Until the unfortunate advent of Ebola, Sierra Leone’s economy was racing along nicely at double digit pace, pulling the populace out of poverty, winning the admiration and confidence of international investors and aid agencies alike. All that may now be in jeopardy. President Ernest Bai Koroma, whose heroic leadership and economy-salvaging ‘Agenda for Prosperity’ have kept the country on path of reform, is moving mountains to halt the spread of the deadly virus and galvanizing his cabinet and people to do the same.
Finance and Economic Development Minister Dr Kaifala Marah speaks on the impact of the disease on the economy and his compatriots’ united effort to beat it and return to the development race that attracted global attention to the ambitious nation’s economic successes in the first place. With the help of the international community, Dr Marah is certain that victory is within reach.
What has been the impact of Ebola on the economy of Sierra Leone?
The Sierra Leone economy grew strongly in recent years, recording double digit growth rates in 2012 and 2013 driven largely by iron mining and supported by buoyant agricultural, increased construction activities and an expanding services sector, including, transportation and tourism. Macroeconomic stability was also achieved in 2013 with significant reduction in the external current account and fiscal deficits, which translated into lower inflation, declining interest rates and stable exchange rates.
Prior to the outbreak of the disease, the medium-term macroeconomic projections portrayed a growing economy and stable macroeconomic environment. The economy was projected to grow by 11. 3 percent in 2014 anchored on increased iron ore and other mining activities, increased agricultural production, continuing construction activities, expansion in the services sector and recovery of the tourism sector. The non-iron ore economy was also projected to expand by 6 percent in 2014. Inflation was projected to continue to fall further while the exchange rate will remain stable in 2014.
The disruption to agricultural, mining, manufacturing, construction, tourism and transportation following the outbreak of the Ebola Viral Disease is undermining the growth prospects of the economy. It also poses a significant threat to macroeconomic stability and human development and is likely to reverse the gains made in poverty reduction in recent years if the spread of the disease is not contained in the shortest possible time.
Ebola has dealt a serious blow on agriculture in Sierra Leone. This is because most of the agricultural areas under quarantine. The associated restrictions imposed on the movement of people coupled with the fact that economically active and physically strong men and women have been infected by and affected with the disease as well as the fear of going to work on the farms may lead to the loss of a whole planting season with adverse consequences on agricultural output and the food security situation in 2014. In particular, the Kailahun and Kenema districts-where the disease is more prevalent are the main export crop producing areas and also a major source of food stuff including palm oil and rice.
The spread of the disease to the other parts of the country especially Port Loko and Kambia Districts-the main rice producing areas is likely to lead to a decrease in the area under cultivation as the usual ‘Group Work’ on the rice farms cannot be undertaken. In sum, agricultural output is projected to drop by one-third in 2014. This will not only drag economic growth but also worsen the already fragile food security situation in the country.
The fisheries sector is relatively stable at the moment though investors scared by the EVD outbreak are now leaving the country.
Could you elaborate on the impact outbreak of Ebola on manufacturing, construction, the transport sector, tourism and mining?
It has done great damage to manufacturing, construction, the transport sector, tourism and mining in the country. The closure of bars, night clubs, cinemas and related activities as part of Government’s strategy to contain the spread of the Ebola Virus as well as the lull in construction activities have resulted in significant drop in the demand for locally produced manufacturing products. The hardest hits are the Sierra Leone Brewery, the Sierra Bottling Company and Leocem Cement Factory-the three biggest manufacturing firms in the country.
In particular the demand for beer, stout, maltina and soft drinks has dropped drastically since the introduction of the preventive measures by Government, including the closure of all bars and restaurants and the current non occupancy of hotels and guest houses. In response, the Sierra Leone Brewery has scaled down its operations and threatened to temporarily close operations. The closure of bars and night clubs, which are their major sales outlets, will lead to a loss of approximately 24,000 jobs in addition to loss in business incomes of distributors, transporters and contractors. The scaling down of operations will also adversely affect the Sorghum Farmers who are the suppliers of its main raw materials. This involves 600 farm households and 3600 indirect beneficiaries. The company has also suspended its investment plan for 2014 including the ongoing installation of a Cooling and Carbon Dioxide (Co2) Plant.
