SIERRA LEONE Economic Update Enhancing Value Chains to Boost Food Security October 2023 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 01 ACKNOWLEDGEMENTS The Sierra Leone Economic Update 2023 was prepared by a joint World Bank team from the Macroeconomics, Trade & Investment, and the Agriculture and Food Global Practices. The first part of the report was prepared by Anna Twum (Economist, EAWM2) and Smriti Seth (Senior Economist, EAWM2). Excellent research assistance was provided by Hussein Sesay (Consultant, EAWM2). The global section draws from the World Bank’s Global Economic Prospects analysis and projections and received inputs from Garima Vasishtha (Senior Economist, DECPG), Patrick Alexander Kirby (Senior Economist, DECPG), and Sergiy Kasyanenko (Economist, DECPG). The second part was prepared by Ashwini Rekha Sebastian (Senior Agricultural Economist, SAWA4), Kadir Osman Gyasi (Senior Agricultural Economist, SAWA4) and Steven Were Omamo (Consultant, SAWA4). The report benefitted from extensive comments and inputs from Aurélien Kruse (Lead Economist, EAWDR), Michael Saffa (Senior Economic, EAWM2) and Philip English (Consultant, EAWM2). The Update was prepared under the overall guidance of Pierre Laporte (Country Director, AFCW1), Abdu Muwonge (Country Manager, AWMSL), Sandeep Mahajan (Practice Manager, EAWM2) and Chakib Janane (Practice Manager, SAWA4). Naomi Mathenge (Senior Economist, EAEM1) and Zacharey Carmichael (Economist, SAGGL) served as peer reviewers and provided invaluable feedback. 02 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security SIERRA LEONE Economic Update Enhancing Value Chains to Boost Food Security October 2023 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security i Contents Acronyms iii Executive Summary v PART 1 1 Global and Regional Trends 2 Recent Developments in Sierra Leone 4 Sierra Leone’s economic recovery has been disrupted by overlapping external and domestic shocks and slippages in fiscal management 4 Fiscal stresses have mounted on account of macroeconomic shocks and policy slippages 9 Risks to debt sustainability have intensified 15 The financial sector appears stable but with significant underlying risks 24 Near and Medium-term Economic Outlook 28 Risks to the outlook 31 Policy Priorities 32 PART 2 35 Food Security in Sierra Leone: Recent Trends and Current Conditions 37 Food Access 39 Food Availability 41 Food Utilization 45 Food System Stability 48 Challenges and Opportunities in the Food Systems of Sierra Leone 49 Competitiveness 51 Farm Productivity 52 Levels and Distributions of Net Returns 54 Recommendations to Strengthen the Agri Food sector to boost Food Security 55 Conclusions 58 ii SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Acronyms ACF Agriculture Credit Fund B2G Business-to-government BSL Bank of Sierra Leone BPS World Bank Group’s Business Pulse Survey CAC Corporate Affairs Commission CRB Credit Reference Bureau DSA Debt Sustainability Analysis ECOWAS Economic Community of West African States EDSA Electricity Distribution and Supply Authority EMDEs Emerging Markets and Developing Economies FDI Foreign Direct Investment Forex Foreign Exchange FSA Financial Service Association FSP Financial Service Providers G2B Government-to-business G2P Government-to-person GDP Gross Domestic Product GoSL Government of Sierra Leone ICT Information and Communication Technology LIC-DSF Low Income Country Debt Sustainability Framework MFI Microfinance Institution MPR Monetary Policy Rate MSE Micro-and-small enterprises MSME Micro, small-and-medium enterprises MTI Ministry of Trade and Industry NCRA National Civil Registry Agency NDA Net Domestic Asset NFA Net Foreign Asset NGO Non-governmental organization NPL Nonperforming Loans NSFI National Strategy for Financial Inclusion NIDS National Innovation and Digital Strategy OARG Office of Administrator & Register General SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security iii PFM Public Financial Management PP Percentage points PPG Public and Publicly Guaranteed PV Present Value P2P Peer-to-peer P2P Person-to-person POS Point-of-sale SME Small-and-medium enterprises SSA Sub Saharan Africa USD US dollars WB-IMF World Bank and the International Monetary Fund iv SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Executive Summary Sierra Leone’s economy experienced overlapping setbacks during 2022, as external spillovers from the Russian invasion of Ukraine aggravated domestic macroeconomic vulnerabilities. This led to high levels of inflation, a substantially weaker currency, greater imbalances in public finances, and lower foreign exchange reserves. GDP growth slowed in 2022 (from 4.1 percent in 2021 to 3.5 percent) bringing the average GDP growth since the onset of the COVID-19 pandemic to only around half of the pre-pandemic trend. High global energy and fertilizer prices coupled with a weaker currency translated into accelerating inflation which rose from 12 percent in 2021 to 27 percent in 2022, and further to over 50 percent by August 2023, threatening the welfare of households and worsening food insecurity and poverty. External shocks were compounded by domestic policy slippages, which magnified economic vulnerabilities and complicated macroeconomic management. The fiscal deficit increased from 7.3 percent of GDP in 2021 to 10.5 percent in 2022, driven by a combination of macroeconomic headwinds and policy slippages. The significant rise in the fiscal deficit was unexpected. The budget had forecast a modest decline in the deficit as the authorities sought to adjust after a surge in COVID-19 expenditures in 2020 and 2021. Instead, spending rose significantly in 2022, by over 3 percentage points of GDP. Half of this was due to capital expenditures (primarily on roads) not included in the budget. At the same time, the inflation-depreciation spiral affected the cost of some goods and services and contracts denominated in dollars, including on fuel subsidies to the state-owned electricity enterprise, the Electricity Distribution and Supply Authority (EDSA). Fiscal shortfalls, in turn, had ripple effects on the private sector, as the state continued to struggle to pay domestic suppliers; the authorities made limited progress in reducing domestic arrears, which stood at 4 percent of GDP at the end of the year. The unbudgeted increase in the deficit was financed by increased central bank holdings of government securities, further fueling inflation and currency depreciation. The Leone depreciated against the dollar by over 40 percent over the course of 2022 – more than can be explained by external events and what most regional peers experienced. The Leone was redenominated in August 2022, with the elimination of three zeros and the issuance of new notes. Uncertainty and a shortage of new notes prompted a rush to foreign currencies, followed by further downward pressure on the Leone. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security v Risks to debt sustainability have intensified. Public are leading to problems in paying domestic suppliers, debt increased significantly as a share of GDP, under hurting the capacity of the private sector to recover the cumulative effects of the steep depreciation of from the COVID-19 pandemic and grow. The rise in the Leone and the increase in high-cost domestic public debt can also undermine confidence within the borrowings to finance the fiscal deficit. The public debt- private sector and among foreign investors. Following to-GDP ratio is estimated to have increased from 84.7 fiscal slippages in the first half of the year, the release percent at the end of 2021 to 96.3 percent at the end of the supplementary budget in July 2023 , and the of 2022. External debt, mainly owed to multilateral government’s updated macroeconomic framework creditors, constitutes around two-thirds of the overall under the ongoing IMF program, a wider-than-expected debt, but is highly concessional; its value as a share deficit of 6 percent of GDP is projected compared to of GDP increased mechanically with the depreciation 2.9 percent in the original budget (Nov 2022). of the Leone, but interest payments remained modest. The remainder of public debt is domestic with short The economic growth model remains dependent maturities and high interest, and its growth pushed up on public spending and the mineral sector. GDP domestic interest payments from 2.6 percent of GDP in growth of 3.5 percent in 2022 and projected medium 2021 to 3.0 percent in 2022, thereby consuming almost term growth of 3.7 percent will have limited impact on one quarter of all domestic revenues. According to the poverty reduction. Public spending rose by 20 percent joint WB-IMF Low Income Country Debt Sustainability in real terms in 2022 and was a major driver of overall Framework (LIC-DSF) in July 2022, Sierra Leone was economic growth. However, this cannot be sustained. In already at high risk of debt distress – these risks have the private sector, mining expansion was welcome but since intensified with mounting liquidity and solvency exposes the economy to volatility in world prices, while pressures. generating relatively few jobs. The agriculture sector continued to show modest growth but is constrained by Monetary policy was complicated by global inflation, its focus on the domestic market; exports did not grow currency redenomination, the depreciation of much. Moreover, a nascent recovery in manufacturing the Leone, and budgetary pressures. To address was disrupted by tightening financial conditions and a mounting inflation, the Bank of Sierra Leone tightened slowdown in private investment. its monetary policy stance and cumulatively revised the benchmark interest rate by over 300 basis points The outlook for the Sierra Leonean economy will (3 percentage points). However, monetary policy be shaped by external developments which cannot effectiveness was limited by underdeveloped financial be influenced but also by domestic factors that are markets and the need to finance the fiscal deficit, and under the control of policy makers. Elevated inflation further complicated by the redenomination of the Leone. from energy and food prices, and tight monetary policy While the BSL maintains a de-jure floating exchange in advanced economies, could further affect the global rate regime, it intermittently intervenes to smoothen economy. Geopolitical uncertainties around Russia’s excessive fluctuations; over 2022 these interventions invasion of Ukraine will determine the pace at which eroded reserves, which fell to nearly 4 months of import energy and agricultural prices and supply chains will cover by end-2022, from above 5 months at end-2021. normalize. In a baseline scenario, the economy is projected to grow at 3.7 percent on average during The large fiscal deficit continues to hamper the 2023–25, below its long-term trend. But this scenario is potential for higher economic growth. The resulting predicated on sound domestic policies, including a tight increase in domestic borrowing, together with its monetary stance to combat inflation, and an equally impact on inflation, has contributed to higher domestic conservative fiscal policy to decrease debt pressures interest rates, and greater interest payments in the and rebuild fiscal space. In this case headline inflation budget. The former raises the cost of borrowing for could moderate gradually to 14 percent and the fiscal the private sector, while the latter reduces fiscal space deficit decline to 4.3 percent of GDP by 2025. Risks for public investment. Furthermore, fiscal shortfalls to debt sustainability will remain elevated until fiscal balances improve further and the reliance on expensive vi SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security and short-term domestic borrowings is addressed through the lengthening of maturities and greater access to concessional borrowing. The policy focus in Sierra Leone needs to be on restoring macro stability, while protecting vulnerable households and continuing long-term reforms to promote economic growth. The rise in the cost of living combined with relatively low growth and a weakening of macroeconomic fundamentals threatens to increase the level of poverty in a context of inadequate social safety nets. Renewing the commitment to fiscal consolidation will be crucial, including through tighter expenditure controls, and better budget preparation and implementation. These efforts, if coupled with improvements in domestic revenue mobilization aligned with the government’s medium-term revenue strategy, should create more fiscal space, while addressing developmental spending needs. The implementation of recent reforms should be prioritized, such as the Gender Empowerment Act, Land Acts, Employment Act, the Mines and Minerals Development Act and the National Payment Switch. Agricultural production and exports should be supported through a judicious balance of rationalized public spending and greater private sector participation as envisaged in the new MAF Policy Shift (see summary of special focus chapter below). Overview of economic developments In 2022, Real GDP growth is estimated to have slowed …inflation soared to 27 percent, with food inflation slightly to 3.5 percent with the highest growth rate in the exceeding non-food inflation… industrial sector… Inflation rate, y-o-y, percent Sectoral growth rates, y-o-y, percent 20 60 Food (y-o-y) Agriculture 4.1 Industry Headline 15 Services 50 Inflation 5.3 40 10 3.5 3.1 20 Non-food (y-o-y) 3.5 5 -2 30 0 10 2023 2018 2019 2021 2022 2023 -5 (Prov.) 0 2 2 2 22 2 2 3 3 3 3 -2 -2 -2 -2 -2 -2 -2 -2 -2 -10 l- n ar ay ly N ar ay pt ov Ju Ja Ju JA M M Se M M N …and the exchange rate increased by 66% y-o-y as of The fiscal space has narrowed with increases in capital December 2022 with pressures persisting into 2023. expenditures and debt repayments… Increase in Leone/USD, y-o-y, percent Government fiscal balance, percent of GDP 50 Govt. Revenue & Grant 45 12 Govt. Expenditure & Net Lending 40 Overall Balance 35 10 30 8 25 6 20 15 4 10 2 5 0 0 1 1 1 JA 1 2 2 2 2 AP 3 3 3 19 1 19 2 19 3 20 4 20 1 20 2 20 3 21 4 21 1 21 2 21 3 22 4 22 1 22 2 22 3 23 4 23 1 2 -2 -2 -2 -2 20 - Q 20 - Q 20 - Q 20 - Q 20 - Q -2 -2 -2 20 - Q 20 - Q 20 - Q 20 - Q 20 - Q 20 - Q 20 - Q 20 - Q -2 -2 -2 -2 20 - Q 20 - Q 20 - Q 20 - Q -Q -2 N R L CT N RI L N R L CT 19 JU AP JA JU JU AP JA O 20 O -4 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security vii … and debt rose in 2022 as share of GDP. The trade deficit narrowed due to an increase in receipts Debt to GDP ratio, percent of GDP from major exports particularly from the mining sector 96.3 Trade balance, millions of USD 100 76.3 79.8 80 71.8 69.1 1000 60 41.2 44.2 49.7 51.1 65.8 800 40 600 20 27.9 27.6 26.6 28.7 30.5 400 0 200 2018 2019 2020 2021 2022 0 External Debt 1 2 3 4 1 2 3 4 1 2 3 4 1 2 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Domestic Debt 20 21 22 23 20 21 22 20 21 22 20 21 22 23 -200 20 20 20 20 20 20 20 20 20 20 Total Public Debt 20 20 20 20 -400 Exports Imports -600 TBAL Boosting Food Security higher than for rice production but current exports are a tiny fraction of those from Côte d’Ivoire or Ghana. Food insecurity has increased, with many households Returns are higher still for horticulture, but the domestic unable to meet their basic food and nutrition needs. market is small, and exporting is more difficult than for Chronic undernourishment has been a long-standing cocoa. Farmers in all value chains continue to suffer phenomenon, affecting some 25 percent of the from poor access to inputs, advisory services, finance, population for many years prior to the pandemic. With and post-harvest technologies. a growing population, the number of undernourished people rose from 1.6 million in 2011 to over 2.0 million by The authorities have acknowledged the limitations 2019. Since the onset of COVID-19, acute food insecurity of past policies to support domestic food production surged from negligible levels in 2018 to 19 percent of and are working on more targeted initiatives to the population in 2021. By August 2022, 81 percent of enhance value chains. Agriculture is the country’s most households were unable to meet their basic food and significant economic sector, accounting for 60 percent nutrition needs. The average calorie and protein supply of employment and 50 percent of GDP. And yet it is per person is below the African average and declining, not meeting the basic food needs of the population. A especially in the case of protein supply. new strategy, thus, is sorely needed. The government recently announced the “Enhancing Private Sector Analysis of the rice, cocoa and horticulture sub- Participation in Agriculture” scheme, commonly known sectors reveals bottlenecks hampering domestic as the MAF Policy Shift. This features a major scaling production that could otherwise have improved back of direct public spending on agriculture alongside food security and boosted economic growth. Rice an expanded role for the private sector. The traditional yields are far below international levels, and also low two-track approach to agriculture remains, with a focus by regional standards. Production is mainly rain-fed, on export-oriented cash crops alongside expanded exposing crops to climate shocks. Cocoa yields are food production. However, the details have yet to be more comparable to those of regional competitors, and developed. production is somewhat less vulnerable to irregular rainfall. The average net return to farmers is 50 percent viii SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security As the government embarks on proactive measures to increase yields, strengthen food markets and improve calorie consumption, challenges remain. Uncertainty in global food markets suggests strong motivations to retain rice self-sufficiency as a policy and investment goal. However, the rising share of the urban population in Sierra Leone is driving demand for imports, while even rural areas are struggling to achieve self-sufficiency. Food security ultimately depends on household purchasing power. This can be enhanced by more successful export promotion of crops such as cocoa. It will also depend on modernization of agriculture and greater integration with the industrial sector. Some diversification within agriculture also appears warranted, with a more balanced approach between rice and other food crops. Furthermore, climate change poses a risk to future food security as rainfall and temperature patterns become more extreme and less predictable, while population growth increases pressure on land. The private sector will be key to addressing identified challenges to build more accessible markets and resilient food systems. The incentive structure of the private sector could improve the search for higher returns, through the adoption of high-yielding varieties, the timely supply of inputs, and more efficient marketing. However, the capacity of the private sector is limited and there are gaps particularly in more isolated regions. Some key interventions will continue to require significant public sector input, such as research and extension, and rural roads. Meanwhile, the authorities will need to resist the temptation to interfere with the value chains that the private sector decides to emphasize: targeted and cost-effective incentives can be provided to steer investment toward policy priorities SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security ix x SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 1 Economic Developments and Outlook SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 1 Global and Regional Trends Global and regional growth slowed in 2022 halting the post COVID-19 pandemic recovery. Global GDP growth for 2022 is estimated at 3.1 percent – 1 percentage point lower than earlier expectations at the start of 2022 (World Bank, 2023). Global growth was revised downward due to a confluence of factors, including inflationary headwinds that depressed consumption, and slower investment flows due to a worsening of financial conditions stemming from monetary tightening to contain inflationary pressures. Furthermore, fiscal space remained constrained for many governments after massive spending hikes to control the spread of COVID-19 and to cushion firms and households from the economic fallout of pandemic restrictions. As a result, governments, especially in Sub-Saharan Africa (SSA), have had less room to continue and scale up supportive policies. Growth estimates for SSA of around 3.7 percent are lower than initially projected (World Bank, 2023), and the region’s economic outlook faces numerous downside risks with a severe deepening of macro-fiscal vulnerabilities reflected in high and stubborn inflation, slower gains in currency values across the region following steep depreciation, and rising debt levels for many economies. FIGURE 1: GLOBAL AND REGIONAL GROWTH, 2019 – 2023F 8 Advanced Economies EMDEs Excl. China Sub-Saharan Africa World 6 4 2 0 2019 2020 2021 2022e 2023f -2 -4 Sources: June 2023 Global Economic Prospects database. AE: advanced