Sierra Leone – Institutionalized leakages and a bankrupt economy

Dr. Kandeh K. Yumkella

Sierra Leone Telegraph: 5 October 2016

The month of October 2016 marks 20 years since peace was restored to Sierra Leone. By 1996, half of our population was displaced and farming came to a standstill. As a nation, we recorded negative growth throughout the war years and had zero or minimal exports. (Photo: Dr. Kandeh Yumkella is a Sierra Leonean Agricultural Economist, politician, and the former United Nations Under-Secretary-General, and was the Special Representative of the Secretary-General for Sustainable Energy for All).

Our people have stoically endured the traumas of war, depravation, the Ebola epidemic and loss of human dignity as we hug the bottom of the human development index. Successive governments in collaboration with the international development partners have made efforts to restore democratic governance and revive the economy.

Today, our nation is in economic crisis. History will judge the government’s stewardship, “business model” and legacy for the way they have run the country, given that in 2007, they inherited a young and vibrant democracy with abundant natural capital, anchored by the overwhelming trust of “we the people”.

But history will also not be kind to many of us who stood by and watched, and sometimes aided and abetted the constant looting of our resources and the creation of a kleptocracy.

The Agenda for Prosperity and its precursor, the Agenda for Change have, in my view, worked for the privileged few while the vast majority continue to wallow and suffer in poverty. Cosmetic changes and ad hoc pronouncements on critical national development issues, “full of sound and signifying nothing”, have not and will not advance our economic growth as a nation.

What are the facts?

Based on desk review of reports from the Government of Sierra Leone (GOSL), World Bank, IMF, AfDB, U.N. Agencies and other multilateral development institutions, here are a few facts:

Economic Growth

In 2013 our GDP growth rate was about 20%, it shrunk to about 4% in 2014 and minus 21% in 2015 due to Ebola and collapse of the mining sector. Our economy lost close to $1.5 billion during Ebola, more than double what our neighbours, Liberia and Guinea lost.

While our mining sector collapsed, their mines recovered quickly and their major economic projects rebounded quickly. This calls into question how well our government pursued economic governance before and after Ebola.

Interestingly, our government tends to blame Ebola for everything, or conveniently use it to justify two more years’ extension of their reign or use it to seek more authoritarian power. It is true that the Ebola outbreak affected the economy and ate deep into livelihoods of many families.

But in the aftermath of the epidemic, measures to promote recovery have put more emphasis on taxation rather than prudent spending and implementing sound economic policies for recovery and growth.

The political elite seem more concerned with ways and tricks to stay in office (“more time”) than improving citizen’s welfare. So the reckless and frivolous spending continues and inflated contracts have become the new normal. It seems Sierra Leone learnt very little from the civil war and Ebola.

The Government of Sierra Leone (GoSL) in partnership with the donors designed and began implementing a post-Ebola Economic Recovery Strategy (ERS). The plan has three main elements, namely, getting to and staying at zero new Ebola cases; implementing immediate recovery priorities through social measures, education and sanitation; and transitioning back to the Agenda for Prosperity Plan in the medium term.

But the post Ebola recovery projects will not spur growth without tight economic management and accountability. Donor support for Post-Ebola recovery will simply end up in the hands and pockets of a few unless robust control mechanisms are put in place. Sustained economic reform efforts are needed to achieve robust growth rates over the medium term and improve Sierra Leone’s living standards.

Exchange Rate

In 2014-2015 our currency depreciated by an average of 22%, and over the last eight (8) months the exchange rate to the US dollar rose from Le5, 500 to Le7, 200. Part of the cause is lack of exports and speculative behaviour due to uncertainty about GoSL’s monetary policy, especially the currency auction. Ad hoc auctions have simply fuel speculation and “round tripping”.

The currency depreciation means the real income of all workers has declined and living standards are failing considerably. Many businesses are under pressure to increase salaries as staff struggle to make ends meet.

Business men and women on Abacha Street who import goods from Guinea, Dubai and Nigeria are all running at a loss because the Leone has become so unpredictable.

Fiscal Indiscipline

Total domestic revenue was Le 2.33 trillion (10.5 percent of GDP) during 2015 and total expenditure and net lending on a commitment basis increased to Le 4.42 trillion (19.9 percent of GDP).

The increase in recurrent expenditure in 2015 relative to 2014 was mainly on account of overrun in wages and salaries. (Photo: Dr. Yumkella, opposition SLPP aspirant for the presidential election in 2018 – talks about fiscal discipline).

Currently, government struggles to pay salaries, meet its obligations to contractors and to improve basic social services. Instead of smart austerity measures in 2014, 2015 and 2016 we saw the proliferation of government procurement at questionable prices, and buying of equipment and capital goods we do not immediately need.

Worst of all, our government bought more weapons, ammunition and security hardware apparently to intimidate the citizens, rather than investing in education, healthcare and institution building, or launch projects to increase youth employment.

Our Debt

Our total stock of debt is about $1.74 billion with external debt at about $1.2 billion and domestic debt at about $550 million (or about Le3 trillion). From January to September 2016, the government has signed an additional eight new loan agreements totalling over $200 million.

Some key projects signed include the much needed rehabilitation of Fourah Bay College ($12 million signed in January 2016), post-Ebola recovery for small scale commercial projects (for $40m), and the completion of the Hillside road ($19 million).

Important questions that arise immediately are: Who won the contracts for these projects? Will the money be used for the purposes they were meant for? Will the chosen contractors give the citizens of Sierra Leone value-for-money? Will the structures stand the test of time and purpose?

