The importance of good governance to Sierra Leone’s economic development

Alpha Kawusu

18 January 2012

Sierra Leone Extractive Industry Transparency Initiative

By itself, good governance does not hold the key that will unlock Sierra Leone’s growth potential. Indeed, there are countries in Africa that are fairly well governed, yet are still poor.However, it is impossible for economic development to be sustained in Sierra Leone without good governance.

Good governance promotes economic development, which in turn improves good governance.

But good governance is a very broad concept that encompasses all aspects of governance in a country. And mindful of the broadness of this idea, the focus of this analysis will be mainly on that aspect of governance that directly influences macroeconomic policy and their implementation.

This will allow us to follow the road map established by the United Nations Economic Commission for Africa (UNECA).

The UNECA considers good governance in economic management to include: a commitment to macroeconomic stability and sound economic management, good public financial management with an equitable tax system, small budget deficits, good resource mobilization, a commitment to poverty reduction, a conducive environment for private sector development, and greater financial independence for monetary and financial institutions.

Like many developing countries, Sierra Leone’s development challenges are many and multi-dimensional. And these challenges become even more profound, when the impact of institutionalized corruption on economic development is taken into account.

For much of the country’s history, corruption and economic mismanagement have been widespread, thereby contributing immensely to endemic poverty and neglect.

Although rich in mineral resources, a low per capita income suggests that Sierra Leone has not benefitted from its resources in real terms.

Despite this, the country continues to be heavily dependent on the mining sector, especially diamonds.

This has led to a gradual depletion of mineral resources. But the depletion of resources is not limited to the mining sector, as the country’s rain forests would eventually face extinction, if illegal exploitation is not halted.

Presently, there is credible evidence that politicians in complicity with shady foreign businessmen, have for years been illegally exploiting Sierra Leone’s rain forests to provide timber, which is carted away to overseas markets.

Another equally important development with negative implications is the loss of capital in agriculture. Crude farming methods, which allow farmers to grow crops without fertilizers, have led to a serious depletion of soil nutrients.

This loss of nutrients translates to a loss of natural capital, which is not taken into account because resource depletion is counted as income in Sierra Leone.

One more problem worth mentioning is that unlike other developing countries, Sierra Leone’s share of foreign direct investment has been falling precipitously over the last five years.

Among the many factors responsible for this are; the country’s small domestic market, macroeconomic instability, poor agricultural development, and poor infrastructural development.

Together with endemic corruption and mismanagement, the aforementioned negative characteristics have often discouraged potential foreign investors from investing in Sierra Leone.

Given the inauspicious patterns outlined above, it can be argued that good economic management is the primary, fundamental determinant of Sierra Leone’s long-run economic performance.

This position is consistent with the findings of many econometric studies, that: there exists a strong correlation between long-term economic performance and good governance.

This means that the quality of a country’s governance is a fundamental determinant of that country’s long-run developmental outcomes.

Accordingly, good governance in the management of public finances will result in sound fiscal policies, which in turn will promote macroeconomic stabilization, an efficient allocation of resources, and an efficient distribution of income.

Sound fiscal policies will also hold the budget deficit at reasonable levels, thereby preventing inflation and price instability.

This notwithstanding, good fiscal management will also lead to the cutting down of wasteful expenditure, while allocating resources efficiently for developmental needs and social welfare.

Another reward of sound fiscal management will come with tax collection. Efficient tax collection will eliminate unwarranted exemptions and minimize the incidence of bribery by those who would want to evade taxes.

This will allow Sierra Leone to attain higher levels of economic growth.

Correspondingly, good governance has an important role in the enforcement of the rule of law, and by extension the protection of property rights and the fundamental human rights of citizens.

In environments like Sierra Leone where corruption is on the increase, enforcing the rule of law will help in the distribution of the gains of economic growth.

Since distributing the gains of growth in such an environment requires institutional reform, Sierra Leone will stand to benefit from an efficient enforcement of the rule of law.

Enforcing the rule of law would also attract foreign investors who are always concerned with the enforcement of property rights.

Also, since capital seeks opportunities and returns in a business-friendly environment, upholding the rule of law would provide a conducive environment for businesses to flourish.

Moreover, extending good governance and the rule of law – especially to the banking sector, means that the Bank of Sierra Leone will be free from political involvement in the execution of monetary policy.

Another important benefit that would accrue to Sierra Leone from upholding the rule of law is that fair legal frameworks will be impartially enforced by an independent judiciary. This will promote transparency which in turn will promote accountability and probity.

Good governance, accountability and probity at all levels of economic activity will hasten the process of economic development by forcing government institutions, the private sector and civil society organizations to be accountable to their stakeholders and the rest of the citizenry.


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