Guinea - Survey of the public enterprise sector

Report No. 304b-GUI Revolutionary People's Republic of Guinea Survey of the Public Enterprise Sector July 20, 1981 Programs Department Flit C4of West Africa Region FILE FOR OFFICIAL USE ONLY Document of the Wo$d Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency unit = Syli (GS) US$1 = Sylis 18.73 Syli 1 = US$0.053 GLOSSARY OF ABBREVIATIONS BGCE Banque Guineenne du Commerce Exterieur BNDA Banque Nationale de Developpement Agricole CMD Construction Metallique de Dixinn CTS Complexe Textile de Sanoya DEG Entreprise Nationale de Distribution d-Eau de Guinee ENTA Entreprise Nationale des Tabacs et Allumettes ERCs Entreprises Regionales de Commerce MPS Ministry of Plan and Statistics MSC Ministry of State Control OBK Office des Bauxites de Kindia OCAM Organisation Commune Africaine Malgache et Mauricienne OCOFI Office de Coordination Financiere de l'Industrie PRL Pouvoir Revolutionnaire Local SNE Societe Nationale d'Electricite UOA Usine d-Oxygene et dAcetylene FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY GUINEA SURVEY OF THE PUBLIC ENTERPRISE SECTOR TABLE OF CONTENTS Page No. INTRODUCTORY NOTE ............................................ i-v I. INTRODUCTION .1 II. HISTORY OF PUBLIC ENTERPRISES ........................... 1 A. Situation Prior to Independence. 2 B. Tmmediate Post-Independence Period (1958-63) 2 C. The Second Development Plan (the mid-1960s to mid-1970s). 4 Dc Developments under the Third Development Plan (1973-78). 6 E. Current Approach towards Public Enterprises 7 III. POLICY AND INSTITUTIONAL FRAMEWORK. 8 A. Legal and Administrative Structure. 8 B. Accounting ......................................... 10 C. Financial Control .13 D. Personnel Policies and Practices .15 E. Marketing, Pricing and Distribution .20 F. Credit .22 G. Investment .24 H. Fiscal Policies .25 IV. PERFORMANCE OF PUBLIC ENTERPRISES .27 A. Standard Approach to Public Enterprises .27 B. Operations of Non-Financial Public Enterprises 28 C. Performance of Public Financial Institutions 35 D. Impact on Government Finances .36 This report was prepared by Myrna L. Alexander (Consultant) who visited Guinea in January/February 1980 as part of the economic mission led by Eugen Scanteie (Economist). This documrent has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Table of Contents (con't) Page No. V. THE INDUSTRIAL SECTOR: A CASE STUDY OF PUBLIC ENTERPRISES ................................... 37 A. OCOFI, the Industrial Sector Holding Company ....... 37 B. Industrial Sector Background and Performance ....... 38 C. Industrial Prospects and Investments . .............. 45 VI. ISSUES CONFRONTING THE PUBLIC ENTERPRISE SECTOR ......... 47 A. Investment Planning ................................ 48 B. Use of Foreign Exchange ............................ 48 C. Financial Systems and Control ...................... 49 D. Pricing ........................................... 50 E. Administration and Organization .... ................ 50 F. Some Long-Term Considerations ...................... 51 LIST OF ANNEXES 1. Administrative Structure 2. Comparison of Selected Accounting Definitions and Usage 3. Selected Import Tariffs 4. Operations of Non-Financial Public Enterprises a. OCOFI b. SECOFI c. COFICOM d. SECOMEX e. SERCOM f. COFI/Conakry g. IMPORTEX 5. Industrial Enterprises 6. Renovation of Industrial Enterprises 7. New Industrial Investments 8. Geographic Location of Public Enterprises in the Manufacturing Sector Bibliography  Preface This report was undertaken as part of an Economic mission to Guinea in February/March 1980, in order to give the Bank a first look into the role and position of public enterprises in Guinea-s economy, and to quantify their financial transactions with the Government. Its main findings were incorporated into the Economic Memorandum (Report No. 3150-GUI) of which this report is an annex, and discussed with the Government in June 1981. Further work on the Guinean public enterprises is projected both within the preparation and execution of a proposed first IDF project, and as general economic and sector work.   GUINEA SURVEY OF THE PUBLIC ENTERPRISE SECTOR INTRODUCTORY NOTE PURPOSE i. This work on the public enterprise sector in Guinea was commissioned by the West Africa Region of the World Bank in order to increase the Bank's understanding of the role and position of public enterprises in Guinea's economy. Its results are intended to supplement basic economic work on Guinea as well as to provide background material on the nature and operations of public enterprises. This information could be useful in the preparation of new development projects in Guinea as projects are often channelled through such organizations. ii. The report is not intended as a vehicle to judge the performance of public enterprises per se. However, in the course of the investigation several areas were identified where changes in procedures and regulations governing the operations of public enterprises could facilitate the enter- prises' operational efficiency. Further research, nevertheless, would be necessary before reaching any conclusive judgments on the sector's perfor- mance. ORGANIZATION iii. The report is divided into five principal chapters. Although the World Bank has participated in the financing of development projects in Guinea over the past several years, little knowledge is presently retained by Bank sources--at least what information is available does not deal with the sector in a comprehensive manner--on the institutional framework of the public enterprise sector. As a result, the report attempts in one of the early chapters to lay out a brief description of the major administrative policies and regulations affecting public enterprises in Guinea. Furthermore, since the sector's development has taken a number of twists and turns that provide an interesting perspective on the present situation, a chapter of the report outlines the sector's history since Guinea's Independence in 1958. iv. These first two chapters provide the background for the third chapter which contains the report's main conclusions. The primary objective of the work was to assess the contribution of the public enterprises to Government finances by measuring the financial flows between Government and the enterprises. This was done for the period 1976 to 1979 for the sector as a whole and for groupings of enterprises organized by type of activity under holding companies. Because of the Bank's special interest in the industrial sector, the financial results of the industrial enterprises were analyzed in a separate chapter.  - ii - v. The report's final chapter presents recommendations for changes in the sector's procedures and regulations, and suggests possible areas for more intensive investigation by Guinean authorities. HIGHLIGHTS vi. There are over 180 public enterprises in Guinea which are adminis- tered by six holding companies. Few enterprises exist outside this system of control. In addition, Government has developed comprehensive policies and regulations which govern practically all aspects of managing an enterprise in Guinea - investment, credit, personnel, prices, marketing and distribution. vii. In large part, Guinea's public enterprise sector does not differ greatly in terms of its performance, problems and prospects from those opera- tions seen in other West African countries. Public enterprises in Guinea, however, have an overwhelming presence: they account for about 75 percent of modern sector employment which is estimated at over 100,000 persons. 92 percent of total domestic credit or about Sylis 18.8 billion goes to public enterprises. Their contribution to Guinea's GDP, which reached an estimated Sylis 29 billion in 1979, is only about 25 percent, reflecting important mining and agricultural activities in Guinea which are not part of the public enterprise sector. Industry is a small part of the economy representing about 5 percent of total GDP and is overshadowed in the public enterprise sector by the commercial enterprises which account for 18 percent of total GDP and two-thirds of GDP generated by public enterprises. viii. Financial Results. The best financial results in the public enterprise sector have been achieved by the commercial enterprises - IMPORTEX which is Government's monopoly for the import and export of goods in Guinea and to a lesser extent the wholesale distribution chain of enterprises. Together these enterprises account for about 75 percent of the sector's total profits. IMPORTEX alone is estimated to account for about half of the annual profits. The results for other enterprises have been modest. The retail distribution chain appears to have the most serious financial problems as evidenced in a high build-up of stock, recourse to the domestic banking system, and extraordinary grants by Government to cover losses. Financial performance by the industrial enterprises has been deteriorating as capacity utilization has fallen and a number of enterprises are operating at much reduced levels while undergoing renovation. ix. In total, sales by public enterprises in 1979 reached about Sylis 24.6 billion (on an unconsolidated basis) on which an operating surplus of Sylis 4.5 billion was earned. Over the four year period, the operating surplus has averaged Sylis 4.4 billion. Government receives an average of Sylis 4.2 billion per year from the enterprises of which income tax repre- sents Sylis 1.2 billion and the transfer of profits and depreciation in lieu of dividends Sylis 3.0 billion. Profits over the years, while remaining stable in absolute terms, have declined as a percentage of sales from 18 percent in 1976 to 10 percent in 1979.  - iii - x. Net Contribution to Government Finances. One of the most signifi- cant conclusions of the report is that public enterprises in Guinea do indeed make a substantial contribution to Government finances. The payment of taxes and the transfer of profits and depreciation to Government far outweigh what Government provides the enterprises in terms of debt service, subsidies and capital grants. On one hand this result is not surprising in view of the pervasive presence of public enterprises in Guinea. What may be unexpected is the magnitude of the net contribution to Government, especially since public enterprises can give outside observers the impression of low productivity. Moreover, enterprises operate under less than ideal conditions - the general level of infrastructure is poor and Government is continually faced with a shortage of foreign exchange for parts and needed inputs. xi. Over the four year period, the net contribution to Government was estimated at Sylis 12.2 billion and was positive in each year except 1979 due to an extraordinary grant of Sylis 6.2 billion to the enterprises to permit enterprises to repay debts to the domestic banking system. The report itself does not weigh this contribution relative to that made by other sectors: that is done in the Country Economic Memorandum. xii. While the results contained in the report and summarized above are certainly indicative of the magnitude of the financial flows between Govern- ment and the enterprises, the information on which these results are based is riddled with errors, omissions and inconsistencies. First is the definition of public enterprise: certain activities not considered enterprises in Guinea but which fit the formal definition of public enterprise have been excluded. Second, financial accounts could not be consolidated to eliminate inter-company sales; hence sales and expenses are inflated. Moreover, differing accounting definitions and practices limit the way in which accounts could be broken down. Errors in the data due to weaknesses in collection and verification of accounts further cast doubt on the reliability of the data. Only rough estimates were possible for certain accounts such as credit by enterprise, investment (especially self-financed) and inventory changes. Finally, finan- cial statements for one extremely important enterprise--IMORTEX--were not made available directly from the primary source and only incomplete information could be collected. PROBLEMS AND ISSUES FACING THE SECTOR xiii. The substantial contribution to Government finances made by the public enterprises has not been without its costs to Guinea's economy although these costs can be hidden and not captured in the financial flows between Government and the enterprises. The large profits generated by the trading enterprises are attributable to their preferential access to scarce foreign exchange with which they can import goods for resale largely to urban con- sumers. Hence, there is a transfer of real income from mining and agriculture to the urban populace. Domestic pricing policies on agricultural produce leave little incentive to rural producers who are furthermore discriminated against in their access to consumer goods. By requiring enterprises to transfer their internally generated funds each year, Government drains  - iv - enterprises of cash which together with a foreign exchange constraint ulti- mately results in low levels replacement investment. Government's investment in enterprises for fixed assets hardly keeps pace with accounting measures of depreciation let alone the economic depreciation of capital goods. As a result, Government is effectively decapitalizing its enterprises which re- inforces the conclusion that Government actions demonstrate a pronounced propensity to consume rather than invest for future benefits. Moreover, the private sector in Guinea which may possess a greater tendency to reinvest its profits is often squeezed out of the market for scarce factors of production-- especially credit and foreign exchange--and its investment also remains limited. xiv. Despite the considerable profits generated by the public enter- prises, there are a number of deficiencies within the system that Government should address in order to improve the enterprises- operational efficiency. Briefly, these are: - Investment planning and the selection of investments to ensure that enterprises can be financially and technically viable. - Use of foreign exchange to remove the high uncertainty now confront- ing enterprises, to ensure coordination between production and financial targets and import allocations, and to incorporate the needs of new investments both for capital imports and operational inputs. - Updating the national accounting plan to incorporate features such as cost accounting, perpetual inventory control and value-added as well as increase standardization and upgrade verification of accounts. - Delegation of greater operational authority to enterprises for working capital, replacement investment and maintenance at the same time as instilling greater financial discipline by requiring enter- prises to generate sufficient cash to cover debt service. - Instituting a more flexible system for fixing prices than now exists so that enterprises can obtain price changes when justified. XV. Government could also take appropriate steps to eliminate some of the administrative confusion that presently exists in the public enterprise sector. Areas that are discussed in the report include the status of long- term credit to now defunct enterprises, the reporting relationships with ministries of tutelle (for example, the public utilities through OCOFI to the Ministry of Energy or Industry), the confusion over financial autonomy and conflicting legislation, and the lack of jurisdiction over certain activities such as IMPORTEX which is not audited and hotels which are not considered public enterprises. An examination of the portfolios of the holding companies might also be warranted in order to achieve greater homogeneity among the groupings: for example, not all industrial activities are under OCOFI, the industrial holding company.  -v- xvi. On the longer term, Government may wish to examine in more depth issues which have a farreaching effect on the public enterprise sector. For example, if Government is successful in attracting greater private investment to Guinea, an important area to review would be the relationship between public enterprises and private enterprises, especially if they are to compete in the same types of activities. Existing procedures governing the allocation of resources may need to be amended to permit greater participation of private interests. The degree of domestic protection warranted by local producers and the extent to which Government can employ prices, tariffs and taxes to incite local production is another area which could be useful to examine. Finally, the questions of employment, income distribution, management and training and their effects on the operations of public enterprises also deserve attention as these practices can seriously impair the enterprises' efficiency, yet there is a need to provide gainful employment for the populace. NEXT STEPS xvii. This report on the public enterprise sector is in essence a first attempt by the World Bank to enlarge its knowledge and understanding of one of the most important sectors in Guinea's economy. To improve on the work done to date, the next steps should be to update information for 1979 since the data collected were prior to the National Economic Conference when accounts were not yet in their final form, and at the same time concentrate efforts to fill in the information gaps, notably on IMPORTEX, inventories, credit by enterprise and investment. The quality of the information could be improved by consolidating accounts, reconciling various sources and adjusting for accounting difference. Ultimately, work should be directed to eliminating distortions in the pricing of factors of production--especially foreign exchange--so that an economic assessment could be made of the contribution by the sector as well as an assessment of its contribution in financial terms.   