Sierra Leone minister of foreign affairs looks to post-Ebola recovery

Last year ended sombrely in Sierra Leone. As a country, we did not celebrate Christmas; this stands out so glaringly in our country because it is an occasion that Christians and Muslims celebrate. It is the moment that crowns the outstanding and unparalleled level of religious tolerance in Sierra Leone. Thus, in December 2014, it was not ‘business as usual’ in Sierra Leone.

The government had banned festive gatherings across the country for fear that Ebola would spread, having declared a state of emergency in the August of that year. Also in August, another milestone went unnoticed – the Central Bank of Sierra Leone turned 50, and despite its long list of achievements, there was little appetite for celebration.

Steady progress

Before Ebola, Sierra Leone had achieved macroeconomic stability with a significant reduction in its external current account and fiscal deficit. This translated into lower inflation, from 12% in 2012 to 6.4% in June 2014, with declining interest rates and stable exchange rates. Efforts were directed at improving the business environment, tackling infrastructure bottlenecks and strengthening good governance. We had strong economic growth, averaging 6% annually up to 2009, as well as a substantial reduction in income poverty, from 66% of the population in 2003 to 53% in 2011.

Since 2010, large inflows of foreign direct investment and the start of iron ore production and exports in 2011 accelerated Sierra Leone's real gross domestic product growth to double digits. The economy expanded by 15.2% in 2012 and by 20.1% in 2013. The non-iron ore economy also grew strongly, averaging 5.5% between 2011 and 2013 as activities in the agriculture, fisheries, construction, manufacturing and services sectors – including tourism, transportation, telecommunications and banking – continued to expand. Basic service delivery challenges in health, education, water and sanitation were also being addressed.

In 2013, the country's government announced its third Growth and Poverty Reduction Strategy – the Agenda for Prosperity [A4P], which set out Sierra Leone’s road map towards becoming a middle-income country by 2035. Merely six months after the successful implementation of the A4P, Ebola struck, threatening to undo years of post-civil war reconstruction and undermining the substantial gains in human development and poverty reduction. 

Two shocks

The Ebola outbreak and its lingering impact have dimmed Sierra Leone's economic prospects for 2015. This situation was further compounded by the difficulties in the mining sector related to the dramatic lowering of iron ore prices. Hence, our economy is battling two shocks in 2015: the ongoing impact of the Ebola epidemic and the collapse in iron ore prices.

Ebola has undoubtedly been a humanitarian disaster, but the economic impact of the disease will prove the most damaging if the country’s banking and financial sector is not able to recover.

The Ebola epidemic badly affected the Sierra Leone economy, stalled government programmes and projects and worsened the livelihoods of ordinary people. The trade balance, which had improved in the first half of 2014, deteriorated in the second half of the year, partly due to the sharp decline in the price for iron ore exports but also because of lower agricultural and other mineral exports as domestic production decreased. Imports increased, partly driven by the increase in food and health-related imports due to the Ebola outbreak. 

Thankfully, today we speak of ‘post-Ebola’, and Sierra Leone's Post-Ebola Recovery Plan is hugely dependent on economic actors contributing to the normalisation of the country, so that we may continue to reduce poverty and eventually relaunch our journey towards middle-income status.

The crisis adversely affected the financial sector. Banking business hours were reduced, the drop in business revenues and the postponement of investment activities also affected the loan quality and profitability of commercial banks. The economic impact of the Ebola outbreak translated into higher inflationary pressures, the depreciation of our currency, and increased fiscal and balance-of-payments financing requirements. 

Post-Ebola recovery

Sierra Leone’s commercial banks and financial institutions are central to the post-Ebola recovery, and how the banking sector works with global financial organisations will ultimately determine how quickly and effectively things improve in the country. I recently attended the UN’s Third International Conference on Financing for Development, which was held in Addis Ababa in July. The Millennium Development Goals [MDGs], which have been the guiding framework for development for the past 15 years, concluded this year and Addis Ababa marks the beginning of the new framework: the Sustainable Development Goals.

Sierra Leone will benefit from the new aid capabilities of the post-2015 era in development, and the changing understanding of development assistance since the MDGs were first agreed. In particular, there will be a new emphasis on providing funding to local banking sectors through an increased commitment to regional and even national development banks. Shortly before the Addis Ababa conference, the multilateral development banks and the International Monetary Fund announced plans to extend more than $400bn in financing over the next three years whilst collaborating ever more closely with private and public sector partners. These banks, along with credit unions and other domestic financial institutions, could ultimately be the missing link in providing wider access to financial services.

Our post-Ebola recovery strategy will focus on agriculture, tourism, manufacturing, trade, transport, construction and financial sectors. The successful implementation of this strategy will require the collective and concerted support of all stakeholders: government, the private sector and development partners, and the private sector. Each has a key role to play in reviving each of these.

The private sector can support the recovery by ensuring that tax obligations are met in order to enable the government to restore basic services and support labour-intensive infrastructure projects. Individuals must also settle credit obligations with commercial banks to reduce the level of non-performing loans and enhance financial intermediation. The commercial banks, with support from the government, can improve access to finance for small and medium-sized enterprises to support job creation, and commercial banks may consider reducing lending interest rates to help businesses hit by the crisis to access affordable finance and resume operations.

The international capital markets should also continue to facilitate foreign direct investments flows into Sierra Leone to revive businesses that are facing financial difficulties. 

Lessons learned

The Ebola crisis and subsequent economic challenges have taught Sierra Leone’s financial sector many things. The weaknesses of the banking system were exposed by the crisis rather than created by it. The reduction and even closure of operations of community banks, financial services associations and microfinance institutions across the country demonstrated institutional weaknesses and underlying infrastructure issues that have long needed to be addressed.

The reduced profitability of banks and high default rate on loans, along with the increase in non-performing loans, were the direct result of the virus, but would have been less damaging had they occurred in a more robust banking system.

It is also clear that Sierra Leone is learning from these lessons. The country's central bank governor has announced an upcoming bill on debt recovery, which could be used along with the bankruptcy law to hold borrowers accountable for defaulting on loans. This move reflects a cultural change across the institutions to broaden the contribution to the Post-Ebola Recovery Plan and to futureproof the sector against unpredictable shocks. 

Looking forward

We must gradually and meaningfully reform Sierra Leone's banking sector, so that we can grow a strong cohort of SMEs that will create jobs and provide further opportunities for business growth. There is also very clearly political will at a national and international level for Sierra Leone-led development and regional control of reform.

Furthermore, there are many successes that the central bank, the Ministry of Finance and Economic Development and other stakeholders can build on, as is demonstrated by the pre-Ebola economic growth and stability.

In August, the Central Bank of Sierra Leone celebrated its 51st birthday. Rather than speak of the past, the governor looked to the future and spoke of a need for all stakeholders to unite for the Post-Ebola Recovery Plan. Indeed, faced with the challenge of two of the largest banks in the country being poised for failure, there is much need for reflection on change.

Despite the Ebola epidemic, the fall in iron ore prices and the near collapse of two state-owned banks, there are still battles to be fought and won. And there are still events worth celebrating in Sierra Leone’s complicated journey towards middle-income status. I am positive that next Christmas will be one worth celebrating with my country.

Dr Samura Kamara is the minister of foreign affairs in Sierra Leone.