economies, EMDE: emerging markets and developing economies, SSA: Sub-Saharan Africa. e=estimates, f=forecast. Growth rates for country groups are calculated as weighted -6 averages using GDP shares consistent with purchasing power parity as weights. Inflation picked up considerably in 2022, across both advanced economies and emerging market and developing economies (EMDEs), with SSA especially hard-hit with high and persistent food and fuel inflation. Median global headline inflation reached 8.8 percent with estimated inflation of 9 percent in advanced economies and 10 percent in EMDEs. In SSA, end-of-year inflation averaged 8.7 percent and more than one 2 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security in four countries recorded average inflation of over 20 prices was driven by higher prices for oil and gas. For percent (World Bank, 2023). Prices were already rising exporters of base metals and agricultural products, towards the end of 2021 and picked up pace in the average prices declined in 2022 by 5.5 percent and 0.9 first quarter of 2022 due to both demand and supply percent, respectively, and exporters of precious metals factors exacerbated by the Russia’s war on Ukraine. received 0.9 percent lower prices over the same period On the demand side, continued post-pandemic growth (World Bank, 2023). Furthermore, COVID-19 lockdowns surges, combined with higher household spending in China during the first half of 2022, supply chain supported by pandemic stimulus, drove up prices. disruptions and a grim economic outlook, depressed Advanced economies also had to grapple with tight demand and future expectations for these major metal labor markets, which drove up wages and contributed and mineral commodities. As China continues to open to even higher production costs. Russia’s invasion of up in 2023 and supply chains normalize, for the most Ukraine disrupted supply chains further, particularly part, stronger demand for non-energy commodities is for the energy and agricultural sectors, driving up the expected. prices of oil, gas, wheat and fertilizer – key commodities for industry and household consumption. Prolonged Debt vulnerabilities intensified as financial market drought conditions in some countries, especially conditions worsened and local currencies suffered in East Africa, combined with escalating violence steep depreciations. Since 2020, many indebted and insecurity, further disrupted food supplies and countries saw an increase in debt stocks and payments contributed to deteriorating food security in the region, in an environment of limited fiscal space and high particularly in low-income countries. For SSA, steep borrowing costs. For SSA, public debt was already currency depreciation in some countries further fueled on the rise before the pandemic but borrowing rose inflation leading to a depreciation-inflation spiral that sharply to cover the financing gap created by necessary complicated the formulation and implementation of but costly containment measures. In 2022, debt loads monetary policies. as well as the costs of servicing debt increased, as currencies lost value against a stronger dollar - the To curb soaring inflation, central banks in advanced denomination of a large share of debt. SSA’s debt-to- economies embarked on sharp monetary policy GDP ratio averaged 55 percent at the end of 2022, and tightening, which slowed investments in developing a third of economies had debt levels above 70 percent economies. As global inflationary pressures intensified, of GDP, with average debt service costs as a share of central banks in advanced economies raised interest revenue expected to rise above 20 percent by 2025. rates, reducing the amount of financing available on international credit markets. Higher interest The macroeconomic and growth challenges in 2022 rates in the US and the Eurozone increased the have contributed to a worrisome outlook for 2023, cost of credit, triggered declines in investment, and which continues to hold after the World Bank’s ultimately contributed to slower economic activity in midyear revisions to growth expectations. The global lower-income economies. For many SSA countries, GDP growth rate is expected to decline further, and fiscal monetary tightening in advanced economies sharply and monetary vulnerabilities are projected to intensify amplified declines in the value of local currencies and across all regions but more strongly for SSA and other constrained investment. The expected positive effect EMDEs. Global growth is projected to decline to 2.1 of depreciation on exports was more than offset by percent in 2023 (World Bank, 2023), which is below surging import costs of energy and food and the decline the average for the decade preceding the pandemic in foreign direct investment (FDI). (3.1 percent). The growth outlook for SSA in 2023 is moderate, with an expected GDP growth of 3.2 percent Commodity markets were volatile and lower global (revised downwards from 3.6 percent at the start of the prices for non-energy commodities meant lower- year), and short of the average in the decade prior to than-expected export earnings for non-oil resource the pandemic (3.5 percent). economies. Most of the increase in commodity SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 3 Recent Developments in Sierra Leone Sierra Leone's economy has faced significant disruptions due to both external and domestic Sierra Leone’s economic factors, as well as policy slippages. The economy recovery has been has experienced a series of overlapping shocks since the start of 2020: a health shock from the COVID-19 disrupted by overlapping pandemic, supply-chain disruptions stemming from Russia’s invasion of Ukraine, and the onset of a external and domestic subsequent cost of living crisis aggravated by an inflation-depreciation spiral. The result has been slower shocks and slippages in economic growth against a backdrop of deteriorating fiscal management macroeconomic fundamentals. In 2022, fiscal stresses have mounted on account of macroeconomic shocks GDP growth in 2022 is estimated to have slowed and policy slippages, and for the third consecutive year, from 4.1 percent in 2021 to 3.5 percent in 2022. GDP the fiscal position deteriorated markedly. However, growth since the onset of the COVID-19 pandemic (1.8 despite weak macro-management, the government percent is still below pre-pandemic (2017-2019) levels has maintained momentum on its long-term structural of 4.2 percent (Figure 2). The economy in 2022 was reform agenda – with several landmark reforms buoyed by a continued yet timid recovery in agriculture, introduced during 2022 and the first half of 2023 (Box robust growth in mining output, and growth in trade, 1). The first half of 2023 shows an improvement in fiscal transport, and communication services. The resumption management, but budgetary performance is still below in key iron ore mining operations ramped-up output in targets in the original budget signaling the need for 2022. On the demand side, growth – driven strongly by even stronger commitment to reforms. higher-than-expected public spending – was held back by low private consumption, in part due to inflationary pressures that squeezed household budgets, and the tightening of financial conditions that limited private domestic and foreign direct investment. Furthermore, a net-negative terms-of-trade shock led to higher import costs with limited offset from exports. 4 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Most GDP growth drivers are still below pre-pandemic trends FIGURE: 2 GROWTH TRENDS IN PRODUCTION ACCOUNTS (PERCENT) 10 2017-2019 (Pre-pandemic average) 8 2020-2022 (Average) 6 4 2 4.2 1.8 4.6 2.4 0.2 3.3 4.2 1.2 1.1 4.9 2.3 5.3 3.6 3.9 3.5 0 -8.3 -2 -4 -6 -8 GDP at market Agriculture Mining & Manufacturing Construction Transport & Financial places Quarrying Trade & Communication Services Tourism Source: StatsSL and World Bank Staff Estimates. The agricultural sector was a principal driver of a long-standing tax dispute. For the first time since growth in 2022 and remained relatively resilient the onset of the Ebola epidemic, the two large iron despite disruptions to global fertilizer supply chains. ore mines, Marampa and Tonkolili have both been Agriculture grew by an estimated 3 percent compared functional, driving a 35 percent increase in production. to 2.5 percent in the previous year and contributed This is a significant development given that the overall close to 40 percent (the highest share) of overall GDP mining sector makes up a little over 50 percent of the growth (Figure 3). This reflected improved crop outturns total industrial sector with more than half of the output coupled with modest gains from livestock and fisheries coming from iron ore and diamond mining (the residual sectors. Favorable planting and harvest seasons, with being from rutile, bauxite, and gold). Construction adequate rainfall, increased output of most crops activity (5.2 percent growth in 2022) was buoyed by despite constraints to fertilizer supply chains stemming high public capital spending, especially on roads. from. Government initiatives to privatize the agricultural A nascent recovery in manufacturing was disrupted input market and expand access to mechanization by tightening financial conditions and a slowdown have also progressively contributed to improvements in in private investment, and its growth increased only yields. The government’s quick response in controlling modestly from 4 percent in 2021 to 4.5 percent in 2022. an Anthrax outbreak earlier in the year safeguarded Average growth since 2020 remained well below pre- the livestock sector, while increased private sector pandemic levels (Figure 2). Firms, particularly small and investments in fishing sustained a gradual pick up in medium enterprises (SMEs) and import reliant entities, output. were hurt by higher fuel prices and freight costs, which increased two- to four-fold (depending on the route) Industrial activity remained robust thanks to as well as by exchange rate volatility. Fuel shortages continued growth in mining and construction. were frequent with long queues at gas pumps, and Overall industrial activity is estimated to have grown higher fuel prices increased production costs for by 8.2 percent in 2022. However, this followed a 17.4 manufacturers and transporters, while high global base percent increase in 2021 as the sector rebounded from metal prices increased costs for the construction sector. a substantial decline in 2020 (-7.2 percent). The mining Furthermore, forex shortages pushed businesses to sector contributed significantly to overall GDP growth resort to the unofficial market for their essential foreign (Figure 3), thanks to the resumption of iron-ore mining currency needs, leading to an escalation in business operations at Marampa mines after the resolution of expenses. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 5 In 2022, the agriculture sector was the largest contributor to growth and positive developments in the mining sector continued to boost output FIGURE 3: REAL GDP BY CONTRIBUTIONS TO GROWTH, SUPPLY (PRODUCTION ACCOUNTS), 2019–2024 PERCENTAGE POINTS 6.0 5.3 5.0 4.1 3.8 3.5 3.5 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -2.0 -3.0 2017 2018 2019 2020 2021 2022 Agriculture Mining Trade, transport and communication Other industry Other services GDP at factor cost Source: StatsSL and World Bank Staff Estimates. Gaps between total GDP growth rate and the sum of sectoral contributions is equivalent to the contribution from “taxes less subsidies of products” per national accounting standards. The services sector grew moderately by an estimated 3.3 percent during 2022 – 0.4 percentage points higher than the previous year, thanks to continued steady growth in communications and public administration. The services sector contributed slightly more to overall growth as the industrial sector (Figure 3). Prior to the pandemic, growth in services outpaced economy-wide growth. However, in 2020, the sector was hard hit by COVID-19 mobility restrictions and contracted by 5.5 percent. Recovery in 2021 was fairly robust (2.9 percent) and it extended to 2022. A look at services subsectors shows that wholesale and retail trade slowed to 2.1 percent (compared to 2.3 in 2021), while the transport sector grew by 4.3 percent (compared to 4.0 percent in 2021). Additionally, the communication sector (mostly comprised of telecom services) grew by 6 percent - 0.1 percentage points higher than the previous year. The COVID-19 boost to the communication sector from work-from-home mandates has not dissipated entirely – hybrid work has continued, and businesses have maintained digital and online work processes (like e-commerce and delivery services) even after the government fully relaxed restrictions. There have also been changes in the management and delivery of network, digital and data bandwidth services nationally, following the unbundling of government-owned Sierra Leone Cable (SALCAB) public administration. Notably, over the past years, the government has also been scaling up the National Fiber Optic Backbone Project and has increasingly strengthened and expanded bandwidth connections in primary and secondary cities. Overall, the public administration sector grew by 1.4 percent, up from 0.8 percent in 2021 partly reflecting the significantly larger fiscal deficit incurred in 2022. On the demand side, household consumption was affected by high and broad-based inflation which eroded purchasing power. Private consumption fell by 2 percent in 2022, after a surge of 37 percent in 2021 and dragged down overall GDP growth for 2022 (Figure 4). High inflation and currency depreciation, together with broad economic uncertainty, eroded purchasing power and muted household spending. Financial market constraints, and a tightening of monetary policy also reduced the availability and uptake of credit needed to augment disposable incomes and drive-up demand. Government consumption (the largest driver of growth in 2022 at around 2.9 percentage points) grew by 14 percent (compared to 2021) on account of higher levels of spending on goods and services, investment projects, and contingencies (discussed in more detail in later sections). 6 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Public consumption boosted GDP growth while investment, and private consumption and net exports kept it low Public consumption Figure 5: boosted Real GDP by contributions GDP growth to growth, while investment, demand expenditure and private accounts, 2019–2024 Percentage points consumption and net exports kept it low FIGURE 4: REAL GDP BY CONTRIBUTIONS TO GROWTH, DEMAND EXPENDITURE ACCOUNTS, 2019–2024 PERCENTAGE POINTS 40 30 20 Private Consumption Change in inventories 10 5.3 3.8 3.5 4.1 3.5 Public Consumption 6.3 0 Net Exports -2.0 -10 Gross fixed capital formation Statistical discrepancy -20 Real GDP growth -30 -40 2016 2017 2018 2019 2020 2021 2022 Source: StatsSL and World Bank Staff Estimates Private investments were subdued by the tightening in financing conditions and growing macroeconomic fragility. Domestic private investment was undermined by tight domestic financing conditions. Meanwhile, tighter global financing conditions and rising macroeconomic fragilities (particularly high inflation and exchange rate unpredictability) depressed FDI outside of the mining sector. Global and domestic economic turbulence reduced private investment appetite, and already elevated government domestic borrowing picked up pace in 2022, further crowding out financing for the private sector. Government investments, however, picked up due to higher levels of public spending especially on roads. BOX 1: Sierra Leone continues to pursue structural reforms Mining and Minerals as the regulation of mining activities. It establishes Development (MMDA) Act a regulatory body, the National Minerals Agency, to oversee the industry's operations The Sierra Leone Mining and Mineral Development and enforce compliance with environmental Act passed in August 2022 is a significant and social standards. The agency will be tasked milestone for the country's mining sector. The with promoting sustainable mining practices Act aims to promote transparency, accountability, that minimize the negative impacts of mining and good governance in the mining industry. It on communities and the environment while provides a legal framework for the exploration, maximizing the benefits to the country's economy. development, and extraction of minerals, as well SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 7 Customary Land Rights Act (CLRA) and protection against sexual harassment and and the National Land Commission discrimination. The Act is expected to help Act (NLCA) address the historic gender imbalances in Sierra Leone, where women face limited access to land, Sierra Leone took a significant step towards education, health, and credit. However, while reforming its land management system by enacting the initial legislation submitted to parliament two laws in September 2022: the Customary mandated that at least one in three members Land Rights Act (CLRA) and the National Land of Parliament and Local Councils should be Commission Act (NLCA). The previous legal women, this provision is not in the final approved framework, which had been in place since the version of the act. Women currently hold less 1960s, relied on customary land practices and than 20 percent of elected positions, and Sierra chiefdoms, leading to insecure land ownership Leone's gender equality index score for female and increased land disputes and unequal rights representation in civil society organizations is far for women. below that of other countries in the region. The CLRA addresses these challenges by Basic and Senior Secondary reforming customary land practices governing Education Act nearly 85 percent of all land in Sierra Leone. It aims to promote equal rights and participation for In April 2023, parliament enacted a new Basic and men and women in land inheritance and decision- Senior Secondary Education Act to improve access making, protect against involuntary displacement, to and inclusivity of the education system. Among and ensure co-management of protected, other things, the act sets out the legal parameters conserved and ecologically sensitive areas within that govern basic and secondary education and customary lands. The NLCA introduces a new guides the implementation of effective education institutional framework for land management, policies, services, and programs across the decentralizing governance by establishing land country. It will also support the implementation commissions at national, district, chiefdom, town of the code of conduct for teachers, setting-out and village levels. The commissions will allow standards of professional behavior for teachers for the registration of customary land, establish a and allowing for a safe, conducive, inclusive, land registration and information system, support and positive learning environment. The Act also grievance redressal and promote gender equality. covers a wide range of regulations, such as The laws mark a paradigm shift in Sierra Leone’s ensuring the inclusion of children with physical or land management framework. learning disability, banning discrimination, and the prohibition of corporal punishment together with Gender Equality and Women's legislation to protect students from violence and Empowerment (GEWE) Act abuse. In January 2023, Sierra Leone's Parliament passed a landmark legislation, the Gender Equality and Women's Empowerment (GEWE) Act, aimed at promoting gender equality and empowering women in the country. The new law promotes equal access to jobs, training, financial services, 8 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Fiscal stresses have mounted on account of macroeconomic shocks and policy slippages The fiscal position deteriorated in 2022, for the third consecutive year, even though the authorities had committed to fiscal consolidation. The estimated deficit rose to 9.6 percent of GDP in 2022 – 2 percentage points higher than in 2021, and 5.9 percentage points higher than the budget targets for the year.1 The deficit also exceeded the estimates presented in November 2022 under the supplementary budget for the year by 5.5 percentage points. Much of the deterioration came from expenditure overruns of around 4.6 percent of GDP. Overruns stemmed primarily from unanticipated expenses on road infrastructure and defense, as well higher payments on foreign currency-indexed obligations for food purchases and electricity production. The deficit was also affected by a substantial drop in domestic revenues from the 2021 level (3.2 percentage points). The unanticipated higher deficit was mainly financed domestically. These developments compromised the authorities’ plan to rebuild buffers starting in 2022 and return to the prudent path followed between 2017 and 2019, when both the overall and the primary balance were on a declining trajectory. The fiscal position has deteriorated consistently over the last three years with significant policy slippages in 2022 The fiscal position has deteriorated consistently over the last three years with significant policy slippages in 2022 The fiscal position has deteriorated consistently over the last three years with significant policy slippages in 2022 FIGURE 5: OVERALL BUDGET AND FIGURE 6: TOTAL REVENUES AND EXPENDITURES 6: OverallBALANCES PRIMARY Figure budget and primary balances PERCENT OF GDP Figure 6: Overall budget and primary balances of GDP OF GDP PERCENT Percent Percent of GDP 0 30 28.2 28.5 0 30 28.2 28.5 -0.4 25.4 -2 -0.4 25.4 25 23.3 -2 25 23.3 21.1 21.1 -2.5 -2.8 21.1 21.1 -4 -2.5 -3.1 -2.8 -4 -3.1 20 -4.4 20 -6 -4.4 15.6 -5.3 14.8 15.6 -6 -5.3 -5.8 15 13.7 13.8 14.8 -5.8 -6.2 15 12.2 13.7 13.8 12.4 -6.5 -6.2 12.4 -8 -6.5 -7.3 12.2 -8 -7.3 10 -8.7 10 -10 -8.7 5.8 6.2 -10 -9.6 5.3 6.2 5.8 5.3 -9.6 5 3.4 -12 2.5 5 2.1 3.4 -12 2.5 2.1 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 0 Overall Balance Primary balance 20170 2018 2019 2020 2021 2022 Overall Balance Primary balance 2017 2018 2019 2020 2021 2022 Total Expenditure Grants   Domestic Revenue Total Expenditure Grants   Domestic Revenue Source: Ministry of Finance (MOF) and Source: Ministry of Finance (MOF) and World Bank Staff Estimates World Bank Staff Estimates 1 Fiscal numbers are expressed as a share of non-iron ore GDP. