By: Dr. Ezekiel K. Duramany-Lakkoh
Currency redenomination, fuel price hike amid a global economic freefall: Checkmating the Sierra Leone Scenario
Most people in Africa, especially Sierra Leone, still do not understand that the world is changing. First, the twin shocks of Ebola and the fall in global iron ore prices in 2014 saw the collapse of the mining industry in Sierra Leone and a fall of the GPD to -5%. The public completely misunderstood this economic quagmire as just the administrative incompetence of the mining companies and state stakeholders. We did not realise that a few years before the shock, the Chinese, who are the off-takers of iron ore, changed their economic policy from infrastructure development to strengthening domestic service consumption, which transmitted to the reduction in demand for iron ore hence a fall in the price for its rendering Sierra Leone fiscally handicap in few months. Now the COVID-19 pandemic and the War in Eastern Europe.
When the war in Ukraine started, I asked hundreds of people who were busy shouting ‘_Team Russian, Team Ukraine’_ how it would affect them. I told them,’ Africa will pay for every bit of the war in Ukraine, including them’. Most of them laughingly say, ‘We are not connected to it. The problem is we play too much and understand less. A straightforward lesson that every Sierra Leonean should learn is that our economy is so vulnerable to shocks that we have few options to adjust in the short term. If you take a typical Sierra Leone meal (food) and list the ingredients, you will find that more than 90% of items are imported. We do not plant what we eat! Therefore, even a little crisis from our importing countries will disrupt supply chain processes and lead to inflation in Sierra Leone, compounded by other internal economic challenges.
My simple argument is people (especially the elite) do not take notice and proactive steps on sensitive issues that will seriously affect our socioeconomic dispensations. We instead spend all our time complaining and lamenting on social media while our foreign business partners are brilliantly and strategically adapting to every economic volatility from external shock or internal constraints.
The International fuel market is unpredictable, coupled with a global supply chain constraint that will continue to spread financial risks worldwide, including Sierra Leone. Every day the war in Ukraine continues, the more financial risks are transmitted to exposed economies globally. No simple economic assumptions can stop it in the short-term. Most people think a short-term measure would be reducing fuel taxes to subsidise the transaction costs. Well, that strategy will have severe inflationary challenges from an expanded fiscal imbalance. An increase in salaries will also mean increased taxes to enhance the consolidated funds to pay for the increased salary cost. Most people attempting to discuss the current economic constraints fail to analyse the counterfactual and just constraint on obvious realities.
About a year ago, the Bank of Sierra Leone unveiled its plan to redenominate the Leones by recalibrating three zeros from the face value of the leone. As of today, July 1st, when the new notes are introduced, people are still asking for the economic benefit to the country. *It Does not have any direct economic benefit*! The focus of the Bank of Sierra Leone is to reduce the volume and manage transactions in the economy and, in the future, save the huge costs of printing new notes.
Meanwhile, currency redenomination happens when inflation is stable, which I am sure was the intention of the Bank of Sierra Leone at the time of the announcement. The initial assumptions might not be present with the current fuel price hike.
In conclusion, we have a moral and socioeconomic responsibility to focus on understanding basic accounting practices during the tenure of the currency transition. The quicker we understand transacting the new currency, the faster we will be ready to address the 0ramifications of the new economic order.
*Dr. Ezekiel K. Duramany-Lakkoh*
Dean Faculty of Accounting and Finance / Financial Management Consultant
Institute of Public Administration and Management
University of Sierra Leone