Recent reforms in Sierra Leone: Beating the effects of global economic downturn

The year 2011 ended on a high note for the reformers in Sierra Leone. There were two significant reforms which the government saw through – reforms that had been long overdue, but which now hold the potential of unleashing new investments and economic growth in the country. Can Sierra Leone’s use these reforms to beat the potential effects of a global economic downturn? One hopes so.

The energy sector in Sierra Leone has long faced under-investments. Not very long ago Freetown had the dubious distinction of being the darkest capital in the world and the Bumbuna dam remained elusive.
Since the completion of the dam, Freetown has been benefitting from its power, albeit at reduced levels. Still, the energy sector suffers from years of neglect and governance challenges. With astonishingly high levels of technical and commercial losses (estimated to be nearly 50%), new investments in the energy sector are unlikely to deliver returns unless this hemorrhage is stopped. So in December, the government got the Parliamentary nod for two significant laws to strengthen the regulatory environment and improve the performance of the utility – sector. There is still a long way to go before the country can fully benefit from its abundant hydropower potential, but implementing the new laws is clearly on the critical path.
Another sector with significant growth potential across Africa is the telecommunication and ICT sector. Sierra Leone too has seen some exciting developments with the recent arrival of the submarine cable. But the existing monopoly for the international telecom gateway has been constraining the sector from realizing its full growth potential. The total outgoing telecom traffic only grew by 55% during 2006-08, while some other countries in the sub-region saw 200% growth during the same period. There is also the problem of a large share of traffic diverted through illegal operators, because of the monopoly, leading to a loss of revenues for the country. And the net loser is the average person on the street, who spends $0.22 a minute for an international call – two to three times what their counterparts in other African countries pay. The government has now publicly announced a firm timetable for revoking the monopoly of the gateway later this year (which would allow other operators to manage gateways in the future), and undertaking revisions to the existing telecommunication law to increase competition in the sector.
Both these reforms have no doubt been tough, but they could unleash a lot of economic activity and jobs. Coming on the back of Sierra Leone’s recent impressive performance in the Doing Business scores, they suddenly make both these sectors look that much more attractive to investors and entrepreneurs. No doubt, the enormous spin-offs from a vibrant energy and telecom sector would only benefit the people of the country in the coming years. There is still a lot of work to be done in implementing these reforms – which would require resoluteness — but nevertheless it has been a great way to end the year for the country.