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 9 In 2022, goods and services, capital spending, subsidies, and domestic interest payments drove up expenditures, while revenues grew slower on account of lower timber, excise, and mining 2022, goods and services, capital spending, subsidies, and domestic interest payments Inrevenue In 2022, goods and services, capital spending, subsidies, and domestic interest payments drove up expenditures, while revenues grew slower on account of lower timber, excise, and drove up expenditures, mining revenue while revenues grew slower on account of lower timber, excise, and mining revenue Figure 8: Expenditure growth by contribution Figure 9: Revenue growth by contribution Percent, FIGURE percentage FIGURE 8: points points GROWTH BY CONTRIBUTION Percent, percentage 7: EXPENDITURE REVENUE GROWTH BY CONTRIBUTION Figure 8: Expenditure growth by contribution PERCENT, PERCENTAGE POINTS Figure 9: Revenue growth by contribution PERCENT, PERCENTAGE POINTS Percent, percentage points Percent, percentage points 35 35 32.7 30.5 32.1 30 27.0 35 30 32.7 30.5 35 32.1 25 30 27.0 25 18.9 17.0 30 20.4 20 17.2 25 20 17.7 11.3 17.0 25 15 18.9 20.4 20 17.2 15 20 17.7 11.9 10 11.3 15 6.6 5 10 15 11.9 10 5 6.6 0 10 5 -5 0 0 2017 2018 2019 2020 2021 2022e 5 2017 2018 2019 2020 2021 2022e -5 -5 Income tax revenue Goods and services tax 0 2017 2018 2019 2020 2021 2022e Subsidies 2017 and transfers 2018 2019 External 2020 interest payment 2021 2022e Mines revenue Customs and excise revenue -5 Domestic interest payment Goods and Services and Wages Non - tax revenue taxTimber) (TSA, Income revenue Grants Goods and services tax Capital Expenditures Total Expenditure and Grant Total revenueMines Subsidies and transfers External interest payment revenue Customs and excise revenue Domestic interest payment Goods and Services and Wages Non - tax revenue (TSA, Timber) Grants Capital Expenditures Total Expenditure Total revenue and Grant Source: Ministry of Finance (MOF) and Source: Ministry of Finance (MOF) and World Bank Staff Estimates World Bank Staff Estimates Source: Ministry of Finance (MOF) and World Bank Sta Source: Ministry of Finance (MOF) and World Bank Sta Estimates Estimates Source: Ministry of Finance (MOF) and World Bank Sta Source: Ministry of Finance (MOF) and World Bank Sta Estimates Estimates Expenditure overruns were the main contributor to fiscal slippages in 2022. Total expenditures are estimated to have reached 28.5 percent of GDP – 0.9 percentage points higher than in 2021, 5.2 percentage points higher than targeted at the start of the year (Figure 10). Macroeconomic shocks – higher global commodity prices such as fuel, and the sharp depreciation of the currency – along with marked policy slippages, contributed to expenditure overruns. Expenditure on goods, services and wages (4.3 percent of GDP) exceeded initial budget targets by around 1.7 percent of GDP, while subsidies and transfers (4.3 percent of GDP) exceeded targets by 1.6 percent of GDP. Meanwhile, higher subsidies mostly reflected transfers to EDSA (state-owned distribution company) to help it honor its contract with the independent power producer Karpower. The contract is indexed to global fuel prices and hence, despite de jure liberalized retail fuel prices (see Box 3), the budget is exposed to fiscal risks from fuel price fluctuations. Capital expenditure overruns of around 2 percentage points were notable, reflecting the government’s decision to expedite road construction, which required the clearance of unpaid checks to suppliers. In 2022, capital expenditures totaled 8.9 percent of GDP. Defense and security spending also rose following violent riots in August 2022. In turn, the widening of the deficit necessitated increased domestic financing, resulting in higher domestic interest payments (3.2 percent of GDP in 2022, 0.4 percentage points over the year’s target). 10 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Actual domestic revenues were below planned, while expenditures Actual domestic revenues were below planned, while expenditures exceeded budget targets exceeded budget targets Figure 10: Expenditure performance, 2022 Figure 11: Revenue performance, 2022 Actual domestic Percent Percent of GDP exceeded budget targets revenues were below planned, while expenditures of GDP Figure 10: Expenditure performance, 2022 Figure 11: Revenue performance, 2022 FIGURE 9: EXPENDITURE PERFORMANCE, 2022 FIGURE 10: REVENUE PERFORMANCE, 2022 Percent of GDP Percent of GDP PERCENT OF GDP PERCENT OF GDP 25 7.0 30 6.0 25 7.0 5.0 5.0 20 30 25 6.0 5.0 4.0 20 3.0 20 5.0 25 15 3.0 4.0 3.0 20 15 1.0 2.0 15 3.0 10 10 15 1.0 1.0 -1.0 2.0 10 5 10 0.0 1.0 5 -1.0 -3.0 5 0 -1.0 0.0 re a g es ts en est e n e st s s 5 re re en itu es ts pe ts W ic ym er ym ter itu itu -3.0 d erv ym nd t nd nd pa l i n pa i n 0 -1.0 0 -5.0 an S pe Pa ic pe ts na d Ex st Total   Domestic Tax Revenue Nontax Grants es n st sx sx r a ts e lE eE rle es s t st etse rte rm re ta ag cs Revenue Revenue Revenue err n en e om me rx tu te ta W id eo itiu hu e E Tio o y te v n ym tD ymIn t d dp d o dti r and Grants pa i n pa i n nO e n 0 -5.0 na an d S G pe eC Pa al tic pe xp Ex Total   Domestic Tax Revenue Nontax Grants rn an st es Ex lE te Target 2022 Actual minus target (RHS) re l ta ds Revenue Revenue Revenue er Target 2022 Actual minus target (RHS) Ex te ta To oo th D In pi and Grants O Ca G Target 2022 Actual minus target (RHS) Target 2022 Actual minus target (RHS) Source: Ministry of Finance (MOF) and Source: Ministry of Finance (MOF) and World Bank Staff Estimates World Bank Staff Estimates Source: Ministry of Finance (MOF) and World Bank Sta Estimates Source: Ministry of Finance (MOF) and World Bank Sta Estimates Domestic revenues also suffered a setback in 2022. Revenues as a share of GDP declined by 2.1 percentage points compared to 2021.. This was partly the result of lower non-tax revenues (after a one-time increase in 2021 linked to a mining tax settlement)2 and a ban on timber exports.3 Tax revenues as a share of GDP also fell significantly, by 2 percentage points of GDP, despite stricter enforcement in corporate income tax collection (contributing a 0.3 percentage point increase from 2021). Despite higher prices, goods and services taxes declined to 2.3 percent of GDP from 2.8 percent of GDP in 2021. Retailers protested the blanket roll-out of Electronic Cash Registers (ECRs), after its launch in February 2022, citing a high burden of taxation and compliance. Excise collections fell by 0.4 percentage points of GDP, after the government lowered petroleum excise to mitigate the impact of the pass-through of global fuel prices. 2 In 2021, a tax dispute between the government and SL Mining Company (Marampa mines) was resolved and led to a one-time settlement of mining royalties worth US$20 million, equivalent to 0.5 percent of the country’s (2021) GDP. 3 CITES is the Convention on International Trade in Endangered Species of Wild Fauna and Flora SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 11 TABLE 1: FISCAL OPERATIONS OF CENTRAL GOVERNMENT (PERCENT OF GDP) 2017 2018 2019 2020 2021 2022 Total Revenue and Grants 14.6 15.8 18.0 19.6 20.9 18.8 Domestic Revenue 12.2 13.7 14.8 13.8 15.6 12.4 Tax Revenue 10.8 11.5 12.1 11.3 12.4 10.4 Nontax Revenue 1.4 2.2 2.6 2.5 3.2 2.0 Grants 2.5 2.1 3.4 5.8 5.3 6.2 Total Expenditure 23.3 21.1 21.1 25.4 28.2 28.5 Goods and Services and Wages 10.8 9.6 10.2 11.7 12.7 12.0 Interest Payments 2.2 2.8 2.7 3.0 2.9 3.2 External interest payments 0.2 0.3 0.3 0.3 0.3 0.4 Domestic interest payments 1.9 2.5 2.4 2.7 2.6 2.9 Capital Expenditures 8.3 6.4 5.4 7.6 8.0 8.9 Other Expenditures 2.0 2.3 2.7 3.0 4.7 5.4 Primary balance -6.5 -2.5 -0.4 -2.8 -4.4 -6.2 Overall Balance -8.7 -5.3 -3.1 -5.8 -7.3 -9.6 Source: Ministry of Finance (MOF) and World Bank Staff Estimates. Notes: Numbers might not up exactly due to rounding. As the fiscal deficit widened, the government had to rely on domestic sources of financing, including from the central bank (Figure 11). Over the years, the government has remained committed to zero non-concessional external financing. Given limited external concessional sources (most comes from the World Bank and the IMF) and a widening deficit, the government has increasingly financed its expenditures domestically. The “excess” deficit has been financed with central bank interventions in the secondary market, creating liquidity for commercial banks to increase purchases in the primary market. This has in turn fueled inflation and currency depreciation. In 2022, net domestic financing increased by 1.0 percentage points to 7.5 percent of GDP. Historically, commercial banks, through the purchase of government treasuries, have provided short-term but expensive credit. In addition, since the pandemic, there has been a surge in central bank financing of government securities: between 2021 and 2022, central bank financing increased from 3.2 percent of GDP to 5.4 percent of GDP. 12 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Domestic financing through the central bank has increased in recent years to cover increasing financing needs FIGURE 11: FINANCING SOURCES FOR THE FISCAL DEFICIT PERCENT OF GDP 8.0% 6.0% 4.0% 2.0% 0.0% 2018 2019 2020 2021 2022 -2.0% -4.0% -6.0% -8.0% -10.0% Total financing need (fiscal deficit) Foreign -12.0% Domestic: Central Bank Domestic: Commercial Banks and non-bank securities Source: Ministry of Finance (MOF) and World Bank Staff Estimates. Other financing sources are under the category float. Following substantial slippages in 2022, there were There were some notable expenditure overruns improvements in fiscal management in the first in the first half of 2023, though smaller compared half of 2023 even with revisions pointing to with to previous quarters. Influenced by a combination a higher-than expected deficit for the year. As part of both macroeconomic factors and policy deviations of the government’s commitment to enhancing fiscal these overruns included: (i) higher than expected oversight and managing budgetary overruns, the subsidies and transfers stemming from an increase in government put in place a range of corrective actions the government's obligations denominated in dollars around expenditure management. They included the for electricity purchase contracts; (ii) growing interest introduction of statutory approval for overseas travel, expenditures resulting from greater reliance on costly bolstering enforcing regular meetings of the cash and domestic borrowings for financing, and (iii) increases debt management committee (CDMC), and limiting in domestically-funded capital expenditure covering, ministerial allocation to ensure they adhere to a strategy in part, the construction of roads as the government for clearing arrears. To further control spending, a continued to prioritize the development of seven freeze on public sector recruitment was implemented "critical" roads identified in late 2022. Domestic until July 2023. Additionally, there is a temporary halt revenues were largely in line with expectations, on the procurement of furniture and fittings, and a collections exceeded targets on account of continued contract management committee has been tasked stricter tax enforcement, resulting in improved to prevent unreasonable contract price variations for compliance in areas such as income taxes and GST, goods, works, and services. The overall budget deficit, the implementation of the automatic pricing formula for including grants, is projected to widen to 6 percent of fuels, and higher mineral royalties. Grants fell short by GDP from 2.9 percent of GDP in the original budget 0.2 percentage points. reflecting increased spending on wages, goods and services and capital expenditures on roads, energy Revenue mobilization was prioritized with three and water infrastructure alongside weaker revenue notable policy developments in the first half of 2023. collections on account of slower economic activity and The passing of the new Finance Act, the Duty and Tax weak tax compliance. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 13 Waiver Act and cabinet approval of the Medium-term Revenue Strategy are critical to advancing the government’s goal of increasing tax revenue by 1.8 percentage points of GDP by 2024 (see Box 2). These legislative reforms and initiatives come alongside continued efforts to rollout digital IDs, introduce excise stamps and fuel-marking technology, integrate electronic cash registers with large companies, and improve compliance among major taxpayers. These measures are projected to contribute an additional 0.4 percent of GDP in tax revenues. BOX 2: Bold reforms and strategies to strengthen domestic revenue mobilization Finance Act, 2023: The act introduced several The Medium-term Revenue Strategy (MTRS). policy measures, expected to raise revenue The strategy lays out policy and administrative collections by a cumulative 1.6 percent of GDP. measures to improve domestic revenue The measures include: a 3 percent minimum collection over the medium term. Over the past alternative on taxes for all eligible companies; a 5 years, domestic revenue (tax and non-tax) as a 2 percent tourism levy; a 15 percent goods and share of GDP has averaged 13.8 percent, lower sales tax on digital services; and the reintroduction than the average for Sub-Saharan Africa (18 of taxes on fee-based financial services, amongst percent of GDP). The MTRS is a renewed and others. This is a critical step in the government’s encouraging attempt to energize tax policy reform fiscal consolidation efforts following worrisome towards more efficient and progressive domestic slippages in 2022, which contributed to delays in revenue mobilization. To implement the policy, the 6th review of the IMF ECF program. In 2022, the government will establish a quarterly high- the fiscal deficit stood at over 10 percent of GDP level steering committee chaired by the Minister (compared to a budgeted target of 4.8 percent). of Finance with representation from the National On the spending side, no new measures were Revenue Authority, Development Partners, CSOs announced, but expenditures are expected to be and other relevant government agencies and curtailed from 31 percent of GDP in 2022 to 25 stakeholders. Four areas of support are required to percent of GDP in 2023, reflecting lower projected ensure successful MTRS implementation. The first capital expenditure. area covers support for an excise tax diagnostic to streamline policies and optimize collections. Duty and Tax Waiver Act, 2023. The Act comes The second is on capacity building to enhance on the heels of the 2022 Duty and Tax Waiver fiscal management of tax expenditures. A third Policy -which clarifies the conditions under covers a comprehensive diagnostic of customs which tax and import duty waivers are granted to governance and field operations, and a fourth is individuals and firms. Over 2015-19, tax waivers around efforts to facilitate change management to and exemptions amounted to 1.6 percent of ensure sustainable use of the ITAS and ASYCUDA GDP on average (with exemptions on duties World systems. amounting to 0.7 percent of GDP and waivers on GST 0.9 percent of GDP). The act should result in a reduction in the number and value of duty and tax waivers offered and ensure that waivers are granted only in clearly defined cases. 14 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Risks to debt sustainability have intensified Public debt has increased sharply both in absolute terms and as a share of GDP because of the cumulative effects of fiscal slippages, the steep depreciation of the Leone, and increased reliance on high-cost domestic borrowing. The public debt-to-GDP ratio is estimated to have increased from 84.7 percent at the end of 2021 to around 96.3 percent at the end of 2022. As the debt stock and associated debt payments rise, both liquidity and solvency risks have risen – with the most significant risk stemming from large debt service obligations. According to the joint WB-IMF Low Income Country Debt Sustainability Framework (LIC-DSF), Sierra Leone has been at high risk of debt distress since 2018 when public debt was under 70 percent of GDP. The most recent debt sustainability analysis (DSA) published in June 2023, concludes that Sierra Leone's public debt remains sustainable, but the risks associated with external and overall debt distress have significantly increased.4 Risks are elevated primarily due to the substantial fiscal overruns last year, coupled with a sharp depreciation of the Leone, resulting in a worsening of both solvency and liquidity measures. Total debt is composed primarily of external concessional debt, but with an increasing contribution from expensive domestic debt. Public and publicly guaranteed (PPG) external debt has risen from 49.7 percent of GDP in 2020 to 65.8 percent of GDP by end-2022, largely due to sharp depreciation of the Leone. In 2022, public external debt (65.8 percent of GDP) comprised mostly obligations to multilateral creditors, with the IMF and World Bank accounting for about 26 percent (17 percent of total public debt) and 24 percent (16 percent of total public debt), respectively. Other multilateral creditors accounted for less than 5 percent each, while official bilateral creditors accounted for around 12.2 percent of the total PPG external debt. Public debt is on the rise FIGURE 12: PUBLIC DEBT INDICATORS FIGURE 13: COMPOSITION OF PUBLIC DEBT PERCENT OF GDP PERCENT OF GDP 3.2 100 96.3 3.5 External: 3.0 3.4 Commercial 5% 90 2.9 External: 100 2.8 3.0 79.8 3.5 3.0 Bilateral 80 2.7 76.3 2.9 30.5 Domestic: 90 2.8 2.7 96.2 8% 68.6 71.7 3.0 2.5 Bills 24% 70 2.2 80 28.7 30.4 2.2 57.4 76.3 26.6 79.8 70 60 20.2 27.0 2.5 2.0 71.7 28.7 60 50 68.6 26.6 20.2 27.0 2.0 57.4 1.5 50 40 34.0 65.8 1.5 Domestic: 40 30 1.0 Bonds 4% 34.0 48.4 49.7 51.1 65.8 30 44.7 20 1.0 48.4 44.7 49.7 51.1 0.5 20 10 23.4 Domestic 23.4 0.5 arrears 10 0 0.0 2017 2018 2019 2020 2021 2022 External: 8% 0 0.0 Multilateral 2017 2018 2019 Domestic Debt 2020 2021 2022 (est.) External Debt 51% Total Public Debt Interest Payment (RHS) Domestic Debt External Debt Total Source: Public Sierra Debt Authorities and Interest Payment (RHS) Leonean Source: Sierra Leonean Authorities and World Bank Staff Estimates World Bank Staff Estimates 4 This analysis is based on the WB-IMF Low-Income Country Debt Sustainability Framework (LIC-DSF). This framework analyzes four PPG external debt ratios against empirically estimated thresholds. If any one of the indicators breach their thresholds under baseline assumptions, then the country’s is assessed to be at high risk of debt distress. In the case of Sierra Leone, since one of the external debt indicators (debt service to revenue) breaches its threshold under the baseline, the country is assessed to be at high risk of external debt distress. However, all the external debt indicators are on a declining trend over the medium- to long-term, debt is assessed to be sustainable. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 15 Among the bilateral creditors, the Kuwait Fund, China and South Korea were the largest creditors, accounting for about 74 percent of total PPG external debt owed bilaterally.5 Domestic debt has been increasing, from 27 percent of GDP pre-COVID (average between 2017 and 2019) to 30.4 percent of GDP at end-2022. Commercial banks hold approximately 59 percent of the domestic debt, primarily in the form of 364-day T-Bills, while the remaining portion is divided across debt to the Bank of Sierra Leone (BSL) and non-bank entities, and domestic arrears owed to suppliers. The domestic debt market in Sierra Leone is underdeveloped, with a low Average Time to Maturity (ATM) and high interest rate costs, resulting in an expensive domestic debt portfolio. Moreover, high sovereign exposure to commercial banks could negatively impact financial stability if unexpected future economic shocks occur. The stock of domestic legacy arrears (for suppliers of goods and services) amounted to 4.8 percent of GDP at end 2022 and “crystallized checks” (unverified arrears) stood at 2.2 percent of GDP, bringing the total stock of (verified and unverified) arrears to nearly 7 percent of GDP (See Box 3).Despite strong growth in exports, external accounts still reflect a chronic trade deficit BOX 3: Arrears accumulation The accumulation of arrears to domestic suppliers remains a significant concern for debt sustainability. In 2019, the total of confirmed outstanding payments -arrears- was estimated at 8.7 percent GDP. To address this, the authorities designed a comprehensive strategy for clearing these existing arrears and for preventing future pileups. When the pandemic struck, the repayment of these arrears took center stage, primarily to bolster the liquidity of domestic suppliers. As a result of this focused approach, nearly 2.6 percent of GDP, was repaid in 2020. Continuing with this momentum, 2021 saw a further reduction in the existing arrears, with payments amounting to 1.6 percent of the GDP. This continued clearing of domestic arrears significantly cushioned businesses from the economic shocks of the pandemic. By end-December 2022, the stock of legacy arrears was estimated at 4.8 percent of GDP down from 5.7 percent of GDP in December 2021. In 2022, the government accumulated new arrears amounting to around 1.7 percent of GDP. ACCUMULATION AND PAYDOWN OF ARREARS SECTORAL COMPOSITION OF NON-CHEQUE ARREARS 2 2 END-JUNE STOCK 14% 14% 1.5 1.5 1 1 0.5 0.5 46% 46% 0 0 2018 20182019 2020 2020 2019 2021 2022 2022 2021 36% 36% -0.5 -0.5 Paydown of legacy Paydown of arrears legacy arrears -1 -1 New accumulated arrears arrears New accumulated 3% 1% 3% 1% Security (Mainly medical Security Social,and items) items) Social, health (Mainly medical education health and education Agriculture Agriculture Roads Roads Others Others 5 Sierra Leone also has legacy pre-HIPC arrears to external commercial creditors, which accounted for around 8 percent of the PPG external debt or approxi- mately US$168 million by the end of 2021. 16 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Despite the government’s commitment to repay arrears under its Arrears Clearance Strategy over 2020-2025, implementation has been challenging and with a tight fiscal space the government is faced with a tradeoff between clearing arrears and channeling spending to new projects. Arrears not only affect suppliers themselves, but they can also lead to banking sector risks and a decline in the quality of banks’ assets. The authorities continue to prioritize arrears clearance, however, to ensure fiscal sustainability, preventing the accumulation of new arrears through improved budget management is critical. Despite strong growth in exports, external accounts still reflect a chronic trade deficit In 2022, the estimated current account deficit narrowed from 8.7 percent of GDP in 2021 to 8.5 percent. Earnings from merchandise exports increased in 2022 by 16 percent (mainly due to increases in iron ore trade and the improvement in terms-of-trade from local currency depreciation). Merchandise imports growth was lower at 7 percent. Forex reserves fell to around 4 months of imports by end-2022 (from close to 5.5 months in the first quarter of 2021) as capital inflows declined, debt obligations increased, and forex demands for imports rose (Figure 15), and the central bank periodically intervened to protect the Leone. Given that the current account deficit is primarily financed by FDI and external financing, a slow-down in capital inflows due to global macro and financial market instability has elevated financing needs. The current account deficit has narrowed but a slowdown in capital inflows has elevated financing needs FIGURE 14: CURRENT ACCOUNT FIGURE 15: RESERVE COVERAGE AND SOURCE OF FINANCING MILLIONS US$, IMPORT MONTHS (RHS) MILLIONS US$ 1000.0 1000.0 800.0 800.0 1000 1000 6 6 600.0 600.0 900 900 400.0 400.0 5 5 800 800 200.0 200.0 Million US$ Million US$ 0.0 0.0 700 700 4 4 Months of Imports Months of Imports -200.0 -200.0 600 600 Million US$ Million US$ -400.0 -400.0 500 500 3 3 -600.0 -600.0 400 400 -800.0 -800.0 2 2 -1000.0 -1000.0 300 300 -1200.0 -1200.0 200 200 2018 2019 2020 2021 2022 1 1 2018 2019 2020 2021 2022 100 100 Current Account Current Account FDI&Porfolio FDI&Porfolio Flows Flows 0 0 0 0 Capital Account Other Investment 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Capital Account Other Investment Disbursement Disbursement Amortization Amortization Gross Gross External Import Coverage External ReservesImport Coverage Reserves Overall balance Overall balance Source: Sierra Leone authorities, IMF Source: Sierra Leone authorities, IMF and World Bank Staff Estimates and World Bank Staff Estimates SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 17 Total merchandise exports grew by 16 percent and increased to 31.4 percent of GDP in 2022, from 25 percent of GDP in 2021, thanks to higher export volumes for iron. Iron ore export values (in USD) increased almost fourfold between 2021 and 2022 (from 3.5 percent of GDP to 12 percent of GDP) as recently re-opened iron ore mines (Tonkolili and Marampa) ramped up production. Combined, metal and mineral exports (including diamond and rutile), made up 86 percent of overall exports (26 percent of GDP in 2022 – double the share in 2021) and contributed more than one-third to overall export growth. Iron ore, rutile and diamond production is expected to increase in 2023 as mining companies in all three sectors move forward with investments to expand capacity and improve efficiency. Unfortunately, agriculture exports showed no growth and other exports declined, increasing the country’s dependence on volatile minerals. Net inflows into the capital and financial account declined on account of lower FDI, contributing to a decline in reserves. Capital account inflows increased by 2 percent to US$107 million in 2022, mainly thanks to an increase in project support grants from development partners (from US$89.8 million to US$105.3 million). However, this was not enough to offset the slowdown in foreign direct investments. Net financial account inflows plummeted, as FDI decreased by 7.8 percentage points to 1.3 percent of GDP (US$52 million). As a result, the combination of adverse BOP dynamics and drawdowns to support fuel and food imports and for currency stabilization, external reserves declined to US$668 million (4 months of imports cover) from US$932 million (5.5 months of imports cover). Iron ore exports boosted overall merchandise export growth FIGURE 16: SELECTED MERCHANDISE EXPORTS FIGURE 17: MERCHANDISE EXPORT MILLIONS US$ GROWTH BY CONTRIBUTORS MILLIONS US$ 1200 1200 1000 1000 800 800 600 600 400 400 2017 2017 2018 2018 2019 2020 2019 2020 2021 2021 2022 2022 200 200 0 0 2018 2019 2018 2020 2019 2020 2021 2022 2021 2022 Diamond DiamondIron ore Iron ore Other Minerals Other Minerals Diamond Diamond AgricultureAgriculture Iron ore oreMinerals Other Iron Others Other Minerals Others Others AgricultureAgriculture Others Total Total Source: Sierra Leone authorities, IMF Source: Sierra Leone authorities, IMF and World Bank Staff Estimates and World Bank Staff Estimates The trade deficit has narrowed during the first half of 2023. The trade deficit narrowed to US$308 million (8.7 percent of GDP) in the first half of 2023 compared to US$418 million (14.1 percent of GDP) during 2022H1 as export growth outpaced imports. Goods shipments grew by 19 percent (y-o-y) during the first half of 2023, driven largely by iron ore exports (59 percent of total export volume). The goods import bill fell marginally by 0.5 percent during the same period due to lower import demand for vegetable oil (palm oil exports dropped by 71 percent), and election-related uncertainties which stalled business operations and investment decisions in Q2. However, despite this improvement in the trade balance, gross international reserves decline as capital inflows remain inadequate. Reserves have declined to about US$476 million or nearly 3 months of imports (as of August 18, 2023), down by 22 percent since end-2022. 18 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Inflationary pressures mounted and the currency depreciated through the year, with limited relief from a tighter monetary policy stance Headline inflation averaged 27 percent in 2022, with increasing momentum throughout the year, due to a combination of supply and demand factors. In comparison, inflation averaged 12 percent in 2021. Headline inflation started to pick up in October 2021, as pent-up consumer demand amidst supply chain disruptions placed upward pressure on prices. In early 2022, supply shocks precipitated by of the war in Ukraine contributed to a spike in energy and fertilizer prices. In the later part of the year, as global food and fuel prices cooled off, high domestic inflation persisted largely due to a sharp depreciation of the Leone and increased central bank financing for a larger-than- expected fiscal deficit. Consequently, higher prices have squeezed household budgets and eroded purchasing power. Food and energy inflation were the primary drivers of price increases. Food inflation reached a decade-high average of 30.1 percent in 2022, up from 17 percent in 2021, while non-food inflation was 25.4 percent in 2022, up from 7 percent in 2021. Prices for imported staples like rice, oil, and cereals rose. Energy inflation doubled from 17 percent in 2021 to 35 percent in 2022. With the removal of the government’s ad hoc fuel pricing system, in line with the 2018 fuel price liberalization policy, global prices for crude oil were fully passed on to consumers through a formulaic retail pump price adjustments system (Box 4). Food inflation eroded households’ purchasing power and aggravated poverty and food insecurity. World Bank estimates (2022) using simulations on Household Survey data found that a food price shock of 5 percent leads to an average loss of purchasing power of 1.8 percent and a 1.4 percentage point increase in the national incidence of poverty. However, doubling food inflation from 5 to 10 percent results in a proportional loss of purchasing power (3.6 percent), but a non-linear increase in poverty rates (2.6 percentage points from the baseline), reflecting differences in the distance between the poverty line and consumption expenditures. Part 2 of this report dives into the state Headline inflation has risen due to a surge in global commodity prices of food insecurity in Sierra Leone. Headline Figure 19: Global inflation price trendshas risen due for wheat, to oil and a surge in rice global Figure commodity 20: Domestic prices inflation trends Figure US$/mt, 19: Global US$/bbl (RHS) Figure 20: Domestic inflation trends price trends for wheat, oil and rice Percent Headline inflation has risen due to a surge in global commodity prices US$/mt, US$/bbl (RHS) Percent FIGURE 18: GLOBAL PRICE TRENDS FIGURE 19: DOMESTIC INFLATION TRENDS FOR WHEAT, OIL AND RICE 70 PERCENT US$/MT, 1000 US$/BBL (RHS) 140 70 1000 140 60 900 120 60 900 800 120 50 800 700 100 50 700 100 40 600 80 40 600 500 8030 500 60 30 400 6020 400 300 40 20 300 40 200 10 200 20 10 100 20 0 100 Jun-21 Mar-20 Jun-20 Mar-23 Sep-19 Jun-23 Mar-19 Dec-19 Jun-19 Mar-22 Sep-22 Dec-22 Jun-22 Dec-18 Mar-21 Sep-21 Dec-21 Sep-20 Dec-20 0 0 0 Jun-21 Mar-20 Jun-20 Mar-23 Sep-19 Jun-23 Dec-19 Jun-19 Mar-22 Sep-22 Dec-22 Jun-22 Mar-21 Sep-21 Dec-21 Sep-20 Dec-20 Sep-23 Jun-21 Mar-20 Jun-20 Mar-23 Mar-19 Sep-19 Jun-23 Dec-19 Jun-19 Mar-22 Sep-22 Dec-22 Jun-22 Dec-18 Mar-21 Sep-21 Dec-21 Sep-20 Dec-20 0 0 Jun-21 Mar-20 Jun-20 Mar-23 Sep-19 Jun-23 Dec-19 Jun-19 Mar-22 Sep-22 Dec-22 Jun-22 Mar-21 Sep-21 Dec-21 Sep-20 Dec-20 Sep-23 Headline Food Nonfood Crude oil, average (RHS) Wheat, US HRW Headline Food Nonfood Crude oil, average (RHS)Urea Rice average Wheat, US HRW Rice average Urea Source: Stats SL and World Bank estimates Source: World Bank (Pink sheet) SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 19 Inflationary pressures have continued to intensify in 2023. Since the start of the year to August, headline inflation has averaged 44 percent gaining pace after a few months of respite. Food inflation rose to 63 percent (y-o-y), while non-food inflation increased to 42 percent. These inflationary pressures have persisted amidst a combination of global and domestic price shocks (food and fuel accounts for over 60 percent of total imports), a depreciating currency, and domestic policy slippages. The August increase in fuel pump prices by 40 percent to NLe30/liter also contributed to both food and non-food price pressures, through an increase in transportation costs. Despite efforts by the Central Bank to control inflation- policy rates have increased by 500bps percent to 19.25 percent since the start of 2022, inflationary and exchange rates pressures have persisted as these efforts have been limited by shallow financial markets, fiscal dominance, and a widening monetary base (the monetary base grew by an average of 38 percent (y-o-y) during the first half of 2023). Despite consecutive increases of the monetary policy rate by the Central Bank, domestic prices continue to be affected by currency depreciation, which has aggravated imported inflation. BOX 4: Behind the pump: Sierra Leone’s automated fuel pricing mechanism Until 2018, Sierra Leone used an ad hoc pricing transportation costs, and various government system to set the price of fuel products. The taxes and levies. This approach is intended to government did not fully pass-through increases ensure that the final retail price of petroleum in international fuel prices to domestic retail products accurately reflects the true production prices, with adverse consequences for fuel tax and distribution expenses, while also allowing for revenues. In 2007, the government implemented some degree of price stability for consumers. a fuel subsidy program which was later refined into a two-tier system in 2012. The two-tier system The policy, however, has not been implemented included subsidies for fuel consumption for consistently. Since the launch of the fuel pricing transport and home use but removed the subsidy system, the Government has routinely suspended on fuel purchased by businesses. the implementation of the full pass-through fuel pricing formula and regularly revises excise rates Fuel price liberalization was announced in 2017 on petroleum to mitigate the inflationary impact of and implemented in July 2018. The adoption fuel price revisions on consumers – which results of an automatic fuel pricing mechanism in foregone tax revenues with consequences for incorporates a price smoothing mechanism to fiscal sustainability. In February 2021, adjustments ensure pass-through over the medium term and were suspended to cushion the impact of avoid sharp fluctuations in domestic prices. The COVID-19 on the population but were reinstated implementation of the pricing formula is overseen 6 months later given significant revenue losses. by the Petroleum Directorate, the agency Adjustments were then suspended again in the tasked with regulating the country’s petroleum first half of 2023. sector. The formula is designed to incorporate a comprehensive range of factors, including the prevailing global crude oil price, refining and 20 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Monetary policy has been tightened but its impacts market stress (associated with the redenomination), were undermined by global inflationary pressures, while also managing rising inflation, had unintended currency redenomination, the depreciation of the consequences and mixed results. For instance, (i) initial Leone, and budgetary pressures. To address mounting restrictions on cash withdrawals caused a further loss inflationary pressures, the BSL tightened its monetary of confidence in the Leone; and later ii) a relaunch of policy stance. Since January 2022, the BSL cumulatively wholesale forex auctions rapidly depleted reserves, revised the benchmark interest rate by over 350 basis while providing little support to the currency (Box 4). points to 18.5 percent effective April 2023. Other policy Currency disruption abated towards the end of the year, interventions included an increase in the standing as the supply of new notes normalized and the BSL lending facility rate and standing deposit facility rate by extended the timeline for phasing out the old currency 125 basis points, bringing these rates to 21.75 percent notes. and 12.75 percent respectively, since the start of 2022. During the year, BSL also used different monetary Overall, the currency depreciated by more than policy instruments to manage the inflationary spillovers 40 percent since the start of 2022 and continued from two interrelated developments – redenomination to depreciate halfway into 2023. As exchange rate and currency depreciation. This included (i) setting depreciation intensified between July and September up special forex facilities for fuel (US$36 million) and 2022, the BSL reversed its earlier restrictions on cash food (US$50 million) to enable easier access to foreign withdrawals in a bid to restore confidence in the Leone, exchange for imports of essential commodities; and reduce demand for forex and discourage parallel (ii) resuming wholesale foreign exchange auctions market activity. The BSL maintains a floating exchange to increase the availability of foreign exchange and rate regime but intermittently intervenes to respond to support importers (US$24 million). fluctuations and pressures. The Leone continued to depreciate during 2023 and declined in value against The Leone was redenominated in July 2022, with the USD by over 15 percent in the first quarter. The three zeroes dropped from its nominal value, currency continued to be under pressure since early following which the country experienced stresses last year on account of (i) a terms-of-trade shock due to in the forex market. In principle, redenomination is a rise in prices for imported food and fuel, (ii) disruptions expected to be money-supply neutral, with only a in the availability of Leones following redenomination, nominal change in the value of the currency. However, and (iii) expansionary fiscal policies. The persistent shortages in the availability of new notes after the depreciation of the Leone further fueled inflation redenomination caused a loss of confidence in the and intensified risks to fiscal and debt sustainability. Leone and citizens rushed to exchange Leones for The Leone appreciated sharply in June ending the USDs. Indeed, exchange rate depreciation (that begun downward spiral. Given that the appreciation happened in the second half of 2021) accelerated further following in an election month it is unclear if that will be sustained the launch of the new currency. The spread between the in the coming months. official and parallel market rate also increased. Policy measures introduced by BSL to respond to currency SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 21 The pace of depreciation against the dollar continued to rise in 2022 with a decline in June The 2023 pace of depreciation against the dollar continued to rise in 2022 with a decline in The June pace of depreciation against the dollar continued Figure2023 21: Exchange rate developments to rise in 2022 with a decline in June Figure 22: NEER vs. REER 2023 Percent (RHS) Leone/US$, Index, Dec 2018=100 Figure 21: Exchange rate developments Figure 22: NEER vs. REER FIGURE 20: EXCHANGE RATE DEVELOPMENTS FIGURE 21: NEER VS. REER Leone/US$, Percent (RHS) Index, Dec 2018=100 LEONE/US$, PERCENT (RHS) INDEX, DEC 2018=100 25,000 80.0 150 70.0 25,000 80.0 150 20,000 60.0 70.0 110 Leone/US$ Percent 20,000 50.0 15,000 60.0 110 40.0 Leone/US$ Percent 50.0 70 15,000 10,000 30.0 40.0 70 10,000 20.0 5,000 30.0 30 Jun-20 Mar-23 Jun-23 Dec-19 Mar-22 Dec-22 Jun-22 Mar-21 Sep-21 Dec-21 Jun-21 Mar-20 Sep-20 Dec-20 10.0 Sep-23 Sep-22 20.0 5,000 30 0 Jun-20 Mar-23 Jun-23 Dec-19 Mar-22 Dec-22 Jun-22 Mar-21 Sep-21 Dec-21 Jun-21 Mar-20 Sep-20 Dec-20 10.0 Sep-23 Sep-22 Aug-20 Aug-23 Apr-19 Aug-19 Dec-19 Apr-22 Dec-22 Aug-22 Dec-18 Apr-21 Dec-21 Aug-21 Apr-20 Dec-20 Apr-23 REER NEER 0 Aug-20 Aug-23 Apr-19 Aug-19 Dec-19 Apr-22 Dec-22 Aug-22 Dec-18 Apr-21 Dec-21 Aug-21 Apr-20 Dec-20 Apr-23 % spread (RHS) O cial REER NEER Parallel YoY % change % spread (RHS) O cial Source: Bank of Sierra Leone and World Bank estimates Source: Bank of Sierra Leone and World Bank estimates Parallel YoY % change Source: Bank of Sierra Leone and World Bank estimates Source: Bank of Sierra Leone and World Bank estimates Monetary policy effectiveness remains weak. The country’s financial system remains underdeveloped, with commercial banks Source: Bank accounting of Sierra the bulk for World Leone and of Bank assets, and financial estimates markets Source: in Sierra Bank of nascent their Leone andstage. Fiscal World Bank dominance estimates characterizes the macro-financial landscape, with bank credit catering primarily to the public sector. In designing its policies, the BSL implicitly balances several goals, including ensuring price stability, meeting fiscal financing needs, achieving foreign exchange reserves targets, mitigating exchange rate volatility, and increvasing private sector credit. Pursuing multiple goals, particularly when they are at odds, complicates policy design. Moreover, domestic price and exchange rate dynamics are vulnerable to exogenous shocks (as seen from the impact of the pandemic and the war in Ukraine); and the transmission of policy via the monetary policy rate (MPR) is limited by the low share of domestic credit extended to the private sector (because interest rates therefore have a limited impact on household and firm spending). 