I. INTRODUCTION 1.01 Outside of subsistence agriculture and the mining sector which is predominantly jointly owned by Guinea and foreign private interests, Guinea's economy is virtually under the direct control of Government. Public enter- prises which now number over 180 exist in every sector and range from state farms to retail outlets for consumer goods. They account for about 75 percent of total modern sector employment, the next largest employer being Government services, and represent an estimated 25 percent of gross domestic product. As shown in the report, they contribute substantially to Government revenues. Public enterprises, furthermore, account for over 90 percent of domestic credit outstanding to the economy. Their preponderance in the economy is somewhat diminished if the very active commercial market which thrives outside official Government control is taken into account. However, accurate statistics measuring these activities are lacking so no comparison can be made between the contribution made by public enterprises with that of the parallel market. 1.02 Although few in numbers, mixed enterprises in which Government's ownership is less than 50 percent also play a key role in Guinea's economy, particularly in the mining sector. Joint Government/foreign companies exist as well in agriculture, agro-processing and transportation. There are about two dozen mixed enterprises now established in Guinea. Private enterprises which have continued to exist although on a much diminished scale in Guinea since independence are few and moreover are usually small-scale undertakings: there are about 30 private industrial enterprises and an equal number of commercial/trading companies. However, total employment in private enter- prises is probably not more than several thousand out of total modern sector employment of over one hundred thousand. 1.03 Guinea's highly centralized system of public enterprises has fea- tures unique to West Africa. The system is comprehensive--few public enter- prises escape control and regulation, and its principles of financial control and auditing are sound. There are problems, nevertheless. Public enterprises suffer from chronic shortages of foreign exchange; many are technically and physically obsolete. Output varies in quality and enjoys poor consumer acceptance leading to large buildup of stocks. Employee motivation and productivity are low, manifested in absenteeism, corruption and diversion of resources for personal gain. The system of day-to-day control by central agencies may not permit managers to react swiftly, hampering efficiency. On the longer term, public enterprises must become more efficient to compete with local private concerns and imported goods. II. HISTORY OF PUBLIC ENTERPRISES 2.01 Public enterprises came into being early in the post-Independence period. Following Independence in 1958, Guinea embarked on a campaign to eliminate all vestiges of the colonial era by taking over key sectors of the economy. Conversion to a socialist state in which public enterprises were to be the cornerstone of the state's intervention in the economy was swift and precipitated not only by political motives but by the need to fill the vacuum left by the abrupt departure of foreign advisors and businessmen  - 2 - when official and commercial ties were broken with France shortly after Independence. In doing so, considerable strain was placed on the fledgling Government's administrative and technical skills. Even now, after twenty years of independence, Guinea is still grappling with problems whose roots lie with its early efforts to nationalize the economy. Evidence of the initial disruption can be seen in the history of Guinea-s public enterprises: there were frequent changes in structure and nomenclature, erratic fluctua- tions in policy towards private enterprise, dramatic drops in output, par- ticularly agricultural products, from pre-Independence levels and the bankruptcy of significant holdings especially in the commercial sector. A. Situation Prior to Independence 2.02 In 1958, the private sector covered practically all aspects of the economy; moreover, most activities were foreign owned and managed. In agri- culture, over half of Guinea-s plantations which generated most agricultural exports were in foreign hands. Commercial life was virtually monopolized by subsidiaries of a few, very large foreign firms such as the French Company of West Africa (CFAO) and the Commercial Society of West Africa (SCOA) which still operate extensive commercial networks in West Africa. The commercial banking system was dominated by five French-owned banks (Credit Lyonnais, Societe Generale, BNCI, Banque Commerciale Africaine and Banque de lAfrique Occidentale). The insurance industry was also French owned. In the industrial sector, although small with unimportant output, foreign owned and managed firms predominated. The sector, at this point, consisted of two breweries, two construction firms and a number of small factories producing soap, coffee, food products, explosives, paint, plastics and soft drinks. Guineas first functioning bauxite mine was privately owned by foreign interests as were smaller diamond, iron ore, and bauxite mines. A similar situation was faced in the transport sector: major activities such as shipping, rail and air transport were handled by foreign concerns. B. The Immediate Post-Independence Period (1958-63) 2.03 The general framework for developing Guinea-s economy took shape in the first two years after Independence during which time the basic economic philosophy which Guinea was to follow was articulated. According to the first development plan (1960-63), Guinea's first priority after Independence was to exert control over pivotal sectors of the economy, such as banking and com- merce. This was to be achieved either through nationalization of existing, largely foreign-owned enterprises or through regulation of private firms. 2.04 One of the first targets was the commercial sector in hope of tapping large trading profits which had formerly accrued to private interests and channelling these funds to finance development efforts. Although not nationalized outright, the private trading companies were effectively forced out of the market by the Comptoir Guineen du Commerce Exterieur, initially created in 1959 to develop diversified trade relations with Socialist coun- tries, and its domestic counterpart created in 1960. These two enterprises were given monopoly rights to import essential commodities such as rice, sugar, flour and cement and to handle export and wholesale trade. Furthermore,  -3 - private enterprises were not allowed to have branches outside their head office which left up-country, semi-retail trade exclusively to regional comptoirs. Unable to repatriate profits, and furthermore required to shift their headquarters to Guinea, most large firms quietly withdrew from Guinea, leaving their facilities to be rented or sold to Government. 1/ Some small foreign traders stayed on to continue their retail operations in Conakry, but also diversified into industries and plantations (see para. 2.09). At this point, semi-retail and retail trade was still left largely in the hands of private traders although model retail stores offered goods at official prices and production and sales cooperatives were allotted the major role in distri- buting merchandise and selling produce at the village level. 2.05 These first attempts to restructure the commercial sector resulted in havoc. The two comptoirs were abolished in September 1961 and replaced by a number of decentralized companies which were to import or export exclusively particular commodities and goods. This system was shelved for a brief inter- val in 1963/64 when individuals were permitted to import, and state retail stores were turn over to consumer cooperatives and individuals. This experi- ment with private trading produced equally disastrous results and it quickly came to an end in November 1964 with the passing of the Loi-Cadre which reduced the number of licensed private traders to 80 percent of the the former level, set up a commission to control prices, and further prohibited civil servants and anyone else who had not been a trader before 1963 from trading. 2.06 The commercial banks were the next important targets for nationali- zation. Again, they were not nationalized outright except in one case. Four of the five foreign banks had their licenses revoked and ceased operation in August 1960. Liquidation of their assets was relatively simple since, as branches of foreign based banks, no foreign assets were involved and domestic assets were offset by liabilities to the Central Bank. The Central Bank took over all assets and carried out commercial banking functions through the existing branch network until the three specialized publicly-owned banks--Banque Nationale de Developpement Agricole (BNDA), Banque Guineenne du Commerce Exterieur (BGCE) and Credit National pour le Commerce, l'Industrie et l'Habitat--were created in 1961. The fifth bank continued to operate until Government was able to settle its own accounts with that bank and nationalized it in 1962. 2.07 In the transport sector, major activities were also taken over by, or established as, public enterprises. Air Guinea was created in 1960, to provide international air service after Guinea was no longer serviced by French airlines. Maritime transport and road transport became the monopoly of ENTRAT, created in 1962, although most large enterprises still had their own trucks or else used small, private truckers who continued to operate. A publicly-owned urban transport network (TUC) was established in Conakry in L959. The railway became a public enterprise and was subsequently linked with road transport as one company, Railroute. This company was later split in 1975, once again into a national trucking system, COTRA, which has seven regional subsidiaries and the railway now called OFERGUI. In the meantime, ENTRAT became responsible for only maritime handling operations. 