Turbulent Year Ahead for Global Economy

The world economy in 2012 is set to grow by just 2.5 percent, weighed down by ripple effects from the 2008 financial crisis, says the World Bank’s latest Global Economic Prospects (GEP) 2012, published today.
The sovereign debt crisis in Europe, which took a turn for the worse in August 2011, coincides with slowing growth in several major developing countries (Brazil, India and, to a lesser extent, Russia, South Africa and Turkey), mainly reflecting policy tightening begun in late 2010 and early 2011 to combat rising inflationary pressures from overly-fast growth.
As a result, developing country growth for 2012 is now forecast at 5.4 percent, the second lowest over the past 10 years. The Bank has also lowered its growth forecast for high-income countries in 2012 to 1.4 percent and -0.3 percent for the high-income Euro Area.
Reflecting the growth slowdown, world trade, which expanded by an estimated 6.6 percent in 2011, will grow by only 4.7 percent in 2012, before strengthening to 6.8 percent in 2013.
Risk aversion stemming from the Euro Area debt crisis has spread to both developing countries and other high-income countries. Yields on the sovereign debt of developing countries have increased by an average of 117 basis points (bps) between July-end 2011 and early January 2012, as have those of most-all Euro Area countries, including France (86 bps) and Germany (36 bps), and those of non-Euro Area countries such as the United Kingdom (18 bps).
Capital flows to developing countries have weakened sharply as investors withdrew substantial sums from developing-country markets in the second half of 2011, with gross capital flows to developing countries plunging to $170 billion, only 55 percent of the $309 billion received during the same period in 2010.
Developing-country stock markets have lost 8.5 percent of their value since July-end. This, combined with the 4.2 percent drop in high-income stock-market valuations, has translated into $6.5 trillion, or 9.5 percent of global GDP, in wealth losses.
The GEP urges developing countries to preparing for further downside risks, while there is still time, by assessing their vulnerabilities and preparing for contingencies by pre-financing budgetary deficits, prioritizing spending on social safety nets and infrastructure spending to assure longer-term growth, and stress-testing banks to avoid an eruption of domestic banking crises.
The report’s Regional Annexes provide an in-depth analysis of the outlook for each developing region, identifying region-specific vulnerabilities and risks, and offering broad policy recommendations for mitigating the effects of a crisis that, the GEP says, will spare no-one.
In the East Asia and Pacific region, affected by flooding in Thailand and the turmoil in Europe, regional GDP growth is estimated to have slowed to 8.2 percent in 2011, and is projected to ease further to 7.8 percent for both 2012 and 2013. Growth in China was an estimated 9.1 percent in 2011 and is expected to dip to 8.4 percent in 2012.
Europe and Central Asia grew by an estimated 5.3 percent in 2011. However, the expected slowdown in high-income Europe, still troublesome inflationary pressures in the region, and reduced capital flows due to the Euro Area crisis may slow regional growth to 3.2 percent in 2012, before firming to 4.0 percent by 2013.Latin America and the Caribbean grew by an estimated 4.2 percent in 2011, but this is expected to ease to 3.6 percent growth in 2012, before picking up to 4.2 percent in 2013. Weaker global growth, uncertainty arising from the Euro Area debt crisis, slower growth in China, and a policy-induced deceleration in domestic demand are weighing on the region’s growth prospects. Dramatic political changes in the Middle East and North Africa have disrupted economic activity substantially, but selectively, across the region, while a deteriorating external environment slowed growth to an estimated 1.7 percent in 2011. Growth is expected to remain subdued in 2012, at 2.3 percent, rising to an expected 3.2 percent in 2013.Growth in South Asia slowed to an estimated 6.6 percent in calendar year 2011, reflecting a sharp slowdown in the second half of the year in India as well as external headwinds. The region’s GDP growth is projected to ease further to 5.8 percent in 2012, before strengthening to 7.1 percent in 2013. Growth in Sub-Saharan Africa remained robust in 2011 at 4.9 percent. Excluding South Africa, growth in the rest of the region was even stronger at 5.9 percent in 2011, making it one of the fastest growing developing regions. Growth for the region is projected to accelerate to 5.3 percent in 2012 and 5.6 percent in 2013

Sierra Leone to Deepen Growth and Structural Reforms through the Fifth Direct Budget Support from the World Bank

The Board of Executive Directors of the World Bank has today approved the fifth Governance Reform and Growth Credit (GRGC) for Sierra Leone of US$ 24 million as a one-tranche budget support disbursement. This will support the Government of Sierra Leone’s overall reform program towards economic growth and structural reforms, which is being supported under the Multi-Donor Budget Support (MDBS) arrangement. This round of budget support from the World Bank is specifically meant to help sustain the gains made by the Government in preserving and expanding budget allocations for poverty reduction; steps taken to improve the efficiency of such spending; strengthening of domestic revenue mobilization measures; and supporting reforms in the energy sector.“A significant highlight of this year’s support is the major policy steps taken to reform the important energy sector, for which I commend the government”, said World Bank Country Manager for Sierra Leone, Vijay Pillai. “This lays the foundation for building a vibrant energy sector, which is so crucial for growth and poverty reduction in Sierra Leone. I would strongly encourage the government to see through the full implementation of these reforms”.
The fifth Governance Reform and Growth Credit (GRGC) is meant for the fiscal years of 2011 and 2012. In this way, the World Bank has taken a significant step forward in improving the predictability of budget support by moving it to the start of the fiscal year. Support under the MDBS arrangement is provided on the basis of the government maintaining macroeconomic stability, fiscal and fiduciary discipline, and continuing to undertake reforms which would lead to growth and poverty reduction.

