Download 2015 Quarter 1 SIERRA LEONE SNAPSHOT

SIERRA LEONE
SNAPSHOT
2015 Quarter 1
Inflation – Price pressures in the West African nation have flared up as a result of lower domestic production and disruptions in supply chains brought on by
the Ebola scourge. As such, inflation is expected to remain elevated in 2015. That said, the supply side shocks currently exerting upward inflationary pressure
should be temporary as the Ebola epidemic comes under control.
Growth – Sierra Leone's real GDP growth rate surged in the past two years reaching 20% in 2013, on the back of the resumption of iron ore production,
scaling up of infrastructure investment, and robust activity in the non-iron ore sector. That said, the outbreak of Ebola – which brought economic activity to a
halt – and the plummeting of the iron ore price are expected to lead to a contraction of the West African nation’s real GDP for 2015.
National development plan - The government is scaling up public investment under the country’s poverty reduction strategy, the Agenda for Prosperity
(AfP), which should help boost sustainable growth in the non-resources sector. To help attain its goals under the AfP, the West African nation entered into an
Extended Credit Facility (ECF) arrangement with the International Monetary Fund (IMF) in October 2013.
OPPORTUNITIES
STRENGTHS
There is significant interest in the mining sector.
Substantial natural resources, particularly iron ore.
Substantial inflow of foreign direct investment (FDI) will help improve
peripheral infrastructure.
Authorities have re-engaged with multilateral organisations to help rebuild the
country following the civil war.
Substantial growth experienced in the telecommunications sector.
Ramped-up infrastructure spending will make doing business easier.
Return to political stability following civil war has opened up new
opportunities to local and foreign investors.
The country has fertile agricultural land.
VULNERABILITIES
WHAT IS BEING DONE?
Human development indicators are very low.
Exploitation of Sierra Leone's natural resources threatens the country's
ecosystem and fresh water sources and could lead to displaced villages.
Adverse impact of Ebola on economic activity.
Infrastructure is poor, particularly road and energy infrastructure.
Reforms are happening slowly, with the lack of education and health services
still a major obstacle.
The government adopted the Mines and Minerals Act 2009 and Environmental
Protection Act 2009 to address these concerns.
The government has made concerted efforts to quarantine the worst affected
areas and, along with donor aid, this has slowed the number of Ebola cases
significantly.
Infrastructure spending was neglected due to the decade of civil war. The
government is slowly but surely addressing this shortfall.
MEGA TRENDS
Population
5,743,725 (July 2014 est.); Age 15-64: 54.3%
Population growth rate (%)
2.33% (2014 est.)
Life expectancy at birth
Total population: 57.39 years; male: 54.85 years; female: 60.00 years (2014 est.)
HIV/AIDS
Adult prevalence rate: 1.55%; People living with HIV/AIDS: 57,126 (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 48.1%; male: 58.7%; female: 37.7% (2015 est.)
and write)
Urbanisation
Urban population: 39.2% of total population (2013); Urban population growth: 2.8% (2013)
Population below national poverty line
52.9% (2011 est.)
Unemployment rate
3.2% (2013)
Employment (% of total)
Agriculture: 68.5%; Industry: 6.5% Services: 25% (2004 est.)
Labour participation rate (% of total
population ages 15+)
67.3% (2013)
Business language
English
Telephone & Internet users
Main lines in use: 16,000 (2013); Mobile cellular: 4 million (2013); Internet users: 97,643 (2013)
Sources: CIA World Factbook, World Bank, UNESCO, ITU, UNAIDS & NKC Research
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Total
Sierra Leone
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
Economic Freedom 2015 (1 most, 178 least free)
HDI Ranking 2013 (1 most, 187 least developed)
189
140
138
147
144
178
187
183
0
Source: NKC Research
175
119
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
N/R
N/R
N/R
Sierra Leone is currently not rated by any of the three major international rating agencies, namely Standard & Poor's (S&P), Fitch Ratings and Moody's
Investors Service.
