Section 1
Institutional and Political Factors: Hindering Sierra Leone's Economic Growth and Development
The Provision of Education and Health Care
Health care provision in Sierra Leone has been a challenge for many years and has resulted in very appalling health indicators. To improve the health status and access to health facilities in the country, President Koroma, with support from development partners introduced the Free Healthcare Initiative on 27th April, 2010. The free health-care initiative has substantially increased services for lactating mothers, pregnant women and children under five. There have been many accomplishments, such as a decrease in maternal mortality by 64%. But, there are still challenges the health care act faces. These include inadequate health workers to meet the demand; ill-equipped health facilities with obsolete equipment and a lack of electricity, water supply, etc; inadequate medical supplies and; limited out-reach visits because of the inadequate staff.
Because the government seems intent upon improving the health care system and working through the challenges the healthcare initiative faces, the provision of health care can only be helping the country’s economic growth and development. By providing increased access to health services to all Sierra Leoneans, more people will live longer and make wiser decisions. This will translate to higher economic development and eventually growth when people become more efficient. By taking small steps, the government is leading Sierra Leone in the right direction. The government should start even smaller. Providing sanitation and increasing access to clean water, people can live longer to contribute to society (Transparency).
The country has witnessed an unprecedented surge in student enrollments, as well as great efforts to rehabilitate and reconstruct schools that were destroyed, damaged, or abandoned during the war. Although it already claims a large proportion of public resources, the education sector requires much more if the system is to be expanded, quality improvements made, and national and international goals met. To mobilize more domestic funds and attract more international resources for education from the primary level upward, Sierra Leone needs to show clear evidence of the effective use of funds already available, together with a credible plan for utilizing future, additional resources.
The government has a strong commitment in the educational system. The Education Act 2004 requires all children to complete basic education: 6 years of primary school and 3 years of junior secondary school (JSS). There is increases access to education for citizens. Some of the goals for education are too extreme, such as the Education for all (EFA). Although there are no school fees, schools impose a variety of charges that deter the poor from attending. By working to improve education, the government is improving the well-being of the population, leading to a more efficient work force. One of the most important parts of education is the increase in communication. This allows countries to discuss and debate things that will lead to social change and benefit their country. It also improves the role of women in society because they will have more power. Lastly, the improved levels of health associated with education lead to less hazardous decisions and more open to opportunities (Education).
Because the government seems intent upon improving the health care system and working through the challenges the healthcare initiative faces, the provision of health care can only be helping the country’s economic growth and development. By providing increased access to health services to all Sierra Leoneans, more people will live longer and make wiser decisions. This will translate to higher economic development and eventually growth when people become more efficient. By taking small steps, the government is leading Sierra Leone in the right direction. The government should start even smaller. Providing sanitation and increasing access to clean water, people can live longer to contribute to society (Transparency).
The country has witnessed an unprecedented surge in student enrollments, as well as great efforts to rehabilitate and reconstruct schools that were destroyed, damaged, or abandoned during the war. Although it already claims a large proportion of public resources, the education sector requires much more if the system is to be expanded, quality improvements made, and national and international goals met. To mobilize more domestic funds and attract more international resources for education from the primary level upward, Sierra Leone needs to show clear evidence of the effective use of funds already available, together with a credible plan for utilizing future, additional resources.
The government has a strong commitment in the educational system. The Education Act 2004 requires all children to complete basic education: 6 years of primary school and 3 years of junior secondary school (JSS). There is increases access to education for citizens. Some of the goals for education are too extreme, such as the Education for all (EFA). Although there are no school fees, schools impose a variety of charges that deter the poor from attending. By working to improve education, the government is improving the well-being of the population, leading to a more efficient work force. One of the most important parts of education is the increase in communication. This allows countries to discuss and debate things that will lead to social change and benefit their country. It also improves the role of women in society because they will have more power. Lastly, the improved levels of health associated with education lead to less hazardous decisions and more open to opportunities (Education).