The Bank support recognizes the need for government to continue prudent economic management by managing the likely wage pressures and continued due diligence in the implementation of infrastructure projects – more so at a time when Sierra Leone could be adversely affected by the impacts of a potential global economic downturn

World Bank Supports Submarine Communications Cable and Helps Unlock High-Speed Opportunities

• Sierra Leone is poised to join the submarine cable network, connecting the country to “the Africa Coast to Europe” and ending its reliance on expensive, slow satellite systems for telecommunications and internet
• The submarine cable project is expected to increase the access and affordability of broadband communication, improve the environment for communications infrastructure investment, and contribute to improved government efficiency and transparency.
• Access to high-speed internet aims to help businesses, banks, hotels, educational institutions, hospitals and other service providers. On a sunny Saturday afternoon, while young boys are playing soccer and young girls are swimming at Lumley beach in Freetown, there is frantic construction underway nearby which could help fire the imagination of these youth. In a few weeks, a ship is expected to land in Sierra Leone to lay a submarine cable connecting the country to what is often called “the Africa Coast to Europe” or the ACE cable system. On it hangs the hopes of a country and its young population. Sierra Leone, which currently relies on expensive satellite systems for telecommunications and internet, is among the last remaining countries in Africa to be connected to the submarine cable network. The prolonged civil war interfered with previous opportunities to be connected to the submarine cable, but that has all changed thanks to the World Bank-funded West Africa Regional Communications Infrastructure Program (WARCIP). The project began after a meeting between President Ernest Bai Koroma and World Bank President Robert Zoellick in 2009, and subsequently with World Bank Africa Vice President Obiageli Ezekwesili in 2010. In response to the Sierra Leone government’s request, the Bank offered to support and improves connectivity in the country. Intensive discussions between the government of Sierra Leone and the World Bank followed, leading to the approval of $31m for the Sierra Leone component of WARCIP. Mavis Ampah, the Bank Task Team Leader for the project recalls the effort put into the project. “We exerted the feverish efforts to meet the tight ACE consortium payment deadlines and the inordinate efforts of World Bank senior management to provide exceptional waivers to make the transaction happen.” A recent article in The Economist talked of a new type of poverty in Africa by identifying the challenges that come from not being part of an interconnected global communication network. The article highlights the lack of submarine cable connectivity in Sierra Leone and a few other countries on the continent. Kumba Gborie, a final year university student who frequently uses the Lee-Point internet kiosk on the way to Lumley, expressed her frustration over slow internet speeds associated with satellite systems telecommunications.“If you are lucky, you may eventually open your email inbox after waiting for over 15 minutes. The speeds are incredibly low,” she said. “We spend several hours trying to download a simple document and the price for the usage is often Le10000 per hour – the exact amount for our daily lunch during a school day. We often sacrifice our lunch in order to be able to download a document needed for reference in our academic work without which we are most likely to fail the semester.”This project is meant to help address this ‘new poverty.’ It is expected to do three things for Sierra Leone: (i) increase the access and affordability of broadband communication; (ii) improve the enabling environment for communications infrastructure investment; and (iii) contribute to improved government efficiency and transparency through better and cheaper access to connectivity and increased use of ICT.So what would the success in the project looks like? It should dramatically bring down communication costs, as connectivity costs in Sierra Leone are currently 10 times that in East Africa. Lower connectivity costs should lead to greater access to broadband and better quality services. Research shows that every 10 percentage-point increase in high-speed internet connections has led to increase in economic growth by 1.3 percentage points, so intensification of broadband network will also stimulate investment and growth, as businesses would be able to reduce transaction costs and increase productivity. In other countries, access to high-speed internet has produced tangible benefits for businesses, banks, hotels, educational institutions, hospitals, among others. Increased and cheaper bandwidth would also open up tremendous opportunities for e-government applications, improving governance and accountability to citizens; an exciting focus for Sierra Leone. But there is unfinished business in order to fully capture the benefits of the submarine cable. During the launch of the project on September 2, 2011, President Ernest Koroma reiterated the government’s commitment to reform the regulatory environment in the telecommunication sector. The government has made clear its commitment to liberalize the international gateway, ideally before the cable is commercialized in 2012. Soon, the government will announce a timetable and also submit to Parliament legislation to replace the existing telecommunications law.
Consumers would benefit most in the liberalizing of the gateway, which should help greater competition, and help move to a “low margin – high volume” environment. The dramatic increase in the number of mobile connections worldwide is a testament to the benefits of allowing greater competition in the telecom sector. The second priority is to have greater involvement of the private sector in the ICT sector, where the government plans to divest at least 50 percent of shares in Sierra Leone Cable Limited (SALCAB), which is currently fully owned by government and is the only shareholder representing the Sierra Leone government in ACE. Vijay Pillai, the World Bank Country Manager in Sierra Leone, underscores this point when he says that “a 21st century infrastructure like broadband should have 21st century business and regulatory practices to accompany it.”

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