ministry of Commerce offices are now functioning outside of the capital city to reduce valuable travel time for the private sector. USAID has also supported the opening of small claims courts throughout the country that facilitate resolution of small commercial disputes.

With the grant of debt relief by the Paris Club in early 1995 and the adoption of the fourth Policy Framework Paper for 1996-1998 by the International Monetary Fund Board, the prospects for growth appear favorable in the short term. However, the sustainability of the macroeconomic program hinges on the ability of the Guinea-Bissau to move from the stabilization of public finances and structural reforms to economic growth based on the diversification of its export base and the development of transport and social sectors.

Agriculture, fisheries and forestry represent more than half of the country's gross domestic product. Exports of agricultural production, primarily cashew nuts and fruits, and revenues from fishing licenses are the most important sources of the country's revenues. However, with its valuable natural resources, Guinea-Bissau could provide a much higher living standard for its population if these resources were managed in a more sustainable way. Fisheries and forestry resources in particular are coming under pressure from the international and domestic private sector and subsistence farmers. Adequate sector reforms and control mechanisms are essential if these resources are to be sustainably exploited.

Although we anticipate close-out of the USAID program in Guinea-Bissau by the year 2000, continued, but limited USAID assistance and leadership, is still very crucial to consolidate ongoing changes, reforms and associated results, the private sector's ability to take advantage of the improved freely competitive market conditions, and to generate the envisioned economic growth.

Other Donors

In 1995 Guinea-Bissau, received approximately $118 million in foreign assistance in the form of grants and concessional loans, with the U.S. contributing about 9% of that amount. Donor assistance focuses on governance, structural adjustment and stabilization programs, agriculture, health and family planning. Other major donors include the World Bank, Sweden, the European Union, France, the United Nations Development Program, China, Japan, Portugal and the Netherlands.

FY 1998 Program

USAID's strategy continues to focus on promoting an increase in private sector trade and investment in Guinea-Bissau through improved governance in order to achieve sustainable broad-based economic growth. Through training and technical assistance, USAID continues to work to improve the basic understanding of both the private sector and the government of market-oriented economics.

The USAID program will continue to support these efforts by allocating the Development Fund for Africa request in FY 1998 as follows: 80% to stimulate broad-based economic growth; 16% to democratic participation directly addressing the governance component of USAID's strategy and 4% to global environment.

Through our ongoing support to the private sector associations, the USAID program will strengthen civil society. Support will continue to the courts and legislature for the application of laws more conducive to private sector economic growth. USAID will continue working with the Government of Guinea-Bissau (GOGB) for policy reform in agriculture, private sector support services, privatization efforts, the tax return system, forestry codes, decentralization of decision-making and commerce. Finally, USAID will promote greater economic integration between Guinea-Bissau and surrounding countries. There will be special focus on achieving the sustainability for at least some of the nongovernmental organizations to achieve greater economic development of Guinea-Bissau.

Following FY 1998, USAID plans to continue a small, non-presence program through regional and global activities and its non-governmental partners. Thus, the focus of the FY 1998 program will be to assure sustainability of ongoing activities.

Agency Goal: Encouraging Broad-based Economic Growth

USAID's goal in Guinea-Bissau is to foster market-oriented economic growth that is broad-based and sustainable. At independence, the existing modest private-sector of the colonial era disappeared as private ownership of the means of production was abolished and the government took control of all productive sectors. During its first ten years of independence, the country's development was stunted and sometimes suffered severe regression.

With 80% of its development funds directed towards the USAID goal of broad-based economic growth, USAID's assistance contributed to reversing this stagnation. Although know-how about private economic initiative was nonexistent, the transformations achieved with economic and political liberalization and democratization provided the platform necessary for the emergence of a new and independent civil society and an active private sector.

