Reducing Sierra Leone’s addiction to aid

It is time for a change. Aid money is not free. African countries including Sierra Leone pay close to $20 billion in debt repayment per annum to international banks. And paid at the expense of the education and health budget. Over the past 60 years, at least $1 trillion dollars of development aid money has been paid to African governments. Aid or donor money is a “band aid solution” that solves the immediate problem but never address the long-term sustainable growth. I think aid to Africa has made our continent poorer and economic growth dismal. This man-made humanitarian disaster has left African countries, like Sierra Leone more debt-burden with a poorly managed economy. It has increased poverty and corruption, created an inflation prone market and discourages foreign investment. The size of foreign debt and the risk level has made investors less attracted to finding good markets in Africa. And why do we have a huge percentage of our national budget coming from aid money? Are we responsibly practicing good economic principles? If you finance your lifestyle behavior through credit mediums, economists described people of such category as “impulse spenders” who perish on the mountain of debt they incurred. And why do we believe that investors can bring their capitals investment when they know we cannot even account for our own money let alone the “aid dollars” they give us. Honestly, Sierra Leone must take a new road that leads to a donor-free economy with an investment strategy to generate capital and foreign reserves. Our nation must participate in the Chinese “new Africa initiatives” of large scale investment in infrastructure. We must increase free trade in agricultural products with the EU, Japan and the United States. Also, Sierra Leone must foster the microfinance institutions that flourished in Asia and Latin America. It is time to end the cycle of aid. It is not working.

The Percentage Plan

As far as aid is concerned, if we truly want to celebrate our 49 years of political Independence from Britain, we must be economically independent and fiscally solvent. We must develop a 5 year blueprint plan to reduce or end our dependency on foreign aid. If Sierra Leone is to lift itself from abject poverty, we need to abandon our marriage alliance with aid and draw on proven financial solutions. We can ask Britain or China to ship us millions of dollars of drugs and medical equipments for our healthcare sector or we can obtain grant from the European Union or Japan to operate another 15% mega watt of Bumbuna electricity and build a new road, it will be just a short term solution with no long term growth prospect of our nation. We can shake hands with the donors and share our passion about their good economies, but that won’t create a single job for our young men and women who graduate from Fourah Bay College or Njala University.

Indeed, Sierra Leone’s largest donor is the United Kingdom (U.K.) and the European Union (E.U.) Total bilateral aid to Sierra Leone between 2008/2009 was £47.8 million of which 49% went to governance, 12% to health, 9% to educations, 23% to growth sector and 7% to other services. The European Union (E.U.) which is our second biggest donor donated to Agriculture, water and Sanitation (€25 million), health (€7 million), human development (€15.6 million) and provided a budget support to help the government of Sierra Leone with (€90 million).The multi annual indicative program for Sierra Leone under the 10^th European development fund (EDF) amounted €268.4 million. In December 29, 2009, Japan donated $1.3 million dollars grant to Sierra Leone for the reduction of maternal and child mortality. But is aid helping or hurting Sierra Leone?

A new way of thinking is needed for Sierra Leone to wean itself from this fatal addiction. Lets have only 5 per cent of our development financing to come from aid, 35 percent from trade (particularly with China), 25 percent from foreign direct investment (FDI), 10 percent from the capital market (access to international bonds market) and the 25 percent coming from remittance (Diaspora sending money home) with  a robust domestic saving strategy. That is the way forward for Sierra Leone. This is sound economic analysis not a political mud-slinging. We should not rely on hand outs, concession loans that are high interest payments with an IMF or World Bank that are interested in making profit for their investors and using aid as a vehicle to  influence foreign policies and the future of our country. Why do we allow the donor community to write our national budget, prioritize our spending and monitor our governance performance? Because we are spending their money. Where is the national budget and what are we doing with our national revenues?

Descenting Voices

In a September 2007 interview with Time Magazine, Rwanda’s President Kagame said: “now the question comes from our donors and partners: having sent so much money, what difference did it make? In the last 50 years, you have spent $400 billion in aid to Africa. But what is there to show for it? And the donor should ask: what are we doing wrong or what are the people we are helping doing wrong? Obviously somebody is no getting something right. Otherwise, you’d have something to show for your money?” Indeed, I respectfully shift the blame on the donor recipients (Sierra Leone and other African countries) for failing their people. The success of any nations rest on its ability to govern and how to manage its human and natural resources. President Abdoulaye Wade of Senegal was absolutely right when he said in 2002: “Africa took the wrong road after independence.” on the aid phenomenon. It is time to realign the wheels of a new economic philosophy and get back on the road that leads to growing investment opportunities with a job creating economy.

In Dambisa Mayo, an educated Oxford-Harvard economist’s book “Dead Aid: Why aid is not working”, she categorically said: “aid has been and continue to be, an unmitigated political, economic and humanitarian disaster for most part of the developing world.” It has foster rampant and entrenched corruption. It has provided most Sub Saharan African government with freely usable cash. It is being “kum-ba-yah” and “party time” at the golden palaces instead of development and investment. Because of a transfer of such huge cash, government has been complacency to develop national budget plans and implement them effectively. These so-called ‘aid projects” are commission on a preliminary phase to deceive donors that development action are taken place, but later -whether they are roads, bridges or schools- are abandon and left to ruin on the landscape of our beautiful country. Malawi’s former President Bakili Muluzi was charged with embezzling aid money worth $12 million dollars almost a year ago. The bumbuna project is a case in point for Sierra Leone. It took three decades to be completed and no one knows how much money went through the drain almost 37 years ago. Frankly, aid is mostly being consumed rather than invested. It is going into private pocket instead of public needs.

