We’re Restoring Sierra Leone on the Path of Development — Momodu l. Kargbo

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Momodu L. Kargbo, Sierra Leone’s Finance and Economic Development Minister, took over leadership of the strategic ministry at an interesting time in the economic life of the country. Just coming out of a slump caused by two unfortunate mostly exogeneous shocks, the task of nursing the economy back to health is daunting. The Ebola crisis of 2014 ravaged the country simultaneously as the crash in commodity prices which all but wiped out its iron ore mining industry, the nation’s prime revenue and foreign exchange earner.

kargbo-min-of-financeBut all these are not news to Kargbo who until his new appointment was Governor, Bank of Sierra Leone (The Central Bank); a position that placed him in charge of government account and the overall financial health of the economy. Besides, he had also served as Deputy Minister at the ministry earlier in his career as a top technocrat in government.

The vantage point provided by his new office puts him in good stead to speak on the state of the economy.

Kargbo elaborates on how government’s response to the peculiar challenges is putting Sierra Leone back on the path of development. The country, he says, has seen the worst, and is now ready to resume its brave and ambitious push for prosperity as enunciated in the Agenda for Prosperity blueprint which still has a couple of years to run.

How would you assess the twin shocks of Ebola and the collapsed iron ore prices on the Sierra Leone economy?

The Ebola outbreak and the collapse of iron ore prices have stalled Sierra Leone’s economic progress. Sierra Leone was one of the three countries worst hit by the epidemic, which killed thousands, destroyed communities, strectched public services beyond limits and reversed years of development gains. The prevalent global economic recession with its attendant slump in commodity prices further damaged the economy.

Between 2014 and 2015, global iron ore prices declined by more than 60 per cent, and led to the closure in 2015 of the mines that accounted for one half of the country’s exports and a quarter of GDP. The twin problems plunged growth rate to an unprecedented – 21.1 per cent in 2015 from a high of 20.1 two years earlier. Trade balance deteriorated from $362.3 million in 2013 to a meagre $6.8 million in 2015, while inflation burst into two digits. Revenue lost to the crises was estimated at 350 billion Leones ($74 million). State records show that a total of 2.3 million people suffered worse living condition as a direct consequence.

What is your take on the implementation of Sierra Leone’s post-Ebola Economic Recovery Strategy so far?

We are making tremendous progress. The immediate focus of the National Ebola Recovery Strategy (NERS) 2015 – 2017 is on health, education and social safety nets to improve human development and enhance labour productivity. The Strategy is being implemented in phases. The First Ebola Recovery Plan, ran between the sixth and ninth month period of the plan, has been completed with great success. Of the 1,225 health facilities evaluated under the basic Infection Prevention and Control (IPC) criteria, 55 per cent of the facilities were IPC-compliant and 44 per cent partially-compliant. Government also successfully set up temporary triage facilities in the 1,201 health centres planned for this programme.

In the education sector, government recorded 100 per cent in the planned core content initiative for accelerated learning, just as 85 per cent of the teachers pencilled for psychosocial support have received training. The school fees of 95.4 per cent of students were also taken care of by the government.

We have had more than 85 per cent success rate in the provision of social safety nets. Over 36,500 people were beneficiaries of the minimum assistance packages and social protection services. So, government has to a very large extent taken care of the vulnerable whose ranks are no doubt enlarged by Ebola survivors.

What about the second phase?

The next phase of the post-Ebola Recovery Strategy is the 10 to 24 months programme which was rolled out in May this year. Primarily, the Second Ebola Recovery Plan focuses on social services. The planks of this successor plan are social services, health, education, social protection for persons infected with Ebola who are survivors and the people affected by the Ebola outbreak. Priority is also on energy, improving access to water for the people of Sierra Leone, agriculture, governance and revitalising the private sector.

Implementation of the Second Ebola Recovery Plan is under way. Government has set up a delivery unit to monitor and evaluate its progress. Our goal is to restore Sierra Leone to the path of growth, as we envisaged in the Agenda for Prosperity. Before the Ebola outbreak, Sierra Leone was reckoned to be the second fastest growing economy in the world with lots of development programmes. With Ebola, all that was put on hold.

We are working to reinvigorate the private sector as the engine of growth, create jobs and improve the standard of living of the people. We are committed to transforming our road networks, improving access to markets and reducing operational costs for businesses. All these measures are geared toward delivering on our Post-Ebola Economic Recovery Strategy with strong commitment to changing the lives of our people.

