By Tanu Jalloh
Sequel to the one I did in 2012 coming into the New Year, this year, I reasoned with the trend of economic growth and what it looked like and what it meant for times ahead. The general hope was that while investments and business generally showed signs of boom,given the trend in the five years before 2013, there were blots. And the economy, which was supposed to be the driving force behind all of that, had the deuce of a time getting there.
Yes it was possible that in 2013 money supply would have grown faster than the rate of economic growth, the cause of a long sustained period of inflation. Interestingly, apart from inflation, most of the likely setbacks had been social in nature. They invariably emerged from the conducts of a political class trying to satisfy the growing business class. Like I said in the article before this, profit maximisation, which is the ultimate thrust of any business, could or should be legal. But some businesses thrive well and longer when profit making tends to be illegal, especially in poor countries like Sierra Leone.
When he addressed the first session of the fourth parliament of the second republic of Sierra Leone, President Ernest Bai Koroma admitted to possible challenges that were likely to accompany the natural resource boom in the coming years.
“There has never been as much interest in our natural resources as at this time, there has never been as much investments as at this time, there has never been as much possibilities of positive transformation as at this time. My second term will be dedicated towards enhancing the capacity of the Sierra Leonean to become the biggest drivers and beneficiaries of the transformation,” he said.
Thus in 2013, probably more than ever before, the country proved to be more vulnerable to bad businesses, not because the government was slammed of being corrupt or the laws were weak but also because it was being touted as one of the biggest investment destinations on the continent in recent years. Mistakes, a lot of them, were made both in terms of policyformulation and implementation. The country was exposed to the susceptibilities of bad deals and investment bargains. Its people were still struggling to get out of poverty and therefore they grew desperate and became an unbearable social pressure on the government’s Agenda for Prosperity. The blueprint still aims “to ensure that all people, every Sierra Leonean, in every region, district, city, town and village, benefit from the endowments that God gave us. Our goal for the next five years is to develop a healthier nation; build better schools, better hospitals, and better roads; provide greater prosperity; and give power to the people.”
Absolute poverty was expected to fall from around 70 percent after the war to around 60 percent by 2007, but it would certainly be difficult to fall to below 40 percent in the coming year (lifting 20 percent of the population out of poverty) to reach the Millennium Development Goals (MGDs) target by 2015.
Therefore, getting the right type of investments with the right set of laws that would safeguard local empowerment interests and at a scale that would be proportionately equal to the challenges holding back the economy continued to be formidable. 2013 was, in many ways, set aside to lay the foundation that would require government to bring the economy up to speed with expected growth rate – we have seen businesses or large scale investments. It would have employed pro-poor approaches to economic policy implementation, lest a small class of aristocrats would emerge and the gap would continue to widen between the poor and the rich.
In the first place Sierra Leone, despite her potentials and huge mineral resource reserve, vast arable lands with rains and sunshine and marine products, is said to be one of the poorest and least developed countries in the world. Her gross domestic product (GDP) per capita as at 2011 was only USD 611.Although that has doubled to USD 1,400 in 2012, according to Index Mundi, the country still ranked 180 out of 187 countries in terms of human development index. Youth unemployment, at 60%, was estimated by the UN’s and other reports to be a challenging social problem with major economic and political backlash.
Also was the obstinate issue of inflation, which was18.5% in 2011 due to high oil and agricultural prices as well as a depreciating currency. The rate of inflation was expected to fall progressively but by end of 2012 it was still at 13.7%, according to a December 10, 2012 Deutsche Bank research.
The Bank’s report also mentioned shrinking, though high, twin deficits. The fiscal deficit has been declining (1.7% in 2012, 2.6% in 2013) on the back of higher mining royalties, improved revenue collection and sharp rise in nominal GDP. After soaring in 2011 on the back of increased food and fuel prices and [foreign direct investment] or FDI-related imports, the current account deficit is forecast to shrink as mining exports increase rapidly – down to 13% of GDP in 2012 and below 10% in 2013. Public debt also shrunk, from 64% of GDP in 2010 to 34% in 2012 and 2013. Those deficits usually occure when a country’s total imports of goods, services and transfers are greater than its total export of goods, services and transfers. Therefore, none mining exports should increase alongside mining exports to do the magic.
The argument was that trade and investments, be they foreign direct or locally conceived, established and operated private enterprises, were likely to stabilise and expand in the coming year. Those developments were possible because a five-year-long stable business environment could be just enough for new businesses to spring up, accommodate emerging market forces and compete healthily.
Although in business terms the absence of physical violence should not necessarily be misunderstood for total peace, it should however add confidence to an already existing congenial legal environment that promotes healthy competition and increases the urge for alternative investments efforts. This is common sense.
Although domestic revenue generation would continue to increase, more mechanisms to ensure less dependence on donor hand-outs were supposed to have been put in place by now. When the government embarked on a massive scale of infrastructure development between 2011 and 2012, the country grappled with the deficit in 2013. Thus more than ever before we saw domestic revenue generation for the National Revenue Authority increased astronomically from hundreds of billions of leones to trillions of leones to offset the deficit. That pressure sure increased in the last two quarters of the year to service bigger and capital intensive projects.
Initially in 2012 the revenue generating authority had a target of Le 1.1 trillion but based on its performance and the need for cash, it was revised to 1.2 trillion and for the third time it was revised to Le 1.32 trillion in September. Eventually, it had to collect about 1.428 trillion in the last quarter of that year.
Although the Bretton Woods institutions, like International Monetary Fund and World Bank, supported wealth creation through taxation, those tax regulationswere not supposed to have fallen short of sustaining revenue generation. When tax regimes tend to concern themselves only with the huge amount of domestic revenue generated, albeit unfairly, what we saw was that revenue actually increased but the tax burdens were either discriminatory of were invariably passed on to the final consumers. In that case the businessman was justified in his overpricing of, for instance, basic food stuff, fuel products and other consumables.
I know that achieving the Agenda for Prosperity would be, to a large extent, dependent on the ability of the state (central and local government) to finance and deliver public services. But tax regimes should be managed well. I also know that there were bound to be new possibilities of revenue generation in 2013 but they almost harmed competition, discouraged investors and killed small scale enterprises.
(C) Politico 30/10/13
