Sammy Massaquoi: Sierra Leone Telegraph: 23 August 2019:
Much has been said about ‘bread and butter’ economics and the contribution of the Minister of Finance, or lack thereof, to the present state of Sierra Leone’s economy. This piece, therefore, aims to highlight some of the overlooked areas in this discourse.
I have refrained from engaging critics of the government on the mundane political issues which are, quite plainly, diversionary. Statements such as, “President Bio and his economic advisers appear to be clueless on how to solve the ‘bread-and-butter’ issues”, or that “President Bio has failed the nation”, or even that “JJ Saffa has been behaving like a bull in a china shop”, are not only considered derogatory, but I find them to be beneath my comments here.
I thus hasten to submit that ever since the frequently cited and quoted statement by Dr. Mahamudu Bawumia hit the social media waves, about the exchange rate exposing the weakness of the fundamentals of an economy, many would-be economists and pen-happy writers have chosen to rely on his statement and make sweeping conclusions about our economy, often unnecessarily.
Critics of the SLPP government even assert that Dr. Bawudia’s statement is “true for JJ Saffa and his ilk at the Ministry of Finance and Bank of Sierra Leone”.
The reality is that, Dr. Bawudia as a politician can understandably stretch the truth to serve the purpose of his statements, but it behoves those who choose to use those specific statements as blueprints for other economies, to do their due diligence. For as we know them, economists always make statements in “ceteris paribus” conditions.
Dr. Bawudia is not implying that each time the exchange rate is unfavourable for a country the entire fundamentals of the economy are weak because, though an indicator, exchange rate itself has multiple determinants, is malleable, subject to speculation and can be devalued as a deliberate policy (if fixed) to promote domestic exports of a country.
For instance, the fundamentals of the Chinese economy are strong, and it may be the country with the highest trade surplus (USD 421 bn), yet it does not have the strongest exchange rate against the USD, due to some of the aforementioned factors. In-fact, China’s habitual devaluation has been termed by the U.S as currency manipulation
Simply put, fundamentals of an economy refer to the variables/activities that have potential to affect the whole or segments of the economy. So when statements are made about the fundamentals of the economy, the key references are to the country’s Gross Domestic Product (GDP), Inflation, Employment, and Trade balance.
From desk research on the Sierra Leone economy, the 2019 (Q3) GDP figures of USD 4.5 billion is a significant improvement on the 2017 GDP of USD 3.74bn. Inflation has stagnated at 16.2% between 2018 and 2019, after a fall from 17.5 % (2017).
According to Moody’s Analytics, unemployment rate (In Sierra Leone, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force – sic) stood at 4.5% (2017) but is currently 4.3%, representing a modest decrease.
Sierra Leone also recorded a trade deficit of USD 535m (2017) which has widened by 38 % over the period ending 2019 due to a significant fall in exports, mainly from the minerals sector, to which President J.M Bio has requested a diversification outwards into other sectors, especially agriculture.
But herein lies the exchange rate problem, since persistent trade imbalances imply unfavourable terms of trade for the country. Other factors normally included as fundamentals of the economy are the levels of corruption and education of the population, soundness of the fiscal policy, level and management of the national debt.
My question for our politically motivated writers has always been: In which of these other areas of economic fundamentals is the Sierra Leone economy currently underperforming relative to the previous regime?
My suggested answer is ‘none of the above’. The fundamentals are certainly picking up, and with large infrastructural projects in the pipeline it is fair to say that the fundamentals of the economy will continue to get stronger.
Much to the displeasure of the naysayers of Sierra Leone, we will continue to browbeat the real reason for our present predicament, which is, the legacy of a battered economy, untold austerity, and a people that were then categorized as the third hungriest in the world (Global Hunger Index, 2017).
Of course social and related media are replete with figures on, say, our national debt, which currently requires debt servicing payments of around 110 billion Leones annually. THINK about that!
Besides, a host of lopsided agreements with the mining companies, occasioned during the previous administration have left Sierra Leone holding the short-end of the stick, causing low revenues from our minerals.
More importantly, the unease within the mining sector has created more export shocks and subdued production levels, exacerbating the trade imbalance with further impacts on exchange rates. A number of house cleaning measures that the Ministry of mines has adopted to resuscitate this foreign exchange earning sector revives hope for short to medium term recovery.
Let me also argue here that a lot of the improvement strides that finance minister J.J Saffa and team have made, are movements in the negative and therefore not easily noticed by many.
Numerically minded people will agree that a movement from negative 40 to 0, is the same numerical movement as from 0 to positive 40.
What the New Direction government has successfully done is to stabilize an economy that was clearly in a free fall when the APC left.
An objective perspective is that living conditions could have been worse by now, had the APC won the last elections.
It is, therefore, our moral duty as patriotic Sierra Leoneans, to lend support to this government for a take-off of the economy into sustainable growth.
In the interest of full disclosure, the stabilization of the economy has been made possible mainly by the revenue raising efforts of the National Revenue Authority (NRA), supervised by the Ministry of Finance, which has taken our domestic revenue mobilization from single digit to double digits in the short period of this administration.
The implication is that, for once in a long while, government is able to finance its expenditures, including the much trumpeted overseas travels, from domestic revenues without recourse to borrowing.
Admittedly the domestic revenue mobilization, being on track, must now give way to an export promotion phase, to provide us with the much needed foreign exchange for our balance of payments position and consequently economic growth.
This is obviously the longer-term phase and His Excellency is on record asking Sierra Leoneans to exercise patience, since the outcomes will more than justify any economic hardships that will be endured in the waiting period.
No economist, Dr. Bawudia included, will give you a quick-fix for this second phase because it involves production and manufacturing periods, mining lags and crop gestation periods, some of which may even be subject to the vagaries of nature. Therefore at this stage, there is no magic wand.
What I subscribe to, and with restrain I quote former President E. B Koroma here, is that “we are a resilient people”, and having weathered the storms of a decade-long war and a deleterious disease (Ebola), we will persevere and achieve a turnaround of an economy that has clearly bottomed now.
We cannot do so, however, if we are overly critical of, and constantly calling for the removal of the very actors who have, thus far, stabilized the economy.
The ongoing USD auctioning and recent press releases (20/8/19) from the Central Bank on compliance measures in foreign currency dealings by NGOs, businesses and private individuals, are pointers to the relentless efforts of the Finance Team to alleviate the exchange rate problems.
I strongly believe that these officials have already completed their learning curves and should now be given the space and chance to right the wrongs of the past actors, and take this economy to higher levels.
Ultimately, it is those who hate to hear this truth that are writing humbug articles to misinform the public and to evince that the problems of our economy started only last year.
The important and sensitive work of rebuilding a broken economy cannot be achieved in a single feat. Thankfully, there is still more than three years left to deliver.