Sierra Leone signs $18 million loan agreement for Freetown Solar Park

The Sierra Leone Telegraph: 1 July 2014  

Hailed as a landmark renewable energy project in West Africa, which is expected to add valuable and much needed clean electricity to Sierra Leone’s national grid, work on the development of the Freetown Solar Park will soon commence.

Sierra Leone’s ministry of finance and economic development, yesterday announced that when completed, the 6 Megawatts Freetown Solar Park will provide electricity to the urban and western rural districts around the capital, Freetown.

Speaking at the signing ceremony yesterday, minister of finance and economic development – Dr Kaifala Marah said: “We wish on behalf of the Government of Sierra Leone to thank Mr. Siray Timbo – Special Envoy and Ambassador to the UAE; the Ministry of Energy; Mr Bahige Annan – The Consul General of Sierra Leone in Dubai; and Mr. Filip Matwin – General Manager of Advanced Science and Innovation Company (ASIC) LLC / OGI, for coordinating and putting together the winning bid.

“ASIC/OGI will facilitate co-financing and management of the project in collaboration with the Ministry of Energy.”

The $18 million loan will fund both capital and revenue costs of establishing the Solar Park, as well as supporting the institutional and critical human resource arrangements for the sustainable management of the facility.

Minister Marah also extended the government’s appreciation and “gratitude to IRENA, for coordinating the selection process, the ADFD for extending USD 9 million as part funding to the Government of Sierra Leone and ASIC/OGI that will coordinate additional USD 9 million as private equity.”

The minister says that; “The project will place Sierra Leone on the global map of Renewable Energy; and further strengthen the existing cordial relationship between the Governments of Sierra Leone and the United Arab Emirates.”

With an estimated 90% of households in Sierra Leone suffering from electricity  poverty, and total electricity production not more than 30 Megawatts from the Bumbuna Hydro-electricity plant in the north of the country, Sierra Leone’s economy is being crippled by the lack of electricity.

Iron ore export has become the country’s single driver of economic growth, which according to recent report of the IMF, expanding by 20 percent in 2013.

Following the conclusion of its first review of Sierra Leone’s economic program under a three-year arrangement of the Extended Credit Facility (ECF) in Freetown two weeks ago, the IMF issued a positive report on the economy, especially fiscal and macroeconomic management.

According to the IMF, the completion of the review meant that it could now release funding disbursement of $13.69 million to the government.

Reporting on the performance of the government in managing the economy, the IMF said that; “Sierra Leone’s economic growth continued its momentum in 2013, with output expanding by 20 percent on account of new iron ore production coming on stream, as well as strong growth in agriculture and the services sector.

“Inflation declined to single digits, mainly reflecting increased food supply. The surge in iron ore exports contributed to the improvement in the external and fiscal positions.”

Looking ahead, although GDP growth will slow down by the end of 2014, it will nonetheless “continue to grow in double-digits at 11.3%, in line with the expected higher iron ore and other mining production, continued strong output expansion in agriculture, services, and construction, and a recovery in manufacturing as energy supply improves in 2014.”

“The scaling up of public investment, as envisaged in the implementation of the country’s poverty reduction strategy, the Agenda for Prosperity (AfP), should also help to catalyze private sector activity and contribute to higher, sustainable growth in the non-resources sector,” says the IMF.

But this would very much depend on the government’s ability to raise the much needed $5 billion required to fund its Agenda for Prosperity.

According to the IMF; “Consumer price inflation is expected to continue trending downward as food supply benefits from government-sponsored programs in agriculture, and non-food inflation would remain moderate thanks to continued prudent monetary policy.”

With recent reports of government giving massive tax exemptions to foreign companies, the effects on public revenue have been tremendous, for a country with poverty level exceeding 60% of the population.

But the IMF is optimistic. It says that; “Fiscal policy for 2014 will continue to focus on reducing duty waivers and increasing audit capacity in tax administration to support revenue mobilization, containing non-priority spending to create space for public investment, and strengthening budget execution and controls through public financial management reforms.”

Over the last few years, the government has largely paid for its profligate spending by borrowing, through the sale of treasury bills and bonds, which has had the effect of pushing interest rates up and crowding out the private sector from the financial market,

And the IMF has once again issued a note of caution. It warns the government that; “Continued prudent borrowing policies will be important to support growth-enhancing investment while maintaining debt sustainability.”

It says that; “Reform measures and policies put in place in recent years have helped improve macroeconomic stability, advance social policies, and enhance prospects for broad and inclusive growth.”

But the IMF also warned that; “Nonetheless, the country faces important challenges. Poverty and unemployment remain high, and access to important public and social services is limited.

“In addition, growth prospects are hindered by numerous obstacles, including insufficient power supply and road networks, and limited access to financial services, particularly for small- and medium-sized enterprises.

“The fiscal position remains fragile, despite improvement in 2013, due to the relatively low and volatile revenue base and pressure for higher spending on wages and infrastructure.”

So what about prospects for the future of the economy?

The IMF says that; “Looking ahead, the authorities need to sustain the implementation of structural reform measures aimed at strengthening the fiscal position further, developing financial intermediation, advancing civil service reforms and creating an environment conducive to private sector development.”

But for a government that wishes to pride itself in being private sector friendly, it is a serious failing to be told by the IMF that the environment in Sierra Leone is not conducive to private sector development.

Economic prosperity and job creation cannot be achieved without a strong and vibrant private sector. This therefore requires a serious policy change, rather than more rhetoric.

The creation of a two-tier national electricity platform – power generation and distribution, is a step in the right direction. But the privatisation of the National Power Authority (NPA) is more than overdue.