Where will Guinea’s projected $140bn revenues from its mining assets end up?
They call it the paradox of plenty: countries with the most spectacular natural resources are often themselves mired in poverty and debt, while others get rich on the proceeds of their land. The Sunday Times reveals that despite Guinea’s efforts to become the exception to this unhappy rule, a spate of new deals show it may be slipping back into some unpleasant habits.
The Bureau has been looking at how apparent corruption in the Democratic Republic of Congo’s (DRC) mining sector is depriving one of the world’s poorest countries of desperately needed billions. The Sunday Times charts how Guinea faces a similar struggle.
Since 2010, Guinea’s president Alpha Condé has fought a rearguard action against rampant corruption in the country’s mining contracts – even enlisting the help of Tony Blair and his Africa Governance Initiative. Last September he introduced a new mining code, backed by business guru George Soros, that aimed to introduce much-needed transparency in the country’s mining contracts.
Related article – Demands for transparency over DRC mining contracts
But Danny Fortson of the Sunday Times has uncovered new contracts that show a complex tussle for one of Guinea’s most valuable assets, the Simandou iron ore deposits. Simandou is a $20bn iron ore project that Fortson says ‘promises to turn the poverty-stricken backwater into the fourth largest producer after China, Australia and Brazil’ – yet it risks falling foul of ‘sweetheart deals’.
The Sunday Times claims:
• A draft contract dated February 2011 reveals China International Fund’s (CIF) interest in Simandou. CIF, a highly secretive company, participates in the ‘infrastructure-for-resources’ schemes that have seen Chinese companies collaborate with African governments. In the documents, CIF proposes $100m in budgetary support for Guinea and $40m in rice, as well as buses and fuel.
• Last August CIF made a presentation to the Guinean government proposing that it should be granted the rights to half the Simandou project, despite the fact that mining giant Rio Tinto had paid $700m for it six months previously. CIF has denied that it had made access to mining concessions a condition of its financial support for the government.
• The other half of the colossal Simandou project was given to Israeli diamond magnate Beny Steinmetz by a previous government says the report. Steinmetz is reportedly a former business associate of Dan Gertler, who has been named as a middleman in a number of large mineral deals in the DRC. The Sunday Times also reported that one of Gertler’s corporate partners in the Congo, ENRC, has started moves to buy Gertler out of their partnership.
Related article - Questions over London-listed miner ENRC’s Congo deals
• Uncertainty in Guinea’s mining sector appears to be deterring other major mining companies from doing business there: this month, BHP Billiton put its only Guinea project up for sale.
• A 20% stake in one of the most complex and crucial elements of the Simandou project – an $8bn railway stretching 650km through difficult terrain to the coastline – has gone to a mysterious pair of small companies that have, in turn, gone directly into partnership with Chinese companies. Seychelles-registered African Iron Ore Group (AIOG) and a tiny London-listed shell company, IMIC, were granted 40% of the government’s 51% stake. Condé faces accusations that the stake has been handed away to a company that ‘appears to have done little more than act as a go-between for the Chinese’, Fortson notes.
• In response, IMIC’s chairman Haresh Kanabar said: ‘We were brought in on the understanding that we could bring partners to the table. We are very, very well connected’. As Fortson points out, such connections include former Barclays chair Andrew Buxton, and former US ambassador to Iraq John Negroponte.
Such deals may seem abstract, but their consequences for the people of Guinea are potentially enormous. The UN places Guinea near the bottom of its Human Development Index, ranking it 178th out of 187 countries. Average GDP is $951 a year – or just $2.60 a day – and life expectancy is 54. As the Sunday Times reports, the government spent $1.4bn in total last year.
Yet Simandou alone could generate $140bn in royalties over the next 25 years, according to analysts. The challenge is to ensure that at least some of this reaches the people of Guinea.
Sign up for email alerts from the Bureau here.