Sierra Leone – the dominant global economic power

Amadu Yaya Kamara: Sierra Leone Telegraph: 31 October 2019:

Fifty-eight years of independence and the nation of Sierra Leone has persistently remained poor, underdeveloped, food insecure and stagnant. A political system built around ethnic jingoism and regional factionalism is a significant reason for this. But more vitally, a lack of prudent economic policy, gross mismanagement of limited resources and a lack of a consistent and coherent development plan has established Sierra Leone in the backwaters of the comity of nations, highly pauperized existing on the generosity of others.

For 58 years, the Sierra Leone economic architecture has been designed to be helplessly dependent on donor assistance from “development” partners, with little to no regard for investment. The little investment successive governments have encouraged, have mostly been limited to the extraction of precious stones and other natural resources.

No determined effort or course of action has ever been put in place to add value to this natural resources by transforming them into finish (manufactured) or even intermediate goods, such as the conversion of iron ore into steel. The consequence of this is that potential jobs provided by the conversion of natural resources into consumer goods is exported to other nation, with whole segments of the industrial value chain worth billions of dollars being lost to more prudent and organized states in the Americas, Europe and Asia.

This article explores the various investment focused economic development strategies that have transformed poor nations to technologically advanced ones, most especially in Asia, with the final goal of seeing how these strategies can be applied to Sierra Leone – a step necessary for the Lion mountain to become a dominant economic power.

But before we delve into our core objective, it is important to explicitly elucidate the conditions necessary for investment to thrive in the competitive global economy and facilitate the process of economic transformation. The most important precondition for economic transformation is the existence of strong institutions.

Institutions are the mechanisms of social order, which govern the behaviour of a set of individuals within a given community. The stronger the institutions the better individuals behave and abide by the rule of law. But because Sierra Leone’s political system is flawed, it will take an incredibly huge amount of time for the country to reach the level were most of her institutions are strong. Within my investment strategy, this article will discuss how institutions can be strengthened in a short amount of time.

In addition, an investment based strategy demands that we build what economists term social overhead capital. These are public goods usually provided by government that help bring down the cost of economic activities, in order to raise productivity and help accumulate crucial societal assets necessary for economic transformation.

These public goods include energy, roads, bridges, housing, telecommunications, water treatment systems and other infrastructure. The investment required to build infrastructure is enormous and indivisible (bulky), and quite frankly, Sierra Leone does not have the resources to make such investments without resorting to making deals from tough (I am being polite here) organizations such as the International Monetary Fund and the International Bank for Reconstruction and Development.

Taking loans from nations like China for such projects is another avenue to finance infrastructure, but when the loans are large in comparison to the overall GDP, Sierra Leone risks relinquishing her sovereignty and becoming a tribute state to such creditor nations.

Another essential dimension of social overhead capital is human capital development through education and health service delivery. Education is vital to the development of the skills that are necessary to enhance the competitiveness of the labour force. A competitiveness that will be essential in attracting investment and raising the low levels of productivity that currently characterize the labour market.

But education must be targeted at those areas of industry the nation seeks investment in. For example, if Sierra Leone desires to establish a technological sector similar to Silicon Valley in America, Sierra Leone must build or develop institutions of learning that specialize in electronics, mathematics, information technology, computer engineering, and other related technological specialties.

The first path to economic transformation, using investment as a pathway, is through the use of Special Economic Zones (SEZ). SEZs are areas in a nation that operate within a set of regulations and institutions different from the rest of the nation.

These specific regulations including tax incentives, are designed to attract investment and accumulate capital to foster rapid economic transformation. The best example of a special economic zone is the special administrative region of Hong Kong. The regulatory environment in Hong Kong was different from the rest of China in the past because while for many decades China had a centrally planned communist economic arrangements, the city state of Hong Kong operated under the free market systems liberated from the interference of the communist mainland government.

But why special economic zones are so effective is because they provide the opportunity for the government to concentrate a significant amount of resources in one area, usually the scale of city. This concentration of capital allows the government to rapidly build infrastructure such as uninterrupted energy supply, a wide and adequate network of roads and train system, a proper sewage and water treatment system in a small area. These infrastructure ultimately are built to reduce the cost of industrial production. For example, in a city where there is constant energy supply, firms do not need to spend large amount of their revenue on buying generators and fuel on a daily basis.

The second aspect of special economic zones is that the institutions, economic policies and regulations are engineered as well to be attractive to investment. For example the ease of doing business a crucial measure of a nation’s investment desirability is greatly improved in these special economic zones through prudent economic policy formulation in order for the SEZ to become attractive to foreign direct investment.