Fiscal consolidation is the starting point of recovery efforts. What are the strategies to shore up government finances in the post-Ebola era?

Government’s attention is focused on raising more revenues, particularly income that does not depend on volatile natural resource exports. Following gaps in fiscal and external financing created by the economic downturn occasioned by the Ebola epidemic, a moderation in spending, both to balance the books at the new revenue level and also for long-term fiscal sustainability, is our goal.

We are pushing forward with strong measures to increase domestic revenues and rationalize expenditures, hopeful that these measures will no doubt contribute to arresting the declining exchange rate. Government’s recent tax measures are aimed at strengthening the tax policy and revenue administration. Measures taken to broaden the tax base; strengthen tax administration and improve the efficiency in tax collection are achieving positive results. Marginal tax rate for the Pay-As-You-Earn (PAYE) increased by 5 per cent from 30 to 35 per cent.

Could you give an insight into the reforms initiated by the government for prudent utilization of finances?

Government has been implementing reforms for better use of lean finances occasioned by the slump in iron ore prices. We have re-oriented public expenditure from recurrent to capital to support the critical investments in infrastructure, including roads, energy and water. Government is also working to ensure that poverty-related spending is ring-fenced or protected to make certain the goal of poverty reduction through increased budgetary expenditure is achieved.

We are also introducing the Treasury Single Account (TSA) to consolidate domestic revenues in a single account that would be utilized to finance the increasing public expenditures. The TSA is a necessary step that the government is taking within the framework of its public financial management systems to increase transparency and accountability in the mobilization of funds as well as reduce the administrative burden of coordinating several accounts.

As a responsible government, we are committed to implementing measures to eliminate discretionary waivers and exemptions from custom duties and goods and services tax to mobilize additional domestic revenues to finance critical infrastructure and other projects. Tax and duty exemptions on contracts awarded by Ministries, Departments and Agencies (MDAs) have been streamlined and rationalized. MDAs are now required to make provisions for import duty in their budgets for all contracts that are subject to the payment of taxes and duties.  Recent changes to the law mandate all requests for tax and duty exemptions to be supported by law or approved by Parliament. Duty concessions to NGOs, the tourism sector and road construction companies have been reviewed and streamlined. Payment of taxes and duties for petroleum products are now made directly to the Bank of Sierra Leone, and not through commercial banks. This has reduced arrears accumulation from over Le 25 billion to Le 2.0 billion.

How is the much-talked about diversification of the economy going?

The prevalent global economic recession with its attendant slump in the prices of commodities such as iron ore has posed fresh challenges to countries whose economies are dependent on commodities exports. Sierra Leone is no exception. For us, the collapse of iron ore prices could turn out to be blessing. We can no longer heavily rely on mineral resources to change Sierra Leone’s macroeconomic fortunes.

Sierra Leone has drawn lessons and motivation to diversify the economy to insulate the economy against future shocks and ensure inclusive and sustainable economic growth. As Sierra Leone looks to rebuild the economy after the Ebola epidemic and reduce its reliance on iron ore, government is now forced to seek alternatives to a mining-heavy economic base. We must encourage the growth of other sectors. President Koroma can’t emphasise that point enough. Economic diversification and inclusive growth are priorities in the Agenda for Prosperity (2013-2018). Our diversification efforts are directed towards agriculture, fisheries, manufacturing and tourism, to be accompanied by light manufacturing. More than 70 per cent or more of the economically active population are engaged in these sectors.

A substantial shift is taking place towards sectors such as agriculture that employs more than 65 per cent of the labour force. A successful transformation of agriculture, it is thought, would lead to the transformation of the lives of the vast majority of Sierra Leoneans.

Lessons from South East Asian agriculture-driven economic transformation are instructive. Malaysia and Thailand have reduced poverty ratio from 60 per cent in the 1960s to less than 10 per cent to date through early recognition and determination to deploy the power of economic transformation. They quickly identified agriculture as their initial strength and the strategic sector to kick-start their economies.

The Blue economy is another area of focus. We intend to establish hubs for value-adding activities for fisheries through the framework of Special Economic Zones and Growth Poles, which will be supported with agro-processing facilities. We will work assiduously to increase fish supply for the domestic market and meet the needs of potential fish canning and other value-adding related activities through the development of aquaculture. Government will support the youth to engage in aquaculture. Support will be provided for industrial, artisanal and, inland fisheries activities. Stepping up fish exports by focusing on strategic high-value markets such as the European Union is also at the heart of our economic diversification push.