Thus, it is the lack of transparency and good governance that have squandered the opportunity of infrastructural investment through aid money not the donor community. It was because of the absence of significant domestic savings and the lack of human capital to attract private investments, the international donors felt that aid to Sierra Leone would lead to higher economic growth. Indeed, this is not the case today. We still have a larger uneducated population, low salaried employees, a poor tax collection system, lack of adequate access to global capital and investment with major infrastructures problems.

Strong Institutions

The first task of dismantling the aid barrier is to create strong, transparent and credible public institutions like the civil service, police and Judiciary. If we have a strong institution of government, we can build a foreign reserve and massive national savings through existing tax revenues and mining royalties. We can develop a market oriented economy and not a donor-drive economy, where we will compete with regional neighbors in trading with China, EU and the United States. We can create a new credit market system where business investors can get cash flow to operate their investments.

Good governance can led to Sierra Leone’s improvement in its credit rating system. We can become active participant in the global market by selling international bonds and using them as collateral to get low interest loans from investors. Today, sixteen African countries boast of transparent stock markets (Botswana, Cameroon, Ghana, Kenya, Malawi, Mauritius, Mozambique, Namibia, Nigeria, South Africa, Swaziland, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe) with a recorded market capitalization of $200 billion excluding South Africa. Sierra Leone must join this group and become a bond holder with a new international reputation.

Trade not aid

The economic attitude with past and present governments in Sierra Leone is that reforms or agenda for change means borrowing more money from the World Bank and other International financial institutions to pay for nation building projects. There are never sustainability clauses in their visionary thinking on how to maintain the functioning or operations of these projects or programs on a long term scale. Secondly, even when loans or aid are given, no transparency and credible management system are developed to maximize such resources for the greater good of society. I think we must radically depart from this failed mind-mindset, the primary agent of corruption and begin to open our minds to the “trade not aid” concept of doing business.

Invariably, trade is an engine of growth. China should be one of Sierra Leone’s strongest trading partners. From 2000 to 2005, China’s foreign direct investment to Africa was $30 billion and in 2007, it went up to $100 billion. Thus, Sierra Leone must seek a larger trading market with China and not congratulating them for free hand outs. If Kenya has tea, Ghana has coffee and Botswana has beef for trade, can Sierra Leone not export it cocoa and other agricultural products to China? What is the functional state of the Sierra Leone Producing Marketing Board (SLPMB)? Do we see trade as a replacement of aid or do we just like “freebies?” Do we think revenue from Water Quay will fund public projects alone? Indeed, trade creates employment, improves trade balances, lowers the prices of good, and generates income through tariffs and income taxes. Not only with China, we must trade with India and Japan. Let us stop looking for grants and aid. We must sell our commodities or buy their goods and accumulate massive capital income for our nation. This is how we create employment, build our economy and raise the quality of living of our people. Some day and even very soon, the international financial institution donors will suffer from “donor fatigue” and where will Sierra Leone pay for development programs or operating the institution of government?

Foreign Direct Investment

Thus, let modernize our city with sustainable electricity and water sanitation, expand and improve our road systems, reform our public institutions and change our attitudes towards investors. For multinational investment to gain a strong footing in Sierra Leone, we must show the investors that we are not only ready for business but we are serious about long term investment. In September 2007, Ghana issued a $750 million ten-year bond in the international capital market. Gabon followed Ghana’s lead and issued a $1 billion ten year bond. Could Sierra Leone follow suit? That is how the international investors know we are serious about capital and infrastructural investments. We must develop a good credit rating, show a history of excellent repayment and entice investors about what we have to offer them. By taking a land tour and participating in investment forums in London is nothing but a waste of the Sierra Leonean taxpayer’s money. Since 2003, fifteen countries have obtained credit ratings (Benin, Botswana, Burkina Faso, Cameron, Gabon Ghana, Kenya, Lesotho, Mali, Mauritius, Mozambique, Namibia, Nigeria, Senegal and Uganda) and their ratings are high enough to test the bond market. According to the UN, foreign direct investment (FDI) in developing countries reached $400 billion globally and $17 billion went to Sub Sahara Africa. Yet, Africa attracts less than 1% of global capital down from 5% almost 10 years ago.

Nonetheless, we must credit the government for the annual 6.5% growth of the economy according to the Department for International development (DFID) in the U.K. and for Sierra Leone gradually becoming an investor friendly country. It is noteworthy to mention that Sierra Leone has one of the strongest investor protection laws along Sub Sahara Africa. The processing time to obtain necessary permits, licenses and inspection has reduced from 26 days in 2008 to 12 days in 2010. Sierra Leone leads Ghana and the rest of West Africa on the overall World Bank rating of starting a new business.

However, we need to improve our enforcement of contract in resolving commercial sales disputes, steps to file claims and obtain judgment. We must ease the process of getting construction permit which takes 25 procedures, 283 days and cost 368.47 GNI to build a warehouse in Sierra Leone. We must abolish the tax waiver certification before submitting   documents for building permits because this procedure ranked us 171 out of the survey of 183 countries ( Africa, Asia Latin America and Eastern Europe) by the World Bank Group. We must also eliminate the terminal handling receipts and create a more discipline and transparent organization at our seaport. Access to credit must be developed to serve two functions of credit registry, the legal rights of borrowers and lenders in the credit market. With a direct foreign investment, an open trade system with access to capital market and huge remittance from the Diaspora, Sierra Leone can reduce its addiction on aid. We can solve our addiction problem only if we are not in a state of denial that foreign aid has failed our people and enriched those who use national funds for personal gain.

For almost 40 years, our nation has been robbed of the opportunity to achieve great things and advance the livelihood of our people. If aid has not solved the problem then how can it solve it now? It is time to change train and take a new journey, one that leads us to a valley of human freedom and the destination of progress. The people of Sierra Leone have waited too long.

Mohamed C. Bah, USA

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