Sierra Leone’s Economic Performance – 2009 In Review: ‘Is there something to write home about?

Abdul R Thomas
Editor - The Sierra Leone Telegraph

5 January 2010

As Sierra Leoneans across the country look back on 2009, not only will they remember the devastating impact of the global economic downturn, but the government’s ‘seemingly’ lack of imagination in taking the necessary bold steps that could have cushioned the poorest in society against the effects of rising prices, food shortages, depleting foreign reserves, declining export and domestic tax revenues, and the depreciation of the Leone against the Dollar. 

Against this backdrop, 2009 in Sierra Leone will also be remembered for rising unemployment, increased levels of crime - especially armed robbery, and the obscenely high incidence of infant and maternal mortality. 

With pressure from the international donors, potential foreign investors, the local media, and the opposition SLPP, 2009 also saw the President caving in to demands for his “no sacred cows” rhetoric to be made real in tackling corruption and graft in his government. But critics have argued that the President has not gone far enough. Some have even referred to those in government that have been sacked as ‘the sacrificial lambs,’ rather than the sacred cows that continue to occupy the high seats of power in Sierra Leone. 

If the culture of corruption in the present government had caused some discomfort for the President in 2009, there is little doubt that the state of the economy would have frustratingly preoccupied his mind. President Koroma may perhaps have been tempted to echo the words of President Clinton, who when asked about his performance during his Presidency; was quick to reply: “It’s the economy, stupid.”

No one would disagree that 2009 was an exceptionally bad year for the people of Sierra Leone, notwithstanding the intermittent respite that the newly commissioned Bumbuna hydro electricity ushered in, just in time for the Christmas festivities; but at what cost?

What is becoming evidently clear, is that the government’s obsession with Bumbuna in order to build political capital ahead of the 2012 elections is one that will come to haunt the President, should the cost of running Bumbuna continue to significantly exceed revenue generated from electricity bills. 

The expectation of the IMF and World Bank following the conclusion of the 5th Review of Sierra Leone’s Economy in December 2009, is that government must take steps to cut expenditure on energy subsidies in 2010. The allocation of Le82 Billion in the government’s 2010 Budget as a subsidy towards the huge costs of providing water and electricity, calls into question the ability of the management of key utilities to improve their revenue base and reduce state dependency. 

Sierra Leone’s economic outlook in 2009 started pretty much as 2008 had ended, with Gross Domestic Product (GDP) running at a six year low of 5.5%, compared to 2002, when economic growth was at a post war high of 27%.

By the end of 2009, the strength of growth of the economy had declined to a significantly low rate of 4%, as exports, foreign remittances and foreign direct investments plummeted. However, some comfort could be derived from the fact that Sierra Leone’s GDP grew at a much higher rate in 2008/2009 than some of the other Sub-Sahara African nations. 

March 2009 was a defining moment for the President, as he launched his government’s Private Sector Development Strategy, amidst much scepticism and cynicism from the business community. During his speech, he spoke of the importance of tackling poverty by stimulating economic growth and higher GDP through private sector business development. 

The President also outlined the standard, by which progress in delivering the Private Sector Development Strategy should be judged, when he said that "even the maintenance of a respectable 6.5% a year growth rate would mean that by 2018, Sierra Leone’s GDP will reach $350 per capita, meaning that the majority of Sierra Leoneans will still live on less than $1 a day. Therefore, to reduce poverty significantly and improve the lives of the majority of Sierra Leoneans we need to achieve an annual growth rate of 10% or more.” 

But, with GDP growth not exceeding 4% in 2009, it is obvious that the much anticipated best case scenario of 10% growth or the 6.5% bottom line minimum growth expected by the President was sadly not achieved. This indicates that poverty had worsened in 2009, with average income per person falling well below an estimated 50 US Cents a day. 

If not for the $300 Million donor support that Sierra Leone received in 2009, the political and socio-economic impacts of the global financial downturn would have had destabilising effects on the nation’s fledgling democracy. For this reason, the international donors must be commended for their commitment made at the London Donor Conference in November 2009, to continue current level of financial support into 2010. 

In its 2010 Budget Statement to Parliament delivered in December 2009, the Sierra Leone government committed itself to spending Le1.5 Trillion, although they are only expecting to raise Le1.4 Trillion from taxation and donor funds. The expectation is that public sector borrowing will increase substantially in 2010 in order for government to meet its current account spending plans. 

As the global prices of minerals rose slightly in 2009, Sierra Leone’s mineral export revenue fell by over 60%. Although Foreign Direct Investments and inflows of remittances from diasporans declined markedly in 2009, economic growth was partly sustained by a small portfolio of private sector investments made in 2007/2008, such as African Minerals Ltd. and London Mining PLC., in rutile and bauxite. The government is now hoping to widen its mining revenue base through the enforcement of the 2009 Mining Act. 

The government’s budgetary current account deficit increased to -8.4 percent of GDP in 2008 from -3.5 percent in 2006, and is likely to have more than doubled to an estimated -18% in 2009, due to an increase in government spending on energy and government departmental running costs. 

Ironically, in comparison, the main factor accounting for the relatively positive fiscal balance achieved in 2006/2007 by the previous SLPP government was the slower growth in government spending, matched by a shortfall in donor funds and taxation revenues. 

As indicated earlier, this trend did not continue into 2008/2009, as President Koroma’s government recurrent spending grew faster, due to the high priority that his government had placed on the provision of electricity in the capital, Freetown. This policy meant that huge government subsidy had to be given to the power sector. 

Government subsidy in excess of Le.300 Billion was also made available in order to reduce the prices paid at the pump by motorists and households for fuel. But as foreign reserves declined in 2008/2009, from US$209 Million in 2008 (5 months of import) to US$50 Million in 2009, the government was forced to borrow Hundreds of Millions of Dollars to meet its weekly $50 Million currency auctioning to importers of fuel and food items. 

The weekly sale of foreign exchange to importers was controversial to say the least. It would no doubt have been met with a frosty response from the IMF in December 2009, as some rogue traders had been using the scarce Dollar purchased from the Bank of Sierra Leone to maintain their foreign exchange ‘black market’. 

Although price inflation was brought down from 12.2% in 2008 to 8% in 2009, as global oil and food prices fell, the efficacy of government monetary policy which supposedly was aimed at ameliorating some of the effects of price rises remains questionable. 

In particular, by reducing import tariffs or granting huge import taxation concessions on rice, flour, fuel, etc; costing millions of dollars to the tax payers, government’s fiscal performance must have been immensely compromised by such short sighted monetary policy objective aimed at lowering consumer price inflation. 

The value of the Leone against the Dollar remained fairly stable in 2008 at an average rate of Le3, 000 to the US dollar. But by the end of 2009, the Leone had depreciated to well over Le3, 600 to one US$, as export revenue continued to fall. 

The much talked about International Donor and Investors Conference organised by the government of Sierra Leone and its development partners in London, in November, was a major highlight of 2009. Although critics have argued that the event was a waste of money, given the very low return on investment achieved, the government was quick to inform the nation of the announcements by George Soros and the British government’s Overseas Venture Capital Fund to invest in the country’s financial sector. 

At the London Donor Conference, aid partners agreed to continue their existing level of support, which currently stands at US$300 million per year. Supporters of the government view this as a considerable achievement in a time of global economic downturn. Considered in the context of 2006/2007 pre-elections economic climate, when international donors took the decision to freeze all financial support to the country, perhaps President Koroma has a reason to be cheerful. 

The sharp rise in inflation to double figures in 2008, fell to 8% in 2009, as global oil prices declined and the availability of domestically grown foods expanded. But the depreciation of the Leone against the Dollar added further pressure on consumer spending, as the prices of imported goods soared.

2009 was another bad year for the tourist industry in Sierra Leone, as overseas visitors and tourists became much more discerning, as to how and where they spend their incomes that have been depleted by the global recession. But countries such as the Gambia, Kenya and the North African countries continued to enjoy significantly high levels of tourist numbers. The rhetorical question on the lips of most Sierra Leoneans is - just what have these countries got that Sierra Leone lacks? 

So, as Sierra Leoneans look back on 2009, they will be recounting the impact of the global economic downturn on their lives. But more importantly, they will remember the government’s ‘seemingly’ lack of imagination or political will needed to take the necessary bold steps, which could have cushioned the economy and the poorest in society. 

The government appears satisfied with its 2009 performance, as they celebrated the construction of new roads and the completion of the long awaited Bumbuna hydro-electricity enterprise, much to the chagrin of the opposition SLPP. 

The 5th Review of Sierra Leone’s Economic Performance undertaken by the IMF in December 2009 rated the government’s progress as “satisfactory”, despite the global economic downturn and declining export revenues. But the people of Sierra Leone may well be asking the IMF: ‘satisfactory for whom?’ 

With rising unemployment, rising prices of consumer goods, food shortages, depleting foreign reserves, declining export and domestic tax revenues, poor governance, government corruption, and the depreciation of the Leone against the Dollar: Is there something worth writing home about? 

Will the new Goods and Services Tax to be introduced in January 2010 provide a lifeline for the government ahead of 2012, or will it become the government’s political albatross, as consumers turn their backs on the shops and head for the black market? 

Will the government find the political will from deep within, to remove the Le300 Billion subsidy on petrol and kerosene as demanded by the IMF?

Perhaps there will be something worth writing home about in 2010.  

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