(Article)
By: Mohamed Sahr mohamedsahrpro@gmail.com
From natural resources to regional trade, Sierra Leone’s economy is poised for potential growth and expansion in the coming years. With the launch of the African Continental Free Trade Area on 1st July 2019 which 55 member states of the African Union eventually signed on to the agreement, Sierra Leone stands to benefit from increased trade and investment, improved infrastructure, and access to new markets. However, challenges are old, including the need to diversify the economy and improve education and skills development. As the nation looks to the future, there is a great possibility for progress, that if the right policies and investments are made for a prosperous future.
Emphasizing on this, the Recent Macroeconomics Developmental in Sierra Leone (RMD) published by Bank of Sierra Leone in July 2023, threw light on the country’s economic performance over the past few years, with a focus on the period from July 2021 to July 2022. During this period, the economy grew by an estimated 3.5 percent, driven by robust growth in agriculture and services sectors. Though inflation has been falling since 2021, but the Central Bank’s target range of 10-15 percent. It shows that public debts remain high at around 74 percent of the GDP. Nonetheless, there have been some significant improvements in public financial management while Foreign Exchange reserves scaling up, but remain low by international standards.
Foremost, macroeconomic stability is essential for long-term growth and poverty reduction. It is important to note that creating a more stable environment for businesses to operate and investment in order for households to make decisions about consumption and savings play critical role for the enhancement of a prosperous future. On the contrary, in an unstable macroeconomic environment, businesses and households are less likely to invest and spend, which can lead to lower growth and higher poverty levels. International Monetary Fund (IMF) and World Bank in 2022 observed that low inflation and stable exchange rates are associated with higher per capita Gross Domestic Products (GDP) growth. However, the studies used a variety of statistical techniques to analyze the data and drew conclusions about the relationship between macroeconomic stability and economic growth and poverty.
Furthermore, government should focus on increasing tax revenue, improving public financial managements, and strengthening its fiscal institutions. Strengthening fiscal institutions, including by improving the transparency and accountability of the process can help to increase revenue as well as improve the management of public finances, which may lead to more stable and higher growth. International Monetary Fund revealed that a 1 percentage point increases in the tax-to-GDP ratio can lead to an increase in GDP growth of up to 0.5 percentage point. Also, a study by Organization for Economic Co-operation and Development (OECD) in 2019 found that better public financial management can lead to lower borrowing costs and more efficient public spending.
Notwithstanding that, improving infrastructures and developing the private sectors can have potential impacts on economic growth in the long-term. Studies have found that better infrastructures such as, roads, electricity, and water supply can boost GDP by up to 2 percentage points. That means, a formidable private sector has the tendency to create jobs, attract investments, and foster innovations in an open source policy. By so doing, investing in physical infrastructures and the establishment of clear rules and regulations that promote private sectors activity can equally foster progress. World Bank study “Infrastructure and Growth” 2017 mentioned that every $1 spend on infrastructure can generate a return of $2.5 to $3.5 in economic benefits. In addition, Asian Development Bank demonstrated that a 1 percentage point increases in private sector credit can amplify the GDP growth by 0.6 to 0.8 percentage points. The source of this data and research include the World Bank, the Asian Development Bank and the International Monetary Fund.
Moreover, diversification of the economy away from a dependence on natural resources involving targeted policies and incentives to promote new industries including but not limited to investing in research and development and training programs. That means, government can work to create a business-friendly environment that encourages investment and entrepreneurship among others. McKinsey Global Institute in 2015 examined how technology is reshaping resources and how to avoid the natural resources curse for a successful co-existence.
Conclusively, Sierra Leone should take advantage of opportunities presented by the African Continental Free Trade Area (AfCFTA) by creating a single market of over 1 billion people, which will increase the demand for goods and services and provide unlimited opportunities for businesses to expand their markets. That is to say, the AfCFTA will help to reduce barriers to trade, such as tariffs and other restrictions which will make it easier for businesses to sell their products across borders, and promote regional integration and cooperation for economic efficiency and productivity. African Union (AU) 2019’s report detailed the potential benefits of the AfCFTA and cited data from Africa Development Bank. The report documented the experiences of other countries that have implemented regional trade agreements and pointed out the need to increase trade and investment.
In a nutshell, Sierra Leone is keen for potential economic growth and progress, but challenges remain daunting. However, with the launch of the AfCFTA, the country has new opportunities for trade and investment. Thus, the country must also diversify her economy, improve infrastructures and skills, and focus on regional cooperation. With this challenges overcome, the country can create brighter futures for all Sierra Leoneans.