USAID's efforts in recent years have been to take advantage of the newly created enabling environment encouraging and supporting the emergence of organized private interest groups. These efforts resulted in the creation of a significant number of private business associations (National Agricultural Association, Association of Business Women, Association of Small Merchants, Association of Cashew Growers, Association of Timber Industry, National Association of Fishing Enterprises, etc.). The combined efforts of these associations have contributed to the continuing economic growth since 1990. The level of agricultural private exports remains stable and private commercial activity buoyant. Cashew is the leading export and key foreign exchange earner for the country. Although not as spectacular as 1994, production remained very high in 1996. Other key agricultural exports are fruits and vegetables. Assistance to the associations will continue in order to ensure effective transmission of needed skills and knowledge to the private sector and to improve the private sector's ability to influence policy-makers in the ongoing policy, legal, judicial and regulatory reforms that govern private economic activities in a free market economy.

USAID also contributes to this Agency goal through the P.L. 480 Title II program being implemented by a U.S. private voluntary organization (PVO). This PVO, Africare, is carrying out a small, and medium-sized enterprise development program in the southern region of Guinea-Bissau. The Title II-financed program is wholly complementary to the overall USAID strategy, especially in providing direct support to the private sector, including individual entrepreneurs, micro-enterprises and small-scale producer associations working in USAID's six critical growth sub-sectors. The program, carried out in over 20 demonstration villages, provides training in technical and managerial skills to support the private sector. It also has established agricultural and agribusiness training centers in two rural locations to better organize and train small-scale producers and processors in production techniques, marketing and organize and train small-scale producers and processors in production techniques, marketing , and business development. Graduates of these centers serve as resource individuals and groups for other rural entrepreneurs. The program includes an experimental, small-scale credit program to address a key constraint to promote sector growth in rural areas.

Agency Goal: Building Democracy

USAID has directed a portion of development funds to help build democracy in Guinea-Bissau. Most recent USAID efforts have focused on improving the policy coordination among the ministries and between the ministries and the Office of the President.

USAID is assisting the Ministry of Justice and the Supreme Court to restructure and decentralize with the creation of various sectoral courts around the country to ensure access to justice by the population outside the capital city. Efforts have emphasized the integration of modern law and traditional law in the adjudication process. Our current focus is the restructuring of the regional courts. USAID-financed training and technical assistance to the judicial system help to strengthen the independence of the judicial branch from the executive branch and enhance the credibility of the judicial branch with the Guinean population.

Prior to and since the 1994 election, Guinea-Bissau has witnessed a free press with independent newspapers and radio stations and expanded trade union activity. Broad-based private sector interest groups exist in almost all key areas of private economic activity while organized interest groups from the social and legal sectors are active also. Examples of these are the Teachers Union, the BarAssociation, the Human Rights League, the Association of Magistrates and various NGOs. All these groups are contributing to good governance and socio-economic development in Guinea-Bissau.

>

GUINEA BISSAU FY 1998 PROGRAM SUMMARY

Encouraging

Broad-based Economic Growth

Stabilizing Population Growth and Protecting Human Health Protecting the Environment

Building Democracy Providing Humanitarian Assistance Total

USAID Strategic

Objectives

1. Increased private sector trade and investment in the GB critical growth sub-sectors through improved governance

Dev. Fund for Africa

-PL 480 Title II

2,000,000

---

---

---

---

---

500,000

---

---

562,000

2,500,000

562,000

Totals

- Dev. Fund for Africa

- PL 480 title II

2,000,000

---

---

---

---

---

500,000

---

562,000

562,000

3,062,000

562,000

Acting USAID Representative: Nancy M. McKay

ACTIVITY DATA SHEET

PROGRAM: GUINEA-BISSAU

TITLE AND NUMBER: Trade and Investment Promotion Support (TIPS) 657-S001

STATUS: Continuing

PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998 $2,500,000 DFA

INITIAL OBLIGATION: FY 1995

ESTIMATED COMPLETION DATE: FY 1998

Purpose: To increase private sector trade and investment in the Guinea-Bissau critical growth sub-sectors through improved governance.

