Can recent reforms in Sierra Leone beat the effects of global economic downturn?

13 February 2012

The global economic decline which started in 2007 is having a huge impact on world trade and financial investments.
But for Sub-sahara African countries such as Sierra Leone, the human costs of the global economic downturn, added to the perennial problems of corruption and poor governance, demands urgent structural reforms.

Although economic growth saw a slight improvement in 2010, there is little doubt that without an expansion in private sector-led industrialisation, unemployment – especially youth unemployment and poverty will continue to rise.

Many analysts have argued that the pace of public sector and economic reforms must be accelerated and prioritised by the government, if it is to succeed in promoting private sector-led economic growth, job creation and increased government revenue.

Sceptics disagree. They argue that the government’s public proclamation of championing private sector-led growth is masked by their continuing failure to privatise state-owned enterprises, and the absence of a genuine programme of  support for the expansion of indigenous small and medium sized enterprises.

But writing in his personal blog last week, the country manager for the World Bank in Sierra Leone – Mr. Vijay Pillai, is rather optimistic about the changes those reforms could have on the country’s economy. This is what he says:

The year 2011 ended on a high note for the reformers in Sierra Leone.
There were two significant reforms which the government saw through – reforms that had been long overdue, but which now hold the potential of unleashing new investments and economic growth in the country.

Can Sierra Leone use these reforms to beat the potential effects of a global economic downturn? One hope so.

The energy sector in Sierra Leone has long faced under-investments. Not very long ago Freetown had the dubious distinction of being the darkest capital in the world and the Bumbuna dam remained elusive.

Since the completion of the dam, Freetown has been benefitting from its power, albeit at reduced levels. Still, the energy sector suffers from years of neglect and governance challenges.

With astonishingly high levels of technical and commercial losses (estimated to be nearly 50%), new investments in the energy sector are unlikely to deliver returns unless this hemorrhage is stopped.

So in December, the government got the Parliamentary nod for two significant laws to strengthen the regulatory environment and improve the performance of the utility – setting up of an independent regulator and unbundling the electricity sector.

There is still a long way to go before the country can fully benefit from its abundant hydropower potential, but implementing the new laws is clearly on the critical path.

Another sector with significant growth potential across Africa is the telecommunication and ICT sector. Sierra Leone too has seen some exciting developments with the recent arrival of the submarine cable.

But the existing monopoly for the international telecom gateway has been constraining the sector from realizing its full growth potential.

The total outgoing telecom traffic only grew by 55% during 2006-08, while some other countries in the sub-region saw 200% growth during the same period.

There is also the problem of a large share of traffic diverted through illegal operators, because of the monopoly, leading to a loss of revenues for the country.

And the net loser is the average person on the street, who spends $0.22 a minute for an international call – two to three times what their counterparts in other African countries pay.

The government has now publicly announced a firm timetable for revoking the monopoly of the gateway later this year (which would allow other operators to manage gateways in the future), and undertaking revisions to the existing telecommunication law to increase competition in the sector.

Both these reforms have no doubt been tough, but they could unleash a lot of economic activity and jobs.

Coming on the back of Sierra Leone’s recent impressive performance in the Doing Business scores, suddenly make both sectors look that much more attractive to investors and entrepreneurs.

No doubt, the enormous spin-offs from a vibrant energy and telecom sector would only benefit the people of the country in the coming years.

There is still a lot of work to be done in implementing these reforms – which would require resoluteness — but nevertheless it has been a great way to end the year for the country.

 

 

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