Friday, July 13, 2007

Economic Growth Has Been Negative Since Independence

Sierra Leone’s growth prospects looked encouraging at independence in 1961. The country had a renowned educational system; a rich and diversified natural resource base comprising diamonds and other minerals; abundant agricultural and marine resources; tourist attractions; and a seemingly stable democracy. However, as statistics show, Sierra Leone’s post-independence economic growth performance has been dismal. Real GDP per capita growth averaged –1% for 1961-97 compared with 0.9% for Sub-Saharan Africa. Like SSA the country experienced moderate growth in the 1960s up to the early 1970s: 2.5% for 1961-70, falling to 0.06% for 1971-79, before turning negative in 1980-90: -0.9%. Unlike SSA where growth recovered in the mid 1990s, Sierra Leone’s growth in the 1990s deteriorated further to –8% for 1991-97 during the civil war.

Why has Sierra Leone’s post-independence growth been negative? What were the main drivers of the 2.5% growth in the 1960s and the subsequent decline? Is growth performance attributable to policy choices or exogenous factors? What led to state collapse and civil war in the 1990s? And will Sierra Leone grow again? The above questions are answered by looking at the development efforts of the country over the almost five decades of independence The article forces here is mainly on the role of principal markets-labour, capital, primary commodities and diamonds-in the growth process.

Sierra Leone is a paradigmatic case of a resource-rich country afflicted with growth collapse and civil conflict. Sierra Leone is truly a striking case of growth failure in Africa. At independence Sierra Leone’s substantial growth opportunities included a rich endowment of diamonds and other minerals, rich marine resources, a developed educational system boasting the first university in Sub-Saharan Africa, and a seemingly stable political system. However, Sierra Leone ended the 20th century a growth tragedy. Per capita GDP growth for 1961-2000 averaged -1.2% per annum, compared with about 1% for Sub-Saharan Africa. Per capita GDP in constant 1995 dollars nearly halved between 1961 and 2000, from US$260 to US$150 (Figure 1). Worse still, civil war raged from 1991 to 2001 with disastrous consequences on development infrastructure and other growth-aiding-assets and policy formulation

The article attributes the Sierra Leone’s deteriorating growth performance from the early 1970s to the following:

  • adverse terms of trade shocks, especially in the 1970s when the first and second oil price shocks led to huge import bill, which was over and above the decline export revenue from primary products
  • a diamond curse luring labour and investment from agriculture and manufacturing to the diamond mining areas, which breed informal economic activity and fostered crime, violence and ultimately the civil conflict
  • ethno-regional divisions facilitating the emergence of poor political leadership and growth hostile economic policy
  • Urban-biased policy inimical to growth.
  • Unstable, or rather unfocused political leadership

These factors induced economic and political collapse and ultimately, in conjunction with external instigation, unleashed civil war from 1991-2001 which in turn aggravated the negative growth.

Rural households

Rural households comprised about 80% of the population of Sierra Leone, living in traditional societies where land is the abundant gift of nature but generally infertile due to over-farming. Although 75% of Sierra Leone’s geographical area was arable, 80% of this was uplands of relatively low soil fertility and the remainder fertile lowlands. For the uplands, natural fertility was low due to low pH, organic matter content, and caption exchange capacity. Water holding capacity was also low due to the generally coarse nature of the topsoil and the result of centuries of weathering from high rainfall Fertilizer use was rare. A monsoonal climate with six months of dry season (and six months of rain) during which many streams and rivers ceased to flow, constrained irrigated agriculture, as there were few suitable locations for large storage reservoirs along any of the rivers.

Rural households in the past faced a very risky environment due to high disease prevalence and absence of modern health facilities leading to low life expectancy of 32 years; unpredictable climate; rudimentary or state-controlled markets; and price volatility for marketed produce. Transactions costs were high due to high transport costs; lack of financial markets, modern technology and infrastructure; and low population density.

Adaptation to the high-risk, high-cost environment resulted in a low production equilibrium trap. Rudimentary markets and low technology gave rise to subsistence small-scale farming, limiting output. Farm size averaged one to two hectares of land per family, the size of holding which could be handled using hoes, knives and axes, the main farming equipments. A small proportion of rural households produced export crops such as cocoa, coffee and palm kernels in suitable areas of the country.

Absence of credit markets in a high-risk environment forced consumption-smoothing through accumulation of food grains and livestock, the main assets, resulting in large losses due to poor storage facilities for food grains, and animal disease morbidity. The result was widespread poverty and low savings.

Low soil fertility led to shifting cultivation-cultivating land for one to three years and subsequently leaving it to lie fallow for years to recovery fertility. Farm yields decreased by estimates of over 40% as population pressure forced a decline in fallow periods from over 20 years at the beginning of the 20th century to seven years by the 1960s. This was compounded by lack of extension services to disseminate more efficient farming techniques, and low fertilizer use. Moreover, shifting cultivation necessitated clearing of new forest land every one to three years; and burning it to restore carbonates, phosphates and silicates of the captions (Nye and Greenland 1960), sometimes leading to deforestation and erosion, and considerable time spent on bush-clearing and burning. It was also estimated that a third of total farm work time was devoted to clearing operations among farmer.

