Minister of Finance and Economic Development Momodu L. Kargbo takes a look at the best areas for investment, the 2017 Budget’s target areas for accelerated growth, and the country’s ability to honour its credit obligations.
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Q: The head of the IMF Mission to Sierra Leone, Mr Wakeman-Linn, highlighted last September how successful your government reforms have been in increasing Sierra Leone’s economy resilience in the face of two major exogenous shocks. What are the next reforms that you are planning to apply to boost Sierra Leone economic growth?
ANS: Since the moment that Ebola was waning, our government started to plan the recovery and developed the National Ebola Recovery Strategy. The first phase focused on the immediate recovery priorities in agriculture, health, education, private sector recovery and water and sanitation.
To allow farmers to return to their farms, this administration, supported by our development partners, provided them with agricultural inputs such as seeds, fertilizers and tools. We re-opened schools and restored general health services. This government also expanded its social safety net programs, including cash transfers to the hardest hit to avoid longer-term economic hardship. We encouraged the swift resumption of infrastructure projects that were halted due to Ebola, providing jobs and income together with investment activities that resulted in the resumption of export of iron ore from the largest mine.
The second set of efforts focused on energy and water supply. Our government provided fiscal support to the energy sector to complement the Bumbuna hydro dam, which increased the available energy and facilitated the growth of manufacturing and commerce. We also continued the implementation of sound economic policies and public financial management reforms under the Extended Credit Facility supported by the IMF.
As a result of the above measures, the economy is estimated to grow by 4.9% in 2016 from a contraction of 21% in 2015. This growth is largely driven by the non-iron ore sectors, which are estimated to grow by 3.7%.
Q: One of the main objectives of the Agenda for Prosperity (A4P) is to attract and diversify FDI in the country and boost private sector investment, now estimated at only 10% of GDP and mainly concentrated on a few sectors, such as mining. Beyond mining, what sectors do you consider that have the biggest potential for foreign investors?
ANS: Beyond mining, the main sectors that have the biggest potential for foreign investors are agriculture, fisheries, tourism and housing.
In agriculture, there is potential in increasing production crops such as rice as well poultry and livestock together with cash-crops production such as cocoa, coffee, cashew and oil palm and value-added products in agro-processing such as fruits, cassava or sugarcane. In fisheries, there are opportunities in the construction of the fish harbour, in fish processing for export as well as in the development of aquaculture.
Sierra Leone could undeniably aim to capture the top of the tourism market and eco-tourism. To do it, we need to further develop different infrastructures including hotels and eco-tourism facilities. Finally, there is a large unmet demand for housing for all income levels, and so there is a need for more real estate developers to enter the market.
Sierra Leone is open to investments from all parts of the world – Asia, Europe, America and Africa. We have a generous package of investment incentives for all sectors.
Q: Together with President Koroma, you have recently been on an important visit to China, where you have signed different agreements. One of them was a debt relief of 20 million RMB (of previous interest-free loans), signed by you. What have been the main successes of this trip? How would you evaluate the current economic relationship between the two countries?
ANS: Our relationship with China is based in strong roots. Sierra Leone was one of the countries that decided to be bold and nominate the Popular Republic of China to the United Nations Security Council against Taiwan in 1971. We have always had a special relationship with the Chinese. Here in Sierra Leone, we enjoy the presence of Chinese companies at different levels, some as contractors and some as investors.
One of the main objectives of this trip was to accelerate the plans to construct our new international airport in Mamamah. We want to finish with the uncomfortable experience of landing in Lungi and having to take a boat to reach your final destination in Freetown. What we would like is to have our new international airport easily reachable from our capital by road.
We are going to construct this airport with off-budget arrangements. In fact, one of the key discussions during our visit to China was to explore these different financial arrangements. We have been discussing his project for several years and during this visit we made substantial advances. In fact, the Chinese government has already put aside the required budget to make this new airport a reality.
From our side, the government of Sierra Leone has secured the fulfillment of our debt obligations, ensuring that we can sustain our macroeconomic stability before moving forward and start the construction of this infrastructure. We expect to start the works of it at the end of this January.
Q: From the point of view of Sierra Leone, what are the opportunities and challenges that will appear in the post-Brexit scenario? How is Sierra Leone positioning itself to remain as one of the UK key partners?
