FINANCIAL ANALYSIS: FINANCE & ECONOMIC DEVELOPMENT MINISTER SPEAKS!!

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Finance Minister Speaks On FOCAC, Mamamah Airport and the Economy

On 28th July 2016, Sierra Leone’s Minister of Finance and Economic Development, Momodu Lamin Kargbo arrived in China, with a six man delegation for a meeting on the Follow-up Actions on the implementations of the 2015 Forum on China-Africa Cooperation (FOCAC) Johannesburg Summit.

 

The 2015 Johannesburg Summit and the Sixth Ministerial Conference did bring about the Johannesburg Action Plan 2016-2018, an action plan that clearly outlined further areas of development cooperation between China and Africa, including but not limited to; agriculture and food security, industry Partnership and Capacity Cooperation.

 

Since 2007, Sierra Leone’s revenue performance has always seen an encouraging leap, with tremendous input made by its revenue collecting agency, the NRA. There has been improved collection of income taxes through the Domestic Taxes Department, coupled with the successful implementation of Goods and Services Tax.

 

The government successfully ensured a paradigm shift from wholesomely depending on donors to being able to fund a number of development initiatives.

 

Economic growth has been robust despite the global financial crisis.

 

With the said global economic crunch, added to the fall in price of raw materials like iron ore for instance, in the international market, the country was to witness economic challenges. The 2014 ebola outbreak in the MRU sub region also brought with it, adverse effects.

 

But what is being done, in addressing these and other challenges?

 

Momodu Kargbo, a trained Economist, was Bank Governor before becoming finance chief, a strategic player in the country’s financial sector.

 

He has had decades work experience in “economic and social development, particularly in addressing issues related to public financial management and structural reforms, expenditure control and management, revenue and tax policy administration, macroeconomic policy, and promoting macro-economic stability.” (Source: Fourteenth Report of the Committee on Appointments and the Public Service on Parliamentary Vetting Of Presidential Nominations).

 

At the end of his FOCAC engagement in Beijing, I caught up with him for an exclusive interview and discussed a range of issues, not least the outcome of the FOCAC follow-up meeting, the economy, and the proposed Mamamah Airport.

 

First was a look at the outcome of the FOCAC follow-up meeting and his general impression:

 

Minister: The outcome has been good and personally, it is an education process to try to understand the whole architecture of the Chinese government aid to Africa.

The FOCAC meeting has been a good learning point. I was able to meet with colleague ministers in other countries that I have dealt with before and it is easy to catch-up. For example, I talked with the minister from Liberia. We spoke extensively to the point we even spoke about MRU affairs and even Mano Air, given the difficulties for Liberians to fly to Sierra Leone and Sierra Leoneans to fly to Liberia. We resolved to work to revive this Air Mano.

But on a whole, I think I now have a better appreciation of the Chinese architecture in respect of the aid they are providing to African countries. We need to learn more and I think we could gain more. Our activities seem to have been limited with the EXIM Bank, but there is more to the aid.

JBS: More like in what other areas?

I learnt about the technological cooperation; I learnt about the financial cooperation, outside of the Chinese EXIM Bank; I learnt about the Chinese food aid emergency program. These are things that I don’t think are so known.

I intend to take a very close look at the Chinese aid and its architecture and see how we can position ourselves to gain more than what we are getting now.

JBS: What about discussions around the Mamamah Airport?

Minister: The airport has been a dominant issue. It was key in all our discussions with the Vice Foreign Minister and Minister of Commerce. Significant progress has been made. Even before I left Freetown, key actions had been taken. It is now working through the Chinese government and we hope to get an answer soon.

But let me also remind you that we are working within the context of our relationship with the Bretton Woods institutions (the World Bank, and the International Monetary Fund- IMF). Their support is also key. We have to play a very fine balancing game. We need the Chinese support, but we also need the IMF relationship. We should ensure that in the end the objective is to build the Mamamah airport.

Let me take this thing one step further and say that maybe in packaging this whole arrangement to the public, we have only been talking about the Mamamah Airport. It is a concept beyond the airport. A five miles radius has been delineated around which, a modern city is expected to develop and ‘Six Mile’ is not far away from the Mamamah Airport. In Six Mile, there is already an Economic Zone, owned by Four Step. Not far, you get to the Rokel River. So if you take that whole area, it is an Economic Zone that is developing.  

JBS: So in essence, we are going ahead with the new airport?

Minister: The project is going to continue. We are going to build the Mamamah Airport.

JBS: Let us talk about the economy. Though we have made progress in the last eight years for sure, we still do have challenges with our economy. What is being done to address that?

Minister: Let me take you back and chronologically know the sequence of events. The economy was bouncing, rebounding and bouncing at a rate of 21%, the GDP was growing at a rate of 21%. You could see some kind of a bubble in what was going on; why do I say a bubble is because our economy has always been soft. We don’t have a strong manufacturing sector. Even the agricultural sector has been challenging.

We have always been dependent on mining iron ore, diamonds, gold, which is not documented but we know is taking place. In other words, we were a natural resource dependent country on the one hand, and on the other hand we are an import dependent country. We are therefore susceptible to external exogenous factors. They impact on us very easily and that is what happened.

The price of raw materials (gold, iron ore) in the international market fell. By then Africa Minerals (Tonkolili Mines), London Mining (Lunsar Mines) had become dominant player in the economy.

