Private investment in Guinea-Bissau: main determinants and key reforms

There is a dearth of knowledge on the determinants of private investments in Guinea-Bissau. This paper aims to fill this gap, using the autoregressive distributed lag (ARDL) approach, in order to identify short-term and long-term determinants. Our results reveal an increasing importance of international drivers, in particular remittances and foreign direct investment. Demand, proxied by real GDP, is significant only in the short term and, socio-political instability negatively affects private investment. These results confirm the need to accelerate reforms aimed at improving the business environment and promoting the diversification of the financial sector. Indeed, domestic credit to the private sector generally stimulates private investment, but its impact does not appear to be significant in Guinea-Bissau according to our estimation results. Therefore, it may be useful to put in place more suitable financing structures, in particular a viable micro-credit infrastructure, and sectoral banks for agriculture, housing and investment.