Infrastructure
Diversity of
the Economy
Banking
Sector
Extremely weak
Limited
Underdeveloped
Continuity
of Economic GDP Growth
Policy
Improving
Driven by iron
ore
Key Balances
Foreign
Investment
Socioeconomic
Development
Forex
Reserves
Twin deficits
Significant
interest in the
mining sector
Very low
Fairly low
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Daily Trading
Volume
Sierra Leone Stock
Exchange
Rokel Commercial Bank
Low
N/A
Banking
N/A
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Yes
Low
Fairly Low
91-, 182- and 364-day, 2year
Early phase
N/A
Macro-economic overview
Sierra Leone has made significant strides in economic recovery following the decade-long civil war that tore the country apart during much of the 1990s and
early 2000s. The economy received a further boost when two substantial iron ore mines started production. These two iron ore projects caused real GDP
growth in Sierra Leone to jump from an average of 5.7% p.a. during 2010-11 to 15.2% and 20.1% in 2012 and 2013, respectively, according to the
International Monetary Fund (IMF). Politically, the situation in the West African country is also relatively stable under the presidency of Ernest Bai Koroma
and his All People’s Congress (APC). The effective two-party system means that legislative power is split almost evenly between the APC and the Sierra
Leone People’s Party (SLPP). This power split and the lingering effect of the devastating civil war, together with the help that Sierra Leone continues to get
from international partners, mean that politics is fairly consensual and the government looks determined to rebuild the country on a more sustainable
foundation.
The country was on track to continue its remarkable ascent over the medium term, before the outbreak of the Ebola virus disease, earlier in 2014, which
brought the country to a standstill. Sierra Leone is one of the three global Ebola hotspots, along with its only two neighbours, Guinea and Liberia. According
to the IMF, GDP growth for Sierra Leone slowed quite drastically to around 6% in 2014, from the high of 20.1% in 2013. Furthermore, the declining iron ore
price also had a slowing effect on economic growth figures. As such, the country’s two foreign owned and heavily indebted iron ore producers, African
Minerals Limited (AML) and London Mining, are facing severe financial difficulties on account of the collapse in the iron ore price by 50% in 2014. Overall,
the adverse effects of Ebola and the slump in the iron ore price have negatively affected the economy with the IMF forecasting a 13% contraction in the West
African nation’s economy in 2015.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Service/GDP
33.5%
Agriculture/
GDP
47.9%
Industry/GDP
18.6%
Sierra Leone's economy is still strongly reliant on the agricultural sector as it contributes 47.9% to GDP, although the contribution of mining to GDP,
specifically iron ore, has grown significantly in recent years. The government is investing heavily in the agricultural sector, improving transport infrastructure
to ease the movement of goods, as well as lending support to farmers. Sierra Leone’s mobile telecommunications sector has shown strong post-civil war
growth partly because of the deteriorating fixed line services. The growth potential in this industry is estimated to increase the services sector’s contribution to
GDP in the future.
Real GDP Growth & Net FDI/GDP
25.0
40.0
Source: NKC Research
20.0
35.0
15.0
30.0
10.0
25.0
5.0
20.0
0.0
15.0
-5.0
10.0
-10.0
5.0
-15.0
0.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
Sierra Leone has seen sustained growth in the agricultural sector over the last few years due to government- and donor-supported programmes aimed at
empowering smallholder farmers as well as gradually improving infrastructure, especially the construction of feeder roads. Moreover, the start of iron ore
mining in Sierra Leone changed the FDI and real GDP growth landscape significantly. As the mines moved into the production phase and the country began
exporting iron ore, real GDP growth accelerated to 15.2% and 20.1% in 2012 and 2013, respectively. However, the Ebola epidemic, along with rapidly falling
iron ore prices, has stunted the economy’s progress. We predict real GDP to contract at around 12.8% during 2015 and rebound with 8.4% growth in 2016. In
comparison, net FDI also jumped from 2.3% of GDP in 2008 to 36.6% of GDP by 2011. However, the impact of the Ebola outbreak will resonate in FDI
figures over the medium term as uncertainty with respect to the containment of the virus persists. We predict FDI to be around 3% of GDP in 2015 before
ticking up to an estimated 4.9% of GDP during 2016.