For the post-Ebola small scale commercial projects loan, the key question is, will the $40 million be used to finance projects of cronies to siphon money for the 2018 election? What measures has the World Bank put in place to prevent indirect campaign finance of the ruling party from all these sovereign loans?

Since we and our children have to repay all these loans we have a right to demand answers to these questions. Unfortunately, the next government or administration is already completely tied up in debt and might not be able to function.

Current Account Balance

Our current account balance is in serious deficit since exports declined by over 50% in 2015. Total exports were estimated at US$582 million in 2015, representing a 55.3 percent drop from the previous year.

Decline in the values of iron ore, diamond, and rutile exports, contributed to the drop in total export value in 2015. Total imports decreased by 20.6 percent to US$ 1.31 billion in 2015 from US$1.64 billion in 2014. We spend $160 million a year on rice imports alone. Iron ore exports started again in February, rutile also picked up and the diamonds sector is slowly also rebounding.

The new owners of Sierra rutile are expected to significantly expand output by a further 500 tonnes/year (t/y), bringing total production to a maximum of around 1,850 t/y. The new suitors of our diamond wealth also expect to boost production by 2017, and iron ore exports are expected to also rise.

This begs the questions – will we save some revenues for the rainy day? Is it time we considered setting up a well-managed sovereign fund? Will we pursue effective industrial policies to create new productive capacity/exports in the non-mining sector?

More Debt and Waste

It is true that the APC government has invested in infrastructure, and it is true that they promised to ensure 24 hours uninterrupted electricity. However, we need to question whether we got value-for-money from the hundreds of millions of dollars expended in these projects.

Within the same country, the price per kilometre road constructed by donor agencies such as the EU are four times lower than the price of roads paid for by GoSL from Sierra Leone tax payers money. By my estimation between $250-$300 million has already been borrowed/expended on energy alone in the past nine years.

The repeated resort to investing in emergency power generation opens up the door to sole-sourcing to bypass competitive bidding. Thus, do we get the right energy solutions for the quantum of investments made?

The recent $138 million from the World Bank for an additional 50 megawatts power generation for Freetown is welcome. However, to what extent does this exacerbate our debt repayment?

Will this detract from much needed investment in distributed-energy solutions and renewables such as the Moyamba-Singimi Hydropower project? Will GOSL revive the latter project with the new owners of Sierra Rutile?

The Auditor General reported recently that Sierra Leone’s ministries and departments (MDAs) lose at least Le100 billion every year. This means that the Government of Sierra Leone (GoSL) has lost at least Le1trillion since 2007.

Unfortunately, government refuses to implement its own audit recommendations. Less than 20% of audit recommendations are implemented in the last 5 years. This suggests a deliberate and conscious institutionalization of leakages (“Wu sai den tie cow nar dae ee for eat”).

We have been taken back 30 years to the “voucher gate” era. By continuously failing to implement these audit recommendations means we will never be serious about revamping this economy.

In summary, poor economic management and pervasive corruption is exacerbating the impact of the devastating Ebola epidemic. There is growing unemployment and a majority of our youth graduating from colleges go jobless for years.

There are many people in the middle class that will become beggars; there will be more and more parents who will not afford school fees and meals for children; there will be a growing number of girls forced into prostitution to eke out a living.

There will be more people going to the Bomeh to scavenge rotten chicken. Given the extent and depth of current hardship in the country, I anticipate that the number of people in multidimensional poverty will exceed the 77.1% stated in the 2015 Human Development.

The way forward

For a country that has gone through a lot – wars, diseases, poverty, and mass unemployment we need to put the desire to end the suffering of our people above narrow political interest or making populist speeches just to win elections.

The challenge we have created for ourselves as a country has grown way beyond the capacity of one political party to solve.

Government and we in the opposition need to stop being territorial and start building bridges of accommodation to tap into the expertise of every Sierra Leonean to provide solutions to the challenges we face.

This is why I call for a “grand coalition of progressives”. It is time for us to come together to discuss ways of salvaging the economy and alleviating the suffering of our people.

Of course, my manifesto will outline a new economic vision. For now, let me list a few immediate steps that can be implemented.
• Immediately instituting strict expenditure controls and other austerity measures.

• Pursue transparent public procurement systems to reduce fraud.

• Four immediate actions for exchange rate stabilization namely (a) take measures to reduce the rice import bill from $160 million, (b) reduce government officers travels, (c) minimizing dollar denominated government procurement contracts, and (d) return to predictable foreign exchange auction to reduce speculation.

• Take measures to promote medium to long term structural change to diversify the economy and spur the non-mining sector and expand exports.

• Enforce compliance and implementation of the Auditor General’s recommendations. These reports are specific about where the leakages and waste occur.

• Developing special programmes for SME financing and youth employment.

If we do not debate these economic issues openly and come up with remedial measures, the Kleptocracy will be further institutionalized, and leakages and corruption in the government machinery will grow bigger as political elite seek funds for the 2018 election.

As citizens, we are called upon to support and hold our government accountable. I have given my own level of support to both the SLPP and APC Governments. I did so because I believed in the bigger picture and greater good of a united and prosperous Sierra Leone where every citizen can afford the basic necessities of life; our children can receive quality education; the population can have access to affordable and quality health care, and local government and public institutions function the way they should.

I also believe in a united and prosperous Sierra Leone where citizens live in peace and security and there are opportunities for everyone to succeed not just for the few in power and governance and their cronies.

A nation is successful when economic development is inclusive and reaches the disadvantaged segments of our society.

Editor’s Note:

This article is an excerpt from Dr. Kandeh Yumkella’s speech delivered at a Town Hall Meeting in London, on September 23, 2016.