The Extent and Quality of Infrastructure
The 11 year civil war in Sierra Leone destroyed the country’s infrastructure. Transport systems such as roads, were all destroyed. Due to inefficiencies ($66 million is lost each year) in the country’s government (carrying out/giving orders, lack of investment, prioritizing, etc), the infrastructure is not reaping the benefits it could. Also, current access levels to electricity, at only 1-5 percent of the urban population and 0 percent in rural areas, are impeding development. In addition, only 1 percent of the rural population has access to piped water (Infrastructure).
The lack of usable roads is hindering economic development because it makes it more difficult for the country to export goods for a profit and import necessities. Also, public transport would allow more students to go to school to get education and allow adults to go to the market to spend money. Electricity is important for families to preserve their food. It also allows people to be more productive and have access to electrical-powered technological tools, such as diamond refiners. If Sierra Leone had more access to technology because of their electricity, people would be able to open new businesses that revolve around the natural resources. Lastly, increased water sanitation improves the well-being of people. Without access to it, economic development is being halted.
Financial Services/Banking System
There are many banks that are trying to help Sierra Leone recover from the war. There financial projects are trying to provide financial services to low-income entrepreneurs through a profitable microfinance institution with national scope. By improving efficiency in financial intermediation, safeguarding financial sector stability, reducing transaction costs of money transfer and expanding access to financial services, the banks of Sierra Leone are making investment more readily available to the citizens. Yet, Sierra Leone is a very poor country. The savings rate is really low. In order for investment to occur and help the economy grow, savings are necessary to make these funds available. Saving is difficult in Sierra Leone because the people do not have extra money to save. By making banking more available to the poor, the banks are aiding Sierra Leone is its quest for economic development. The banks are understanding of the situation of most Sierra Leoneans. The micro-finance banks will give out micro-credit loans to families to start a small-scale business. With more people employed and making profits, the well-being of these families will raise (Financial).
Because of the circumstances, there is only so much banks can do. But, they are doing what they can to make sure nobody is deterred from banking and everybody has the opportunity to gain access to banking.
Legal System
The judicial system lacks both independence and transparency. The protection of property rights is weak in Sierra Leone (Index). If the government cannot protect and support the property rights of its citizens, people will not own and benefit from private property. Because the government is corrupt, people are deterred from improving their property. They have no guarantee their property will not be lost. The lack of property rights reduces economic growth because of the lack of investment. Development will be thwarted, also, because the freedoms of citizens are lowered.
The 11 year civil war in Sierra Leone destroyed the country’s infrastructure. Transport systems such as roads, were all destroyed. Due to inefficiencies ($66 million is lost each year) in the country’s government (carrying out/giving orders, lack of investment, prioritizing, etc), the infrastructure is not reaping the benefits it could. Also, current access levels to electricity, at only 1-5 percent of the urban population and 0 percent in rural areas, are impeding development. In addition, only 1 percent of the rural population has access to piped water (Infrastructure).
The lack of usable roads is hindering economic development because it makes it more difficult for the country to export goods for a profit and import necessities. Also, public transport would allow more students to go to school to get education and allow adults to go to the market to spend money. Electricity is important for families to preserve their food. It also allows people to be more productive and have access to electrical-powered technological tools, such as diamond refiners. If Sierra Leone had more access to technology because of their electricity, people would be able to open new businesses that revolve around the natural resources. Lastly, increased water sanitation improves the well-being of people. Without access to it, economic development is being halted.
Financial Services/Banking System
There are many banks that are trying to help Sierra Leone recover from the war. There financial projects are trying to provide financial services to low-income entrepreneurs through a profitable microfinance institution with national scope. By improving efficiency in financial intermediation, safeguarding financial sector stability, reducing transaction costs of money transfer and expanding access to financial services, the banks of Sierra Leone are making investment more readily available to the citizens. Yet, Sierra Leone is a very poor country. The savings rate is really low. In order for investment to occur and help the economy grow, savings are necessary to make these funds available. Saving is difficult in Sierra Leone because the people do not have extra money to save. By making banking more available to the poor, the banks are aiding Sierra Leone is its quest for economic development. The banks are understanding of the situation of most Sierra Leoneans. The micro-finance banks will give out micro-credit loans to families to start a small-scale business. With more people employed and making profits, the well-being of these families will raise (Financial).