Crop and activity diversification reduced risks. Some 95% of farmers produced rice, over 70 other crops, raised livestock, and engaged in non-farm activities. Mixed cropping prevented erosion and leaching of cultivated land by providing a green cover to the land throughout the crop season as the crops mature at different times. However, diversification reduced growth by precluding economies of scale and specialization, while time was wasted moving across activities. Furthermore multiple cropping as a response to risk implies that the household engages in activities even if they offer only low returns as long as they are safe or have risks uncorrelated with other activities; while reducing the household’s scope for learning by doing (Collier and Gunning 1999b). Indeed, farmers in Sierra Leone planted cassava on previously cropped land without any intention of harvesting it unless in the event of failure of other crops.

Land Tenure System

Collective ownership of land - a risk-sharing strategy – ubiquitous in rural Sierra Leone precludes sale or individual ownership of land. Family and communal land ownership are the two main categories of ownership patterns. An outsider can only obtain land with the consent of the proprietary family or community. Sometimes sharecropping is practiced. Both ownership systems recognize individual rights to economic tree crops by the planter. Consequently in some regions outsiders are not allowed to grow tree crops, for fear that they would claim the land. Critics contend that the above land tenure system constrains agriculture for the following reasons:

  • Land cannot be used as collateral for credit since individual ownership is precluded.
  • Potential investors would fear that after developing the land, it would be taken from them.
  • Restrictions on land use inhibit outside investment e.g. in some areas outsiders cannot plant tree crops.

Regarding first bullet point above, the major binding constraint to rural credit in the 1960s was the dearth of financial institutions catering to the rural areas. As land was still relatively abundant the introduction of marketable individual ownership rights would probably have resulted in low prices and land illiquidity. Thus it is doubtful whether in the short run this would have significantly facilitated the use of land as collateral for credit and thereby increased agricultural investment.

The second and third points are valid for regions where outsiders are not allowed to plant tree crops or are sometimes made to give up land under cultivation previously released to them. Some other regions allow outsiders to cultivate tree crops and permit them indefinite and unrestricted access to the land under cultivation. However, uncultivated land could be reclaimed. Some fear that rural land titling and sale would displace and further impoverish already poor rural communities. One way or the other, rural land tenure remains a very sensitive issue which often discourages any debate, let alone reform.

Not all the adaptations induced the low production equilibrium trap. The formation of cooperative societies and rice marketing societies, numbering up to 700 in the 1960s, built social capital, and permitted large-scale agriculture and risk pooling. They reduced moral hazard problems emanating from information asymmetry as membership was often community-based and therefore information was almost complete. Furthermore, they reduced acute problems of access to credit by permitting pooling of resources and tapping on credit guarantee schemes which were available only for organized groups. They also boosted agricultural production by reducing transactions costs in rice marketing.

Rather than adapt, rural households sometimes emigrated. During the “diamond rush” of the 1950’s 50000 to 100000 people - some 10% of the farm labour force - migrated to diamond-mining areas; others migrated to urban areas. This resulted in rural labour shortages especially during peak seasons, reducing farm output; while increasing violence and criminality in diamond-mining and urban areas, a factor that contributed to the subsequent civil war.

Manufacturing firms

Sierra Leone’s manufacturing sector has always been small, accounting for 6% of GDP in the 1960s. Manufacturing establishments employing 6-50 workers, mainly foreign owned and managed, and operating in the formal sector, accounted for 40% of total manufacturing output units operating mainly in the informal sector and employing less than 6 workers accounted for the remaining 60%. In the 1960s the environment for manufacturing was risky and inauspicious. A national population of only 2.3 million and low per capita income of less than 150 US dollars (at domestic prices) produced a small market. Rudimentary financial markets constrained capital accumulation and risk-insurance.

The foreign-owned commercial banks favoured foreigners and the more profitable and less risky mining and trade in loan allocation. The location of commercial banks and the courts in urban areas aggravated loan default risks for rural-based small and medium enterprises, constraining their access to formal sector credit. Informal sector credit was short term, usually less than three months, reducing its scope for generating investment funds. While deficient everywhere, infrastructure was worse in the rural areas which lacked electricity, telecommunication facilities, pipe-borne water supply or good roads. Also skilled personnel were scarce. An elitist educational system provided mostly academic rather than technical training for the 5-10% of the population that was literate.

High Tariffs

After independence in 1961 the government embarked on an ambitious import substitution industrialization programme, the prevailing development paradigm. It offered generous incentives to local and foreign investors- tax holidays; duty free imports of equipment and raw materials; repatriation of capital and dividends in foreign currency, tariffs on import substitutes, and the Wellington Industrial Estate in Freetown equipped with infrastructure. These measures in conjunction with active government participation resulted in the establishment in Freetown of some large manufacturing enterprises. However, many were inherently inefficient with a large import content and weak indigenous technological capability. Those that were state-owned faced problems of political interference. By the mid 1960s some enterprises were experiencing serious financial difficulties and depended on government subsidies to survive.


After ten years of brutal civil war, Sierra Leone faces enormous risks and challenges. The war has exacerbated already high levels of poverty. The diamond curse is still to be revised. The educational system remains largely inappropriate to development needs.

Sierra Leone however, could grow again. Peace holds since 2001. Well managed, the country’s rich natural resources could catalyze growth and help to reduce poverty substantially. Large-scale, corporate exploitation offers the best prospects for capturing much of the rents for the state. Given its prehistoric role in the economy, accounting for over 90% of income and employment, private sector development is key to rekindling growth and alleviating power. However, foreign dominance of economic activity warrants encouraging greater indigenous participation

African Path