Foreign Direct Investment (FDI), Trade and Its Contribution to the Mining Sector of Guinea

In order to objectively analyze Foreign Direct Investment (FDI) contribution to Guinea’s mining sector, the granger casualty test was used to determine the relationship among variables and to determine whether any of these variables affect others and how. The variables used are Gross Domestic Product, Government Income, Trade, FDI inflow into Guinea mining sector and the exchange rate. The granger casualty test produced evidence of a bidirectional casualty relationship which suggests that FDI’s influence on efficiency lies in the government relaxing its dependency on the mining industry for economic growth.


INTRODUCTION
Guinea is one of the richest countries in West Africa in terms of its mineral resources.Around one third of the world's reserves of bauxite are found in Guinea.
The economy relies heavily on the Mining sector as this attracts major foreign investment.

OVERVIEW OF GUINEA MINING SECTOR
The mining sector in Guinea contributes around 25% of the country's income, with bauxite production by far the most important contributor.
It is estimated that Guinea contains an estimated 24% of global bauxite reserves.Guinea accounts for 94% of Africa's bauxite production.Bauxite accounts for 20% of Guinea's GDP and 90% of exports.Gold and diamonds are also major export products.Although Guinea has significant commodity reserves, the country has been poorly explored and future potential exists for gold, base metals, iron ore and diamonds.
Guinea is underlain by the extensive Archaean West African craton.

LITERATURE REVIEW
In Guinea the Mining sector is still the most important of the Government Economy.FDI is one of only a handful of mining companies to have successfully commercially mined the ocean.Gold and Diamond Fields' strategy has capitalized on that experience to target, obtain and develop promising marine mineral prospects such as Guinea Conakry West Africa.Soon it became the most important sector in the mining industry.
Policies target at improving funding either through public sector or private sector investment will not help to meet the mining sector needs of the ever-bulging populace but also help socio-economic problems that come with such increase, one of which for example is unemployment in Guinea.
However, Guinea remains involved in two of the stages in the bauxite to aluminum chain, namely bauxite mining and alumina refining.During the period 1987-90, real growth in the mining sector averaged 5.7 per cent annually, compared with GDP growth of 4.1 per cent(Economist Intelligence Unit,1995b:20).
Therefore, the foundation of national wealth is essentially the mining sector.Development on how the mining sector can best contribute to overall economic growth and modernization must be explored.The mining sector has the potential to be the industrial and economic catalyst from which a country's development can take off.Ayanwale (2007) argued that most countries strive to attract FDI because of its acknowledged advantages as a tool of economic development.Africa and Guinea in particular joined the rest of the world in seeking FDI as evidenced by the formation of the New Partnership for Africa's Development (GEPAD), which has the attraction of foreign investment to Africa as a major component.
Improved research interest in FDI stems from the change of perspectives among developing countries.An important aspect of international economic integration is the larger role of foreign direct investment (FDI) in different economies.

RESEARCH METHODOLOGIES 1. Research design
The econometric model used to examine this study is Gross Domestic Product (GDP) as a dependent variable and Foreign Direct Investment (FDI), Government Income (GOVI), Trade volume (TRV), Exchange Rate(ER) as independent variables.

Granger Causality Test
Granger causality test was conducted to identify causal relationship between the variables Gross Domestic Product, Government Income, Trade, FDI inflow into Guinea mining sector, Exchange rate, and to determine whether the current lagged values of one variable affect another.The granger test may be explained with the help of the following equations.
Bidirectional causality exists if the null hypothesis, that Xt does not strictly Granger-cause Yt, is also rejected.

Modelspecification
The model estimation will be done through the use of the ordinary method of estimation.GDPt= f (GOVI, FDI, TRV, ER,) significant at all conventional levels of significance.We can therefore rejectthe null hypothesis and acceptthe alternative hypothesis.

Table 3 GrangerCausality Results
Finding: FDI does not Granger Cause GDPand interchangeably GDPdoes not Granger Cause FDI.However there is a unidirectional relationship between the two variables which means the causal relationship between them (FDI>GDP) signifies FDI has improved the country's productivity which affected rapidGDP growth.
Furthermore, the results indicate that the variable trade volume TRV does not Granger Cause FDI.However, FDI Granger Cause TRVwhich means that they are unidirectional between the two variables,which mean that there is an improvement of the mining trade system to attract more foreign direct investment to the sector.However, with inefficient policies and political instability,private investment and investment in research and development are strugglingin the sector.Boosting local economic growth in mining and other sectorswill only be profitable if the government is able to access new technologies to assist inattracting FDI and improvingR&D investment.
The result shows that Exchange rate EXR Granger causes GDP whileGDP doesnot cause Exchange rate EXR.This indicates there is a bidirectional causality relationship which means they are statistically significant in explaining changes in the economic growth of the country due to the fact that exchange rate plays a significant role in determining the import and export in the country.

CONCLUSION AND POLICIES RECOMMENDATION
In this research on Foreign Direct Investment (FDI), Trade and its Contribution to Guinea's Mining sector our investigation indicates there is a bidirectional causality relationship which means they are statistically significant in explaining changes in the economic growth of the country due to the fact that exchange rate plays a significant role in determining the import and export in the country.
Therefore, in orderto attract FDI that improves efficiencyin the mining sector; the government should prioritize the sector and reduce itsdependence to grow the economy.Macroeconomic stability must be ensured and distinct, it should also be predictable and have an "easy-to-access" policy environment inclusive ofincentives.There is also the need to improve infrastructural development especially in both primary and secondary infrastructures and this investment will lead to higher productivity which in turn increasesproductivity and improves efficiency in all sectors of the economy.This creates a multiplier effect which stimulates job creation, economic growth, productivity national welfare and investment and functional development.
Thus, we conclude that if Guinea wants to increase the mining production itis imperative to develop effectiveFDI policies .However, the expansion of agricultural production, reduction in reliance of import, and attainment of food security requires capital, energy, technology, and international business connections.This is the second list of factors that Guinea is lacking, but FDI can serve as a channel to supply such inputs.
1)Government should seek additional FDI forthe Mining sector since the success of the sector is essential to the attainment of trueeconomicstability 2) Factors such as foreign ownership restrictions and multiple corporate taxes that discourage Foreigninvestorsshould be reviewed and addressed.
3) Government should not just focus on attracting FDI to the sector but on attracting the type of FDI that seeks to enhance the capacity of investment.
4) The Government of Guinea must further target specific types of FDI that are able to generate spillover effects in the entire value chain of the Mining sector and by extension the overall economy.