Are you considering tourism?

Going forward, we are focusing on niche tourism as enunciated in the government’s tourism recovery plan which will put Sierra Leone on the international map while generating substantial foreign investment and employment. To promote tourism and increase the number of tourists to Sierra Leone, government is developing appropriate strategies to reduce tourism costs. Campaigns will be heightened to improve the international image of Sierra Leone, particularly at strategic destinations through development and implementation of robust marketing strategy for tourism.

Special attention is being paid to the preservation of key ecotourism sites such as Tiwai Island, Banana Island and Tacugama. We are working to improve the tourism infrastructure through increased investment in the development of more state-of-the-art hotels, conference centres and operations of the Hotel and Tourism Training Centre. Strategies will be strengthened for the development of local culture and exhibition of skills, arts and craft.

What are the main investment opportunities in Sierra Leone which can interest foreign investors?

The Sierra Leonean economic landscape has been liberalized, deepened and broadened, offering huge investment opportunities to investors in mining, agriculture, manufacturing, energy, tourism and information and communication technology. In the mining sector, Sierra Leone boasts deposits of iron ore, bauxite, rutile, gold and diamond. The manufacturing sector equally has potential, where we intend to scale up investments. In the agricultural sector, Sierra Leone is endowed with thousands of hectares of arable land, of which only 12 % is under cultivation. An annual rainfall lasting six to seven months and possibly the highest in the world, guarantees a fertile landscape all-year-round. The traditional export crops are coffee and cocoa but we want to add cashew, chilli and ginger to the list. There is also great potential for the development of oil palm, sugar cane and banana plantations.

Sierra Leone also has investment opportunities in the wood industry. Timber, which is found in the south and east of the country, remains largely untapped. The country is seeking to attract medium to long-term investors in the industry.  Indeed, government’s economic diversification drive presents fantastic opportunities to investors who wish to key into our economic diversification agenda as they stand to reap abundant returns on investment.

Are there investment incentives?

Sierra Leone is investment-friendly. Government has investment incentives aimed at attracting genuine investors. These incentives cover all sectors of the economy and are wide ranging. The incentives include tax holidays, duty and tax waivers, lower duty rates on capital equipment and raw materials as well as accelerated depreciation of capital. We also have tax breaks for investments in mining and the agricultural sectors. Apart from these, government is putting in place mechanisms for improving the business registration process and the business climate.

To what extent has the support from Sierra Leone’s traditional development partners, especially the International Monetary Fund (IMF) and the World Bank Group helped government to achieve its development targets?

Our development partners have been playing crucial roles in the development of Sierra Leone. We appreciate their unflinching support, especially during the past few years as our economy faced severe exogenous shocks. For example, government has been receiving support from the International Monetary Fund under the Extended Credit Facility Programme (ECF). The ECF programme, designed to support implementation of the Agenda for Prosperity, focuses on strengthening macroeconomic stability underpinned by prudent fiscal and monetary policies; reinforcing revenue performance and improving public financial management to efficiently channel adequate resources to infrastructure and poverty-related spending; and stepping up financial sector reforms to support financial deepening and economic growth.

To achieve these goals, the Executive Board of the IMF approved the disbursement of SDR 24.44 million (equivalent to $34.12), of which $21.6 million is for Budget Support and $12.5 million is Balance of Payments Support in 2016. Prior to that, the IMF had provided financial support of $72.9 million in March 2015 through augmentation of access under the ECF arrangement, to cover budgetary and balance of payments financing gaps and to improve foreign exchange reserves position.  Another $29.2 million was provided as debt relief under the Catastrophic Containment and Relief Trust to mitigate the impact of Ebola on the budget.  By the end of 2015, the IMF disbursed another $46 million to support budget implementation during 2015 and 2016. This brought the total disbursement, including the normal ECF expenditures of $12.5 million for balance of payments to $160.6 million in 2015.

The World Bank provided support under the Emergency Economic and Fiscal Support Operation in the sum of $30 million in 2014 and another $30 million in 2015 to assist government’s efforts to respond to the challenges posed by the Ebola epidemic, including reduced government revenues, increasing essential fiscal expenditure which resulted in an unanticipated financing gap.  The World Bank’s disbursements are based on triggers under the EEFS and Multi-Donor Budget Support (MDBS) Progress Assessment Framework. The World Bank is expected to disburse another $20 million for 2016 under a new Budget Support Operation. This support has provided considerable fiscal space for the government budget.

