By Tanu Jalloh
While investments and business generally seem to have boomed in the last five years and with prospects to grow in the coming year, 2013, the economy, which is supposed to be the driving force behind all of this, might have the deuce of a time getting there.
Yes it is possible that in the New Year money supply will grow 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 will be social in nature. They will invariably emerge from the conducts of a political class trying to satisfy the growing business class. Let me state here that profit maximisation, which is the ultimate thrust of any business, can or should be legal. However, 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 are 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 the country is likely to be more vulnerable to bad businesses not because a government is corrupt or the laws are weak but also because it is being touted as one of the biggest investment destinations on the continent in recent years. Mistakes are bound to happen. The country could be susceptible to bad deals and investment bargains. Its people are desperately poor and therefore will continue to serve as an unbearable social pressure on the government’s agenda for prosperity, whose aim “is 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 will 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.
Thus getting the right type of investments with the right set of laws that seek to safeguard local empowerment interests and at a scale that is proportionately equal to the challenges holding back the economy could be formidable. 2013 must therefore be set aside to lay the foundation that is required of government to bring the economy up to speed with expected growth rate in business or large scale investments. It must employ pro-poor approaches to economic policy implementation, lest a small class of aristocrats will emerge and the gap will 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 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. The country ranks 180 out of 187 countries in terms of human development index. Youth unemployment, at 60%, is a challenging social problem with major economic and political backlash.
Also is the obstinate issue of inflation, which remained high at 18.5% 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 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 is also shrinking, from 64% of GDP in 2010 to 34% in 2012 and 2013. Those deficits occur 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 is that trade and investments, be they foreign direct or locally conceived, established and operated private enterprises, are likely to stabilise and expand in the coming year. Those developments are possible because a five-year-long stable business environment could be just enough for new businesses to spring up and 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.
Domestic revenue generation will continue to increase and more mechanisms to ensure less dependence on donor hand-outs are going to be put in place. To undertake large scale infrastructure development between 2011 and 2012, the government was in deficit. As a result, domestic revenue generation for the National Revenue Authority increased astronomically from hundreds of billions of leones to trillions in the last two years. This pressure is sure to increase in 2013 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 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 the year.
Although the Bretton Woods institutions like International Monetary Fund and World Bank support wealth creation through taxation, those tax regulations must seek to sustain revenue generation in a manner that does not suggest exploitation. When tax regimes tend to concern only with the huge amount of domestic revenue generated albeit unfairly what happens is that revenue actually increases but the tax burdens are invariably passed on to the final consumers. In this case the businessman is justified in his overpricing of, for instance, basic food stuff, fuel products and other consumables.
I know that achieving the agenda for prosperity will 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 conservative through the judicious and transparent use of waivers and concessions. There are bound to be new possibilities of revenue generation but they must not harm competition, discourage investors and kill small scale enterprises.