Because of the circumstances, there is only so much banks can do. But, they are doing what they can to make sure nobody is deterred from banking and everybody has the opportunity to gain access to banking.
Legal System
The judicial system lacks both independence and transparency. The protection of property rights is weak in Sierra Leone (Index). If the government cannot protect and support the property rights of its citizens, people will not own and benefit from private property. Because the government is corrupt, people are deterred from improving their property. They have no guarantee their property will not be lost. The lack of property rights reduces economic growth because of the lack of investment. Development will be thwarted, also, because the freedoms of citizens are lowered.
Political Stability
Sierra Leone has made great strides in becoming more politically stable. Ever since the war ended, aid has been steadily flowing into the country. The government has been making progress in turning the country from a major recipient of foreign aid into a major exporter of primary mineral and hydrocarbon products. Now that the country is accessible (no more fighting), Sierra Leone is attracting foreign direct investment because of its vast resources. As aid goes out, more FDI will enter. For the early years after the war, the increase in stability led to aid inflows, increasing development. Aid brought increased access to water; people came to build schools for the youth; and health-care increased (Campbell). When the well-being of citizens is raised, they are able to be more productive in the work place. Here, economic development leads to economic growth. At the same time, the aid created even more stability as the government became more responsive to the demands of the people. Money started to stay in the country instead of being siphoned off to foreign places. This obviously helps economic growth. Once this happened, FDI entered Sierra Leone. People began to trust the economy and see it as a way to make profit. FDI creates jobs for people. The only downfall is that many of the profits will be returned to the country from which they came.
Extent of Corruption
Government corruption is over in Sierra Leone. During the war, the government was focused on the war and diamonds, not the people. Now that the war is over, the citizens have a greater input in running the country. Instead of using diamond profits for selfish reasons and sending the money out of the country, the government is more accountable to the people. As stated above, with the end of corruption comes greater economic development and growth.
Historically, the corruption in Sierra Leone was terrible. People were so caught up in making money off of diamonds that the humaneness of society was lost. Political elections were not controlled. Whoever had the most weapons was in control of the country. The government kept diamond profits within the very elite upper class. They would send this money abroad, leaving less funds available for internal investment. This added to income inequality. As the rich were getting richer, the poor were getting poorer because of the increased prices. Bribery was another huge part of the war. In order to avoid export taxes and make the most from the diamonds, diamond sellers would pay the border officials to overlook certain packages. There was also corruption between countries. President Charles Taylor of Liberia gave a lot of weapons to the RUF soldiers in exchange for diamonds.
At some points the war was so bad that foreign aid refused to get involved because it was so dangerous. When wars like this are going on, there is no FDI I the economy because it is so unreliable (Campbell). Because of the war, it will take Sierra Leone a long time to get back on its feet.
Extent of Corruption
Government corruption is over in Sierra Leone. During the war, the government was focused on the war and diamonds, not the people. Now that the war is over, the citizens have a greater input in running the country. Instead of using diamond profits for selfish reasons and sending the money out of the country, the government is more accountable to the people. As stated above, with the end of corruption comes greater economic development and growth.
Historically, the corruption in Sierra Leone was terrible. People were so caught up in making money off of diamonds that the humaneness of society was lost. Political elections were not controlled. Whoever had the most weapons was in control of the country. The government kept diamond profits within the very elite upper class. They would send this money abroad, leaving less funds available for internal investment. This added to income inequality. As the rich were getting richer, the poor were getting poorer because of the increased prices. Bribery was another huge part of the war. In order to avoid export taxes and make the most from the diamonds, diamond sellers would pay the border officials to overlook certain packages. There was also corruption between countries. President Charles Taylor of Liberia gave a lot of weapons to the RUF soldiers in exchange for diamonds.
At some points the war was so bad that foreign aid refused to get involved because it was so dangerous. When wars like this are going on, there is no FDI I the economy because it is so unreliable (Campbell). Because of the war, it will take Sierra Leone a long time to get back on its feet.
Projects and Initiatives
Sierra Leone’s Free Health Care Initiative
The government of Sierra Leone is working to improve the health care in their country. Sierra Leone’s Free Health Care Initiative (FHI) is working to lower the rate of maternal mortality. The government has abolished health care costs for pregnant women, new mothers, and children under five. By eliminating costs, attendance to doctors increased. Cost no longer discourages citizens from caring for their health.
A downfall of FHI is the loss of livelihood by Traditional Birth Attendants (TBAs). TBAs used received a small payment for helping women during pregnancy and bringing them to a health center. With free health care units, TBAs have no incentive to bring pregnant women to the clinic because they will not get paid.
Most TBAs are not formally trained. In order to help lower the rate of maternal deaths, the government of Sierra Leone is encouraging TBAs to take on a non-delivery role as a Maternal Health Promoter. This will help ensure pregnant women are treated by trained professionals, increasing the chance for survival (FHI).
Because of FHI, the Ministry of Health, the donor community, and the ministry of finance are working together to reach a goal for the first time.
The government of Sierra Leone is working to improve the health care in their country. Sierra Leone’s Free Health Care Initiative (FHI) is working to lower the rate of maternal mortality. The government has abolished health care costs for pregnant women, new mothers, and children under five. By eliminating costs, attendance to doctors increased. Cost no longer discourages citizens from caring for their health.
A downfall of FHI is the loss of livelihood by Traditional Birth Attendants (TBAs). TBAs used received a small payment for helping women during pregnancy and bringing them to a health center. With free health care units, TBAs have no incentive to bring pregnant women to the clinic because they will not get paid.
Most TBAs are not formally trained. In order to help lower the rate of maternal deaths, the government of Sierra Leone is encouraging TBAs to take on a non-delivery role as a Maternal Health Promoter. This will help ensure pregnant women are treated by trained professionals, increasing the chance for survival (FHI).
Because of FHI, the Ministry of Health, the donor community, and the ministry of finance are working together to reach a goal for the first time.
Education for All-Fast Track Initiative Program Project
The objective of EFA FTI is to expand access to and improve the quality of basic education in Sierra Leone. The idea behind it is to restructure the educational development program to make it more effective. Instead of making it bigger, the government is focusing on making a quality program, and then expanding it. This includes reducing the number of classrooms constructed, extending the project closing date to ensure everything is in order, and introducing additional capacity building and support for the Ministry of Education, Science and Technology. By doing all of this, the government is able to put more funds towards the Girls’ Incentive Program at the Junior Secondary School. By education women, Sierra Leone will be able to increase the development of their country (EFA FTI)
The objective of EFA FTI is to expand access to and improve the quality of basic education in Sierra Leone. The idea behind it is to restructure the educational development program to make it more effective. Instead of making it bigger, the government is focusing on making a quality program, and then expanding it. This includes reducing the number of classrooms constructed, extending the project closing date to ensure everything is in order, and introducing additional capacity building and support for the Ministry of Education, Science and Technology. By doing all of this, the government is able to put more funds towards the Girls’ Incentive Program at the Junior Secondary School. By education women, Sierra Leone will be able to increase the development of their country (EFA FTI)
A New International Airport
The Government of Sierra Leone signed a contract with the China Railway International for the construction of the Freetown International Airport at Mamamah. This project was in line with President Koroma’s commitment to rebuild the country. With the help of China, Koroma was able to enhance infrastructural development in Sierra Leone. The new airport project is the largest and most significant mile stone in the history of the bilateral relationship between China and Sierra Leone (Samura). The building of such a large project shows the advancements Sierra Leone is making in economic growth.
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Part 2
Trade Barriers
Over-Specialization on a Narrow Range of Products
Sierra Leone is rich in diamonds. At the height of the diamond era, from 1930-1970, diamond exports were the backbone of Sierra Leone's economy, accounting for more than two-thirds of the country's export earnings and one quarter of its GDP. When diamonds were first found, it was thought that they would bring great wealth to Sierra Leone. Instead, it is the reliance on diamonds that has kept the country amongst the poorest in the world. Reliance on diamonds can be risky. If so much relies on diamonds, then any change in the demand will affect the economy. This could be for the better—a rising commodity prices will increase revenues to be used for financing education, health, and infrastructure.
On the other hand, if demand and therefore prices fall, terms of trades will be deteriorated. Current account deficits will increase and it will be difficult for countries to finance current expenditure and necessary imports. In 2009 the industry sector of Sierra Leone decreased 13 per cent from 2008. This was due to the decline of output in the mining sector, which the industry sector is heavily dependent on. Mining was experiencing negative growth because of the decrease in demand for diamonds due to the global recession. The industry sector is heavily dependent upon the mining sector, thus when externalities affect the growth of the mining sector, Sierra Leone experiences negative GDP growth in the industry sector (Dutch Disease).
Price Volatility of Primary Products
The price elasticity of demand for commodities (diamonds) and the price elasticity of supply for commodities tend to be relatively inelastic on the world market. A change in the demand will lead to large price fluctuations. Because the demand in Western countries determines the price, it makes it difficult for producers and governments of developing countries to plan ahead. This lack of control impacts foreign investment because nobody wants to invest in an industry with no guarantee of a successful future. This hurts the governments planning for education, health care, and infrastructure.
In addition, with price fluctuations, it is difficult to envisage the profit margin from which peasants can accumulate and renovate their productive units.
Supply is not a problem in price volatility. In the case of diamonds, De Beers controls the supply by storing diamonds and releasing them to buyers at their own discretion. By keeping the prices high in terms of supply, De Beers is actually helping Sierra Leone by creating a demand for their diamonds because they are “rare.” This is an exception for the trade barriers effecting economic growth in Sierra Leone.
Trade Strategies
Import substitution
The government of Sierra Leone adopted the Import Substitution Industrialization (ISI) strategy. The adoption of the ISI policy led to the establishment of many domestic industries in the country. These Public Enterprises (PEs) were set up by the government to carry out specified commercial activities. They were expected to produce industrial goods that were imported to dampen the effect of terms of trade by reducing imports and by diversifying exports. This would improve living standards of the people by increasing the range of choices of food and other manufactured products in the domestic market.
At the peak of things, there were 44 PEs established, involved in manufacturing, trading, mining, transportation, services, and the provision of utilities. The government established these industries behind high protective walls aimed at shielding them from competition from industries of the West. Protectionist measures were needed because newly established industries initially have high cost incurred from the setting up of fixed capital and utilities; and as such they require time for them to become competitive (Privatization).
The ISI strategy is a way for the government to promote economic growth. It protects the local culture by isolating the country from foreign influence and multinational corporations that could “take-over” the country. Plus, jobs are created and protected in the domestic market because domestic firms dominate. At the same time, thought, these companies are relatively inefficient and the country does not benefit from comparative advantage. Also, the lack of competition increases the inefficiency, because companies do not have to worry about losing consumers. This contributes to pollution. Finally, ISI may lead to high rates of inflation because of the domestic aggregate supply constraints.
Diversification
As a means to gain economic growth, Sierra Leone is pursuing export diversification. By doing this, the government is protecting the country from total dependence on diamonds (primary product exports). This will stabilize the economy and increase or stabilize employment. Agricultural products have progressively gained an increasing share of total exports (from €13 million in 2005 to €27 million in 2009), reflecting the progressive diversification of the Sierra Leonean economy and the recovery of its agriculture. This increase shows how the economy is able to right itself after the war and begin to grow and develop.
As Sierra Leone becomes more economically diversified, the use of technology will increase and so will the demand for highly-skilled workers. Eventually, training (which will improve the living standard of employees) will be needed and given to employees in order to catch-up to the need for the workers.