22 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security BOX 5: Costly change: Sierra Leone’s currency redenomination In August 2021, the Bank of Sierra Leone (BSL) of redenomination, citizens hurried to exchange announced its intention to redenominate the leones for USDs, exacerbating the depreciation of Leone. This reform removed three zeros from the the exchange rate since the second half of 2021, currency and introduced a higher denomination, and widening the spread between official and the Le. 20 note. The government proceeded with parallel market rates. The BSL’s policy measures the launch of the redenominated notes on July 1, to manage inflation and currency market stress 2022. The decision to redenominate the currency included limiting cash withdrawals and later was taken in the context of ongoing efforts to reintroducing a couple of wholesale forex improve monetary policy and macroeconomic auctions. However, these measures produced stability, as well as to address issues related to unintended consequences and mixed results, currency management and financial inclusion. including contributing to depleting reserves. The evidence on currency redenomination is In March 2023, the BSL announced a second mixed, with both potential benefits and drawbacks extension of the transition period for the to consider. On the one hand, redenomination redenomination of the Leone currency. The initial can simplify transactions and reduce the costs of launch of the new currency was accompanied handling large amounts of currency. On the other by a three-month transition period from July to hand, it can be expensive to implement, disrupt September 2022. However, due to challenges in trade and financial flows, and may not address supplying an adequate number of new notes and underlying economic problems. Overall, the uncertainty surrounding the availability of the new success of currency redenomination depends on tender, the government decided to extend the a range of factors, including the specific context transition period until the end of March 2023. This and goals of the reform, as well as broader extension was accompanied by a depreciation of economic and political conditions. the currency against the dollar. Consequently, until the end of the year, the old Leone will continue to Sierra Leone’s currency redenomination be accepted as valid legal tender, and banks will announcement led to uncertainty and speculation, remain open to exchanging the old notes for the causing a downward pressure on the exchange newly redenominated currency. rate and higher import costs. This highlighted the importance of adequate preparation, logistics, and communication. After the announcement SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 23 The financial sector appears stable but with significant underlying risks Money aggregates picked up in 2022 and in the above the prudential limit of 10 percent), weak banking first four months of 2023 despite the tightening of sector regulation and supervision, and continuing monetary policy. Broad money (M3) growth accelerated macroeconomic risks. The capital adequacy ratio (CAR- to 41 percent at the end December 2022, from 22.1 regulatory capital-to-risk-weighted-assets) remains percent at the end of the previous year, on account of well above the 15 percent statutory minimum, but it an increase in net domestic assets in the form of higher decreased by 6 percentage points to 35.2 percent in credit to the government, which almost doubled from 2022 reflecting the increased purchases of government 19.6 percent at the end of 2021 to 34.2 percent at the securities (Table 5). Banks’ average return on assets (6.5 end of 2022. Meanwhile, growth in credit to the private percent) and equity (28.2) improved significantly and sector slowed down in 2022 to 11 percent – almost a profitability in 2022 exceeded pre-pandemic averages third of the growth rate in 2021 – as banks substantially (Table 5). increased holdings of government securities. Monetary Survey data for April revealed an expansion in monetary Figure 23: Key Monetary Aggregate 2018-2022 Figure 24: Ke FIGURE YoY% Change22: KEY MONETARY AGGREGATE 2018-2022 Percent aggregates. Base money experienced a substantial YOY% CHANGE growth of 45.6 percent (year-on-year) compared to 25.6 percent in December 2022. Additionally, growth in 50 broad money saw a slight increase of 1 percentage point 45 to reach 42 percent (year-on-year) in April, representing 40 30.0 a growth of 10.7 percent since December 2022. This 35 25.0 expansion in monetary aggregates was primarily driven 30 20.0 Percent by the growth in the Net Domestic Assets (NDA) of the 25 15.0 Central Bank, which outweighed the decline in Net 20 Foreign Assets (NFA). NDA witnessed a significant 15 10.0 increase of 26 percent since December 2022, largely 10 5.0 5 due to the banking sector's increased holdings of 0 0.0 government securities. Furthermore, the private sector Dec-19 Feb-20 Apr-20 Jun-20 Jun-22 Mar-21 Jun-21 Mar-20 Jun-20 Mar-23 Mar-19 Sep-19 Dec-19 Jun-19 Mar-22 Sep-22 Dec-22 Dec-18 Sep-21 Dec-21 Sep-20 Dec-20 credit has shown notable improvement in 2023, with a growth rate of 22 percent (year-on-year) recorded in Credit to the Private Sector 365d Net Credit to Government Mone April 2023, compared to 12 percent in December 2022. Broad Money Maxim Source: BSL data, World Bank Staff estimates Sierra Leone's banks meet prudential standards, but there are vulnerabilities and risks. The banking system appears to be in good financial standing, with Figure 26: Se high levels of capitalization, profitability, and liquidity, Percent largely due to a concentration of assets in short-term Figure 25: Composition of Private Credit, 2018-22 government securities (Table 2). However, there are Millions Leones weaknesses, namely high levels of non-performing loans (NPLs decreased by 3 percentage points to 12.1 percent of total gross loans in 2022 but they remain 3500000 100% 3000000 90% 80% 2500000 70% 2000000 60% 50% 1500000 40% 24 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 1000000 30% 20% 500000 10% Broad Money M Figure 26: S 2022 022 Figure24: Figure KeyMarket 24:Key InterestRates, MarketInterest Rates,2019-2022 2019-2022 Percent Percent23: KEY MARKET INTEREST FIGURE Percent Figure FIGURE25: Composition 24: OF Credit, 2018-22 of Private COMPOSITION RATES, 2019-2022 PRIVATE Millions CREDIT, 2018-22 Leones PERCENT MILLIONS LEONES 3500000 100% 30.0 30.0 3000000 90% 25.0 25.0 80% 2500000 20.0 70% 20.0 2000000 60% 15.0 15.0 50% 1500000 10.0 40% 10.0 1000000 30% 5.0 5.0 20% 500000 0.0 10% 0.0 Dec-19 Aug-22 Jun-22 Oct-21 Dec-21 Aug-21 Jun-21 Feb-20 Apr-20 Oct-20 Dec-20 Aug-20 Jun-20 Feb-23 Apr-23 Feb-22 Apr-22 Oct-22 Dec-22 Feb-21 Apr-21 Dec-19 Aug-22 Jun-22 Oct-21 Dec-21 Aug-21 0 Jun-21 Feb-20 Apr-20 Oct-20 Dec-20 Aug-20 Jun-20 Feb-23 Apr-23 Feb-22 Apr-22 Oct-22 Dec-22 Feb-21 Apr-21 Jun-22 0% Mar-23 Sep-22 Dec-22 Jun-22 Mar-23 Sep-22 Dec-22 2018 2019 2020 2021 2022 20 Agriculture Manufacturing A TbillRate 365daysTbill 365days Rate Rate InterbankRate Interbank Construction Commerce & Finance C PolicyRate MonetaryPolicy Monetary Rate SavingsRate 12monthSavings 12month Rate Services Others O LendingRate MaximumLending Maximum Rate Source: BSL data, World Bank Staff estimates 26:Sectoral Figure26: Figure distributionof Sectoraldistribution NPLs,2018-22 ofNPLs, 2018-22 Percent Percent 018-22 018-22 FIGURE 25: SECTORAL DISTRIBUTION Sierra Leone's financial sector is inefficient and OF NPLS, 2018-22 shallow, with private credit to GDP declining in PERCENT recent years. Banks dominate the financial sector, and there are few non-bank credit institutions that 100% 100% play a minimal role. Sierra Leone lags behind its peer 90% 90% countries – its financial sector is the least efficient and 80% 80% costliest among peer countries, with the highest bank 70% 70% lending/deposit spread among IDA countries. Despite 60% 60% 50% 50% significant holdings of T-bills, overhead costs for the 40% 40% banking sector are much higher than in regional peers. 30% 30% The high costs of intermediation are usually passed 20% 20% on to customers, making the country's financial system 10% 10% inefficient. The banks' primary source of funding comes 0% 0% 2022 2022 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 from deposits, limiting their potential for long-term ing ng Agriculture Agriculture Manufacturing Manufacturing lending. The banking sector's asset structure reflects Construction Commerce& Finance &Finance & Finance &Finance Construction OtherServices Other Services Commerce Others Others the dominance of T-bill holdings, followed by deposits in and loans to foreign financial institutions, and lending Source: BSL data, World Bank Staff estimates to the private sector. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 25 BOX 6: Facilitating enhanced interoperability within the financial sector In April 2023, the Bank of Sierra Leone launched into the platform while Phase three will focus the National Payment Switch. The National on international transactions. Since the launch Payment Switch is a centralized unit which enables of Phase I, there have been no notable reports electronic transactions between various financial of glitches or difficulties in implementation. The institutions, merchants, and consumers. So far, six National Switch has been supported by the World commercial banks have already been integrated Bank Financial Inclusion I Project (for $12mn). This into the national payment switch. The switch, reform should increase the share of the adult which will be operationalized in three phases, will population with an account in a financial institution be owned and managed by the Bank of Sierra (currently 14 percent compared to 40 percent for Leone. The first phase of the National Payment SSA) and/or a mobile money account (19 percent Switch involves ATMs and Point of Sales Devices compared to 33 percent for SSA) (FINDEX, 2021). (POS). The second phase incorporates mobile money operators and other fintech operators Sierra Leone's banking sector is largely liquid, but there are large variations in capital positions among banks. Most banks reported profits in 2022, but a few have continued to incur losses since 2020. The governance of state-owned banks has improved, but weaknesses have been identified in critical benchmarks related to financial sustainability and risk management. Additionally, Sierra Leone lacks effective supervision and regulatory governance, particularly for sectors at high risk of abuse for money laundering and terrorism financing. The IMF and the World Bank have been working with the BSL to strengthen financial sector policies, develop action plans for reforms, and build capacity to monitor and safeguard financial stability. TABLE 2: SELECTED FINANCIAL SOUNDNESS INDICATORS, 2017–22 PERCENT UNLESS OTHERWISE STATED 2017 2018 2019 2020 2021 2022 Capital adequacy/1 34.2 38.4 41.7 40.1 41.3 35.2 Asset quality Nonperforming loans 14.6 12.7 16.8 12.7 15.2 12.1 to total gross loans Nonperforming loans (net 12.1 9.9 7.2 4.3 4.7 2.4 of provisions) to capital Earnings and profitability Return on assets 5.3 6.1 6.1 6.1 5.4 6.5 Return on equity 25.6 27.3 26.1 25.7 23.9 28.2 26 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 2017 2018 2019 2020 2021 2022 Liquidity Ratio of net loans to total deposits 19.2 27.2 25 21.8 20.8 Liquid assets to total assets 66.9 67.9 68.4 73.4 73.7 78.3 Share of foreign currency 37.1 38.3 37 37.5 38.1 in total deposits Net open position in foreign -14.4 -12.8 -1.8 -12.2 -10.6 -0.2 exchange to capital Memo: Le billion Total Assets 7433 8549 9498 13076 15805 23221 Cash 408 482 433 433 686 1317 Total Deposit 5275 6111 6759 9407 11592 16935 Gross Loans 1497 1773 2055 2267 2713 3026 Source: Bank of Sierra Leone data, World Bank staff estimates. Note 1: Capital requirement over risk-weighted assets (solvency ratio) SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 27 Near & Medium-term Economic Outlook In the near and medium-term, economic growth is Agriculture and mining will buoy economic recovery expected to remain below pre-pandemic levels, as the in the medium-term. Even as high prices and supply economy recovers only gradually from consecutive chain challenges for fertilizer persist, agricultural GDP shocks and macro stability is restored. Economic is expected to grow by 3.3 percent in 2023 and by 3.8 growth is projected to moderate to 3.1 percent in 2023 percent over the medium term on the back of agricultural and 3.6 percent on average between 2023-2025, reforms and continued partnerships to strengthen still below the pre-pandemic average of 4.2 percent. value chains in key sectors. One such partnership was Growth in 2023 is expected to be supported by (i) signed in the first half of 2023 with FAO and Vietnam to efforts to restore macro stability and contain inflation enhance the rice value chain, by attracting $5 million through fiscal discipline and prudent monetary policy; (ii) in investments to improving production technologies. continued expansion of iron-ore mining operations; and The mining sector will continue to face muted global (iii) some modest easing of inflationary pressures and prices for metals and precious minerals (below levels in an improvement in purchasing power of households. 2019) which could depress revenues for iron ore, rutile, However, private investments will remain muted as and diamonds even as capacity has been progressively global financial conditions continue to depress FDI. ramped up since 2021. However, the ongoing series Public investments are also expected to be limited of expansions in mining is expected to contribute to a in 2023 (before recovering in 2024-2025) as the boost in export volumes over the medium term as metal government undertakes aggressive fiscal consolidation and mineral prices stabilize. Marampa iron ore mines to control spending and ensure fiscal and debt reopened in 2021 under a 15-year mining license and sustainability. The external position remains uncertain began an expansion project to boost output to 7 tons and heavily dependent on the course of ongoing per year by 2023. Additionally, the Tonga Diamond global headwinds. Low growth forecasts for advanced project began sales of rough diamonds in May 2022 economies compound what is already a pessimistic and is expected to produce 260,000 carats annually. outlook for export and FDI-led growth. Global prices for The outlook for the industrial sector is promising with iron ore, cocoa and diamonds are expected to trend a projected medium-term growth rate of 6.5 percent downwards; and even with projected higher prices for between 2023 and 2025. This outlook is supported timber, government timber bans will limit earnings in the by the government’s commitment to boosting sector (World Bank, 2022 Commodity Markets Outlook). manufacturing as evident in the government’s plans to As global fuel and food prices remain elevated in 2023, build the 1,600-hectare Koya Industrial Zone (SIZ-Koya). a high import bill with weak growth in exports will extend the net-negative terms of trade shock and compound difficulties in financing a wide current account deficit. 28 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Domestic inflation will remain elevated even as During 2023, public debt is projected to decline slightly inflationary pressures ease globally. In the medium- to 88 percent of GDP. By 2025, debt should moderate term inflation will recede while staying in the double to 77.3 percent of GDP, which will still be higher than digits, as global prices stabilize, and the country adopts at the end of 2019, and higher than the government’s a more prudent fiscal policy. Trends in global commodity 2025 target of 70 percent. The government’s Medium prices will remain a key factor influencing domestic Term Debt Strategy 2023-2025 and the Fiscal Strategy headline inflation, which is projected to decrease to Statement 2023-2025 propose improvements in 14.3 percent in the medium term by 2025. According domestic revenue mobilization and expenditure to 2023 commodity price forecasts, global energy, management, which could effectively lower the food, and fertilizer inflation are expected to decrease government’s borrowing needs, and reduced reliance by 11 percent, 6 percent and 12 percent respectively. on short-term and expensive domestic borrowings by Nevertheless, 2023 domestic prices are projected to lengthening maturities and developing the domestic remain above the levels observed in 2020. debt market. Fiscal discipline from improved revenue mobilization The external position is projected to remain negative and substantial spending rationalization would in the near and medium term. Muted growth in support macro-stability in the medium-term. advanced economies will hamper export prospects Successive shocks and spending slippages have for major commodities (iron, rutile, diamonds) and non- narrowed the government’s fiscal space, necessitating traditional exports such as tourism and manufacturing. drastic corrective measures. Revenue measures With a growing energy and food import bill due to anchored in the MTRS will focus on policy and high global prices exacerbated by the depreciation of administrative measures such as: streamlining tax the Leone, the current account deficit should average exemptions, introducing a minimum alternative corporate around 6.5 percent of GDP between 2023 and 2025 as income tax, ramping up the automation of tax filing and external inflows like FDI remain low and external debt intensifying large taxpayer audits (see Box 6). On the obligations substantial. Based on macroeconomic trends expenditure side, the government plans to reestablish and the government’s large external financing needs, budget credibility by (i) improving budget monitoring reserves will most likely remain low at around 4 months and controls for wages, energy subsidies and capital of exports cover, leaving the external position at risk of spending, and (ii) limiting the accumulation of arrears unexpected shocks. and adopting a revised arrears clearance strategy. In the medium term, the share of wages is expected to Poverty alleviation efforts will be challenging as decline to the government’s target of 6-6.5 percent the government addresses reversals in education, of GDP with the development and implementation of health, and general welfare, stemming from domestic a medium-term wage bill management strategy and and global macroeconomic shocks. The poverty rate establishment of a Wages and Salaries Compensation using the standard international poverty line (US$2.15 Commission. On energy subsidies, the government is per person/day at 2017 PPP) is projected to decline working with EDSA to improve revenue mobilization slowly, from 23.9 percent in 2018 to 24.6 by 2025. and reduce technical and commercial losses. Many Economic growth is strongly tied to exports, which are of these corrective measures are urgent and will be dominated by minerals. However, the mining sector needed to reduce the fiscal deficit by 3.6 percentage has limited spillover effects on households. Poverty points to 6 percent in 2023 and to 4.3 percent by 2025. reduction requires increased agricultural productivity and the creation of good jobs outside agriculture for Risks to debt sustainability will remain elevated until the low-skilled labor force. fiscal balances improve further and the reliance on expensive and short-term domestic borrowings can be addressed through the lengthening of maturities and greater access to concessional borrowings. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 29 TABLE 3: ECONOMIC OUTLOOK FOR SIERRA LEONE 6 2020 2021 2022 2023 f 2024 f 2025 f Real GDP growth, at -2.0 4.1 3.6 3.1 3.7 4.3 constant market prices Private Consumption 5.4 36.7 -1.5 6.2 6.0 5.8 Government Consumption 2.7 0.6 13.7 5.5 5.2 7.4 Gross Fixed Capital Investment -9.6 -30.0 -3.3 2.2 8.6 5.2 Exports, Goods and Services -9.8 1.9 5.0 15.0 18.0 12.0 Imports, Goods and Services 7.5 46.6 -0.3 11.9 12.0 9.9 Real GDP growth, at -2.0 4.0 3.6 3.1 3.7 4.3 constant factor prices Agriculture 1.6 2.5 3.0 2.7 3.2 3.3 Industry -7.1 17.4 8.2 5.0 6.0 6.6 Services -5.8 2.8 3.3 3.2 3.7 5.0 Inflation (Consumer Price Index) 13.5 11.9 27.0 35.0 19.8 14.3 Current Account Balance (% of GDP) -6.8 -8.7 -8.5 -7.2 -6.6 -5.9 Net Foreign Direct Investment 3.3 8.5 8.5 6.4 5.6 4.1 Inflow (% of GDP) Fiscal Balance (% of GDP) -6.7 -7.6 -9.6 -5.8 -3.8 -3.9 Debt (% of GDP) 78.0 84.7 96.3 88.0 79.0 77.3 Primary Balance (% of GDP) -3.7 -4.2 -6.2 -1.4 1.7 1.7 International poverty rate 26.4 25.9 25.4 25.0 24.5 23.9 ($2.15 in 2017 PPP)a,b Lower middle-income poverty 64.6 64.2 63.7 63.4 63.9 62.4 rate ($3.65 in 2017 PPP) a,b Upper middle-income poverty 90.1 89.9 89.7 89.6 89.4 89.1 rate ($6.85 in 2017 PPP) a,b Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty data are expressed in 2017 PPP, versus 2011 PPP in previous editions - resulting in major changes. See pip.worldbank.org (a) Calculations based on 2016-GLSS-VII. Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. (b) Projection using neutral distribution (2016) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. 6 Table estimates and projections from World Bank Staff are based on data and analysis as of September 20, 2023 30 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Risks to the Outlook The outlook for the Sierra Leonean economy of revenue mobilized to finance spending which would is intertwined with both external and domestic increase the government’s reliance on external and developments. Elevated inflation from energy and domestic debt to finance a wider fiscal deficit. food prices, and continued tight monetary policy in advanced economies, could further affect the global Following the August 2022 riots, social stability economy and weigh on domestic growth. Geopolitical remains precarious and could be at even greater risk uncertainties around the war in Ukraine will determine as the cost-of-living crises continues. Widespread the pace at which energy and agricultural prices and anger over soaring inflation led to a deadly riot in supply chains normalize. On the domestic front, the Freetown. Violence did not escalate further, but as degree of political stability and the reform appetite and real incomes are eroded by inflation, dissatisfaction effectiveness of the government’s economic agenda with the economy could result in more protests. With will affect domestic macroeconomic stability and stretched resources for law enforcement, there is a resilience in the face of global uncertainties. To weather chance that future protests could lead to unrest, which external uncertainties, the government would need to would negatively impact welfare and the business build up larger fiscal and financing buffers to cushion and investment environment and most likely require the economy. However, this could prove challenging increased contingency spending on security. with the current domestic macroeconomic situation. The interplay of these factors will determine the trajectory of Climatic and health risks will continue to pose a economic growth in the short and medium term. significant threat to the economy. Sierra Leone is increasingly vulnerable to climatic shocks from Higher inflation and currency pressures from a extreme and unpredictable weather conditions. Rising deterioration of global macroeconomic stability could temperatures and erratic rainfall have proved challenging undermine fiscal consolidation efforts. An uptick in for the agriculture sector through disruptions to planting global energy and food prices would pass through to and harvest seasons. Predominantly unplanned cities, higher domestic prices, while a concurrent depreciation particularly Freetown, have experienced severe and of the Leone would compound the effect on prices. In deadly flooding and landslides. In 2022, hundreds of this scenario, the government’s fiscal strategy could be people lost their lives and property. In addition, the compromised as (i) recurrent expenditures on goods country's health system is fragile, with limited resources and services increase along with prices; (ii) pressure and infrastructure, making it ill-prepared to cope with to implement subsidies and raise social transfers a resurgence of the COVID-19 pandemic or another increases due to the worsening cost of living; and (iii) wave of Ebola outbreaks. Both health crises highlighted financing buffers are depleted to stabilize the currency vulnerabilities in the health system and the scope of the and provide businesses with much needed foreign economic losses that can come from a collapse in the exchange liquidity. Subdued economic activity from health system. macroeconomic instability would constrain the amount SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 31 Policy Priorities Sierra Leone is faced with a challenging play an important role in addressing emerging liquidity macroeconomic environment, and medium-term constraints and reduce the crowding out of private policy priorities should focus on restoring macro sector financing. A balanced mix of domestic and stability while protecting vulnerable households external borrowing can mitigate the risks related to and maintaining focus on long-term reforms. Fiscal interest costs and exchange rate volatility. The capacity pressures have progressively intensified, debt levels of debt management staff should be strengthened to have increased, and inflation has soared, driven by improve debt recording and reporting. In the medium to global supply shocks and a deterioration in the terms long-term, efforts to deepen domestic debt markets by of trade. The rapid rise in the cost of living combined introducing medium to long-term bonds to extend the with weak growth and deterioration of macroeconomic yield curve can help lower domestic costs of borrowing, fundamentals threaten to increase the level of poverty while containing the exposure of public debt to currency within a context of inadequate social safety nets. fluctuations. Enforcing fiscal discipline and renewing the Strengthening cash management, along with commitment to consolidation will be crucial in preparing and adhering to a credible and effective ensuring fiscal and debt sustainability. In the near arrears clearance strategy, can help avoid recurrent term, a focus on more effective expenditure controls accumulation of arrears. Linking quarterly budget and a stronger budget preparation and implementation allocations to revenue performance and improving process will introduce spending discipline and avoid fiduciary management in ministries, departments, and misallocation of resources. Implementing a medium-term agencies (MDAs) by deploying budget officers and wage bill management strategy and operationalizing internal audit staff can strengthen cash management the Wages and Salaries Compensation Commission will and help prevent accumulation of new arrears. Timely help bring down wages to the government’s target of and regular meetings of the cash and debt management 6 percent of GDP. To control subsidies, actions will be committee can support this objective. The recently needed to improve EDSA’s revenue mobilization and upgraded Integrated Financial Management Information addressing technical and commercial losses. These System (IFMIS) can be used to improve commitment efforts need to be coupled with improving domestic controls, strengthen cash and debt management, and revenue mobilization, aligned with the medium-term enhance oversight of local councils to minimize fiscal revenue strategy to help create more fiscal space, risks. while managing developmental spending needs. Providing well-targeted crisis support to vulnerable Active debt management can support debt households, affected by higher food and fuel prices, sustainability and reduce vulnerabilities. In the near has emerged as a priority. Expanding social safety term, continued reliance on concessional sources nets and increasing cash transfers to cover more of financing can help contain the servicing burden. households affected by recent shocks could provide a Containing short-term high interest domestic debt will significant buffer to vulnerable households. The social 32 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security safety nets program should be strengthened through better targeting of beneficiaries and linkage to productive activities (farming and fishing) and social programs (school feeding and maternal health). Monetary policy will need a multipronged approach to controlling inflation. Monetary policy will play an important role in preventing a currency-inflation spiral fueled by self-fulfilling expectations. Restoring confidence in the Leone will be important both to support the value of the currency, and to ensure the success of the redenomination exercise. The monetary policy rate should continue to be set at levels that contribute to lowering inflation. The use of wholesale currency auctions to support the currency should only be used in exceptional circumstances and be well communicated to avoid recurrent use of buffer reserves to prop up the currency. The BSL should limit the use of secondary market purchases to support government issuance and consider introducing its own short-term liquidity management operation, ideally with a standardized tenor, along with strengthened coordination with the Ministry of Finance on cash management. Over the medium term, a deeper financial market will allow for better monetary policy transmission. Continued reform momentum will be crucial to address the country’s structural constraints and pave the way for long-term development. Despite the challenging macro environment, the government must move forward with its structural reform agenda on improving natural resource management, strengthening public sector governance, and enhancing inclusiveness. Implementation of recently initiated reforms should be prioritized, such as the Gender Empowerment Act, Land Acts, Employment Act, the Mines and Minerals Development Act and the National Switch. Addressing gaps in public sector governance and accountability is important to retain and bolster confidence – requiring continued implementation of reforms to strengthen the autonomy and effectiveness of the Auditor General’s office. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 33 34 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 2 Special focus: Enhancing Value Chains to Boost Food Security SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 35 Enhancing Value Chains to Boost Food Security Food insecurity is increasing in Sierra Leone. The average calorie and protein supply per person is below the African average and declining, especially in the case of protein supply. Since the onset of COVID-19, the prevalence of insufficient food consumption has increased and is projected to affect 55 percent of the population by 2023. This chapter examines different dimensions of food security in Sierra Leone – identifying significant inadequacies. Recognizing the complex nature of tackling food insecurity, the discussion in this section focuses on a subset of solutions centered around improving agricultural value chains. By examining challenges and opportunities in three of Sierra Leone’s agricultural value chains – rice, cocoa, and horticulture – that together have the potential to improve diets, livelihoods, and job creation across the country, this chapter identifies priority policy reforms and investments. They entail enhancing productivity and competitiveness and strengthening markets, aiming not only for greater production – a long-standing policy objective – but also for greater diversification of the agricultural sector and expanded livelihood and income opportunities in rural areas. 36 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Food Security in Sierra Leone: Recent Trends and Current Conditions Economic shocks have intensified food insecurity in Sierra Leone. The deterioration in economic conditions in Sierra Leone has further aggravated the structural constraints on food security.7 Vulnerable groups in both rural and urban areas have been severely impacted.8 In January 2023, 788,000 individuals (9.3 percent of Sierra Leone’s population) were facing crisis or emergency (IPC3+)9 level food insecurity (Figure 26). While this number is below the all-time high of 1.5 million in March 2021, it is growing and was expected to increase to 1.1 million (13 percent of the population) by August 2023. Currently, the number of people projected to be facing emergency (IPC4) level food insecurity increased from zero in January to over 21,500 by August 2023.10 Some 4.5 million people (55 percent of the population) have insufficient food consumption, 3.9 million people (48 percent of the population) have crisis or above crisis-level food-based coping strategies, and 3.22 million people (38 percent of the population) face challenges accessing markets.11 While the rate of chronic undernourishment is relatively stable (with a slight upward trend), rapid population growth means that the size of the problem is steadily increasing in absolute terms. Over the years, the rates of food and nutrition insecurity in Sierra Leone have been some of the most severe in West and Central Africa (AFW), as well as globally.12 The numbers of people experiencing IPC3+ conditions have increased eight-fold since 2016; an alarming trend. Additionally, the number of people on the cusp of crisis increased by nearly five-fold over the same period. The rate of increase in both categories has outpaced AFW and global trends nearly every year since 2016. While COVID-19 and the global impacts driven by the Russian invasion of Ukraine have been more recent contributing factors, these trends well preceded the global crises.13 Between 2017 and 2020, the number of people unable to afford a healthy diet grew by 29 percent to over 862,000. 7 Résultats de l’analyse de l’insécurité alimentaire et nutritionnelle aiguë courante en octobre-décembre 2022 et projetée en juin-août 2023. https://www. ipcinfo.org/fileadmin/user_upload/ipcinfo/docs/ch/Resultats_Analyses_Nov2022_fichedecommunication.pdf 8 WFP Sierra Leone Food Security Monitoring System October 2022. UN. World Food Programme, Sierra Leone 9 The Integrated Food Security Phase Classification (IPC) is a common global scale for classifying the severity and magnitude of food insecurity and malnutri- tion. There are 5 food insecurity severity phases: 1 = Minimal/None; 2 = Stressed; 3 = Crisis; 4 = Emergency; and 5 = Catastrophe/Famine. https://www.ipcinfo. org/ipcinfo-website/ipc-overview-and-classification-system/en/ 10 Résultats de l’analyse de l’insécurité alimentaire et nutritionnelle aiguë courante en octobre-décembre 2022 et projetée en juin-août 2023. https://www. ipcinfo.org/fileadmin/user_upload/ipcinfo/docs/ch/Resultats_Analyses_Nov2022_fichedecommunication.pdf 11 Résultats de l’analyse de l’insécurité alimentaire et nutritionnelle aiguë courante en octobre-décembre 2022 et projetée en juin-août 2023. https://www. ipcinfo.org/ch/en/ 12 FSIN and Global Network Against Food Crises. 2023. GRFC 2023. Rome. https://www.fsinplatform.org/sites/default/files/resources/files/GRFC2023-com- pressed.pdf 13 The Sierra Leone population analyzed in the reports has remained relatively stable (with ~90% of the population being covered in nearly every update), these trends are fairly comparable from year to year and underscore the criticality of the situation SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 37 Figure 27 Acute food insecurity in Sierra Leone- 2017-2023 FIGURE 26: ACUTE FOOD INSECURITY IN SIERRA LEONE- 2017-2023 1,600,000 20% 18% 1,400,000 16% Percent of population in IPC3+ 1,200,000 Numner of people in IPC3+ 14% 1,000,000 12% 800,000 10% 8% 600,000 6% 400,000 4% 200,000 2% 0% Mar Mar Nov Mar Oct Mar Oct Mar Oct Jun Jan Aug 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2023 2023* IPC3+ Population Share of Population in IPC3+ Source: IPC/Cadre Harmonisé reports for West Africa14 *forecast Source: IPC/Cadre Harmonisé reports for West Africa1 * forecast BOX 7: Food Security Terms and Definitions15 Food security exists when all people, at all times, Acute food insecurity is when a person’s inability have physical and economic access to sufficient, to consume adequate food puts their lives or safe and nutritious food that meets their dietary livelihoods in immediate danger. needs and food preferences for an active and healthy life. There are four dimensions: availability, Chronic food insecurity occurs when people are access, utilization, and stability. unable to meet their minimum food requirements over a sustained period. Availability entails having enough food supply of appropriate quality. Access goes beyond supply Undernutrition denotes insufficient intake of and looks at economic and physical access to energy and nutrients to meet an individual’s needs food and covers incomes, markets and prices that to maintain good health. Often, undernutrition is determine the ability of households to acquire used synonymously with malnutrition. There are adequate and nutritious foods. Utilization 4 broad sub-forms of undernutrition: stunting involves adequate diet, clean water, sanitation (being too short for one’s age), wasting (being and health care to reach a state of nutritional dangerously thin for one’s height), underweight well-being where all physiological needs are met. (low weight-for-age in children), and deficiencies Stability entails sustained availability and access in vitamins and minerals. Stunting results from to adequate and nutritious food. chronic undernutrition, which retards linear 14 Résultats de l’analyse de l’insécurité alimentaire et nutritionnelle aiguë courante en octobre-décembre 2022 et projetée en juin-août 2023. https://www.ipcin- fo.org/ch/en/ 15 https://www.fao.org/fileadmin/templates/faoitaly/documents/pdf/pdf_Food_Security_Cocept_Note.pdf 38 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security growth. Wasting results from inadequate nutrition Per capita protein supply from all foods per over a shorter period. Being underweight is due day measures the quantity that is available for to both stunting and wasting. consumption at the end of the supply chain. It does not account for consumer waste, so the Prevalence of Undernourishment (PoU) is a quantity that is actually consumed may be lower national-level model-based indicator used to than this value. understand access to food in terms of dietary energy inadequacy. It measures the percentage Average dietary energy supply adequacy. The of the population whose dietary energy intake is indicator expresses the Dietary Energy Supply below the Minimum Dietary Energy Requirement (DES) as a percentage of the Average Dietary (MDER), which is the cut-off threshold caloric Energy Requirement (ADER). Average protein intake an individual would have to consume to supply adequacy is a comparable measure for attain a minimum acceptable weight for height. protein supply. Daily per capita supply of calories is measured Inequality in per capita calorie intake measured in kilocalories per person per day. This indicates as the coefficient of variation (CV) of energy intake. the calories available to households but does It represents the spread of intakes around the not necessarily indicate the number of calories mean. Higher CV values represent larger levels of actually consumed. dietary inequality. It is measured on a scale from zero to one, where higher CV values represent larger levels of dietary inequality. A CV value of 0.5 is considered high. Sierra Leone has faced persistent challenges along all the four dimensions of food security: access, availability, utilization, and system stability. The physical availability of food is determined by the level of food production, stock levels, and net trade, whereas economic and physical access to food is related to incomes, expenditure, markets, and prices. Food utilization reflects how the human body makes the most of nutrients and is associated with feeding practices, food preparation, diversity of diet, and intra-household distribution of food. Stability of the other three dimensions over time is linked to factors such as adverse weather conditions, global crisis, or economic factors leading to unemployment or rising food prices that might impact food security status.16 Food Access Income levels and market systems are the primary determinants of access to food for most households.17 In 2022, 87 percent of Sierra Leoneans devoted 65 percent of their overall expenditures to food [WFP, 2022]. Therefore, macroeconomic shocks that squeeze household incomes have adverse implications for their ability to purchase food. Overall access to food has been eroded as a result of falling incomes in recent years. Per capita GDP fell sharply following the Ebola crisis of 2014-15 and has stagnated since then (Figure 27, panel A). Access to food is also highly unequal. In 2018, the poorest 20 percent of households accounted for just 8 percent of total food consumption expenditures compared to 45 percent for the richest quintile (Figure 27, panel B). 16 FAO (Food and Agriculture Organization). 