The furore and strong condemnation of the government’s
role in the Timbergate corruption scandal, involving
the country’s vice president – Sam Sumana, exposed
by the Aljazeera TV documentary, was almost drowned
out by an equally controversial statement, made last
week to parliament by the minister of finance about
the health of the nation’s finances and forecasts
for the future.
Finance minister - Samura |
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Presenting the government’s 2012 Finance Bill, finance minister Samura told
parliamentarians that the country’s economy will
grow in 2012 by a massive 50%, from the current 5%
predicted for the end of this year.
According to the minister, the 45% increase in GDP
forecast for 2012 will come on the back of
investments and surge in the production of iron ore,
which some analysts believe could generate an
estimated $2 Billion revenue for the government.
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The country’s main iron ore producer – African
Minerals is said to have invested $1 Billion in
recovering the mines and building its transportation and shipping infrastructure. The
company just few weeks ago, received a $130 Million
loan from Standard Bank to help speed up development
of its phase one Tonkolili mining project.
But because of the lag between investment and
production, and the new global economic downturn -
forecast by the OECD, economic analysts
say that the minister’s announcement of a 50% GDP
growth in 2012, from a low base of 5% "is nothing
other than political gimmickry".
Realistically, production of iron ore in Sierra Leone
is not expected to rise significantly until the
second quarter of 2013, well after the results of
the 2012 presidential and general elections are
known.
What is also striking about the finance minister’s
exaggerated and over-exuberant economic growth
forecast for 2012 – an election year, was his
reminder to parliament that last week’s financial
statement "marked the end of the government’s Agenda
for Change".
Minister Samura said also that GDP is expected to grow
by 10% in 2013 and 2014 respectively, marking a huge
40% fall from the 50% predicted for 2012.
This 'topsy turvey' economics - analysts say, is quite
usual for a finance minister presenting what may be
his final statement on prospects for the economy,
with the elections a year away. But observers say
that such gaffs can negatively impact on the
decision of investors, hence cannot be good for the
country's investment potential.
What was also significant about the minister’s
financial statement to parliament was that, despite
the seemingly massive rise in public spending,
poverty and joblessness continue to increase.
He said that for the period 2007 – 2010, "cumulative
public spending - excluding donor support, rose by
more than threefold in Agriculture, 105% for roads,
over 79% in energy, about 40% in health and 36% in
education".
Government debt, the minister says is $848.7 million
as at June 2011. But this is expected to be much
larger by the end of 2011.
Some analysts predict the country’s debt to be as high
as $1 Billion by the end of 2011, which is why the
government has inflated its projected GDP figure for
2012 to 50%, rather than the expected 6%.
Just four months ago, in June 2011, this is what the
government said in its own Report - 'Sierra Leone
Poverty Reduction Strategy Paper (The Agenda for
Change): Progress Report 2008 - 2010':
"Real GDP is expected to grow at 5.1 percent in
2011 and continue the expansion to 6 percent in both
2012 and 2013, reflecting the increased investment
in basic infrastructure and energy, rise in
agricultural productivity and huge investment in the
mining sector. The commencement of iron mining in
particular, is expected to substantially boost
economic growth in the medium term."
Critics of the government say that the minister is
seriously playing politics with the country's
economy and that few will believe his economic
growth forecasts.
The government’s over-commitment of spending on
infrastructure had been criticised by the IMF at its
last review meeting with the government in Freetown.
The IMF argued that; spending on capital projects at
the expense of social programmes will have less
impact on poverty.
And with the government spending more on roads than on
health and education combined, very much suggests,
for many in the country - a misplaced priority,
especially in the context of the current global economic downturn.
The problem with huge spending on capital projects in
poor countries such as Sierra Leone, where local
companies do not succeed in winning large-scale
public contracts is that over 80% of the
government’s expenditure goes overseas.
Less than 20% of that expenditure is spent on local
labour and the procurement of local materials, goods
and services. Few if any of the foreign contractors
employ indigenous Sierra Leoneans into their middle
and senior management teams.
The circular flow of income from such public
spending and its multiplier effect, are much lower
than expected.
Whilst the huge government spending on capital
projects is itself considered inflationary, the
price paid by ordinary Sierra Leoneans is very high
- with respect to rising consumer prices, fewer jobs
for locals, and a very low pay scale for those
contracted to work on construction projects –
usually manual unskilled labourers.
Unemployment in Sierra Leone is estimated to be
running at over 80%. The government is the major
employer in the country. Hence when the finance
minister told parliament that his government will
increase its wage bill from Le650.3 billion in 2011
to Le798.3 billion in 2012, hopes were raised.
But the minister was quick to inform that the rise in
the cost of the wage bill will not see an increase
in the number of people employed by the state. He
said that "the increase in the wage bill will pay
for a planned increase in salaries of public sector
workers."
Prices of foods and other essential consumer items
have more than doubled since the government came to
power in 2007. According to the minister, "year on
year inflation now stands at over 15.7%", from 8% in
2007.
The price of a bag of rice – the country’s staple
diet, has risen from Le60,000 in 2007 to over
Le160,000 in many parts of the country. Will the
government's planned increase in public sector
workers' salaries reflect rising consumer prices?
And if there is any prospect of inflation coming down
significantly, the trade figures released by the
minister last week, do not inspire much confidence
either. Inflation in Sierra Leone is largely
imported.
The finance minister told parliament that; "Sierra
Leone’s trade deficit also widened to $530 million
as total merchandise imports increased by 124% from
$314.3 million in 2010 to $704 million." The
expectation is that this trend will continue
to fuel further rises in inflation well into 2012.
According to minister Samura; "total export increased
by 5.5% to $174.3 million during the first half of
2011, compared with $166 million in 2010," impacting
very little, if at all on the value of the Leone
against major global currencies - a key factor for
rising
prices at the shops and markets.
The Leone in many parts of the country is now sold
at over Le7,000 to £1 (British), from a low of
Le3,000 in 2007.
Local businesses and entrepreneurs too, are suffering
immensely as a result of the government’s economic
policy. And until the IMF intervened recently,
halting the government’s run-away demand for cash –
selling millions of dollars of Treasury Bills,
interest rates had been rising steeply.
Few local businesses could afford to borrow in order
to invest in growing the business and employing more
people. Interest rate which had been running at over
35% is now, according to minister Samura - 29% -
hardly affordable for the average local small and
medium sized business (SMEs).
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Economists say that the government is pinning its hope
of resurgence in job opportunities, on much needed
investments in the mining and agricultural
industries. But there are problems.
Freetown – the country’s capital, has the highest
concentration of unemployed youths in the country.
Yet, few of the unemployed youths living in the city
are confident of gaining and 'holding down'
employment in those industries – most of which are
located in the north, south and east of the country.
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Not many of the unemployed youths who arrived in
Freetown from the provinces during the war, are
willing to go back to the farms and mines, where the
new jobs are being created.
Lack of housing and poor health care provision in
the provinces, are often cited by young people in
Freetown as major deterrent to any possible
resettlement up-country. Local Councils in the
provinces cannot afford house building programme.
But minister Samura told parliament that the
government has increased transfer of funds to Local
Councils – under the decentralisation programme
arrangement "by three folds - from Le13.4 billion in
2007 to Le77.9 billion in 2010".
The latest report of the country’s Audit Office shows
that billions of Leones transferred to local
councils are unaccounted for, raising serious
questions about the governance, human resource
capacity and fiduciary integrity of many local
councils, in managing and delivering local services.
With the minister informing parliament that "total
expenditure and net lending for the first three
quarters of 2011 amounted to Le1.8 trillion and is
estimated to reach Le2.6 trillion", its certain the
government is struggling to balance its books.
Critics say that the government has borrowed far more
than it can afford to pay back, simply to spend on
road construction, rather than invest on expanding
the country’s productive capacity. Most of the road
construction projects - expected to be completed
before the end of 2011, are now experiencing very
serious cost over-runs, shortage of cash and
significant extension of completion dates.
The government says that "total revenue and grants
amounted to Le 1.4 trillion, and is projected to
reach Le2.2 trillion by the end of the year", with a
massive "budget deficit excluding grants, estimated
at Le1.1 trillion or 11.8% of GDP".
With Christmas just over three weeks away, there was
very little in the finance minister’s statement to
parliament that will bring happy cheers to most
households in the country. But one thing is certain,
with 2012 being an election year, the political
propaganda has started: The government has revised
its GDP growth forecast for 2012 from an expected 6%
to a colossal 50%.
Who says that Father Christmas does not come down
the chimney?
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