By Francois Misser.

Few countries can show such a large gap between their earning potential and the living standards of the population as does Guinea. Conakry, the former capital of what was, until 1984, considered an African gulag, remains one of the filthiest place in the region. Most houses in the capital have not been painted for years and roofs have caved in. Out of a total population of 7.4m, only 25,000 are connected to the telephone system and only 30,000 are paying their water bills. The World Bank described the poor infrastructure as the "single most severe impediment to output recovery".

But all this may soon become a distant, dusty memory. Considerable progress has already been made since the death of Sekou Toure 14 years ago. The asphalted road network has been extended from 300km to 2,000km and the EU is providing ECU 90m for the construction of new roads. The primary school education rate has doubled to 51% of the population and new schools are being built in an attempt to bring the figure to 60% in the year 2000.

Macroeconomic changes have been spectacular and the structural adjustment programme targets agreed with the IMF, are being met. The inflation rate of 4% in 1998 should drop to 3% in 1999. The budget deficit of 6.1% in 1997 fell to 5.8% in 1998 and should decrease to 5% this year. The GDP growth rate of 5% in 1998 should reach 6% in the year 2000, according to Ministry of Economy projections.

But these successes came at a very high price. Over the last 10 years, about half of the 100,000 civil servants have lost their jobs. More than 60% of university and professional school graduates are currently unemployed. Added to this, the presence of 650,000 refugees, mainly from Sierra Leone, and the sporadic incursions of the Revolutionary United Front rebels into the Guinean territory are creating pockets of chronic insecurity at the common borders.

This has not deterred major mining and power multinationals from grand plans for the country. There are two reasons for this confidence: one, both donors and the private sector are convinced that the authorities are serious about reform programmes, including the liberalisation of the economy and the setting up of friendly investment, tax and mining codes; on the other hand, Guinea boasts considerable untapped resources.

The country, which possesses over 40% of the world's bauxite reserves, should quickly increase its current 15% share of the world production. Indeed, the main producer, the Compagnie des Bauxites de Guinee (CBG) whose management has been taken over by the US giant Alcoa, the main shareholder after the Guinean state, has increased its 1997 record output of 12.5m tonnes by 300,000 tonnes. Despite lower aluminium prices, CBG earned $150m in pre-tax profits before in 1997 and should step up its production to 13m tonnes in 1999.

Huge industrial projects are also on the drawing board. Last November, Anglo-American, Kaiser Aluminium (US), Comalco (Australia) and Marc Rich & Associates (Switzerland) prequalified to replace Alcan (Canada), Pechiney (France) and Norsk Hydro (Norway), as partners of the state in the Friguia alumina smelter. The final choice will be made by the end of March 1999.

The winner company must commit itself to investing up to $400m in order to double the current capacity of the plant, estimated at 700,000 tonnes. The purpose of this capacity increase, says Minister of Mines Facinet Fofana, is to garner economies of scale - the current operation costs are too high to achieve competitivity.

An even more ambitious project is on the cards: the United Arab Emirates' General Mining company Ltd has just completed a prefeasibility study for a future smelter at Setourou with a total capacity of 2.6m tonnes at an estimated cost of $2bn.

Last November, the British mining giant RTZ signed an agreement with the Guinean government to exploit huge iron ore deposits at Simandou in the south-east. With total reserves estimated at 3bn tonnes, this would be the biggest project ever undertaken in Africa in that sector and one of world's largest. Meanwhile, Billiton and La Source are negotiating an agreement to exploit the 1bn tonnes of iron ore deposits in the Nimba Mountains.

De Beers, which initiated the exploration of kimberlite deposits in Upper-Guinea in 1996, has acquired 13 permits in the Kerouane and Konkare district and wants five more, Ministry of Mines officials told African Business. If the first estimates of the presence of sizeable amounts of high value gem quality diamonds are confirmed, De Beers could invest up to $500m to develop projects in the country, say mining experts.

Meanwhile, the Canadian company Hymex plans to start producing 250,000cts of gem quality diamonds this year. Ashanti Goldfields have announced plans to invest $55m in the gold sector. In 1998, the Ghanaian company began operations at the Siguiri gold mine, with an expected annual output of 150,000oz at the competitive cost of $220/oz, well below world prices.

Foreign companies are also rushing to tap Guinea's considerable and largely unused hydro-electric potential of 6,000 MW. There are already plans between Guinea and Cote d'Ivoire to create a regional energy pool which would use Ivorian natural gas and the Guinean electric power to transform both countries into the region's power houses.

At the moment, Guinea's installed capacity is only 245 MW, about 4% of the potential. But output should increase soon. In 1999, the Garafiri power dam (75 MW) will become operational. Hydro-Afrique of South Africa recently signed a BOT agreement with the government to build a 45 MW hydroelectric power dam on the river Cogon, at an estimated cost of $187m. It should enable Guinea to export energy to Guinea-Bissau, Gambia and Senegal. Meanwhile, the Canadian constructor SNC-Lavallin is carrying out a feasibility study for a 90 MW hydroelectric power dam on the Niandan river.

The government, which has already allowed private companies to operate in the energy sector, is planning to totally liberalise the sector. By mid-November last year, it had signed contracts with the Banque Nationale de Paris and SNC-Lavallin to issue tenders for the privatisation of the ENELGUI and SOGEL parastatals which own and operate the state-owned network.