In addition, the lull in construction activities, especially road construction for both donor and government funded projects has also affected the demand for and production of cement with attendant consequences on domestic output and employment.
Overall, the scaling down of activities of the three biggest manufacturing activities will undermine the growth prospects of the economy in 2014.
Before now, the expansion in construction activities following the scaling up of public investment in road infrastructure has been contributing positively to the growth of the economy in recent years. However, The Ebola scare has led to a lull in road construction activities as workers fear to gather and interact in an attempt to prevent the spread of the disease. In some cases, senior foreign staff of the road construction companies have been evacuated. The construction of the Kenema-Kailahun Road, Matotoka-Kono Road, reconstruction of the Makeni-Kabala Road, Hill-Side Bye-Pass Road, Lumley-Tokeh Road and the reconstruction of city and town streets in the provincial districts and the Western Area have been suspended. The lull in construction activities will further weaken the growth prospects of the economy, create unemployment, especially of youths and loss of personal incomes.
It has equally affected tourism in the country. According to available data from the National Tourist Board, tourist arrivals by air at the Lungi International Airport dropped by 30 percent in the first eight months of 2014 (January to August) compared to the same period in 2013 as visitors and investors are scared away by the Ebola Outbreak. The number of business visitors (investors) dropped by 46.9 percent. As a consequence, occupancy rates in hotels, which had improved in 2012-13 dropped drastically from an average of 50 percent before the outbreak in May to less than 10 percent in July-August 2014. The Bintumani Hotel, Hill Valley Hotel, Leone Lodge have closed operations while the staff of the Raddison Mammy Yoko Blu Hotel and the Country Lodge have been asked to work for two weeks only per month. The combined effect of the drop in tourist arrivals and the fall in demand for tourist-related services including restaurants and cottage industries could adversely affect economic growth, domestic revenue collection and increase the unemployment levels among the youth, who are mostly employed in this sector.
In the transport sector, air transportation has been particularly hit by the Ebola Outbreak. Seven airlines (British Airways, Asky, Air Ivoire, Arik Air, Gambia Bird, Kenya Airways and Air France ) flying to Freetown have temporary suspended operations due to the high risk of spreading the disease to other countries. This is already disrupting cross border and regional trade causing reduced supply of essential commodities and its attendant impact on prices and loss of business incomes. Locally, private commercial vehicles are not operating at full capacity due to restrictions imposed on the amount of people they should carry.
So far, the impact of the outbreak of Ebola on the mining industry is minimal. However, there is the possibility of evacuation of expatriate staff and the consequent scaling down of operations if the outbreak is not contained in the shortest possible time. Given that the mining sector is the lead growth driver in recent years, disruption to mining activities will have severe dent on economic growth in 2014.
The combined effect of the disruption to agricultural, mining, manufacturing, construction, transportation, domestic and international trade and tourism activities is estimated to slow GDP growth to 7-8 percent compared to the original projection of 11.3 percent.
To what extent has the outbreak of Ebola impinged on revenue generation and the implementation of the 2014 budget?
Government, in consultation with the International Monetary Fund reviewed the 2014 macro-fiscal framework in September 2014 taking into consideration the impact of the Ebola outbreak on key sectors of the economy. The outbreak of the Ebola disease and its dampening effect on economic activities is adversely affecting domestic revenue collection. With the lull in economic activities, decline in the sale of certain goods and services and the resultant loss of jobs and personal incomes, domestic revenue is projected to fall in 2014. On the basis of the trends in revenue collection for the months of July and August, the National Revenue Authority projected that domestic revenue will drop by Le271.2 billion (US$US60 million) in 2014, including the Le75 billion (US$17 million) shortfall recorded in the first half of the year.
Income Tax, which constitutes the largest component of domestic revenue, is projected to drop by over Le127.5 billion relative to its original target. The scaling down and in some cases closure of firms, and industries and the associated lay-offs of staff have resulted in fall in business and personal incomes with adverse consequences on profit tax and personal Income (PAYE) tax.
The outbreak of the EVD has caused a reprioritization of spending towards efforts at containing the disease. Budgetary allocation to the Contingency Fund has been increased by Le112 billion to finance Ebola related activities. Of this amount, Government has disbursed a total of Le79 billion as at mid September 2014. These include, Le1.9 billion for sensitization and awareness; Le8.0 billion for logistics and supplies to the Ministry of Health and Sanitation; Le40 billion as Government’s contribution to the Ebola Trust Fund; and Le29.7 billion as Government contribution towards the payment of incentives to health workers. This was not provided for in the Supplementary Budget presented to Parliament in early July 2014.
To compensate for the shortfall in domestic revenues and increase in recurrent and contingency expenditures, domestically funded capital expenditures were cut by Le194.3 billion including the supplementary provision of Le60 billion for rural electrification.
In spite of the significant cut in domestic capital expenditure, the shortfall in domestic revenue combined with the increase in recurrent and contingency expenditures gave rise to an increase in the financing gap by Le286.4 billion(US$63 million).
Government borrowed Le40 billion from the domestic securities market to pay the contribution to the Ebola Trust Fund. To close part of the financing gap, Government requested an augmentation of access under the existing Extended Credit Facility with the IMF in the amount of SDR 25.93 million, equivalent of US$40 million (25 percent of quota), to support the Government budget. In spite of the increase in the Government debt, debt sustainability analysis carried out by the IMF showed that Sierra Leone’s risk of debt distress remains moderate.
In the midst of delays in the disbursement of budget support, the monetization of the ensuing budget deficit and or the excessive borrowing from the domestic securities market with the attendant consequences on inflation, exchange rates and domestic interest rates could derail efforts to preserve macroeconomic stability. Moreover, the potential adverse consequences of the cut in domestic capital expenditures on the growth prospects of the economy cannot be overemphasized.
How has the international community helped in resolving the Ebola crisis in the country?
The international community has been supporting Government’s efforts to control the spread of this disease. Support to the WHO office in Freetown from various donors including the European Commission, Germany, Canada, United Kingdom-Department for International Development, the African Development Bank (AfDB), the United Nations Central Emergency Response Fund and the UN Office for the Coordination of Humanitarian Affairs amounted to about US$ 1.14 million. We have equally received support from the United States. Sierra Leone and indeed Africa is very appreciative of the leadership role that President Barack Obama and the United States government is as usual, playing to resolve this epidemic. We cannot thank them enough.
We also appreciate the support of the AfDB which provided a grant of UA1.0 million (approx. US$1.5 million) to Sierra Leone as emergency assistance to finance part of the cost of strengthening of public health systems in response to the Ebola.
The UK-DFID also provided 5 million British Pounds through various NGOs, UNICEF and WHO to assist the fight against Ebola. The World Bank has committed US$200 million to the three affected MRU member countries as emergency assistance to help contain the Ebola outbreak. Most of the World Bank support, like other donors will go towards containing the spread of the disease in the near term and strengthening health systems in the medium term. About US100 million dollars will be utilized to strengthen health systems in the sub-region. US$28 million has been allocated to Sierra Leone out of the balance of US$100 million to contribute to efforts to stem the spread of the disease and mitigate socio-economic impact.
What further assistance are you expecting from the international community?
Basically, three areas of support have been identified. These include (i) Support to EVD Outbreak Response Plans and Strengthening Essential Health Services, (ii) Human Resources Scale Up for Outbreak Response and Essential Health Services, and (iii) Provision of food and basic supplies to Quarantined Population in the country.
How can the international community and development partners further assist Sierra Leone in ameliorating the impact of Ebola?
The disease has made devastating impact on the Sierra Leone economy. Efforts to contain the spread of the disease and supporting those infected and affected require substantial amount of financial, technical resources as well as and logistics. Whilst Government is mobilizing internal resources to stem the spread of the diseases, the disruption to economic activities is posing a major challenge in domestic revenue mobilization. Therefore, the support of international community including multilateral financial institutions is critical in addressing the emerging financing gaps in the fiscal and external sector accounts of affected countries. We appeal to them to support us in containing Ebola in Sierra Leone and indeed other affected countries in West Africa.