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Page added on January 11, 2012

Sierra Leone – New opportunities, old challenges

Sierra Leone – New opportunities, old challenges thumbnail

Sierra Leone’s USD 2bn economy of six million people remains donor-dependent after the 11-year civil war which ended in 2002. In this report we consider the new opportunities emerging, as production from the Tonkolili iron-ore mine could lead to a quadrupling of total exports and we forecast a one-time surge in real GDP growth of 30% y/y in 2012. While total exports will benefit greatly from this increased production, the current account is likely to remain in deficit and Sierra Leone will still be vulnerable to fluctuations in international commodity prices.

  • Sierra Leone is set for rapid growth; we forecast 30% real GDP growth in 2012
  • Iron-ore production should see a quadrupling of exports
  • But the current account deficit should remain, with only modest fiscal revenue gains in the medium term
  • Donor-dependence is likely to continue

Domestic revenue will not benefit significantly in the medium term owing to negotiated tax concessions. The country will remain donor-dependent in the medium term – in 2011 53% of total revenue was sourced from donors. Oil, first discovered in 2009, could be a game-changer. Currently three companies are conducting exploratory operations and the Ministry of Finance expects oil in commercial quantities to be verified in 2012. If so, this could lead to significant investment in the country, which would necessitate a reassessment of Sierra Leone’s likely long-term growth trajectory.

But underlying challenges remain. The public sector, even before the civil war, was arguably ineffective, and human capital remains a challenge; 59% of the adult population is illiterate. Presidential and legislative elections in H2-2012 will be seen as a measure of Sierra Leone’s democracy. Security will be a key concern; we expect contained unrest only, but nothing can be taken for granted as sections of the population remain marginalised. Overall iron-ore production and the prospect of oil in commercial quantities present an opportunity for Sierra Leone, but old, longstanding challenges remain.

To read the full report New Opportunities Old Challenges

by Amina Adewusi, Standard Chartered Bank’s African Economist

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© 2012, Sierra Express Media. All rights reserved.

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