Main Imports: % share of total
Imports ($ bn)
2014E
2015F
2016F
2016F
Oil
17.93
10.92
13.87
Machinery, boilers
13.81
18.32
19.07
Vehicles other than railway, tramway
6.63
8.51
8.85
Cereals
5.52
6.22
6.81
Oil
Machinery, boilers
Vehicles other than railway, tramway
Cereals
Main Exports: % share of total
Exports ($ bn)
2014E 2015F
Iron ore
2014E 2015F
2016F
Iron ore
45.14
23.96
27.11
Diamonds
12.00
15.95
15.37
Cocoa and cocoa preparations
2.51
3.46
2.27
Wood and articles of wood, wood charcoal
1.56
1.94
1.70
Diamonds
Cocoa and cocoa preparations
Wood and articles of wood, wood
charcoal
Source: NKC Research
0.0
0.2
0.4
0.6
0.8
1.0
Prior to iron ore mining, Sierra Leone’s principal exports were diamonds, aluminium ore, and small amounts of cocoa. The picture changed in 2012 when iron
ore’s share in Sierra Leone’s total export receipts jumped substantially. The share of iron ore in exports is estimated to be around 24% during 2015. However,
following the recent slump in iron ore prices and the Ebola outbreak, debt-plagued London Mining (owner of the Marampa mine in Sierra Leone) has filed for
bankruptcy protection, casting a shadow on the mine's medium-term future. The company has since been taken over by the Timis Corporation. Furthermore,
African Minerals limited – the largest iron ore operator in the country – has shut down operations temporarily, and is only scheduled to resume production by
mid-2015.
Sierra Leone’s imports were dominated by capital goods and fuel over the past few years. However, imports of capital goods will likely moderate over the
medium term as the iron ore mines move from the set-up phase and reach production capacity. This will lead to a gradual shift from machinery and equipment
imports to increased shipments of consumer and intermediate goods, as well as fuel and lubricants imports. The declining international oil price will also have
a mitigating impact on imports as it becomes significantly cheaper for the West African nation to import refined oil.
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Current Account & Budget Balance
(% of GDP)
0.0
-1.0
-10.0
-2.0
-20.0
-3.0
-30.0
-4.0
-40.0
-5.0
-50.0
-6.0
Source: NKC Research
-60.0
-7.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
The increase in iron ore exports, rising nominal GDP and lower capital goods imports combined to narrow the current account deficit from nearly 45% of GDP
in 2011 to about 12% of GDP in 2014. The trade balance swung into surplus territory during 2013, but this surplus has since been eroded as a result of the
declining iron ore price. In addition, higher imports, partly driven by the Ebola outbreak, will have a further deteriorating impact on the current account
balance. Separately, Ebola will also have a marked impact on government revenues as a result of reduced economic activity, lower mining revenue, as well as
the possibility of weaker taxpayer compliance. Apart from lost revenues, the government’s reaction to the epidemic is also weighing on the fiscal budget,
despite the aid received from various international organisations. We predict that the budget deficit will deteriorate to around 3.5% of GDP this year and slip
further to around 4.5% of GDP during 2016.
Average CPI (% change, y-o-y)
20.0
Source: NKC Research
18.0
16.0
14.0
12.0
10.0
8.0
6.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
Consumer price index (CPI) inflation has trended lower over the past two years on the back of government support to the agricultural sector, which together
with favourable weather has helped to keep local food markets well supplied and kept food price pressures subdued. Moreover, a relatively stable exchange
rate and proactive monetary policy have facilitated a curbing in consumer price pressures. However, the Ebola outbreak has led to an uptick in price pressures
and a depreciating leone. The spread of the virus has effectively disrupted production and distribution channels for basic consumer goods causing increased
inflationary pressure. As such, inflation is expected to tick up to 13.1% in 2015 from 8.3% in 2014. On the upside, inflationary pressures may subside by next
year if it continues to be driven by supply side shocks and if the second round effects are contained – provided that the spread of the virus is also curtailed.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Vidal Decker – designation is Partner
Tel +232 766 01595
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
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such information or opinions.
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