GOVERNMENT UNABLE TO ENFORCE RAMADAN PRICE CONTROLS

C O N F I D E N T I A L SECTION 01 OF 02 CONAKRY 000544

SIPDIS
SENSITIVE

E.O. 12958: DECL: 03/16/2019
TAGS: ECON EFIN PGOV PREL GV
SUBJECT: GOVERNMENT UNABLE TO ENFORCE RAMADAN PRICE CONTROLS

Classified By: ECONOFF BRIANA WARNER FOR REASONS 1.4 (B) AND (D)


1. (C) Summary: Despite a Ministry of Commerce initiative to
decrease the price of rice and sugar, commodity prices have
risen in Guinea during the month of Ramadan. According to
contacts in the Ministry of Commerce and the Societe de
Commerce et de Financement (SCF),Guinea's largest private
importer of flour and rice, suppliers are selling the goods
at the government-imposed price while vendors are charging
significantly more on the market. Though prices have
increased, an SCF contact said that as long as people can
afford food, they will not protest the prices. He further
noted that the volume of rice sold to the military has
doubled since the CNDD took power. Through price controls and
food distribution among the military, the CNDD is attempting
to gain popularity to the detriment of their national budget.
END SUMMARY.

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COMMERCE ORDERS PRICE CAP
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2. (U) Minister of Commerce, Colonel Mamadou Korka Diallo,
declared on August 27 that the price of rice and sugar would
be fixed for the month of Ramadan. Korka demanded that
importers lower the price of rice and sugar respectively to
122,000 GF and 160,000 GF per fifty kilo bag. Before this
declaration, a bag of rice cost around 166,000 GF and sugar
was available for 170,000 GF. Korka announced that the
government would revoke the license of any importer or vendor
found selling above the declared price during the month long
religious celebration.


3. (U) The GOG is apparently funding this price decrease by
waiving the import tax on rice, thereby foregoing import
revenues. With a rate around 46%, the prohibitive import
taxes on these basic staple goods would normally get passed
on to consumers. The tax cut is intended to act as a subsidy
to counteract negative price fluctuations.



4. (U) Despite Korka's efforts to reduce prices, consumer
goods have become more expensive during Ramadan. According to
the Vice President at SCF, the largest importer of rice and
wheat in Guinea, importers are selling the goods at the
required price, but vendors are increasing the price
substantially as demand grows during Ramadan. Falilou Barry,
the Secretary General of the Ministry of Commerce echoed this
insight in a meeting with EconOff on September 3, noting that
the actual price of rice has nearly doubled since mid-July as
a result of Ramadan.


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REVENUE LOSS
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5. (C) Barry, a long-time employee of the Ministry of
Commerce, told EconOff that the loss in tax revenue will
damage the already weak GOG budget. Noting that the
government is unable to effectively collect taxes due to
corruption and poor enforcement capabilities, Barry said that
the government's budget losses from the price control policy
means that it is not currently collecting any significant
revenue. As such, the government may find itself unable to
continue the price control policies.



6. (C) Ibrahima Sow also said that the government is, in
essence, sacrificing future budgetary freedom for temporary
popularity, but that the government's plan will ultimately
backfire. Rather, the failure to implement the promised price
controls will expose the CNDD's inability to enact and
enforce its own policies.


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POPULIST POLICIES EXPAND TO MILITARY
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7. (C) SCF, as the largest supplier of wheat and rice to the
military during Lansana Conte's reign, has long been privy to
the amount of basic commodities purchased by the armed
forces. According to Sow, the CNDD revoked SCF's contract

CONAKRY 00000544 002 OF 002


with the government in January and hired a company owned by a
CNDD member to supply the army with basic goods. However, the
new contracting company does not have the capacity to supply
the needed amount. As such, the new company must buy its
goods from SCF to sell to the military. SCF still supplies
the military unofficially, but the government incurs an extra
fee by contracting an intermediary supplier.



8. (C) According to Sow, the CNDD is giving extra food to the
military and gendarmerie in order to gain popularity. Under
Conte, he government reportedly purchased around three
million tons of rice per month. Under the CNDD, the GOG is
now buying nearly five million tons every month.


9. (C) Sow also noted that despite significant commodity
price increases during the month of Ramadan, the price of
basic foodstuffs is still generally affordable. He believes
that this factor alone will prevent civil unrest in Guinea.
"Until people don,t have anything to eat, they will not rise
up against this government," he said.

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COMMENT
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10. (C) The increased demand for rice and sugar during
Ramadan will necessarily affect natural prices for these
goods. However, the CNDD's inability to enact its own pricing
plan demonstrates its ineffectiveness in enforcing economic
policies. The pricing plan itself seems ill conceived, since
import taxes are one of the GOG's only ways to collect
revenue. As a way to recuperate some of the losses, the
government may impose revenue collecting fees in other
sectors that will increase consumer prices in the long-run.
Although Sow claimed that the significant increase in
military consumption of rice is due to CNDD efforts to buy
support, it may also indicate increased numbers of troops.
BROKENSHIRE