2008. “An Introduction to the Basic Concepts of Food Security.” Food Security Information for Action Practical Guides, EC-FAO Food Security Programme, FAO, Rome. 17 World Food Programme, Sierra Leone Market Outlook Bulletin, Vol 1/2022, Jan 1 – 30 March 2022. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 39 FIGURE 27: SIERRA LEONE PER CAPITA GDP 2010-2021, AND INCOME Figure 33: Sierra DISTRIBUTION capita Leone perFOOD OF HOUSEHOLD GDP 2010-2021, EXPENDITURES 2018 and income distribution of household food expenditures 2018 [A] [B] A . S I ER R A LEON E PE R B . D IST RIB U T IO N O F F O O D Distribution of food consumption expenditures CAPI TA G D P - 2010-2019 C O N SU MP T IO N E X P E N D IT U RE S across wealth quitiles Sierra Leone per capita GDP - 2010-2019 AC RO SS W E A LT H Q U IT IL E S 45 800 40 700 35 30 per capita GDP ($/year) 600 Percent 25 500 20 15 400 10 300 5 0 200 Lowest Second Third Fourth Highest 100 Wealth Quintile 0 21 18 12 17 14 20 13 11 10 15 16 19 Share of total food expenditures Share of population 20 20 20 20 20 20 20 20 20 20 20 20 Sources: A = World Bank; B = Sierra Leone Integrated Household Survey Report 2018 Sources: A = World Bank; B = Sierra Leone Integrated Household Survey Report 2018 a Recent developments in international markets, and the rise in domestic food inflation have accentuated challenges to food access. Global commodity price inflation (for food, fuel, fertilizer) has been driven by a combination of high freight charges due to COVID-related supply chain disruptions, and the negative supply shock created by the war in Ukraine. Food price inflation for December 2022 was 47 percent, up by 30 percentage points from the start of the year. In 2022, there was an almost 45 percent increase in the price of rice, with a slight difference between the price increases of local (47 percent) and imported (42 percent) rice. Between January 2021 and December 2022, the amount of rice that could be afforded with the average daily wage fell by 40 percent (Figure 28, panel A). The price of cassava, another staple product, rose by over 27 percent during the course of 2022. Sustained access to agricultural produce is also hindered by poor rural infrastructure. Poor rural infrastructure raises the costs of inputs and food purchases and impedes access to urban markets. Inadequate on-farm storage capacity and poor access to appropriate post-harvest management technologies and practices lead to high wastage and spoilage. Rainfed production systems are vulnerable to adverse weather events that lower crop and livestock yields, reducing the level of access to food even for households that engage in subsistence agriculture. The structure and functioning of agricultural markets determine food access. For example, the locally produced rice that reaches consumers through a high-cost traditional value chain also usually contains impurities such as sand and broken and colored grains due to the mixing of varieties. The end-product is usually so costly due to the complex value chains at play, and of such poor quality, that it cannot compete with imported rice in terms of price or consumer preferences for whiteness, grain uniformity, softness, and aroma – and ends up being traded mostly in local rural markets.18 18 WFP = World Food Programme, Sierra Leone Market Outlook Bulletin, Vol 1/2022, Jan 1 – 30 March 2022; FAO = State of Food Security and Nutrition in the World, 2022 40 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Figure 34: Purchasing power of wages and a ordability of a healthy diet FIGURE 28: PURCHASING POWER OF WAGES AND AFFORDABILITY OF A HEALTHY DIET [A] [B] Purchasing Power of Average Daily Wage No. of People Unable to A ord a Healthy Diet in A . PUR C H AS I N G POWE R OF B . N O. O F P E O P L E U N A B L E TO Sierra Leone - 2017-2020 3 AVE R AG E DA I LY WAG E 30,000 A F F O R D A H E A LT H Y D IE T IN SIE R R A L E O N E - 2 0 1 7- 2 0 2 0 2.5 25,000 900 852 862 Average daily wage (leons)/day Kg of rice that can be bought 800 2 20,000 681 700 666 No. of People ('000s) 1.5 15,000 600 500 1 10,000 400 0.5 5,000 300 0 - 200 2021 2021 2021 2021 2022 2022 2022 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 100 - Quantity of Rice A orded Average Daily Wage 2017 2018 2019 2020 Sources: A = WFP; B = FAO19 Food Availability Despite having just enough calories to meet the aggregate needs of the population, albeit with a downward trend, Sierra Leone lags Africa and the world in terms of average calorie supply, indicating a break between food availability and access (Figure 29, panels A and B). The country relies on imports to meet over 60 percent of the domestic requirements of the main staple food (rice), which often exposes it to major external shocks. Mounting problems on the production side (including low and declining productivity as a result of low input use exacerbated by rising input prices) along with the surge in prices of imported food greatly affect the overall domestic food output and food availability. Alongside the high prevalence of undernutrition, the technically “adequate” calorie supply points to inadequate food access (see prior section). Sierra Leone also exhibits high and persistent inequality in per capita calorie intake, with a coefficient of variation of energy intake of 0.33 in 2020, only slightly down from 0.35 in 2000. Furthermore, from a level of supply well below Africa and global averages, the level of dietary protein is also trending downward (Figure 30). 19 WFP = World Food Programme, Sierra Leone Market Outlook Bulletin, Vol 1/2022, Jan 1 – 30 March 2022; FAO = State of Food Security and Nutrition in the World, 2022 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 41 Figure 29: Average dietary energy in Sierra Leone, Africa, and the world – 2009-2019 29: Figure29: FIGURE Average AVERAGE dietary DIETARY [A] energy ENERGY in Sierra IN SIERRA Leone, LEONE, Africa, AFRICA, the world andWORLD AND THE [B] – 2009-2019 – 2009-2019 [A] [B] Avg Dietary Energy Supply Adequacy (%) Avg Calorie Supply (kcal/person/day) - 2019 A. AVG D I E 3 year - TA RY Eaverage N E R GY S UPPLY B . AVG CA LO R IE SU P P LY Avg Dietary Energy 3500 Avg Calorie Supply (kcal/person/day) - 2019 AD EQUACY (%) - Supply 3 YEAR Adequacy (%) AVE R AG E ( KCA L / P E R SO N / DAY ) - 2 0 1 9 107 - 3 year average 3500 3000 106 107 3000 2500 105 106 104 105 2500 2000 103 104 2000 1500 102 103 1500 1000 101 102 100 1000 500 101 20 013 18 1 2 17 18 9018 9 20 10 1 010 1 20 014 20 015 16 02 01 01 01 20 20 0 500 02 -20 100 -2 0 1-2 -2 -2 2 -2 2 -2 - - 3- 4- 09 15 12 16 19 17 01 1 1 Sierra Leone Africa World 20 20 20 20 20 22 20 012 13 8 1 17 0 20 014 20 015 6 20 012 02 01 01 01 0 20 -2 -2 0 -2 -2 -2 -2 -2 -2 -2 -2 11- 09 15 12 16 19 17 13 14 20 Sierra Leone Africa World 20 20 20 20 20 20 Sources: A = FAOSTAT; B = State of Food Security and Nutrition in the World, 2022 Sources: A = FAOSTAT; B = State of Food Security and Nutrition in the World, 2022 Sources: A = FAOSTAT; B = State of Food Security and Nutrition in the World, 2022 Figure 30: Average protein supply in Sierra Leone, Africa, and the world – 2019-2021 FIGURE 30: AVERAGE PROTEIN SUPPLY IN SIERRA LEONE, AFRICA, AND THE WORLD – 2019-2021 protein supply in Sierra Leone, Africa, and the Figure 30: Average [A] [B] world – 2019-2021 [A] [B] A. AVG D I E TA RY E N E R GY S UPP LY B . AVG Avg LO RIE(g/cap/day) CASupply Protein SU P P LY - 2019 Avg Protein Supply Adequacy (g/cap/day) AD E QUACY (%) - 3 YEAR AVE R AGE ( KCA L / P E R SO N / DAY ) - 2 0 1 9 - 3 year average Avg Protein Supply Adequacy (g/cap/day) 90 Avg Protein Supply (g/cap/day) - 2019 53 - 3 year average 80 90 52 53 70 80 51 52 60 70 50 50 51 60 40 50 49 50 30 40 48 49 20 30 47 48 10 20 2 7 19 1 4 5 16 13 8 01 01 01 01 01 01 20 20 20 47 0 -2 -2 -2 -2 2 2 10 11- - 7- 4- - 09 15 12 10 3 16 Sierra Leone Africa World 1 1 1 20 20 20 20 20 20 20 20 20 2 7 9 11 4 5 6 13 8 01 01 01 01 01 01 01 20 20 0 -2 -2 -2 -2 -2 -2 -2 - 11- 09 15 12 17 14 10 13 16 Sierra Leone Africa World 20 20 20 20 20 20 20 20 20 Sources: A = FAOSTAT; B = State of Food Security and Nutrition in the World, 2022 Sources: A = FAOSTAT; B = State of Food Security and Nutrition in the World, 2022 Sources: A = FAOSTAT; B = State of Food Security and Nutrition in the World, 2022 42 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Sierra Leone’s food supply is dominated by cereals and other starchy staples. Rice is the dominant cereal and the main staple food; cassava is a substitute. In 2019, these two crops made up 81 percent of total food production; just 7 percent of total production was in fresh vegetables, 3 percent in palm oil, and 2 percent in citrus fruits.20 Foods with higher nutritional content – e.g., fruits and vegetables and animal products – have very low availability and thus also low shares in diets. In 2020, more than 5.24 million people (61 percent of the population) had poor to borderline dietary diversity.21 Sierra Leone does not produce enough food to meet domestic requirements, although its per capita food production compares favorably with that in other West African countries for many items. The four panels in Figure 31 capture trends in per capita production for some of Sierra Leone’s major foods between 2010 and 2020. Per capita production of rice has fallen from 2010 levels but is well above that of other countries in the region, all of which have much lower per capita rice consumption (Figure 31, Panel A).22 In 2015, per capita production of cassava also compared favorably with that in neighboring West African countries but plunged thereafter to one of the lowest levels in the region by 2020 (Figure 31, Panel B). Per capita production of palm kernels grew slightly over the period and was similar to that in Nigeria and Liberia, but well below that in neighboring Ghana and Cote d’Ivoire (Figure 31, Panel C). Per capita production of eggs was flat over the period, similar to levels in Ghana and Liberia but well below those in Nigeria and Cote d’Ivoire (Figure 31, Panel D). 20 FAOSTAT, 2022 21 The State of Food Security in Sierra Leone 2020 - Comprehensive Food Security and Vulnerability Analysis. UN World Food Programme and Government of Sierra Leone. Dietary diversity is measured using the Food Consumption Score (FCS), which considers the frequency of food consumption and the nutritional importance of the foods consumed by a household. It is calculated by inspecting the frequency of food con- sumption from the different food groups over a 7-day reference period. 22 Per capita rice consumption (kg/person/year): Sierra Leone = 185; Nigeria = 32; Ghana = 35; Liberia = 133; Cote d’Ivoire = 61; Thailand = 173. Source: FAOSTAT SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 43 Figure 31: Per capita food production in Sierra Leone and selected countries in West Africa and Asia – 2010, 2015, 2020 [A] [B] Per capita rice production in Sierra Leone, selected Per capita cassava production (mt/person) in Figure FIGURE 31: 31: PERPer West capita African CAPITA FOODfood production countries, and Thailand PRODUCTION in Sierra IN SIERRA AND and Leone LEONE selected SELECTED countries in West Africa Sierra Leone and selected West African COUNTRIES IN WEST AFRICA AND ASIA and Asia – 2010, 2015, 2020 – 2010, 2015, 2020 countries 0.6 [A] 0.8 [B] 0.5 A.capita Per PE R rice CAPI TA R I C E in production PRSierra OD UCLeone, selected T I ON IN 0.7 P E capita B . Per R CA P ITA CASSAVA cassava productionP RO D U C T IO inN (mt/person) 0.4 SIERRAWest LEON African E, S E LE C TE D and countries, WEThailand ST A FR ICA N 0.6 ( MT / P E RLeone Sierra IN SIE SO N ) and LEON R R A West selected E AND African C OUN T R I E S , AN D TH AI LA N D SE L E C T E D W E ST A F RICA N C O U N T RIE S countries 0.5 0.6 0.3 0.4 0.8 0.5 0.2 0.3 0.7 0.2 0.4 0.6 0.1 0.1 0.5 0.3 0 0 0.4 Sierra Leone Nigeria Ghana Cote d'Ivoire Liberia Thailand Sierra Leone Ghana Cote d'Ivoire Liberia Nigeria 0.2 0.3 2010 2015 2020 2010 2015 2020 0.2 0.1 0.1 0 0 Sierra Leone Nigeria Ghana Cote d'Ivoire Liberia Thailand Sierra Leone Ghana Cote d'Ivoire Liberia Nigeria 2010 2015 2020 2010 2015 2020 [D] Per C. capita PER palm CA PI TA kernel PA LMproduction KE R N EL in PRSierra OD U C T IO N Per D. capita egg P E R CA P production ITA E GG P in RSierra ODUC Leone T IO N BV Iand Leone N Sselected West African I ER R A LEON E AND countries S E LE C T E D INand selected SIE RRA LE West ONE African A N D countries SE L E C T E D WEST A FR I CAN C OUN T R I E S W E ST A F RICA N C O U N T RIE S 0.1 0.0045 0.09 0.004 [D] 0.08 0.0035 0.07 Per capita palm kernel production in Sierra 0.003 Per capita egg production in Sierra Leone 0.06 Leone and selected West African countries 0.0025 and selected West African countries 0.05 0.002 0.1 0.04 0.0045 0.0015 0.09 0.03 0.004 0.001 0.08 0.02 0.0035 0.0005 0.07 0.01 0.003 0 0.06 0 0.0025 Sierra Nigeria Ghana Cote Liberia 0.05 Sierra Leone Nigeria Ghana Cote d'Ivoire Liberia Leone d'Ivoire 0.002 0.04 2010 2015 2020 0.0015 2010 2015 2020 0.03 0.001 Source: 0.02 Data for all charts from FAOSTAT Source: Data for all charts from FAOSTAT 0.0005 0.01 0 0 Sierra Nigeria Ghana Cote Liberia Sierra Leone Nigeria Ghana Cote d'Ivoire Liberia Leone d'Ivoire Despite higher Source: Data overall for all production 2010 charts from 2015 2020 FAOSTAT 2010 has than other regional economies, Sierra Leone 2015become 2020 increasingly dependent on imports, especially for rice, its major food staple (Figure 32, panel A). A higher import 23 bill with little attention to increasing domestic productivity and developing the rice value chain can drive food insecurity. Domestic demand for rice now exceeds supply by over 600,000 MT/year, requiring imports averaging US$200 million/year (i.e. 400,000 MT) and growing at 5 percent per year.24 Rice production fell Source: Data for all charts from FAOSTAT sharply after 2014 due to the Ebola epidemic and has not returned to pre-Ebola levels (Figure 32, panel B). This is on account of increasing structural constraints to productivity growth including weak research and extension capacities to develop and disseminate yield enhancing technologies, declining soil fertility 23 The cereal imports dependency ratio tells how much of the available domestic food supply of cereals has been imported and how much comes from the country’s own production. It is computed as (cereal imports - cereal exports)/(cereal production + cereal imports - cereal exports)*100. 24 FAOSTAT 44 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security and low access and utilization of external inputs, among others. Even with significant levels of imports, per capita availability of rice in Sierra Leone remains very low compared to countries with similarly high levels of per capita rice consumption – such as Thailand and other countries in Asia.25 FIGURE 32: FOOD IMPORTS AND CEREAL AND RICE IMPORT DEPENDENCE IN SIERRA LEONE – 2010-2020 A . R I C E I M PORT S H AR E A N D B . RIC E P RO D U C T IO N A N D IMP O RTS Rice CEimport R EAL share and D D EPEN cereal dependency R ATI O - ratio E N CY IN SIE RR A L E O N E - 2 0 1 0 - 2 0 2 0 S I ER Sierra -R A LEONLeone 2010-2019 E 2010-2019 Rice Production and Imports in Sierra Leone - 2010-2020 70 65 64 Rice import share and cereal import 56 56 1400 60 1200 dependency ratio (%) 50 1000 42 40 mt '000s 40 800 33 33 41 40 40 600 30 23 36 24 31 400 20 16 25 200 22 19 20 10 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Rice share of imports Cereal import dependency ratio Production Imports Source: Data for all charts from FAOSTAT Food Utilization Food utilization is poor, as reflected in indicators of child health. Child nutrition is a powerful indicator of two vital aspects of food utilization: the nutritional quality of food within households and the bioavailability of nutrients in those foods.26 Over 300,000 children under five are stunted, 100,000 are wasted, and 30,000 are at immediate risk of death due to inadequate nutrition. In 2020, Sierra Leone’s stunting rate was below the averages for West Africa and all of Africa, but significantly above the global average (Figure 33, panel A). Sierra Leone’s wasting rate in 2020 was lower than all three (Figure 33, panel B). Based on Global Acute Malnutrition (GAM) rates calculated from data on middle upper arm circumference measurements (MUAC) for children aged between 6 and 59 months, the national prevalence of acute malnutrition for children stood at 5 percent in 2022, almost double the 2.7 percent recorded in 2021. Local averages from 13 of Sierra Leone’s 16 districts also showed sharp increases, pointing to a nationwide deterioration in children’s diets.27 Utilization is strongly influenced by nutrition knowledge and feeding practices.28 Sub-optimal infant and young child feeding practices are prevalent across Sierra Leone. 70 percent of young children have monotonous diets characterized by high consumption of starchy staples like rice and cassava. On average, young children are fed 25 The top 10 rice consuming countries are all in Asia: Laos, Bangladesh, Cambodia, Vietnam, Indonesia, Myanmar, Sierra Leone, Philippines, Thailand, Sri Lanka. Average per capita rice production in these countries is more than thrice Sierra Leone’s. 26 https://www.fao.org/fileadmin/templates/faoitaly/documents/pdf/pdf_Food_Security_Cocept_Note.pdf 27 WFP Sierra Leone Food Security Monitoring System – October 2022. The Global Acute Malnutrition (GAM) is a measure of acute malnutrition in refugee chil- dren aged between 6 and 59 months. GAM provides information on the percentage of all children in this age range in a refugee population who are classified with low weight-for-height and/or oedema. It is obtained by combining the number of children in this age range who have moderate acute malnutrition and severe acute malnutrition. GAM is also often referred to as wasting. GAM indicates short term (recent) nutritional history in children aged between 6 and 59 months. The measure is important because acute malnutrition increases the risk of illness and death, and children of this age are particularly vulnerable to it. GAM is also considered an indicator of the overall food and nutrition situation of the general population. 28 https://www.fao.org/fileadmin/templates/faoitaly/documents/pdf/pdf_Food_Security_Cocept_Note.pdf SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 45 meals with only two out of the six food groups; consumption of nutritious items like legumes, nuts, pulses, dairy products, fruits and vegetables is low. Cultural beliefs, taboos, and practices limit the provision and consumption of nutritious foods that can improve the dietary intake of young children. 29 FIGURE 33: 2020 STUNTING AND WASTING RATES IN SIERRA LEONE, WEST AFRICA, AFRICA, AND THE WORLD Figure 35: 2020 stunting and wasting rates in Sierra Leone, West Africa, Africa, and the world [A] [B] A . C H I LD STUN TI N G I N 2020 B . C H IL D WAST IN G IN 2 0 2 0 (% OF in Child Stunting POPULAT I ON 2020 (% of ) population) Child Wasting( % OF PO in 2020 (% UL Pof AT IO N ) population) 35 8 30 7 6 25 5 20 4 15 3 10 2 1 5 0 0 Siera Leone West Africa Africa Globe Siera Leone West Africa Africa Globe (300k) (100k) Source: State of Food Security and Nutrition in the World 2022 29 UNICEF Sierra Leone. https://www.unicef.org/sierraleone/nutrition 46 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security BOX 8: Food security and economic growth The positive relationship between economic growth and food security is supported by historical data. Between 2001 and 2019, the rate of undernutrition, a proxy for food insecurity, fell from 50.7 percent to 26.2 percent of the population while per capita GDP rose from US$ 229 to US$ 522 (Figure 34, panel B). The relationship was most clear between 2001 and 2011 when per capita GDP was especially low and undernutrition especially high. Thereafter, per capita GDP stagnated (except for a temporary bump in 2013 and 2014), and the undernutrition rate was flat, never falling below 25 percent. FIGURE 34: THE RELATIONSHIP BETWEEN FOOD INSECURITY AND GROWTH IN SIERRA LEONE Undernourishment and Per Capita GDP in Sierra Leone - 2001-2019 900 2012-2019 800 700 600 Per capita GDP (US$) 500 2001-2011 400 300 200 100 0 10 20 30 40 50 60 Undernutrition (% of population) Source: World Bank Indicators However, the relationship goes both ways: high and persistent undernutrition can be very costly to economic growth and productivity. The 21-country Cost of Hunger in Africa (COHA) study undertaken by the African Union Commission, the UN Economic Commission for Africa, and the UN World Food Programme highlights the significant negative effects of undernourished children on health, school performance, labor productivity, and GDP.30 Across the 21 countries: (i) 8 to 44 percent of all child mortality is associated with undernutrition; (ii) up to 18 percent of all school repetitions are associated with stunting; (iii) stunted children may achieve 0.2 to 3.6 years less in school education; (iv) child mortality associated with undernutrition reduces national workforces by up to 14 percent; and (v) 40 to 67 percent of the working age population suffered from stunting as children. 