Over-Specialization on a Narrow Range of Products
Sierra Leone is rich in diamonds. At the height of the diamond era, from 1930-1970, diamond exports were the backbone of Sierra Leone's economy, accounting for more than two-thirds of the country's export earnings and one quarter of its GDP. When diamonds were first found, it was thought that they would bring great wealth to Sierra Leone. Instead, it is the reliance on diamonds that has kept the country amongst the poorest in the world. Reliance on diamonds can be risky. If so much relies on diamonds, then any change in the demand will affect the economy. This could be for the better—a rising commodity prices will increase revenues to be used for financing education, health, and infrastructure.
On the other hand, if demand and therefore prices fall, terms of trades will be deteriorated. Current account deficits will increase and it will be difficult for countries to finance current expenditure and necessary imports. In 2009 the industry sector of Sierra Leone decreased 13 per cent from 2008. This was due to the decline of output in the mining sector, which the industry sector is heavily dependent on. Mining was experiencing negative growth because of the decrease in demand for diamonds due to the global recession. The industry sector is heavily dependent upon the mining sector, thus when externalities affect the growth of the mining sector, Sierra Leone experiences negative GDP growth in the industry sector (Dutch Disease).
Price Volatility of Primary Products
The price elasticity of demand for commodities (diamonds) and the price elasticity of supply for commodities tend to be relatively inelastic on the world market. A change in the demand will lead to large price fluctuations. Because the demand in Western countries determines the price, it makes it difficult for producers and governments of developing countries to plan ahead. This lack of control impacts foreign investment because nobody wants to invest in an industry with no guarantee of a successful future. This hurts the governments planning for education, health care, and infrastructure.
In addition, with price fluctuations, it is difficult to envisage the profit margin from which peasants can accumulate and renovate their productive units.
Supply is not a problem in price volatility. In the case of diamonds, De Beers controls the supply by storing diamonds and releasing them to buyers at their own discretion. By keeping the prices high in terms of supply, De Beers is actually helping Sierra Leone by creating a demand for their diamonds because they are “rare.” This is an exception for the trade barriers effecting economic growth in Sierra Leone.
Trade Strategies
Import substitution
The government of Sierra Leone adopted the Import Substitution Industrialization (ISI) strategy. The adoption of the ISI policy led to the establishment of many domestic industries in the country. These Public Enterprises (PEs) were set up by the government to carry out specified commercial activities. They were expected to produce industrial goods that were imported to dampen the effect of terms of trade by reducing imports and by diversifying exports. This would improve living standards of the people by increasing the range of choices of food and other manufactured products in the domestic market.
At the peak of things, there were 44 PEs established, involved in manufacturing, trading, mining, transportation, services, and the provision of utilities. The government established these industries behind high protective walls aimed at shielding them from competition from industries of the West. Protectionist measures were needed because newly established industries initially have high cost incurred from the setting up of fixed capital and utilities; and as such they require time for them to become competitive (Privatization).
The ISI strategy is a way for the government to promote economic growth. It protects the local culture by isolating the country from foreign influence and multinational corporations that could “take-over” the country. Plus, jobs are created and protected in the domestic market because domestic firms dominate. At the same time, thought, these companies are relatively inefficient and the country does not benefit from comparative advantage. Also, the lack of competition increases the inefficiency, because companies do not have to worry about losing consumers. This contributes to pollution. Finally, ISI may lead to high rates of inflation because of the domestic aggregate supply constraints.
Diversification
As a means to gain economic growth, Sierra Leone is pursuing export diversification. By doing this, the government is protecting the country from total dependence on diamonds (primary product exports). This will stabilize the economy and increase or stabilize employment. Agricultural products have progressively gained an increasing share of total exports (from €13 million in 2005 to €27 million in 2009), reflecting the progressive diversification of the Sierra Leonean economy and the recovery of its agriculture. This increase shows how the economy is able to right itself after the war and begin to grow and develop.
As Sierra Leone becomes more economically diversified, the use of technology will increase and so will the demand for highly-skilled workers. Eventually, training (which will improve the living standard of employees) will be needed and given to employees in order to catch-up to the need for the workers.