Background: For the first decade after independence the Government of Guinea-Bissau (GOGB) followed a command-economy development model guided by a single political party. This was a factor in leaving Guinea-Bissau as one of the poorest and least developed countries in the world. A structural adjustment program, started in 1986, opened the economy to private sector activity. From 1987 to 1989, real gross domestic productivity (GDP) increased over 5.8% per year. By 1990, however, real growth rates dropped to about 3% per year, largely due to an inexperienced private sector and mixed Government performance. Despite steady but slow progress, the 1992-1994 period was characterized by a less aggressive economic reform program, a less than independent and poorly functioning judiciary, and a less than fully democratic and transparent government which did not attract investors. 1994 registered a remarkable high estimated real GDP growth of 7%. This was due in part to the 100% devaluation of the Community of African Francs in neighboring countries which reduced inflation and significantly reduced costs for the private sector, and it was also due to stabilization and adjustment reforms. The advent of a multiparty democracy and a new, inexperienced government has slowed Guinea-Bissau's growth once more to slightly more than 3%. Nonetheless, Guinea-Bissau met International Monetary Fund and World Bank targets for 1995. In May 1996, the International Monetary Fund approved Guinea-Bissau Policy Framework Paper for the period of 1996 to 1998. It also approved an annual loan for Guinea-Bissau under the Enhanced Structural Adjustment Facility for about $6 million to support the macroeconomic and structural adjustment program. The Paris Club granted debt relief in early 1995 so that prospects for growth appear favorable in the short term.

USAID Role and Achievements to Date: USAID recognizes that sustainable development and economic growth require lasting individual, institutional and societal capacity to identify and respond to changing circumstances, new needs and evolving opportunities. Changing policies, laws and regulations have motivated a growing private sector, fueling real economic growth and increasing broader participation of Guineans in policy decisions and lawmaking. USAID's assistance to nascent agricultural producers and women's economic activity associations have increased income to their members, doubling the farmgate price paid to cashew producers and helping family units to market processed nuts rather than export raw nuts. Through support to the Association of Small Merchants and Traders, USAID has increased the number of private sector firms which are able to fully and competitively participate in and benefit from Guinea-Bissau's economic opportunities. USAID's assistance to the judiciary and Ministry of Justice has created access by rural populations to an independent, objective adjudicator of civil conflict which responds and integrates traditional law with modern law.

Through the Trade and Investment Promotion Support project's activities, the African Training for Leadership and Advanced Skills project, and Human Resources Development Assistance project, USAID has helped to create the beginning of a strong civil society of private interest groups, a more independent mass media, human rights advocates, private legal practice, a bar association, and an increasingly independent judiciary.

Description: Through technical assistance and training, the Trade and Investment Promotion Support activities facilitate and implement: 1) policy formulation; 2) legal and regulatory reform; 3) judicial reform; and 4) assistance to the private sector to ensure that the private sector responds to new economic opportunities in the critical growth sub-sectors. USAID has identified six subsectors: cashew nuts, fruits, vegetables, rice, forest products, and fish products.

These sub-sectors are those areas of the economy that are creating and will continue to create economic growth in Guinea-Bissau which will improve the economic well-being of the vast majority of the country's population.

Host Country and Other Donors: Other major donors operating in Guinea-Bissau are the World Bank, Sweden, the European Union, France, UNDP, China, Japan, UNICEF, WHO, Portugal, FAO, the Netherlands, and Canada. These donors assist in governance, structural adjustment and stabilization programs, agriculture, health and family planning, education and infrastructure building. The GOGB has consistently supported USAID-funded activities with in-kind contributions such as personnel, equipment and materials.

Beneficiaries: Primary beneficiaries are the private sector, represented by associations (including women), other social and legal interest groups and specific ministries (Fisheries, Commerce, Agriculture, Justice and Energy, Industry and Natural Resources).

Principal Contractors, Grantees, or Agencies: USAID implements TIPS activities through a consortium of firms, with Labat-Anderson, Inc. being the prime contractor. Other members of the consortium are: Management Systems International; New York State University at SUNY, Albany; Africare; and the Land Tenure Center at the University of Wisconsin. 

Major Results Indicators:                  Baseline          Target


No. of Commercial Firms Registered       1,919.0 (1991)      2,400.0 (1998)

Export Earnings ($million/FOB)

-- Cashews                                  14.1 (1991)      17.6  (1998)

-- Fish and Fish Products                    2.6 (1991)       3.3  (1998)

-- Total Exports                            20.4 (1991)      25.5 (1998)

No. of foreign and domestic                     
firms granted customs exemptions 
under new investment code                  28.0 (1991)          36.0 (1998)
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