VZCZCXRO3238
PP RUEHPA
DE RUEHDK #0831/01 0951531
ZNY CCCCC ZZH
P 051531Z APR 06
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 4761
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEHBR/AMEMBASSY BRASILIA PRIORITY 0168
RUEHLC/AMEMBASSY LIBREVILLE PRIORITY 0864
RUEHLI/AMEMBASSY LISBON PRIORITY 0717
RUEHLU/AMEMBASSY LUANDA PRIORITY 0371
RUEHTO/AMEMBASSY MAPUTO PRIORITY 0404
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 DAKAR 000831 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR AF/EPS, EB/IFD/ODA AND AF/W 
TREASURY FOR SONJA RENANDER 
 
E.O. 12958: DECL: 04/05/2016 
TAGS: ECON EFIN EAGR EINV MARR PU
SUBJECT: GUINEA-BISSU,S ECONOMY IS GROWING DESPITE WEIGHT 
OF MILITAR AND CIVIL SERVANT SALARIES; WILL OIL TRANSFORM 
T? 
 
 
Classified By: CDA Robert P. Jackson for reaons 1.4 (b) and (d). 
 
¶1.  (C) SUMMARY: American and British oil companies have 
drilled two exploraory oil wells in shallow Bissau-Guinean 
waters; wo more will be drilled by the end of 2006.  If oi 
is found, it could transform Guinea-Bissau,s agiculturally 
based economy.  The GOGB is optimistic, and President Vieira 
asked Charge and PolOff for U.S. advice on managing potential 
oil wealth.  The IMF and World Bank project real GDP growth 
of 4.2 percent in 2006, with cashew production reaching 
120,000 tons.  Two donors meetings are planned for 2006. 
Investment in industry and tourism could have a significant 
long-term impact, but continued political stability is 
critical to Guinea-Bissau,s economic prospects.  END 
SUMMARY. 
 
¶2.  (C) On March 29, Charge and PolOff attended the joint 
International Monetary Fund (IMF)/World Bank debrief on 
Guinea-Bissau,s economy.  The joint IFI team concluded that 
the economy grew 3.5 percent in real terms in 2005, 
principally due to growth in the agricultural sector.  Growth 
could reach 4.2 percent in 2006, but a lack of investment, 
especially in industry and tourism, continues to restrain the 
economy.  Inflation was 3.4 percent in 2005, mainly due to 
imports.  Exports were up and receipts were up.  IMF ResRep 
Ousmane Dore expressed concern about government borrowing 
from banks to pay salaries.  The deficit declined from 15 to 
12 percent of GDP in 2005.  Internal debt amounted to about 
14 billion CFA francs (CFAF) (USD 28 million), and external 
debt, excluding debt to multilateral development banks 
equaled 8.3 billion CFAF (USD 16 million).  The team 
concluded that accounting and customs collections require 
strengthening.  The team underscored concern about 75 percent 
of the budget financing salaries, noting that 11 months of 
salary arrears from 2002 and 2003 account for over 90 percent 
of the 2006 financing gap of 14 billion CFAF (USD 28 
million).  (NOTE:  The salaries pay 12,000 civil servants and 
between 3,000 and 26,000 soldiers and sailors.  A military 
census is to be completed by June and is expected to show 
that the armed forces currently have about 4,500 men under 
arms.  END NOTE.)  The team was unable to estimate the 
budgetary impact of the March/April Bissau-Guinean Armed 
Forces attacks on Movement of Democratic Forces of the 
Casamance bases in northern Guinea-Bissau.  A mini-donors 
roundtable on the financing gap and security sector reform is 
set for May or June, and a major donors conference is planned 
for late 2006. 
 
¶3.  (U) Cashew exporters anticipate a crop of 120,000 tons in 
2006, but they worry about declining U.S. consumption, which 
has caused the world price to fall.  Other businesspeople we 
met are similarly upbeat.  All acknowledge that continued 
political stability is essential for economic growth, and 
they urged the United States to reopen its Embassy in Bissau 
as a sign of confidence in the Government and the private 
sector.  The business community also hopes that debt relief 
may be forthcoming. 
 
¶4.  (C) The big economic issue is oil exploration. 
British-owned Premier Oil and U.S.-owned Occidental Petroleum 
have drilled two exploratory off-shore wells and will drill 
two more in 2006.  They believe there is a &potential for 
large prospects.8  They will know fairly quickly whether 
they have a commercially viable project if they hit something 
big.  The big problems arise when they get a "tweener" well 
which might be viable and might not.  The area is fairly 
prospective although not nearly as good as Nigeria/Angola. 
The GOGB thinks the potential is great enough that President 
Vieira requested that we provide model legislation and 
regulations on how to manage new-found oil wealth and thus 
avoid some of the mistakes that other countries have made. 
The Embassy has requested information from the World Bank 
Institute and would welcome the Department,s suggestions. 
 
¶5.  (C) COMMENT: Petroleum could have an enormous impact of 
Guinea-Bissau,s economy )- just as it has had on Chad, 
Cameroon, Equatorial Guinea and Sao Tome and Principe,s in 
recent years.  The good news is that it may not only be there 
but that the GOGB is seriously thinking about how to manage 
it.  Before everyone starts jumping for joy, however, oil 
experts tell us that following a viable offshore discovery, 
 
DAKAR 00000831  002 OF 002 
 
 
it can take four or more years to install production 
facilities.  In fact, in a place like Guinea-Bissau, it could 
take a lot longer as there is no really usable infrastructure 
to support a deepwater operation.  END COMMENT. 
JACKSON