30 https://au.int/sites/default/files/documents/41660-doc-COHA_CONTINENTAL_REPORTEnglish20211.pdf. The COHA study model is used to estimate the additional cases of morbidity, mortality, school repetitions, and dropouts and reduced physical capacity associated with a person’s undernutrition status before the age of five. To estimate these social impacts for a single year, the model focuses on the current population, identifies the percentage of that population who were undernourished before the age of five, and then estimates the associated negative impacts experienced by the population in the current year. Using this information and the data provided by the National Implemen- tation Teams (NIT) of respective Member States, that completed the study, the model estimates the associated economic losses incurred by the economy in health, education and potential productivity in a single year. Countries covered were Burkina Faso, Chad, DRC, Egypt, Eswatini, Ethiopia, Gambia (The), Ghana, Guinea Bissau, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sudan, Uganda and Zimbabwe SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 47 Food System Stability The stability of Sierra Leone’s food system is chiefly defined by its exposure to climate and economic shocks. Sierra Leone is the world’s third most exposed country to negative economic impacts of climate change.31 This is due to the country’s low capacity to combat the effects of climate change, and its high exposure to extreme weather events, notably because of the large number of Sierra Leoneans whose livelihoods depend on rainfed agriculture.32 Global shocks including logistical disruptions threaten the stability of food security, exacerbating the vulnerability of the population due to the country’s high dependency on food imports. Sierra Leone’s high degree of macroeconomic instability make the country highly vulnerable to disruptions in global commodity and financial markets.33 While inflationary pressures are easing, prices are likely to remain high because of weak macroeconomic fundamentals- primarily exchange rate volatility.34 After rising during the months immediately following the war in Ukraine, FAO’s index for internationally traded food commodities has fallen back to its pre-invasion level – a level, nevertheless, well above those in pre-COVID years. However, imported commodity price pressures persist. Sierra Leone’s food import dependence means that domestic food prices are highly sensitive to exchange rate effects. The Leone depreciation against the U.S. dollar, steep increases in international prices, and higher transportation costs all drive up the prices of imported foods. When the Leone depreciated by over 40 percent against the US dollar in 2022, food price inflation tripled, and the price of imported rice rose by 32 percent (Figure 35). Figure 36: Leone/USD exchange rate, food price inflation, and the rice price in 2022 FIGURE 35: LEONE/USD EXCHANGE RATE, FOOD PRICE INFLATION, AND THE RICE PRICE IN 2022 [A] [B] Food price A. TH E Rinflation C E the I C E PR Iand A NSLL/USD D AND B . T T H E R IC E P RIC E A N D exchange TH E S LL/US rate D EXCin 2022 HANGE T H E SL L / U SD E XC H A N GE The rice price and and the SLL/USD R ATE I N 2022 R AT E IN 2 0 2 2 50 20000 exchange rate in 2022 45 19000 15000 19000 40 18000 18000 14000 Food price inflation (%) Exchange ratre (SLL/$) 35 17000 17000 Exchange ratre (SLL/$) 30 16000 13000 Rice price (SLL/kg) 16000 25 15000 12000 15000 20 14000 11000 14000 15 13000 13000 10 12000 10000 12000 5 11000 9000 11000 0 10000 8000 10000 ct r p n l g ec ov ar n b ay Feb -22 May- 22 Aug - 22 Nov - 22 Ju Ap Ja Se Ju Au Fe O M M N D Food price inflation Exchange rate Price of imported rice Exchange rate Source: Statistics Sierra Leone Source: Statistics Sierra Leone 31 Maplecroft. 2014. 31% of global economic output forecast to face climate change risks by 2025: Climate Change and Environmental Risk Atlas 2014. Available online: https://www.maplecroft.com/insights/analysis/global-economic-output-forecast-faces-high-or-extreme-climate-change-risks-by-2025/ 32 World Bank West Africa Food Systems Resilience Program Phase 2. Report No: PAD4940 33 World Food Programme, Sierra Leone Market Outlook Bulletin, Vol 1/2022, Jan 1 – 30 March 2022 34 World Bank June 2022 Global Economic Prospects Report. 48 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Challenges and Opportunities in the Food Systems of Sierra Leone Sierra Leone is endowed with abundant rainfall (2,500-5,000 mm/year) and has tremendous agricultural diversity and growing potential in its upland and lowland ecologies.35 Conditions are suitable for the cultivation of a wide range of crops and livestock, but this potential has not been fully exploited. The smallholder producers who dominate the sector are exposed to climate and market shocks. They also have limited access to land, improved inputs, storage and handling technologies, transport and processing infrastructure and services, extension and advisory services, fixed and working capital, and markets.36 Notwithstanding these challenges, and despite several major shocks, the agrifood sector has remained relatively resilient. Its growth averaged 4.3 percent from 2015 to 2019, 1.6 percent in 2020, and rebounded to 3.7 percent in 2021.37 But this level of sectoral growth has been insufficient to boost output and incomes at rates required to significantly reduce poverty and food insecurity. Given agriculture’s large share in GDP, enhanced performance of the agricultural sector and the underlying food system is fundamental to increasing food security (via both supply and income channels). Sierra Leone’s food system performs poorly in multiple areas. Table 6 shows Africa-wide and “low-hunger” country food system performance levels for indicators that span the four basic components: domestic production and imports of appropriate quality that define food availability; markets and trade that define food access; consumption that defines food utilization; and governance and institutions that frame food system stability. The indicators also serve as proxies for major food system features. The performance gaps are especially large for indicators representing production (cereal yield), market access (road network density), and consumption (dietary energy from staples and income poverty rate). These areas should therefore feature prominently in policy action and investment toward food security. 35 World Bank West Africa Food Systems Resilience Program Phase 2. Report No: PAD4940 36 Ibid 37 World Bank Overview for Sierra Leone. https://www.worldbank.org/en/country/sierraleone/overview#1 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 49 TABLE 4: PERFORMANCE OF SIERRA LEONE’S FOOD SYSTEM RELATIVE TO BENCHMARKS % Gap Agrifood Africa- Low- % Gap Unit of Sierra to Low- system Indicator Proxy for wide Hunger to Africa Measure Leone Hunger Segment Average38 Average Average Average kg per Production Cereal yield1/ Productivity 1,820 2,772 1,632 10% 41% hectare Percent Food price (3-year Affordability 20.83 0.99 11.88 -43% 1,100% inflation2/ average to 2020) Markets and Road network Infrastructural Trade km/capita 2.44 3.04 1.39 43% 54% density1/, 3/, 4/ stock Logistics Quality of Performance Index score 2.52 2.57 2.08 17% 19% supply chain Index1/ share of dietary energy Consumption supply Dietary patterns; derived energy from 61 51 70 15% 37% dietary from staples2/ diversity cereals, Consumption roots and tubers (kcal/ cap/day) % of Purchasing population Poverty rate 5/ 39.38 1.13 56.8 44% 4,927% power below $1.90 poverty line Governance INFORM Risk6/ Stability Index Score 5.02 3.7 4.4 12% 49% and Institutions Data Sources: 1/ World Bank; 2/ FAOSTAT; 3/ Statistica; 4/ CIA; 5/ Our World in Data; 6/ Inter-Agency Standing Committee Reference Group on Risk, Early Warning and Preparedness and the European Commission. Unless indicated otherwise, all measures are for 2020, the final year before the outbreak of the COVID pandemic. Specific opportunities and challenges for improving the agricultural sector and food system performance are captured through three important value chains – rice, cocoa, and horticulture. Rice dominates the sector; half of all households, three-quarters of rural households, and about two-thirds of poor households grow rice.39 Not only is rice grown by farmers throughout the country, but the per capita consumption of 185 kg/year applies equally to poor and wealthy households in both rural and urban areas.40 Increased productivity and production levels of rice could not only improve availability but also the access, utilization and stability dimensions through the effects of improved incomes therefrom. Before the civil war, cocoa was Sierra Leone’s leading export. It remains one of the country’s highest foreign exchange earners outside of the mining sector. In 2019, Sierra Leone exported cocoa valued at $33.2 million, ranking 17th globally.41 However, with only 15,000 tons of exports, this is far behind Côte d’Ivoire at over 2 million tons. Cocoa cultivation is the main source of income for over 13,000 smallholder farming households 38 Strategic Priorities for Agrifood system Strengthening and Transformation. https://newgrowthint.com/wp-content/uploads/2022/04/Strategic-Priori- ties-for-Food-System-Strengthening-and-Transformation-1.pdf 39 Graham, E. G., Tchale, H., and Ndiane, M. 2020. An Optimal Rice Policy for Sierra Leone: Balancing Consumer and Producer Welfare. Washington DC: World Bank Policy Research Working Paper; No. 9369. https://www.researchgate.net/publication/344085874 40 WFP. 2022. Sierra Leone Market Outlook Bulletin Vol 1/2022. UN World Food Programme. 41 World Bank. 2020. Cocoa Cooperatives Put Business in the Hands of Sierra Leone’s Farmers. World Bank Story Highlights. https://www.worldbank.org/en/ news/feature/2010/01/19/cocoa-cooperatives-put-business-in-the-86hands-of-sierra-leones-farmers 50 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security (directly supporting 78,000 people) and thousands of jobs in small-scale processing and aggregation.42 Competitiveness44 Many challenges and opportunities facing the cocoa Domestic rice producers compete with imported rice value chain are representative of those in other smaller in Sierra Leone. The price of imported rice is driven up value chains with unmet potential for expanded exports above global rates, once it enters the country, by several and rural income generation – e.g., coffee and cashew fees and taxes at the border, including inspection, nuts. Third, agroecological endowments are suitable transit fees, and a withholding income tax.45 These for a wide array of horticulture products in the country. fees and taxes are estimated to add up to US$80-100 Available data suggest that up to half of all smallholder per MT to the border price.46 This protection (despite farmers produce horticulture crops on plot sizes recurrent tax exemptions on imports) has created a ranging from 0.1 ha (0.25 acres) to over 1 ha. Dark green strong “price incentive” for farmers to produce rice in leafy vegetables are key ingredients in household diets the country. The Nominal Rate of Protection (NRP) for across the country and a source of income for farming rice is estimated at 37 percent (average during 2012-21). households. Over 60 percent of households consume The NRP (expressed as a percentage) is the difference fruits and vegetables from their own production. between the domestic price and international price Seasonal variations in the availability of these items at the farm gate or wholesale or retail levels. A have significant effects on household food availability, positive NRP indicates that distortions from the policy consumption and, ultimately, nutritional status. 43 environment and value chain market dynamics push prices above the reference price and provide price Together, the three value chains – rice, cocoa and incentives to produce or commercialize the analyzed horticulture- support millions of livelihoods, jobs, product. However, countering this price incentive, and diets in rural and urban areas. They contribute rice marketing costs are high, eroding profitability. directly to all four dimensions of food security – Between 2012 and 2021, the Market Development Gap availability, access, utilization, and stability. Conditions (MDG) for rice averaged -2 percent, indicating excess in the three value chains capture major features of the marketing costs linked to transport and commodity country’s agrifood sector and reveal the requirements handling margins: the gap was even larger for cocoa for policy reform and investment for enhanced agrifood and horticulture (Figure 36, panel B).47 sector performance and toward food security, growth, and poverty reduction. This section looks at three Competitiveness in the cocoa sector is weaker due issues that matter in all three value chains and for the to distortions from price incentives and very high agrifood sector as a whole: (i) competitiveness; (ii) farm local marketing costs. On average, between 2011 and productivity; and (iii) levels and distributions of net 2020, the NRP for cocoa was -2 percent, reflecting an returns. Boosting competitiveness, productivity, and export-oriented policy regime that seeks to align Sierra net returns in the rice and horticulture value chains Leone’s prices with those in international markets will increase food security through higher food output (Figure 36, panel A). The MDG for cocoa averaged -7 and availability for producing households, and greater percent between 2011 and 2021 (Figure 36, panel B). surpluses for sale and income generation, thereby 44 This section is based on a 2022 World Bank analysis of price incentives increasing access to food. Increased supplies of in the three value chains (see World Bank, 2022. Sierra Leone: Priority Investments and Policy Reforms for Agricultural Transformation). The horticultural products would not only increase incomes results are broadly consistent with findings in other World Bank and partner reports (e.g., World Bank. 2023. Sierra Leone: Pathways to a but will also enhance availability and affordability of Transformation of the Agri-Food Sector). But due to data quantity and critical nutritious foods currently lacking in most Sierra quality limitations, the results must be viewed as indicative. 45 Sierra Leone Constraints Analysis Report: A Diagnostic Study of the Leonean diets. Greater competitiveness, productivity, Sierra Leone Economy; Identifying Binding Constraints to Private Invest- ments and Broad-based Growth. Government of Sierra Leone. and net returns in the cocoa value chain would increase 46 Kagbo, R. B. 2022. Review of the Rice Value Chain in Sierra Leone. incomes to farmers and other value participants, also Report prepared for the International Finance Corporation 47 The MDG (expressed as a percentage) quantifies price disincentives increasing access to food. stemming from value chain inefficiencies. A negative MDG indicates excessive market access costs facing farmers due to factors such as poor infrastructure, high processing costs due to obsolete technology, 42 Ibid government taxes and fees, high profit margins captured by various mar- 43 Bonuedi, I., Kornher, L. & Gerber, N. Agricultural seasonality, market keting agents, illegal bribes, and other informal costs. All of these can access, and food security in Sierra Leone. Food Sec. 14, 471–494 (2022). impede the transmission of world prices to domestic markets, penalizing https://doi.org/10.1007/s12571-021-01242-z farmers. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 51 Excess marketing costs are therefore significant for cocoa as farmers and traders face high transportation costs Figure 37: Indicative nominal protection rates and market development gaps for rice, cocoa between farms and aggregation centers and export processing warehouses.48 and onions – 2010-2021 FIGURE 36: INDICATIVE NOMINAL PROTECTION RATES AND MARKET DEVELOPMENT GAPS FOR RICE, COCOA AND ONIONS – 2010-2021 [A] [B] N OM I N AL A. Nominal PR OTE protection C TI ON rates (%) R ATE S ( % ) R K E T development B . MAMarket D E V E LO P ME GA P ( % ) N T(%) gap 60 0 55 Rice Cacao Onions -1 50 -2 40 37 -2 -3 30 Percent Percent -4 -3.6 20 -5 10 -6 -2 0 -7 Rice Cacao Onions -7 -10 -8 Source: Based on data in World Bank, 2022. Sierra Leone: Priority Investments and Policy Reforms for Agricultural Transformation Source: Based on data in World Bank, 2022. Sierra Leone: Priority Investments and Policy Reforms for Agricultural Transformation Horticulture benefits from policy-related price incentives but still faces significant marketing costs. Between 2010 and 2020, the NRP for onions (representing horticulture) averaged 55 percent, reflecting an increase in import tariffs from 15 percent to 35 percent in 2018 (Figure 37, panel A). The MDG for onions averaged -3.6 percent between 2010 and 2021 (Figure 37, panel B). Excess marketing costs linked to transport and commodity handling margins are important impediments to competitiveness.49 Farm Productivity Average productivity, as reflected in rice yield, falls well below the averages of Ghana and Côte d’Ivoire and global peers (Figure 37, panel A) and especially far below those of other countries with high per capita rice consumption (Figure 37, panel B). Sierra Leone’s hot and humid climate with distinct wet and dry seasons renders its largely rainfed rice production system highly vulnerable to yield-reducing climate shocks.50 Low rice yields also reflect the fact that rice farmers suffer poor access to inputs, advisory services, finance, and post-harvest technologies. 48 World Bank. 2023. Sierra Leone: Pathways to a Transformation of the Agri-Food Sector 49 World Bank, 2022. Sierra Leone: Priority Investments and Policy Reforms for Agricultural Transformation. The onion value chain is highly informative of devel- opments in the overall horticulture value chain. Most of the onions currently consumed in the country are imported. Between 2010 and 2020 the quantity and value of imported onion bulbs doubled. FAO data indicate that in 2020, US$9.44 million was spent to import 27,053 MT of dry onions, making it the country’s largest horticultural import. The government has declared its interest in reducing the country’s dependency on onion imports. 50 Tondel, F., C. D’Alessandro, I. Hathie and C. Blancher. 2020. Rice trade and value chain development in West Africa: an approach for more coherent policies. ECDPM Discussion Paper No. 283. Maastricht: European Center for Development Policy and Management 52 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Figure 38: 2020 yields of rice in Sierra Leone and other top-10 rice consuming countries1 [B] [A] IN SIERRA LEONE AND OTHER TOP-10 RICE CONSUMING FIGURE 37: 2020 YIELDS OF RICE COUNTRIES 51 Rice Yields - 2020 (mt/ha) A . R I C E YI E LD S - 2020 (M T /H A ) E yields Rice B . RIC S top for Y IE L D FOR rice 10 TO Pper 1 0 capita RIC E P E R 8 CA P ITA consuming C O N SU MIN countries G C O U N T R IE S 7 7 6 6 5 Yield (mt/ha) rice yield (mt/ha) 5 4 4 3 2 3 1 SIERRA 2 LEONE 0 1 M sia G ia M b na G ria Si d'I ar Br a Ba et l m ilip sh al a s Pa ndia Le e ge co N ne Co ag ia a nz n 150 170 190 210 230 250 270 Vi azi ne in M hin ne ra ir Ta sta an d ng na te asc Ph lade Ca h a e Ar exi er vo o ay nt ad o pi ui ig C ki I m per capita rice consumption (kg/person/year) Source: FAOSTAT Source: FAOSTAT Cocoa yields of 430 kg/ha do not compare favorably with those of major exporters (Figure 38). Yields of well over 2,000 kg/ha are achievable in experimental settings52, but 500 kg/ha would appear to be the benchmark in field settings. Yield growth is impacted by diseases and by the advanced age and poor condition of most cocoa trees.53,54 Many plantations were abandoned during the civil war and now require renewal, replacement, and expansion. Most farmers lack the inputs, finance, and training required to replant or establish new plantations. With poor road infrastructure in the cocoa belt, farmers and traders incur high transportation costs across the value chain.55 FIGURE 38: COCOA YIELDS IN SIERRA LEONE AND MAJOR COCOA EXPORTERS C OC OA YI E LD S - 2 0 2 0 ( m t / ha) 0.6 0.5 0.4 Yield (mt/ha) 0.3 0.2 0.1 0 Source: FAOSTAT Ghana Cote Ecuador Uganda Sierra Cameroon Nigeria d’Ivoire Leone ! "#2+72-85!?*+!42-A2 ! !"#$!%&'!()!*+,$!,&-./0+-1!,&/-%*+$.!2*$3!42&.5!62-1728$.#5!920:&8+25!;+$%-205!<-8&-$.+25!=>2-02*5!?+$**2!4$&-$5!@#+7+''+-$.5! ! 51 The top 10 rice consuming countries are: Laos, Bangladesh, Cambodia, Vietnam, Indonesia, Myanmar, Sierra Leone, Philippines, Thailand, Sri Lanka 52 Goenaga, R., M. Guiltinan, S. Maximova, E. Seguine, and H. Irizarry. 2015. Yield Performance and Bean Quality Traits of Cocoa Propagated by Grafting and Somatic Embryo-derived Cuttings. HortScience (3):358–362. 53 Ameyaw, G., H.K. Dzahini-Obiatey, and Owusu Domfeh. 2014. Perspectives on cocoa swollen shoot virus disease (CSSVD) management in Ghana, Journal of Crop Protection, November 2014, Vol. 65, pp. 64-70 54 WAC. 2022. