AGOA ELIGIBILITY REVIEW - GUINEA-BISSAU

UNCLAS SECTION 01 OF 02 DAKAR 002459 SIPDIS SIPDIS DEPT PLEASE PASS USTR FOR CONNIE HAMILTON DEPT FOR AF/W AND AF/EPS - JANET POTASH E.O. 12958: N/A TAGS: ETRD ECON AGOA PU SUBJECT: AGOA ELIGIBILITY REVIEW - GUINEA-BISSAU REF: STATE 163056 Embassy Dakar is pleased to provide information for Guinea-Bissau's AGOA eligibility review. The following information is based on the template provided and has also been provided via e-mail to AF/EPS. Country: GUINEA-BISSAU Current AGOA Status: Eligible Country Background Summary: Guinea-Bissau's population in 2005 was 1.6 million. 2005 GNI was USD 283 million and GNI/capita was USD ¶180. Following legislative elections in 2004, the United States lifted FAAA Section 508 sanctions against Guinea-Bissau. Following free and fair presidential elections in 2005, Joao Bernardo "Nino" Vieira was inaugurated as President. That concluded Guinea-Bissau's transition back to democratic rule. The Government is actively pursuing austerity measures and fiscal control in hopes of attracting donor and investor attention. However, the economy remains very weak. Guinea-Bissau has not yet had much success attracting foreign investment and has not yet taken advantage of its AGOA membership to increase exports to the U.S. However, the Government is beginning to take some positive steps. In September 2006, USAID launched an AGOA Resource Center to the Chamber of Commerce. In the long-term, with key infrastructure and sectoral improvements, Guinea-Bissau has the potential to export products, including processed cashews, fish and seafood, fruits, and even rice. AGOA eligibility remains an important symbol of U.S. engagement with this post-conflict state and offers an incentive to encourage the Government to enact market enhancements, continue security sector reform, economic development in key sectors, and institutionalize recent democratic advances. Comments on Eligibility Requirements ¶I. Market-based Economy ¶A. Major Strengths Identified Before the 1998-99 civil war, trade reform and price liberalization were the most successful features of the country's structural adjustment program under IMF sponsorship. Privatization has nominally continued under IMF auspices since the war, but progress remains slow due primarily to lack of private sector response. Guinea-Bissau remains open to foreign private investment, but minimal infrastructure remains a significant disincentive. Under the enhanced HIPC initiative Guinea-Bissau could be eligible, upon completion of arrears and fulfillment of other obligations, for up to USD 790 million in debt relief. According to GOGB officials, the country owes USD 481 million in multilateral debt and USD 511 million in bilateral debt (none owed directly to the United States). The GOGB will need to negotiate a new PRGF program to become eligible for further debt relief. For the moment, donor priority is focused on assisting the GOGB to cover immediate operational expenditures. Guinea-Bissau joined the West African Economic and Monetary Union (WAEMU) in 1997, and has made efforts to harmonize its policies with the standards of the WAEMU, including a switch to a single value-added tax (VAT) rate. As of April 2006, the World Bank had disbursed USD 293 million of a USD 309 million program to support sectors like transport, energy, the economic recovery plan, agriculture, health, education, and private sector rehabilitation. Notably, in 2006, the government initiated a privatization program for 14 companies with an estimated total market value of approximately USD 51 million, including two hotels. ¶B. Major Issues/Problems Identified A post-conflict society, with an economy devastated by a 1998-99 civil war, Guinea-Bissau is ranked 172 out of 177 among countries on the 2005 UNDP Human Development Index. Misappropriation of funds by earlier regimes led the IMF to suspend its assistance and in turn triggered a similar suspension by most bilateral donors. The suspension of almost all aid deepened the country's economic paralysis. By late 2006 there was some renewed interest by the World Bank, IMF, and bilateral donors to support Guinea-Bissau's reform efforts and development needs. II. Political Reforms/Rule of Law/Anti-Corruption ¶A. Major Strengths Identified The democratically elected government is improving the rule of law. Evidence includes: the court system is functioning, though with serious resource constraints; customs receipts are channeled directly into state coffers; and the Ministry of Finance must clear on all disbursements to ministries and public bodies. ¶B. Major Issues/Problems Identified DAKAR 00002459 002 OF 002 The Government has difficulty paying civil sector and military personnel on time. The Government must move rapidly to reform and downsize the bloated and outdated military, including creating a military retirement system which will be costly and difficult to implement without significant outside assistance. III. Poverty Reduction ¶A. Major Strengths Identified The new government is expected to resubmit the National Poverty Reduction Strategy Paper (DENARP) for further review. ¶B. Major Issues/Problems Identified During 2003, the dismissal of the Assembly and the increasingly autocratic behavior of ex-President Kumba Yala led to World Bank and IMF rejection of Guinea-Bissau's Poverty Reduction Strategy Paper (PRSP). The GOGB is working on a draft renewed PRSP and plans to submit this document to the WB/IMF Executive Boards in late 2006 or early 2007. Of 1.6 million people, 58.9 percent of the men and 82 percent of the women are illiterate, including a majority of members of the National Popular Assembly (ANP). IV. Workers' Rights/Child Labor/Human Rights ¶A. Major Strengths Identified In March 2001, with U.N. support, a tri-partite National Council for Social Consultation (CNCS) was legally established and began functioning. The Council conducts collective consultations on salary issues and on draft legislation related to labor issues. The ANP ratified Convention 182 on the worst forms of child labor in July 2002. The Constitution grants all civilian workers the right to form and join trade unions. The right to strike and protection against retribution is guaranteed. Guinea-Bissau does not engage in gross violations of internationally recognized human rights. ¶B. Major Issues/Problems Identified Female genital mutilation (FGM) is practiced widely. Child labor, including some forced child labor, is a problem. Institutions created to work for the elimination of the worst forms of child labor are not effective because of a continuing severe economic crisis. ¶V. International Terrorism/U.S. National Security ¶A. Major Strengths Identified Guinea-Bissau has been a vocal supporter of U.S. anti-terrorist actions, and does not engage in activities that undermine U.S. national security or foreign policy interests. ¶B. Major Issues/Problems Identified In 2006 there were credible, public reports of significant quantities of cocaine transiting Guinea-Bissau en route to Europe. Guinea-Bissau is a preferred transit point in West Africa for traffickers because of the government's inability to monitor and control its borders and the corruptibility of officials who do not receive regular salaries. Jackson