1/ The exact terms of Guinea's nationalization are not known.  -4- 2.08 In the mining and industrial sectors, the water and electricity companies were the first to be nationalized in early 1961, followed by diamond and gold mines and the, bauxite mining concessions by the end of 1961. It is noteworthy that Government did not pursue nationalization of the other existing industries in this early period. Instead, it embarked on a large program of public investment in new industries as part of its first develop- ment plan, often with the technical and financial support of centrally planned economies such as the USSR, Yugoslavia and China and the support of Great Britain and the USA. Private investment was not discouraged in this period. Private industries continued to operate and even to expand: several new enterprises were created in the early 1960s so that by 1966 there were 27 private industries up from 19 in 1964. In fact, private enterprises outnum- bered public enterprises in 1966 although they were generally smaller and counted for less than half of industrial employment. 2.09 The agriculture sector was not one of the main focusses of Govern- ment's attention as far as public enterprises are concerned. The over- whelming majority of farmers were and still are smallholders with the exception of a relatively small number of plantation owners. At Indepen- dence foreign plantations were very important producers of bananas for export; however, most foreigners left Guinea shortly thereafter, abandoning their plantations. After a lapse of some years, most of these plantations were either occupied by Guineans or by foreign residents who remained in Guinea. Most shifted production to pineapples from bananas. Other plan- tations were taken over by the military to provide its own provisions and a few were incorporated into agro-industrial enterprises. Some remained abandoned. Only a small number of new public enterprises have actually been created in the agriculture sector, including three state farms for livestock development, two research stations, meat processing, fishing and forestry enterprises. C. The Second Development Plan (1964-71) 2.10 Once the pattern of public ownership was established in Guinea in the first few years after Independence, the next ten years under the second development plan saw Government consolidate and further expand its system of public enterprises. These efforts brought the total number of public enterprises to about 125 in 1975, up from 20 in 1960 and 70 in 1973. The largest expansion was seen in the commercial and industrial sectors where major efforts were devoted to creating a strong industrial base in Guinea. Also in this period, Government took additional steps to institute control over, and regulate the operations of, the public enterprises with the estab- lishment of the Ministry of Financial Control, now called the Ministry of State Control (para. 3.20) in 1967. The purpose of this ministry was to exert external control through budgetary and auditing measures. 2.11 In the commercial sector, the state monopoly over external trade, re-established in 1964 after the brief experience with private traders, prevailed for about the next ten years until the creation of IMPORTEX (para. 2.17). The import and wholesale distribution of goods whether imported  -5- or domestically produced became the responsibility of 13 national enter- prises 1/ specialized by commodity or product type, under the tutelle of the Ministry of Commerce. In addition, there was an enterprise, PHARMAGUIE, especially for the import and distribution of pharmaceutical goods under the Ministry of Health and similarly AGRIMA, for agricultural equipment under the Ministry of Agriculture. Semi-retail trade was handled by state-owned general stores (the former regional comptoirs) except in Conakry where several large multipurpose department stores existed. Retail outlets outside of Conakry consisted of state stores plus specialized retail outlets for gasoline and petroleum products (ONAH, which took over the retail distribution networks of large petroleum companies such as Shell and Total in 1969), and outlets for PHARMAGUIE and AGRIMA.. Over time, the number of specialized wholesale companies increased from a total of 15 in 1964 to 24 in 1978. Regional semi-retail outlets were also expanded to 32, one in each administrative area. 2.12 Throughout this period, a limited number of private licensed retail traders continued to exist (para 2.05). In 1975, Government abolished entirely private trade in an effort to control prices more effectively and eliminate black market dealings which had continued to thrive despite Govern- ment control over the economy. This exacerbated shortages of consumer goods especially in the rural areas and weaken incentives for farmers to market their produce through official channels. A special import program of about US$50 million plus emergency food aid in 1976 helped to alleviate shortages in state stores for a brief period. But this effort could not be sustained and Government eventually legalized private trade once again in early 1979. 2.13 During most of the mid-1960s to early 1970s, exports with the exception of minerals were the monopoly of GUINEXPORT. It replaced PROPEX which had been liquidated in 1963 (PROPEX had in turn taken over from the comptoir exterieur, liquidated in 1961). GUINEXPORT also handled the marketing of agricultural output from farm level until 1968 when that function was transferred to a special public agency. In 1973, GUINEXPORT, along with a specialized office for exporting bana:nas, was liquidated and replaced by three specialized enterprises: PROMINEX for minerals, PROSUCO for non-perishable agricultural products (e.g., coffee, skins, timber, honey, and oil) and FRUITEX for perishable fruits and vegetables. 2.14 In the industrial sector, Government continued to pursue its policy of creating new public enterprises, especially agro-related industries such as textiles, fruit and vegetable processing, and some consumer and intermediate goods production designed for import substitution. Over the period 1964 to 1975, 19 public enterprises began operations. A few mixed enterprises were also established in this period (e.g., SOGUIFAB, SIGRA and SOMOVA). For the first time, however, Government nationalized existing I/ The 13 enterprises were ALIMAG, BATIPORT, CONFECTION, CYCLES DE GUINEE, DROGUERIE DE GUINEE, EMATEC, ENIMOB, LIBRAPORT, QUINCAILLERIE, SONATEX, TRANSMAT, DIVERMA, and ONAH.  - 6 - enterprises: at least nine firms were taken over from 1967 to 1975 including three firms that started operations after independence while the others had existed prior to 1958. A full explanation of this shift in policy is not known; at least in one case the Government's takeover was part of the original agreement with the foreign partner to repurchase the latter's equity one time. Moreover, Government controls had restricted the ability of private firms to import, set prices and to repatriate profits. It is thought that some private firms gradually no longer found it profitable to operate in Guinea and will- ingly sold their facilities to Government. 2.15 Difficulties in managing public enterprises already had surfaced by the late 1960s. Even many of the new industries, created under the first development plan, never reached normal operating capacity due to technical, supply and managerial problems. Agro-processing industries were especially hard hit as few of the new plants had an assured supply of agricultural inputs. In the planning of these ventures little consideration was given to vertical integration and, as agricultural pricing policies did not encourage smallholders to sell through official channels, firms were left without adequate supplies of fruits, vegetables, cotton, grains or tobacco. Shortages of foreign exchange developed during this period as agricultural exports fell sharply, further constraining output. It is doubtful that even existing enterprises which were taken over by Government operated efficiently as many were likely obsolete when nationalized. D. Developments under the Third Development Plan (1973-78) 2.16 In addition to continued organization changes and creation of new public enterprises, the five years under the third development plan saw two signficant developments affecting public enterprises. First was a clear declaration of Government's acceptance of mixed ventures with private, predominantly foreign partners. Even though mixed ventures have existed in the past, this move gave new impetus to foreign investment in Guinea. Its effects have been felt in the mining sector: FRIA became a mixed enterprise, FRIGUIA. In other sectors, several mixed enterprises with foreign partners were created for off-shore fishing (Holland, Kuwait, Japan), petroleum exploration (USA, Norway) and agro-industries (USA). In one case, an enter- prise was converted from wholly-Government ownership to mixed ownership (SALGUIDIA) as part of efforts to renovate the enterprise. 