The country received substantial support from its development partners in spite of the challenges experienced in the financial system in the year 2007.
The Sierra Leone economy therefore, continues to be largely donor driven and the country was fortunate to benefit from debt relief interventions through its membership at the Paris Club and from the United States of America Government.
Although the country continues to face challenges in accessing donor funds because of its inability to meet some quantitative and structural targets, a project development assistance package of $30million was received from the World Bank to support rural and private sector development. This project which is in support of pro-poor economic growth for food security and job creation is being implemented.
Also Trade Finance Agreements have been signed between the International Finance Corporation and three main commercial banks in a bid to boost the business community
Furthermore, on the financial sector, investment policies have been liberalized with the aim of further deepening of the sector as well as ensuring a sound and stable financial system. This has resulted in the issuance of operating licenses to strong Nigerian Banks to conduct the business of banking in Sierra Leone. Community banks are also being established to provide financial intermediation services to the rural poor.
Real Gross Domestic Product (GDP) is estimated at 7% and is mainly driven by strong growth in the agricultural sector. Improved performances were also recorded in the industrial and service sector, providing an additional boost to growth and employment opportunities.
Monetary policy continues to be directed at maintaining a low and stable rate of inflation. However, the rise in the world market price for petroleum products has created a hike in consumer prices caused by demand pull and cost push factors. Inflation rate has therefore climbed to 12.15% from 7.88% in year 2007.
The Energy Sector has seen significant development in recent times, with the Government receiving donor pledges for the completion of the Bumbuna Hydro Electric Power Project. As an interim support the World Bank has provided funds for 15 mega-watts Thermal generator engine to improve electricity supply in the Western Area.
The PRSP II document 2008 has been produced for discussion. It represents the overarching poverty reduction strategy of the Government of Sierra Leone from 2008-2012. It builds on the PRSP I, but has a different focus altogether.
It emphasizes the importance of generating a sustainable rate of economic growth through encouraging the private sector to play a greater role in the economy. Attention is also paid to the preconditions for achieving higher levels of investment and growth through sustaining macroeconomic stability, consolidating peace, good governance and removing constraints faced by the private sector.
Government’s Strategic Priorities 2008-2012
- Strengthening of the National Electricity Grid.
- Developing the National Transportation Network.
- Enhancing Productivity in Agriculture, Forestry and Fisheries.
- Building Human Capacity to ensure effective delivery of basic social services.
Though focusing on these four strategic areas and encouraging private sector engagement, where appropriate, it is envisaged that the basis for high and sustainable levels of economic growth and poverty reduction will be provided. Since the end of the eleven (11) years civil war in 2001, this saw the nation’s economy shrink by up to 40% below pre-war periods, Sierra Leone’s economy took and maintained an upward trajectory. The period 2001 to 2003 saw significant increase in rates of growth from 5% in 2001 to 17% in 2002 as 27% in 2003. Since the surge, real GDP growth was sustained at an average of 7.6% for 2003 to 2007. The period 2008 to 2011 saw difficult time across the global economy, due to an increase in food and energy costs and as a result of the global financial crisis. Even during this period, Sierra Leone’s growth performed are marginally above the average for Heavily Indebted Poor Countries (HIPCs), averaging 5.7 percent compared to 5.4 percent.
The past five years has been a period of massive public investments in infrastructure. This investment programme, combined with other external sector issues, created inflationary pressures and depreciation in the nominal exchange rate. In 2010, inflation reached 16.8 percent. The nominal exchange rate depreciated 35 percent between 2007 and 2010. Government fiscal performance has expressed consistent deficits throughout the past decade, causing heavy reliance on budgetary support in the form of grants and concessionary loans from multilateral development partners. Interest rates and general private commercial lending have been influenced to a large extent by performance in the fiscal sector. Commercial bank lending rates have been consistently above 20 percent; partly due to large appetite in public borrowing, with yields in government securities also being around that range. The following Charts/Tables give trend analysis of different macroeconomic variables over the past six (6) years.
Economic Structure and National Output
Agriculture has maintained a dominant role in the Sierra Leone economy before and after the civil conflict. This dominance is reflected by its share of national output and the employment it creates. The agriculture sector is followed by the services and industrial sectors. The main drawn of the services sector are communication, banking and finance and transport. In the industrial sectors has been driven by mining and construction, in light of a significant decline in manufacturing.
Sierra Leone has a broad law resource base of over 4.8Million hectares, of which less than 20 percent has been cultivated. Prior to 2009, agriculture was practiced mainly in small scale subsistence methods. Since 2009, there has been major development in large scale commercial agricultural projects in Oil Palm & Sugar Cane. Also there have been public policy initiatives aimed at introducing commercialisation methods to small holder farmers. Non-farming production activities are concentrated in the mining sector; recent mining concessions in Iron ore and Gold as well as previous operations in diamonds. Rutile and Bauxite continue to be a major component of real sector activities and exports. These are signs of potential emergence of a strong manufacturing industry; especially in the value-added processing of agricultural products and other natural resources. Ongoing public investments and PPPs in the energy sector are expected to further stoke investments and business in the manufacturing sub-sector.
The country has typically recorded deficit in its external trade accounts. The balance of payment deficits are perpetrated by heavy reliance on imports for almost all aspects of large including food, fuel, manufactured consumer items and machinery. By the mid 2000s, Sierra Leone recorded export values that were more than double level of five (5) years before. This was due to greater accountability for diamond exports and the reopening of bauxite and rutile mines that were closed during the war. Even though exports have increased steadily since that period, recent FDI in the mining and agriculture sector have led to deterioration in the services account balances due to increases in demand for shipping services in the importation of machinery and equipment and construction services. This trend is expected to be reviewed from 2013 and beyond, when mineral exports are expected to significantly improve on the merchandise and income account.
Foreign Direct Investment (FDI) Analysis
The following analysis aim to provide a suitable perspective on recent foreign direct investments in Sierra Leone: It examines investment flows, investment sectors, recent developments and the impact that such investments have on other economic variables. Between 2001 and 2006, government policy focused primarily on achieving macroeconomic stability, post-war reconstruction and service delivery. As a result, this period saw modest, if not minimal levels of new FDI. Government policy in the second half of the decade shifted notably towards improving the investment climate and alteration foreign investments in key sectors of the economy. As a result FDI inflows increased significantly between 2007 and 2011, experiencing financial crisis.
A sector analysis of the distributor of FDI between 2000 and 2010 can be done in terms of number of (companies or projects) or in terms of volume on financial flows. From the perspective of number of companies or projects, the three leading sectors are banking, telecommunication and mining, while from a financial-flow perspective, the leading sectors are mining, agribusiness and telecommunication. The period 2011 saw significant interest in the business sector, with planned and ongoing investments by global brand hotels such as Hilton & Radisson Blu. Other sectors that are positioned to attract FDI are Oil and Gas, Energy, Transport infrastructure and light industry.
There have been several estimates of the potential job creation levels of the various foreign companies and investment projects in Sierra Leone. The aggregate number of new jobs to be created by companies in the mining sector in 2013 is projected at 58,000 with indirect impact on over 500,000 dependants and extended failures. Recent foreign investments have made notable improvements in infrastructure. These include telecommunication, where the state of affairs improved from a situation of less than 0.4 percent of the population in penetration levels in 2001 to approximately 48 percent telephone access in 2011.