In China especially in SEZs such as Shenzhen, Tianjin and Kushan; the government established special higher institutions (polytechnics included) to provide the skills in industries these special economic zones sought dominance over. For example because Shenzen was mostly built to be a technology zone, many institutions of learning were built in the SEZ to develop the skills of Chinese citizens who desire to become computer hardware engineers and other jobs required in the technology value chain. The genius of this is that the Chinese built the infrastructure and human capital dimension of social overhead capital at the same time.

But for a nation like Sierra Leone, notorious for gargantuan sized corruption scandals, all these innovations can easily be extinguished if they are implemented through the profligate and corrupt civil service. Luckily a Senior Vice President of the World Bank, Professor Paul Romer has a solution to this. According to Romer, for special economic zones in developing nations to stand a chance the governance structures must also be given a different set of rules (institutions) from the rest of the nation.

A possible way of achieving this is to maintain a Liberal Meritocracy within the special economic zones. That is to say the governance team or cabinet and civil service developed in this special economic zones must comprise individuals who are chosen based on their qualification, experience and the quality of their most recent performance.

Political showmanship, alliances of vested interests, tribe and even nationality should be disregarded in place of building a team of the most competent individuals with a wide breadth of experience. For example, if such city was to have high speed rail, experts from Japan, a nation known for its advanced rail system, could be called to run and manage the rail system.

To maintain the meritocracy, rather than periodic elections being used to transition from one political administration to the other, these special economic zones must be set with targets on economic growth, service delivery and social development with independent consultants conducting periodic evaluation studies to determine whether or not these SEZs have been able to fulfil their short to medium term mandates. The ability of the leadership to meet set targets would be the factor that determines whether or not they remain in their roles or be replaced by others.

The use of special economic zones can be characterized as a form of the unbalanced growth model developed by Albert Hirschman. The opposite alternative to this proposed development model is what many nations in Africa currently practice, the balanced growth model. With this model the chunk of the nation’s capital infrastructure is spread across the entire nation usually to please different regions for political expediency. This spread makes it difficult for any region within the nation to enter the global economic system in a competitive manner, because none of the regions would have acquired enough social overhead capital to become attractive to investors.

After the creation of SEZs managed by a competent executive and civil service, certain strategies must be put in place to vigorously promote foreign direct investment. Taking inspiration from Singapore and Japan, the SEZ should seek the establishment of an economic development and investment board that will actively seek to develop relationships with a network of international investors and multinationals in order to convince them to invest.

These investment boards will also communicate the concerns of investors to the SEZ’s cabinet on policy barriers within the SEZ’s that are detrimental to investment. The board will also collaborate with development experts in academia and other sectors – both domestic and international, on developing a trade system that will allow the special economic zone export on a large scale.

Thus the economic development and investment board comprising a mix of domestic and international experts with resources to conduct research, would be tasked with developing further trade, investment, monetary and other fiscal policies for the consideration of the SEZ cabinet.

The third strategy has been used by Japan, Korea and most recently Russia and to a certain extent Saudi Arabia. In this strategy the special economic zones after becoming more dominant following a moment of growth and capital accumulation would seek to develop domestic corporate monopolies backed by the full might of the state, with the eventual goal of becoming goliath sized multinationals. Toyota in Japan and Samsung in South Korea were for example able to become the giants in the global economy due to the massive export promotion policy in the form of financial subsidy they received from their states.

In return, Japan and South Korea both set export targets for each of these corporations in order to generate economic growth and boost their foreign exchange reserves. In Russia the creation of giants such as Gazprom were also created with such similar policies. In Saudi Arabia one can argue that the trillion dollars valued, Saudi Aramco is the biggest example in the world.

For Sierra Leone, the current administration can make quick gains in boosting foreign exchange (needed to stabilize our volatile currency) and boosting economic growth by fighting to create domestic multinationals that specialize in the production of cocoa, palm oil, rice, sugarcane, fishing, iron ore, diamond, gold and chromite for export to the international market.

Creating private domestic corporations will ensure that profits from these resources remain within our economy and not lost to illicit financial flows. This is because the financing would be done not through foreign banks but through domestic commercial banks existing in Sierra Leone.

But whatever the Bio administration desires for Sierra Leone, a strategy that is not investment centric would not yield the economic and social transformation Sierra Leone desperately needs.

To conclude, the author would like to add that the ideas proffered, contain the three dimensions of economic transformation; social overhead capital, institutions and direct productive activities. An investment strategy as demonstrated in this this article can fuse these three dimensions together in order for economic transformation to take place.

Sierra Leone and governments in Africa at large should seek to reduce the reliance on donor and international aid (usually instruments to exercise soft power over Africa), and devise ways to increase both domestic and international investments.