2.17 The other major development to affect public enterprises was the creation of sectoral holding companies. The embryo of these holding companies dates back to 1969 with the creation of the Office for Coordination of Com- merce (COFICOM), a public agency charged with the responsibility of control- ling all commercial enterprises. Pleased with the results of this experiment, Government created a second control bureau, OCOFI, in 1972 for the industrial sector, and a third, SECOFI, in 1975 for miscellaneous enterprises in agricul- ture, transportation and services. SECOMEX for the exporting enterprises was created shortly thereafter. In 1976, Government took this concept of control offices one step further by converting them from public agencies to public enterprises. The existing enterprises, in effect, became subsidiaries of  the four holding companies, although this last move was never formally carried out (para. 3.05). Also in 1976, Government created IMPORTEX, which was given the monopoly for all imports and exports. In practice, IMPORTEX has become a super holding company in the commercial sector. 2.18 The newly created holding companies were subject to recent orga- nizational changes. In 1977, Government divided COFICOM's operations into COFICOM for national wholesale activities plus retail operation in Conakry, and SERCOM for the specialized retail outlets (gasoline, drugs, agricultural equipment) plus general retail operations outside of Conakry. COFI/Conakry was subsequently created in 1978, to handle retail operations in greater Conakry leaving COFICOM exclusively with wholesale operations. E. Current Approach towards Public Enterprises 2.19 In the past few years, Guinea has taken a number of steps which indicate a liberalizing of the economy. First, Guinea has re-established commercial and diplomatic relations with its neighboring countries and major industrialized nations, such as West Germany and France, in an effort to encourage a flow of goods from these countries and to attract the foreign capital and technology necessary to give much needed external impetus to Guinea s economy. With a similar objective in mind, Guinea adopted an incen- tive code designed to encourage non-resident Guineans to set up private ventures in Guinea using the technical and managerial skills and capital that they have accumulated abroad. 1/ Most recently, Government announced its support of locally-owned, private small and medium scale enterprises in agriculture, commerce, services and manufacturing and has revised its invest- ment code to attract additional private, foreign investment in sectors such as mining, manufacturing, transport, construction and agriculture. 2/ 2.20 Where this leaves public enterprises is not clearly understood. Officials maintain that these moves do not compromise Guinea's socialist ideal nor do they diminish the role of public enterprises in the economy. It appears that public enterprises will certainly continue to exist exclusively in key sectors such as banking, public utilities and major transportation links and will still be important in commerce and industry. However, there should be ample interest by Guineans in small-scale undertakings such as food processing, transport, commerce and furniture making, where investment require- ments would not be beyond the resources of individuals. Moreover, certain areas like forestry development and agro-processing in addition to mining may also be attractive to foreign investors on their own or in partnership with Government. 1/ The number of Guineans living abroad was estimated at over 1 million in 1975. 2/ Decree 080/PRG dated March 6, 1980.  -8- III. POLICY AND INSTITUTIONAL FRAMEWORK 3.01 Concurrent with the growth in the number and scope of public enterprises in Guinea over the years since Independence, Government has developed a set of policies and administrative procedures to direct, regulate and coordinate the operations of its public enterprises. Some of these policies apply equally to private enterprises while others were designed uniquely for public enterprises. As a result, Government controls virtually every important aspect of managing the enterprises, from employment to investment, leaving individual managers little latitude in making decisions that affect day-to-day operations. 3.02 The trend over time had been towards even greater control by Government through its agents--primarily the ministries of State Control and Planning and the sectoral holding companies. With few exceptions, enter- prises no longer have direct access to liquid funds besides minor amounts of petty cash. They no longer can borrow directly either from the domestic banking system or from external sources. Expenditures above a certain amount must have a prior approval of several levels of authority. And rather than increasing the independence of enterprises, as one might expect as their managers gain more experience, Government has moved in the opposite direction tightening control, culminating in a recent decision to curtail domestic borrowing by the holding companies. 3.03 The following sections discuss broad Government policies that affect all enterprises in Guinea such as the tax code, tariff structure, and accounting system as well as specific controls instituted by Government for public enterprises over matters such as credit, investment, personnel and budgetary expenditures. It should be noted that the following discussion relates largely to what is supposed to be done by the public enterprises according to the rules and procedures as they are formally set out. Actual practice in the enterprises will no doubt differ and vary considerably among the individual enterprises. The procedures are therefore only more or less followed by the enterprises and it is difficult to generalize on the impact this will have on performance. Nevertheless, general observations can be made on technical areas such as accounting, auditing and budgetary control. Comments on management and personnel matters are more difficult to make since the investigation did not permit a first-hand acquaintance with the enter- prises: this review was confined to the central control agencies such as the Ministries of State Control and Planning and holding companies. A. Legal and Administrative Structure 3.04 The founding legislation for public enterprises in Guinea is the decree of June 27, 1960, numbered 175/PGR which defines the legal character and sets out the attributes of a typical public enterprise. Public enter- prises are subsequently created by individual decrees which refer to the typical statutes. According to the founding decree, a public enterprise  - 9 - may be industrial, agricultural or commercial in nature and is granted a civil personality in its own right, corporate status, plus financial auto- nomy. Commercial practices, accounting and civil laws that would normally apply to a private enterprise also apply to public enterprises. However, as distinct from private enterprises, public enterprises do not report to a board of directors representing shareholders but are under the general authority or tutelle of a Government ministry. According to the decree, they were technically restricted in their financial autonomy: they could not mortgage their assets without the express authority of their ministry of tutelle nor did they have the right to set prices. Moreover, depreciation was to be transferred annually as dividend payments to Government. 3.05 The founding decree has, however, been superceded by another decree issued in 1975 which set up the holding companies. This latter decree gives holding companies authority over the day-to-day operations of public enter- prises, now called subsidiaries. Public enterprises no longer had any finan- cial autonomy: all liquid assets with the exception of petty cash are managed by the holding company. Domestic debts are contracted only by the holding company. However, legislation amending the original decree in order to rescind the clause giving public enterprises financial autonomy has never been enacted. Public enterprises therefore still legally retain this autonomy even if it is just in principle. 3.06 Under the holding company structure, public enterprises are grouped by type of activity. There are currently six holding companies--COFICOM, SERCOM, COFI/Conakry, SECOMEX, SECOFI and OCOFI--supervising some 170 public enterprises. As shown below each holding company reports to a ministry of tutelle, usually the technical ministry most closely concerned with the activities of the subsidiary enterprises. For example, OCOFI, the holding company for industry reports to the Ministry of Industry although two of its subsidiaries are to report to the Ministry of Energy. Enterprises in agricul- ture, transport and services report to the Ministry of State Control instead of any one of the technical ministries.  - 10 Holding Companies Number of Ministry of Holdi4xg ComcDany Speciality Enterprises Tutelle OCOFI Industrial, energy and 38 Industry or Energy mining enterprises COFICON Specialized wholesale 24 Domestic Trade trade enterprises SERCOM Semi-retail, up-country 52 Domestic Trade trade COFI/Conakry Retail trade in Conakry 12 Domestic Trade area SECOMEX Specialized export 3 External Trade enterprises SECOFT Miscellaneous enterprises 45 State Control in agriculture, transport and service sectors plus some industries 3.07 Certain enterprises fall outside of the holding company system. IMPORTEX, for one, is treated as an independent enterprise reporting to the Ministry of External Trade. The seven financial institutions which report to the Ministry of Banks also do not nominally have a holding company although the Central Bank operates in a manner some-what similar to that of a holding company. in addition there are activities such as hotels which are not considered public enterprises even though they in large part serve the public. 3.08 A complete list of public enterprises is presented in Annex 1. B. Ac-countng 3.09 All enterprises in Guinea whether public or private are required to follow the National Accounting Plan, originally set out by decree in 1961. The Plan began as a modified version of the French National Accounting System, devised in 1947 and revised in 1957, which was in effect in Guinea prior to Independence. However, Guinea's plan has been revised several times since its creatiorn and each revision has moved it further from the French system by introduciag accounts especially designed for public enterprises and adding features unique to Guinea. Nevertheless, the Plan remains largely the same as the wrench system on which it was based. 3.10 Guinea-s Plan uses decimal codification of major accounts following double entry, accrual accounting principles which permits the creation of subaccounts as necessary. In addition, it defines relevant accounting terms,  - 11 - specifies the usage of principal accounts, stipulates required accounting forms and specifies rates of depreciation. In large part, the definition of accounts and their usage do not differ from generally accepted accounting principles. 3.11 In order to understand better Guinea's accounting system, it may be worthwhile to compare it to the general accounting plan adopted by the member states of the Organization of Africa, Malagasy and Mauritian States (OCAM) 1/ in 1970. This plan, too, is based on the French National Accounting System, and reflecting their common origins, the basic structures of the two systems are strikingly similar as shown below. Structure of Accounts OCAM's General Plan Guinea's National Plan Nature Classification Nature Classification Capital and long-term 1 Capital and long-term 1 Fixed and long-term assets 2 All assets used in production 2 (fixed, long-term, and stocks) Stocks (Inventories) 3 Third Party and Adjustment Third Party and Adjustment 3 Accounts 4 Accounts Financial Accounts 5 Financial Accounts 4 Expenses and Losses 6 Current Expenses 5 Revenues and Profits 7 Current Revenues 6 Balance Sheet, Movement 8 Profit and Loss 7 Accounts/Results of Main Operations Cost Accounts 9 3.12 The major differences in the general structure of Guinea's accounts are, first, that Guinea's national plan combines stocks with fixed and long- term assets into one classification and, second, that accounts showing move- ments in balance sheet items are not treated separately but are instead entered into the general profit and loss account. Furthermore, in Guinea's national plan, expenses are not clearly distinguished as operating and non- operating and a great number of sundry operating accounts are aggregated into exceptional profit and loss. On the other hand, the structure of OCAM's expense and revenue accounts permits the calculation of value-added by 1/ Organisation Commune Africaine, Malgache et Mauricienne.  - 12 - firms and presents a much clearer picture of the firms profitability. It also incorporates features, specifically in its inventory and cost of goods sold accounts, that facilitate the implementation of cost accounting, improved inventory control and intracompany transfer pricing which are fea- tures presently lacking in Guinea's accounting system. 3.13 Beyond the differences in the basic structure of accounts seen above, there are differences between the two systems in definitions and usage of particular accounts. A comparison of some of the most significant accounts is presented in Annex 2. As can be seen from that list, Guinea's accounting plan makes a meaningful analysis of liquidity difficult to carry out since Guinea's accounts are not grouped strictly in ascending order of liquidity. For example, long-term assets of a financial nature are included as monetary assets. And as noted earlier, operating performance is obscured by not distinguishing operating from non-operating expenses. Furthermore, revenue accounts overstate actual sales and are more akin to production accounts since they often include production for the enterprises' own account and changes in finished goods' inventory as revenues. The accrual principle is also not followed strictly--expenses that legitimately could be capitalized hardly are. Treatment given losses, subsidies, provi- sions and depreciation, moreover, tends to overstate total assets since they are maintained as capital accounts and not as contra accounts. While ad- justments can be made for these differences when comparing Guinean accounts to those in other countries, they nevertheless confuse the interpretation of accounts and distort measures of the enterprises- profitability. 3.14 The existence of holding companies introduces a unique feature to Guinea's accounting plan, and the presentation of enterprise accounts. A liaison account (account number 17) is used to link the subsidiaries' accounts with that of the holding company. The liaison account, in effect, represents total assets of the subsidiaries which in the holding company-s balance sheet is recorded as an asset, the offsetting liabilities being in large part Government contributions. Correspondingly, subsidiaries show the liaison account as a liability of their balance sheets. During consolidation of the holding company's accounts with those of its subsidiaries, the liaison account is eliminated from the consolidated balance sheet of the holding company. 3.15 Improvements to the National Accounting Plan are currently underway. Since the early 1970s, a UNDP-financed project has been assisting the Minis- try of Plan and Statistics, which has final responsibility over accounts of the public enterprises and moreover has a vested interest in receiving reli- able, uniform accounts from all enterprises in Guinea, in computerizing the National Accounting Plan and providing centralized account services for all public enterprises. First steps have already been taken to computerize certain accounting functions (e.g., invoicing of client accounts for DEG and SNE, payrolls in the Conakry area and custom duties). The focus of attention, however, has been to improve accounting procedures and presentation of accounts within the framework of the existing accounting plan and not to change the plan itself except marginally. Nevertheless, subsequent efforts  - 13 - could easily be directed to making Guinea's national plan more compatible with generally accepted systems, and adding features such as perpetual inventory control, value-added calculations and cost accounting. In fact work has started to implement cost accounting in some enterprises on a trial basis. C. Financial Control 3.16 Public enterprises in Guinea are subject to external control over all financial transactions, first, by the holding companies, and second by the ministries of tutelle (MT), Plan and Statistics (MPS) and State Control (MSC), which are Government's key institutions overseeing public enterprises. A final level of control is exercised by the President and his council of ministers on the occasion of the National Economic Conference. Budgets 3.17 The first level of a priori control is the preparation of annual operating and investment budgets. Approximately three months prior to the start of the fiscal year, each enterprise is required to submit to the holding company budgets for the coming year. In the case of investment budgets, expenditures which are to be financed directly by MPS as well as those to be self-financed are included. (para. 3.56 for a fuller discussion of the investment process.) These budgets are scrutinized by the holding company and once accepted are submitted to higher levels--MT, MPS and MSC--for approval. 3.18 While adequate to plan the current year's expenditures, the bud- gets themselves do not necessarily make good planning tools. They are usually prepared in terms of values, not quantities, and are not linked explicitly with production objectives. Nor do they specify what import licenses will be needed for raw materials and spare parts for the coming year in order to achieve the projected level of sales. Moreover, they do not uniformly break out foreign costs from local costs even for investment so that foreign exchange planning is not facilitated. Finally, annual budgets are not integrated into a system of long term planning. Expenditures 3.19 Day-to-day control over execution of the operating budget is exer- cised by the holding company and MSC. All expenditures except for minor amounts which the enterprise can make out of petty cash (e.g., the hiring of day laborers) must be submitted to the holding company which ensures that, first, the item was included in that year's budget and, second, there are adequate uncommitted funds available. Furthermore, all expenditures over Sylis 5,000 (about US$250)1/ must have the prior approval of MSC which is given 1/ This ceiling may vary by enterprise: for example, DEG has a delegated limit of Sylis 10,000.  - 14 - on a no-objection basis within 48 hours of submitting the exenditure appli- cation. With the necessary authorizations, the enterprises may go ahead with the expenditure although the actual transaction is carried out by the holding company following procedures described in subsequent sections. Auditing 3.20 MSC is the exclusive auditing agent in Guinea for all enterprises whether public or private. MSC also acts as the internal auditor for Govern- ment, controlling budgetary expenditures of national and regional governments, and verifying Government accounts. Annual audits by MSC are mandatory for all enterprises at year end except for IMPORTEX which presents its accounts directly to the National Economic Conference (para. 3.24). In addition, MSC is expected to make ad hoc inspections of enterprises accounts throughout the year in order to verify stocks, inventories and cash balances, and reports to management on any deviations and discrepancies. The frequency of these visits and the depth to which MSC actually verifies accounts rather than just certifying balances is uncertain. As inspectors, MSC agents have the legal authority to arrest any employee suspected of fraud or misuse of funds. They can also recommend directly to the President the removal of officials charged with mismanagement of state enterprises. 3.21 The thoroughness of MSC's auditing cannot be judged conclusively. On the one hand, errors and omissions have been found in enterprise accounts after MSC's audit. The audits appear perfunctory, partly due to the over- whelming work load at year-end. On the other hand, the audits done by MSC for some World Bank financed projects according to Bank guidelines have been satisfactory and, indeed, show that MSC is capable of carrying out a thorough audit with adequate time and guidelines. Improvements are probably warranted in its auditing procedures to achieve greater uniformity and accuracy in enterprise accounts, to reconcile balances between companies and with the banks, and to ensure that only transactions up to year-end are taken into account in that year-s statement. Phased scheduling of inspections and audits could also help to improve the quality of MSC-s audits. Periodic Reports 3.22 Public enterprises are required to submit periodic reports on their operations to the various control bodies. Each month an operational report is prepared, although not all enterprises do so regularly, covering areas such as production, movement of stocks, personnel, equipment and vehi- cles, budget execution and the enterprises monthly financial situation. The content of these reports varies by holding company according to the type of operations the reports are intended to cover. The holding company is responsible for reviewing the reports, reacting to unusual situations and compiling aggregate statistics for the sector. Copies of the complete report are forwarded to the ministries of tutelle while the monthly finan- cial statements are also copied to MSC and MPS. Based on the monthly balances, the holding company prepares a consolidated financial position for the sector every three months.  - 15 - 3.23 At year end, each enterprise must prepare an annual report which reviews the firm's past year's financial performance and discusses candidly its problems--financial, managerial and technical--its prospects, and the remedial action necessary in the coming year. The holding companies also prepare a similar report covering the sector's performance and presenting the consolidated financial position of its subsidiaries. These reports are distributed to the control ministries (MT, MPS, MSC) as well as the Ministry of Economic and Financial Affairs (MEFA) for discussion at the National Economic Conference. National Economic Conference 3.24 The National Economic Conference is an annual event begun in 1972 and usually held two or three months after the end of the fiscal year. Under the President's chairmanship, it is an opportunity for the management of public enterprises to air their difficulties and complaints concerning rela- tions with other enterprises and ministries. It is also a time for Government to take stock of its holdings, judge the performance of its managers, plot a course for future action, and measure success in implementing past decisions to improve performance. The actual proceedings of the Conference are viewed as an internal affair of Government and the conclusions of the Conferences are not generally made available to external organizations. 3.25 Following the Conference, during which time the financial statements of the public enterprises are vetted, the enterprise may be required to revise its accounts to settle inter-company balances and to correct errors and/or omissions identified by the Conference. The final version of the enterprise's accounts is subsequently issued by the Ministry of Plan sometime later in the year. It also happens that accounts of enterprises are rejected by MSC or are not available in time for the Conference. In these cases, MSC audits the accounts after the Conference and at a later point the final version is released. Moreover, those enterprises shut down for renovation or those under liquidation are generally not expected to produce accounts for the National Economic Conference. In general, however, coverage by the Conference has been extensive. For example, at this year's Conference, the accounts of 157 compa- nies had been accepted by MSC by mid-February for the Conference out of accounts for a total of about 180. D. Personnel Policies and Practices 3.26 With regard to personnel matters, public enterprises effectively fall under civil service jurisdiction. Only unskilled and semi-skilled workers, engaged by enterprises on a temporary basis, are outside these reg- ulations. Furthermore, working conditions of all public enterprise employees are subject to general labor regulations enforced in Guinea. Because enter- prises are bound by the civil service regulations, they exhibit some of the classic problems associated with public administrations: there are few incentives; managers can be reluctant to assume responsibility and to take initiatives; and there is a general low level of qualifications due to poor training, and protected tenure for civil servants. The situation faced in individual enterprises, however, will vary widely from this generalization.  - 16 - Payscales 3.27 The schedule of wages and salaries for all public employees is fixed by presidential decree. There are currently six levels: A and B levels are considered senior managers; C and some classes of D, middle-managers; the balance of D and E are skilled workers; and F, unskilled workers. For each level, there is a salary range, usually spanning about 10 intermediate classi- fications permitting employees to enter into a level at various points and receive periodic increments. The highest salary attainable is Sylis 15,400 per month (about US$770) for level A staff and the lowest, Sylis 1,600 per month (about US$80) for level F staff. As can be seen in the following table, the range for each level is quite broad permitting employees to remain within one level for a considerable period of time without promotion. Bi-annual increments of Sylis 200 are granted automatically to employees. The following wage schedule has replaced in July 1980 a schedule which had been in effect since 1965. Public Employee Salary Scales (Sylis: Salary per month) Level Minimum 1/ Maximum A 11,600 15,400 B 6,800 12,300 C 4,600 7,600 D 3,200 5,000 E 2,400 3,800 F 1,600 3,000 1/ Trainees receive slightly less than these amounts. In addition to a monthly salary, employees of all levels are eligible for an allowance of Sylis 94 per each child 12 years of age, up to a total of six children. The average salary including allowances in the public service and enterprises is estimated to range from about Sylis 3,300 to 3,800 per month. Senior officials are also likely to receive housing and transporta- tion allowances paid by the enterprise. Recruitment 3.28 By law, employment for all graduates having completed successfully at least 15 years of schooling is guaranteed by the Government either in Government service or in public enterprises. The responsibility for placing graduates is held jointly by the Ministries of Education and Labor which organize the annual intake and assignment of new recruits to various ministries according to the estimated manpower needs of each ministry and enterprise. New entrants complete at least one mandatory year as trainees before final placement. Generally, graduates of technical schools would qualify at levels  - 17 - of C or D (mid-manager) although some may also be taken on at the semi-skilled levels (D and E) while senior managerial ranks (levels A and B) are filled by university graduates. Promotions 3.29 Promotions from one level to the next are infrequent, determined by a competition among all those vying for promotion to the next grade and decided by the Minister of Labor. The President, however, can promote an employee without competition based on exceptional performance as demonstrated, for example, by results of an enterprise judged at -the National Economic Conference. Promotions require a presidential decree. Temporary Employment 3.30 It is possible for enterprises to engage employees on a temporary basis. This usually occurs only at the lowest grade level of unskilled workers hired at daily rates. For managerial ranks, it can only be done with the express approval of the Minister of Labor after the applicant has been tested to determine his/her education and appropriate level. This procedure would normally be restricted to non-residents wishing to work in Guinea since all Guinea graduates are guaranteed jobs in any event. After two years as a temporary employee (and if between 20 and 35 years of age) the person can be recommended to the Ministry of Labor for admission to the civil service. Transfers 3.31 Job transfers within a ministry or between enterprises under the same ministry of tutelle are relatively easy to achieve. Interministerial transfers, however, require the agreement of both ministers and finally that of the Minister of Labor. In practice, therefore, a holding company is restricted in its personnel changes to only those enterprises reporting to it. In the case of OCOFI, the industrial sector holding company, a relatively large number of surplus employees (excluding temporary unskilled laborers) resulting from the renovation of over 10 enterprises has had to be absorbed by other enterprises or maintained by the holding company until the enterprises are back in operation. Firings and Suspensions 3.32 Only under extreme circumstances can an employee be penalized by suspension or fired from his/her post. The two most common grounds are abandonment of the position for an extended period of time (if the unauthorized absence is less than one year, the employee can be suspended; after one year, he/she can be fired) and proven cases of theft or fraud. The decision to fire an employee can be taken by the relevant minister of tutelle.  - 18 - Training 1/ 3.33 Employees in public enterprises generally have low professional qualifications except at the top of the occupational ladder and in the mining industry. Organized training of skilled workers has been limited to a few big enterprises in the mining and transport sectors. Most semi-skilled workers have acquired some vocational skills through on-the-job training. However, traditional apprentice training normally provided by small-scale industrial and artisanal activities, such as mechanical workshops, carpentry and cabinetmaking, and auto mechanics slowed down during the difficult economic conditions after Independence. 3.34 For managerial and professional levels, formal training at post- secondary levels is offered at polytechnic institutes. These courses, however, concentrate heavily on the study of natural sciences, particularly related to agriculture, and teaching rather than administration and engineering. Only a relatively small number of diploma graduates are admitted to the upper, university degree cycle, which destines graduates to senior management posi- tions. In the university cycle, greater attention is paid to management, economics and law, and to engineering which represent 20 percent and 13 percent of the total enrollment respectively in 1976/77. 3.35 Vocational courses for skilled workers to occupy positions in industry, transportation and services formerly constituted a large part of Guinea's educational system. Prior to 1975 about 15,000-20,000 students were enrolled in industrial training centers. In 1975, however, Government transformed the industrial option to an agricultural one--reflecting Govern- ment priorities in agriculture but also a more realistic assessment of the eventual employment possibilities in industry--and limited industrial training to a restricted number of vocational or secondary polytechnic schools with total enrollment of about one-tenth the former level. Graduates of vocational schools would typicaly be assigned jobs in rural infrastructure, mining, transportation and industry. Tentative projections through 1995 of manpower needs and educational sector output indicate a possible shortage of skilled workers (produced by the Instituts Polytechniques Secondaires, IPS), while professional and technical level staff will be more than adequately supplied by the existing institutions. However, there is need for improvement of the training facilities as well as of the curricula used in these institutions. 2/ The first Bank-financed education project, as well as efforts of other donors such as the EEC, aim at improving and expanding training programs for industrial technicians and skilled workers. I/ This discussion is based on excerpts from the Staff Appraisal Report for the First Education Project in Guinea (report number 2025a-GUI, dated August 15, 1978) and draft education sector memorandum (dated June 8, 1976). 2/ See also UNESCO - GUINEA - Education: Priorites et Perspectives, juillet 1980.  - 19 - 3.36 The only outlet for informal training of professional levels in Guinea is the National Productivity Centre, under the Ministry of Information and Idealogy, to improve efficiency in Guinean enterprises. It offers courses open to all civil servants and public employees in accounting and management. Attendance at these courses is voluntary and free of charge. Completion of courses is viewed favourably in assessing a candidate's qualifications for promotion. Labor Relations 3.37 Prior to Independence labor unions were a decisive force in shaping Guinea's political system. In fact, the Parti Democratique de Guinee (PDG), the sole political party, had its origins in the labor movement, then led by President Sekou Toure. Unions, although they continue to exist in the form of worker organizations, play a much less active role in Guinean economic and political life having been replaced by the party structure and the merging of party and union goals. Each enterprise has a worker committee (CUP) consisting of six to seven employees elected by their co-workers. These committees oversee day-to-day employee relations, settle employee disputes and hear grievances, and serve as a communications medium between firms and political organizations. Any problem which cannot be resolved by the CUP is referred to the holding company, which attempts to settle the problem, and to higher levels of workers' organizations at arrondissement (CAT), and region (CRT), and finally national (CNTG) levels. Guinea has not had a labor strike since before Independence when prolonged labor strikes had been an effective tool in expressing Guinea's demands for Independence and forming a national con- sciousness. E. Marketing, Pricing and Distribution 3.38 Commercial relationships between enterprises follow a strict pattern. Most transactions, as shown in the following chart, are channelled from the enterprises through holding companies to IMPORTEX, which plays a crucial role in executing external purchases and in settling inter-enterprise accounts for the purchase of goods and services domestically. At each stage of a major commercial transaction, a typical enterprise is furthermore required to gain the approval of its holding company, MT and MSC. 3.39 Procedures to purchase locally are involved. First, the purchasing enterprise issues a purchase order which must be approved by the holding company in order to obtain a pro forma invoice from the selling enterprise. With the pro forma invoice, the firm then processes an order for payment which requires approval or visa by the holding company, MT and MSC. The pro forma bill and the necessary visas next are submitted to the selling enterprise which arranges delivery of the goods and prepares a final bill. Once the purchasing enterprise acknowledges receipt of the goods, the final bill is submitted to the holding company for settlement. The selling holding company, in effect, bills DMPORTEX for the amount of the sale at the ex-factory price; BGCE as IMPORTEX's banker transfers the funds from IMPORTEX's to the selling holding company's account. IMPORTEX then bills the purchasing holding company at the official selling price, the margin between the selling and ex-factory prices accruing to IMPORTEX with BGCE once again making the transfer automatically. The purchasing and selling enterprises make the appropriate accounting entries in their accounts, as do the holding companies to reflect the purchase by one enterprise and the sale by the other.  Chart 1. Guinea: Marketing System 1. National level IMPORtTEX (A national comnpeny with rnonopoly righu over imports and expons .n 1 ~~~~SECOMEX |OCOFI S DICOFCMISRO IExport |(ilndustrial (Aricultural (Wholesala (Semi retsail holding C.., *nd putatrc . n -teadetrd / // t < h Co horttog holding Co.) hotding Co)O PFtOSECO FRU TE PROMIN