By Geopolitical Monitor
Elements of the Guinean Army undertook to write a new chapter in the tumultuous political history of the West African country.
A group of soldiers detained President Alpha Conde over the weekend after a pitched battle around the presidential palace. The coup appears to have been led by Colonel Mamadi Doumbouya – a former French legionnaire – although the extent of Doumbouya’s support within the armed forces remains unknown.
Military leaders justified the coup in populist terms, citing the country’s abysmal roads and hospitals, despite its abundant mineral wealth. Doumbouya annulled the constitution and vowed to restore democracy at some point in the future.
Former President Alpha Conde has already been hailed as a harbinger of democratic reform in a country that has suffered decades of authoritarianism, corruption and routine coups d’etat since gaining independence from France in 1958. Conde was markedly less committed to protecting freedoms when he took office in 2010, however, and his eventual insistence on running for a third term – despite constitutional term limits – sparked a wave of violent protests late last year.
Small country, big economic impact
Despite being a small country with about 13 million inhabitants, Guinea is above its weight in economic terms due to the strategic nature of its main export product: bauxite, which represents around 46.5% of its export portfolio . (To get a sense of the importance of the mining industry for Guinea, gold represents another 46% of exports).
Guinea is the world’s second largest producer of bauxite, the main input in the production of aluminum ore, and is also home to the largest bauxite reserves in the world. Aluminum prices had already risen almost 40% in 2021 due to the stimulus related to COVID, economic recovery and transport bottlenecks. The coup effectively added more fuel to the fire, pushing prices up another 3% to reach $2,768 per ton – a level not seen since May 2011.
Coup leaders have so far tried to protect the country’s lucrative mining sector from disruption, urging mining companies to continue their normal operations. They also indicated that pre-existing mining agreements will be honored. However, two considerations seem to merit a wait-and-see approach for foreign investors: 1) the coup may not be a ‘closed deal’ and conflict may erupt between coup supporters and detractors, or within coup plotters’ the inner circle itself; and 2) the populist language in which the coup is shrouded suggests a potential reassessment of the social contract underlying Guinea’s mining sector, if taken at face value.
Geopolitical risks are high for China
Beijing has a lot to lose if the coup brings down its usual business.
China gets about 55% of its bauxite from Guinea, which it uses to produce aluminum. According to one estimate, around 20% of all aluminum in the world is produced from Guinean bauxite. China also leads the world in aluminum production, and by a wide margin, no less. In 2019, China produced 36 million tons of aluminum; the second country was India with 3,700,000 tons.
China’s dependence on Guinean bauxite therefore sets the table for volatile price movements going forward. And these moves will not be restricted to aluminum markets, as industrial metal is a key input in a variety of consumer products ranging from beer cans to iPhones (each iPhone contains 31 grams of aluminum). It follows that significant interruptions in supply in Guinea risk creating another inflationary trend just as energy prices are rising.
There are few attractive alternatives for Chinese lawmakers looking to diversify from Guinean bauxite. Indonesia banned the export of raw materials, including bauxite, in order to encourage a domestic processing industry. That leaves Australia, the world’s other bauxite producer alongside Guinea. Australian bauxite exports to China have so far been spared in the ongoing bilateral trade dispute. However, it has long been clear that Beijing intends to reduce its dependence on Australian exports of essential inputs.
The extensive iron mine of Simandou is in the balance
By the way, Guinea figures prominently in another Chinese move to reduce its over-reliance on strategic Australian exports: the development of the Simandou mining complex, home to the world’s largest untapped iron reserves. The main foreign funders of the project are Grupo Rio Tinto and China Baowu Steel Group, the latter taking over the participation of Aluminum Corp of China (Chalco) in 2020. The infrastructure to support the complex has already been approved, with estimated costs in the range from $15 to $23 billion to bring the project online. With a production date of 2026, Simandou could well be a game changer in global iron markets, with an initial production of up to 60 million tonnes of high-grade iron ore per year.
The Simandou project has generated great controversy over the years. On the one hand, it represents a logistical nightmare, as the mines are located deep in Guinea, requiring a significant upfront investment in infrastructure to allow the ore to reach global markets. This investment could be mitigated by routing the ore through the port of Buchanan, Liberia, which is geographically much closer than Conakry. However, the Conde government has resisted such pressures, hoping to keep the Simandou operation – and the billions in investments it represents – an entirely Guinean affair. By the way, it will be interesting to see what position the new board takes on this front.
Governance is another issue, namely the deeply rooted culture of corruption and the weak regulatory framework under which the mining giants operate in Guinea. Simandou is already synonymous with graft and bureaucratic ineptitude. After Rio Tinto first received full mining rights in 1997, several blocks were expropriated by the state, transferred by court order and/or dispossessed following high-profile corruption cases. The project’s momentum in recent years is more a factor of political will on the Chinese side, driven by geopolitical concerns, rather than any material change in Guinea’s investment climate.
Simply put: Simandou was a bridge too far, even before last week’s coup. And given the lack of a development dividend after decades of foreign investment in gold and bauxite, the latter of which has endured years of intermittently low prices due to global aluminum overproduction, it will be difficult to sell to the junta to maintain any semblance of popular credibility without aiming directly into the kind of business practices that China and other mining giants have long thrived on.
It is safe to say that the coup represents a potential net loss for China, the true extent of which remains to be seen.
SOURCE: Geopolitical Monitor
EDITORIAL NOTE: On the day the coup against Guinea’s president took place, members of the US Army’s Green Berets special forces were in the country conducting training for local troops. When the Green Berets realized a coup was underway, they went straight to the US Embassy in Conakry, and the training program was suspended, said Kelly Cahalan, spokeswoman for the US Africa Command. The coup, she said, is “inconsistent with US military training and education.”