By Tanu Jalloh
I hope we get it right this time around. When the economic boom beckoned at the close of 2012 with post elections stability and on the eve of 2013 with signs of hope in the mining sector, the estimates from World Bank and the International Monetary Fund were almost meant to be near exact.
As we came to learn later, the figures to support those projections of economic growth, it would seem, were as generally fluid as the intentions to bandy them were disingenuous.
At the start of 2012 I looked at the banking system as a major driver of the country’s burgeoning sector of foreign direct and large scale investments. The attempt also pooh-poohed the ability of banks to manage the every year occurrence of liquidity crisis for want of proper regulations and evident insecurity. When 2013 started I looked at growth predictions, how illusory, and by close of that year growth projections proved obstinate and so also were the blots they caused on a bright economy.
The Overexciting Estimates
In 2012 the World Bank and IMF projected that the country’s economic growth would reach 51%, the highest in the world, but those were soon to be revised twice downwards to 32% and 18.2% in the same year, apparently due to “optimistic projections”. Thus for the rest of 2013 the government would struggle to manage perceptions and make the last estimates work at all cost.
This is 2014.While the estimates are moderate, there is hope for stability. The African Development Bank, ADB holds that the mining sector made real gross domestic product, GDP growth leap from 6% in 2011 to 16.7% in 2012, with support from agriculture, services and construction. It is projected to stabilise in 2014. According to the African Economic Outlook
“Sierra Leone has risen eight places in the latest World Bank report, Doing Business (140 out of 185 countries) and ranks as one of the top reformers since 2005 in improving business regulation for domestic firms, property registration…”
Offsetting the HDI
Meanwhile, the country would still struggle to ward off the social pressures that constantly keep it at the bottom rung of human development. The 2013 Human Development Index (HDI) ranked Sierra Leone near the bottom (180 out of 187 countries), with a score way below the regional average of 0.463. Such global assessments as the HDI are done based on the implementation or not of a country’s social, economic and development policies that either worked or did not, to uplift a people’s standard of living and human security.
For Sierra Leone to stay low or lowest on the HDI ranking is a huge problem. It is huge enough to affect efforts at economic growth, poverty alleviation, human and natural resource developments. Although the abysmal HDI ranking might be considered a corollary of some social failures on the part of policy makers and service providers, it is nonetheless a growth factor that could be managed. When the provision of social amenities by government is based on a scale of preference that is laden with some overriding parochial political interests, the economy suffers. And that is the nexus to deal with in 2014.
However, how well that relationship - between the provision of basic social amenities and the proper management of the country’s economy - is handled, would depend on several factors in 2014. Among many the stability of a single digit inflation is key, the availability of disposable cash through massive job creation with decent wages, agreeable interest rates on access to loan facilities for small scale businesses, and the reduction of leakages in government implemented projects.
The Ore Boom
Driven by the mining sector (particularly iron ore), real GDP growth accelerated from 6% in 2011 to 16.7% in 2012 as a consequence of iron ore production. ADB said that growth has also been supported by agriculture, services and an expansion in construction. GDP growth is projected to stabilise around 7.2% in 2013 before reaching 12.1% in 2014 as iron ore projects become fully operational.
Meanwhile, the recent discoveries of iron ore mines and the expansion of the extractive sector in Sierra Leone have initiated a structural transformation of the economy with a shift of productivity from agriculture to mining and construction activities that are now the main driver of GDP. However, labour transfer to these sectors is still low due to the fact that extractive activities and construction are capital intensive.
Wait a minute. Have we stopped for a moment to look at the Sierra Leone economy in the absence of iron ore? The reason why World Bank and IMF almost got it wrong in their predictions of economic growth for Sierra Leone and had to revise it twice downwards in 2012 alone, could not be unconnected to the expected returns in the ore trade and the concomitant effects on the economy through increased revenue from royalties, taxes, dues, wage bills and compensations. Ideally, when domestic revenue increases the government is at liberty to judiciously expend its wealth, affect growth and improve the lives of its citizens. But where that is not the case, growth stalls. The caveat to such projections, therefore, would be that if resource good governance improved and graft is minimized to the barest minimum, economic growth would be assured.
Control Measures
Robust economic growth has been accompanied by a tight monetary policy that has reduced inflationary pressures. As a result, inflation has dropped from 18.5% in 2011 to 11.6 % in 2012 and is projected to return to a single-digit 7.1% [the ministry of finance could only vouch for 9 %] in the last quarter of 2013. This year inflation is expected to reach a record 6.9% low as agricultural production recovers and international food prices fall, aided of course, by the tight monetary policy of the government.
“Indeed, the government implemented several reforms to contain inflation and has taken appropriate monetary policy measures. Policies to strengthen fiscal discipline in 2012 have helped to reduce the fiscal deficit from 4.5% of GDP in 2011 to 1.8% in 2012, and is projected around 2.3% in 2013, and 2% in 2014. The current account deficit as a percentage of GDP has also been reduced from 52.3% in 2011 to 44.0 % in 2012 as a consequence of an expansion in the minerals and cash crop exports. It is projected to shrink to 11.6% in 2013 but to slightly increase to 12 % in 2014.”
It might interest you to know that the restrictive fiscal and monetary policies (be they self regulated or some kind of a condition from donors) contributed to a reduction in the government expenditure and thus the domestic debt burden. The government said that that has been supported by “strong reforms aiming at fighting corruption, improving the ease of doing business in Sierra Leone and reducing poverty.” The Poverty Reduction Strategy Paper (PRSP II) otherwise known as ‘Agenda for Change’ has been succeeded by a new strategy called ‘Agenda for Prosperity 2013-17’. With this blueprint the government plans to improve its management of natural resources and to enhance revenue collection. It also aims “to scale up inclusive green economic growth, employment and value addition to productivity in various sectors and to accelerating progress towards the Millennium Development Goals (MDGs).”
Finally, in 2014 we would see a government that is genuinely desperate to make its agenda work but also to score some political gains, especially in the way it deals with the economy if only to leave a legacy behind a second term president, hence the ambitious 2014 budget.
(C) Politico 07/01/14
