A coup which took place in a coastal country in West Africa may hit closer to home than
you think - with your favorite smartphone and even power lines potentially affected.
Why? These items all contain aluminum, and the world’s primary source of aluminum is
bauxite ore.
And it so happens that Guinea, the country where this coup occurred, has the world’s
largest reserves of bauxite.
After years of stability under the previous regime, for the first time really since Guinea's
independence, all of that certainty, all of that stability, that predictability of the
market was suddenly removed, and aluminum prices spiked to 13-year highs.
The main concerns were around whether the interim regime would raise taxes,
whether there would be contract renegotiations with mining firms.
And in a worst-case scenario, commercially, whether renationalization was on the cards.
On the morning of September 5th, 2021, gunshots broke out in Guinea’s capital, Conakry.
Soldiers from the country’s special forces had ousted
president Alpha Conde, citing corruption as their motivation.
In the process, the coup disrupted nearly
a decade of political stability in the mineral-rich nation.
Days after, prices of aluminum spiked to a 10-year high on the London Metal Exchange.
Markets were rattled by the possible disruption to global supply chains.
With these international networks already in crisis, what does this latest blow mean
for consumers and businesses around the world?
To better understand the impact of the coup and the significance of Guinea’s resources,
I called up CNBC’s Global Markets reporter, Elliot Smith.
Hi Elliot.
Hi Timo.
So, Elliot. Tell me the role this country
of just 13.1 million people plays on the global stage.
So, for a country of 13 million people, Guinea has a disproportionate impact on the global
supply chain in that regard.
Mining accounts for about 35% of Guinea's GDP. Guinea actually hosts 7.4 billion tons of bauxite.
It's about a quarter of the world's total content.
And then we look at iron ore. In the southeast, Guinea’s Simandou region is about 110 kilometers
and is host to one of the largest untapped iron ore reserves in the world.
The key thing about this iron ore reserve though is that it is over 65% iron content.
However, much of these reserves remain untapped
because of the country’s history of political instability.
So, Elliot, how has the country's past contributed to this moment in time?
Since Guinea gained independence from France, you've had decades of political instability.
Those post-colonial scars politically have never really been relieved and
President Alpha Conde was Guinea’s first democratically elected leader in 2010.
The stability that then ensued enabled Guinea to finally find its place in terms of trade
and to start a period of sustained economic growth.
Initially, Condé’s term appeared promising for Guinea’s economy as exports of the country’s
prized mineral, bauxite, grew.
In 2020, the West African country exported 82.4 million tons of bauxite, an increase
of more than 300% since 2015.
Under Condé, the country also maintained a trading relationship with China and Russia,
two major importers of its iron and bauxite minerals.
In fact, in 2020, Guinea’s trading bauxite relationship with both countries was worth
an estimated $26.5 billion, 35% of Guinea’s GDP.
Conde really set out when he was elected
in 2010 to give Guinea legitimacy on the world stage.
He'd spent decades fighting the previous tyrannical regimes.
He enlisted the likes of Tony Blair and George Soros as advisors
when he set out to revolutionize Guinea’s economy.
Conde built very close alliances with China, with Russia and with international bodies.
China has a pretty immense presence in the country through the Belt and Road initiative.
China is reliant on bauxite exports and iron ore projects in the country.
Russia's Rusal has three bauxite mines and an alumina refinery in the country
and accounts for about 42% of Rusal’s bauxite production.
If we look over the last five years, Guinea has consistently produced more than 5% GDP growth.
So, on a headline level, the country was heading in the right direction economically.
A lot of people were not necessarily feeling this at the ground level.
The new mining code that Conde developed was on the face of it, a reform that helps with
transparency on revenues. It aims to hold companies accountable.
And the World Bank later published a report accusing the mining code of being a front
for personal enrichment and rewards to benefactors.
So, there are two sides to this.
In 2020, Alpha Condé announced he was amending the constitution so he could pursue a third term.
This announcement disgruntled many Guineans, who did not reap the benefits of the country‘s
growing mining sector.
He had a pretty consistent record of security forces cracking down on protesters,
allegedly killing dozens in multiple instances,
especially during the protests against the third term
that he was seeking, which in itself was a radical amendment to the constitution that
the public rose up against, and they were met with bloody force.
And that was a factor that helped to rile up the resentment that galvanized
the public behind a military overthrow if that was what was necessary.
When news of this coup broke, it sent ripples through the rest of the world.
Prices of aluminum reached $2,776 per ton.
The coup’s leader and interim president, 41-year-old Colonel Mamady Doumbouya,
tried to insulate the mining industry from the destabilization brought on by the coup.
He exempted miners from a nationwide curfew his army imposed.
The rising aluminum costs have already started to hit shipbuilding and various other parts
of the manufacturing industry.
So will we see the relationship Guinea has with China and Russia change
because of this coup?
Based on some analysts that I’ve spoken to it wouldn't necessarily be in China or
Russia's interest to go any further than they have already done, which is,
they’ve both denounced the coup but as far as imposing sanctions or do anything to jeopardize
the relationship with the current interim administration, it wouldn't suit China or
Russia's commercial interests to distance themselves too much.
One of the main concerns analysts believe Beijing will have is if the supply chain is
affected in a sustained fashion from Guinea, then Australia is the main alternative.
And given the sort of frosty relations between Beijing and Canberra, in the light of the
cyber-attack allegations, and, months and months of wrangling over trade deals,
that increased reliance in Australia is probably not something that Beijing is going to want
to pursue unless it's an absolute last resort.
The military has promised to rewrite the constitution,
form a transitional government
and leave power by March 2023. But will it stay true to its word?
Some think that we can't really do anything but take Colonel Doumbouya and the military
leaders at their word at the moment.
They’re saying the right things and they are actioning them in the short term.
If the junta doesn't stay true to its word, what impacts on the global markets could we see?
I think that's when to paraphrase Bad Boys: Things get real.
So far, the only sanctions have come from ECOWAS, the regional body
against the coup leaders themselves. ECOWAS is demanding
a return to civilian rule within six months.
The return to constitutional order is not forthcoming, there will be extreme
concerns about the power that has given
the unconstitutional way in which power was seized,
that also whether international sanctions will come
from other countries, from trading partners.
And that's when you start to see a bite on supply chains.
One of analysts’ key concerns are the social and economic grievances that provide a fertile
ground for this coup won’t go away overnight.
Obviously, the junta has promised radical reforms, elimination of corruption, filtration
of the economic benefits of the mining industry to the wider public.
If they don't deliver on those promises quickly, or if
they don't deliver on the promise of civilian rule quickly,
the risk of social unrest spiking again, and jeopardizing economic stability
is higher than it was before the coup happened.