First of all, it is important to remember our existing special relationship, rooted in our colonial history. The British are behind the origins of our country and of our population. Most of Sierra Leoneans still consider the UK as our second home. They remain as one of our largest ODA (official development assistance) donors, deeply involved in our reforms, development and investment programs.
Brexit opens a new opportunity for Sierra Leone to negotiate a new trade deal with the UK beyond the EU. I am convinced that we can enhance our relationship. There is eagerness to do it by the UK too. The British are looking forward to reviving the Commonwealth in order to increase their access to commodities, raw materials and new markets. All this factors will contribute to make us closer partners.
Finally, I would like to highlight that the UK is our one-stop shop for a majority of Sierra Leone international efforts: all our commercial meetings and economic and investment forums have been held in large part in the UK.
Q: Beyond ODA, your government is exploring to access funds from international capital markets, working with partners to conduct credit sovereign ratings providing relevant assessment of Sierra Leone’s ability to honour its external obligations as and when they fall due. What are the main partners you are working with on this regard?
ANS: We are closely working with Standard Chartered, a bank that is assessing our ability to honour our external obligations in terms of modalities and procedures. We still have to conduct a last arrangement meeting together for a final discussion before they release the indicators. The outcome of this last meeting will determine the publication of the results. All these efforts have been very important for our government to assess our situation and identify the aspects where we should improve to have the best possible credit sovereign rating.
Once Sierra Leone has its first credit sovereign rating, whatever its results, we will be in a position to define our goals to improve it and understand the required tasks to move forward and improve our ratings. We have already been improving our macroeconomic situation thanks to our enhanced partnership with the IMF: they have evaluated us, given us some specific advice, and finally backed our government macroeconomic policies. Currently we are taking new decisions to go beyond IMF recommendations in order to boost our growth.
Q: The 2017 budget was presented at the beginning of December on the theme: “Recovery through Economic Diversification and Fostering Entrepreneurship”, dedicated to accelerating economic recovery and strengthening the resilience of the economy to withstand future global shocks. The discontinuation of the subsidization of petroleum products remains as one of the major concerns for Sierra Leonean public opinion. What are the main budgetary decisions that will accelerate your economic recovery? How is your government planning to limit the impact on the masses of the increase in the fuel price?
The main measures approved in the 2017 budget to accelerate the economic recovery of Sierra Leone are the following:
i) We are allocating more resources to the growth sectors including agriculture, fisheries and tourism in order to diversify the economy and reduce our reliance on mining.
ii) We are going to continue to scale up our spending on infrastructure: roads, energy, water supply or ICT among others.
iii) We are supporting domestic industries to produce goods where we have a competitive advantage to reduce imports.
iv) We are supporting our SMEs through capacity building and improving their access to finance.
All of this will be done through budget discipline and a prudent expenditure management with enhanced efforts to increase domestic revenue collection. With stronger public finances, we will stabilize the economy and encourage foreign direct investment.
Regarding the fuel price increase, I must say it was a necessary measure, as the budget could no longer afford to subsidize consumers, especially the richest. To cushion the impact on the population with lower levels of income, we are introducing nationwide school feeding, providing additional subsidized public transportation, cash transfers to the vulnerable and continued support to the free health care initiatives, as well free primary schooling and the payment of fees for public examinations.
Q: Minister Kargbo, you are part of an administration that is driving a rapid transformation of the country. Taking into account your previous experience serving as Minister of State, Deputy Minister of Finance, Governor of the Sierra Leone Central Bank and now, in your current capacity as Minister of Finance and Economic Development, where would you like to see your country in 10 years?
Foremost, I would like to see a country that is food self-sufficient and food secure, a country with high quality infrastructure, especially with a good road network and increased access to reliable electricity and water supply. I would like to see Sierra Leone with improved education and health systems delivering outcomes such as higher literacy rates, longer life expectancy and lower infant and maternal mortality rates. Finally, I would like to see a strong and stable private sector led economy with reduced reliance on ODA that has successfully increased its domestic revenue collection to 20-25% of the GDP.
Q: What is the final message you would like to address to our audience?
Sierra Leone is more than ready to welcome investors. We will protect them and we will make sure their investments are a success in order to attract additional investors once they experience the positive results of the previous ones.