Equally noteworthy is the African Development Bank’s (AfDB) Budget Support Operations (2014-2016) for Sierra Leone. The AfDB’s support focuses on two pillars consistent with Sierra Leone’s Agenda for Prosperity (2013-18). These are designed to deepen the country’s transitioning towards a more resilient development path. The two pillars are: Enhancing Economic Governance and Transparent Management of Natural Resources, which builds on existing PFM reforms and promotes the transparent management of natural resource revenues; and Supporting Transformational and Sustainable Infrastructure Development in energy, roads and water aimed at facilitating inclusive green growth, fostering regional integration and enhancing private sector development and economic competitiveness.

Is construction of the Mamamah Airport on track?

Construction of the Mamamah International Airport is one of President Koroma’s flagship projects. The project is attracting funding. Financing for this project comes from China, through EXIM Bank. Government sees the Mamamah Airport project as being very important, with great potential for the country’s future growth.

The new airport will allow easy access to the capital Freetown without crossing the River Rokel as well as the heavy traffic which sometimes result in travellers missing their flights. It will also accommodate bigger cargo flights, thus bringing respite to passengers and helping to solve the problem of lost or delayed baggage. What is more, a new commercial city is sure to spring up with the coming of the Mamamah Airport as new businesses and offices will be established at its location, which will help create employment and contribute to the national economy.

In what ways can the Forum on China-Africa Cooperation (FOCAC) add value to your country’s development efforts?

Sierra Leone has much to benefit from the FOCAC. The areas of development cooperation between China and Africa include agriculture and food security, industrial partnership, capacity building, energy and natural resources, marine, tourism and cultural cooperation. These are compatible with the Sierra Leonean government’s priorities as contained in the Agenda for Prosperity and the National Ebola Recovery Strategy. We are well placed to utilize the China Food Aid Emergency Programme, and benefit from Technological and Financial Cooperation, among others. The country will also be able to access the $60 billion Chinese Foreign Direct Investment and Commercial Loans to Africa.

The FOCAC has opened a new era of win-win cooperation and development between China and Africa, highlighting areas of further cooperation. For example, in Sierra Leone, China is strengthening Sierra Leone’s medical and public health infrastructure through the establishment of a West African Centre for Disease Control and Prevention. China and Sierra Leone also have cooperation in mining and industry; fishing and agriculture; just as it is promoting human resource development and supporting infrastructural development, including the proposed construction of the Mamamah International Airport.

Could you give us an overview of Sierra Leone’s economic outlook?

The unfortunate deterioration of the country’s economy in 2014-2015 from 20.7 per cent in 2013 to -21 per cent in 2015 led to reduction in tax revenues in the face of higher-than-budgeted expenditure outlays. That is in the past, and we are over the shock. I am confident of a medium-term outlook that is positive with growth projected to recover by 4.9 per cent in 2016 and 5.4 percent in 2017 to gradually increase to around 6.5 per cent by 2020. The resumption of iron ore production combined with the gradual improvement of iron ore prices and the implementation of the post-Ebola Recovery Strategy are expected to boost economic performance in 2016 and the medium-term.  We envisage inflation at 11.5 per cent in 2016. However, as the exchange rate stabilizes with improved export performance and continued increase in domestic food production, inflation will slow down to 10.5 per cent in 2017 and 9.0 per cent by 2019.

Domestic revenue is projected to increase to 10.5 per cent of GDP in 2016, 11 per cent of GDP in 2017 and subsequently to 12.9 per cent in 2019 largely reflecting the implementation of revenue-enhancing measures including enhanced tax audits, minimization of duty concessions, and stricter enforcement, automation of Goods and Services Tax (GST) collections, simplifying customs clearance, whose existing complexity is facilitating tax evasion and continued efforts to enhance tax administration.

Expenditure will average around 18.7 per cent of GDP during 2017-2019 from 19.0 per cent in 2016. Government will adopt several measures to curtail wasteful expenditure in certain areas to improve the country’s fiscal position in the short- to medium-term and ensure fiscal sustainability. To promote growth, capital spending will be increased and poverty-related expenditure protected.

The current account deficit (including official grants) as a per cent of GDP will deteriorate to 16.6 per cent in 2016 owing to decline in transfers. However, it will improve to 16 per cent in 2017 and 15.6 per cent in 2019 as exports of goods continue to improve. We are optimistic about the prospects of the economy over the medium term.

 

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