But there is an intermediate development which people often forget. The price of the commodities fell worldwide.  But in other countries production did not stop. It went on though at reduced prices. But for us, immediately that happened, Africa Minerals closed down entirely. London Mining closed down entirely. So the revenue bulged, which was flowing into the treasury collapsed. That is a bubble. Then ebola worked in. So it was one disaster, coupled by another disaster.

What happened was, our GDP fell from 21% growth per annum to minus 15%. We have had to do a lot of work to manage that economy. During that period the basic things were looked after; salaries were paid. We looked after our responsibility as a government; we came out respectable and dignified. So even if you say the economy is difficult now, it is not a creation per se, of our own. These are exogenous factors that impacted on us.

But now, if you look at what is happening, we have managed to turn the economy around. We have started growing again albeit much lower, but it is growing at 4% per annum .That is better than zero. And we hope to build on that.

During the last review, the IMF gave us a good passing mark. Again, it is a testimony to what we are doing. But in the press release which they gave out, one critical statement which they made is that budget support is declining, the price of commodities are not likely to see the buoyancy as it was, in the near time. Therefore, we need to focus attention to diversifying the economy.

JBS: And what is being done in that direction?

I would characterize the budget that we have had all this while as a consumption budget.

The aim now for the 2017 budget is to gradually begin to create space in the budget so that we begin to shift away from consumption, to a budget that supports production. We would want to see a lot of investment go into agriculture, basically, food production. That is key!

The record shows, based on what I know that we spend approximately 160 million dollar, importing rice annually. You are exporting jobs, creating forex shortages in the country; the country is not being skilled, because you just import rice and eat instead of us growing. We import rice, onions, cooking oil, breed flower, Irish potato. So food production has become very important for us.

You can look at it from an import substitution point of view; you can look at it from a job creation point of view and; you can look at it from the viewpoint of creating surplus and then we can export and generate foreign exchange.

So if you ask me what we are going to do about diversifying the economy, first of all, we want to focus our attention on intensifying and increasing local production. To operate up the value chain, you have to have basic commodities. But then also, you have what is called the non-traditional exports which we also now need to focus our attention on; it has always been coffee, cocoa. But even with that the quantity is not significant.

JBS: And how do we facilitate production?

Minister: We have a host of challenges that we are facing. But we have to be ready to rise up. Thank God, a lot of investment has been made in roads and that is one key development because that is what facilitates production.

JBS: Thank you Mr. Minister for it has been a pleasure, talking to you.

Minister: Ok. Thank you very much!

©John Baimba Sesey-China

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MEANWHILE: ISSUES ON THE GROUND!

2016 Finance Act is in Tandem with Promotion of the Local Content Policy   

 NRA CG,Haja Kala Kamara...Why failing to implement the law?                              

By Ranger                                                       

One of the Act which was lately tabled by the Ministry of Finance and Economic Development in 2015 and recently ratified by Members of Parliament is the 2016 Finance Act.According to the key justification advanced by the Minister of Finance as to why the passage of the Bill into an Act was very important to make it become binding was that it will create additional avenues of generating revenue for Government. 

But another key significance of the Finance Act is that it promotes the Local Content Policy which is geared towards giving citizens and local companies the opportunity to make use of skills and local resources as opposed to bringing expatriates and making use of imported resources. Very conspicuous in the new Finance Act is the incorporation of increase of tax from 30% to 35% for individuals who are earning more than Le2million each month.

Strikingly,also,the Act makes provision for an increase in excise tax for imported alcoholic drinks a deliberate step taken to encourage companies to produce beer and other alcoholic drinks using locally planted Sorghum and cassava for the manufacturing of beer,stout and other products as stated in Section 23 of the Act.It was also further spelt out in the Act that locally brewed alcoholic drinks of more than 10% alcoholic content will be taxed an excise rate of 30% and locally manufactured beer of using more than 80% locally produced raw materials including sorghum and cassava will be charged a 5% excise rate.

It is apparent that from those quoted Sections in the Act a wider market has been created for sorghum, cassava farmers and at the same time will lead to more agriculture jobs. Of course this country will benefit much from this Act in terms of increased revenue mobilization and creation of agricultural jobs as had been earlier highlighted. 

The National Revenue Authority (NRA) is currently implementing 35% on income tax. However for the other aspect when it comes to the implementation of the Section that will affect imported alcoholic drinks NRA has been dormant or inactive to act in that direction which inversely is affecting local brewers like the Sierra Leone Brewery Company.

According to the 2016 Finance Act. "For imported alcoholic drinks with less than 10% alcoholic content,the rate of Excise Tax is US $4 per litre (centiliter) or US $4 per liter. For imported alcoholic liquid drinks with more than 10% alcoholic content it is US $0.06 per cl or US $6 per liter. 

It has been argued in many quarters that the above- mentioned Section will have no direct impact to affect the voting pattern in Sierra Leone. Furthermore, majority of those who are eligible to vote in elections consume locally produced drinks.

Regrettably,of late the NRA's Corporate Affairs Manager,Mohammed Bangura, had an altercation with the National Association of Sorghum farmers by stating that the Association is not a United entity. 

The President of the Association, Dennis Jusu, took great exception to that statement but it was good that the misunderstanding was amicable resolved and it is hoped that the two entities will work collaboratively to ensure that the Local Content Policy benefits Sierra Leoneans in that area.

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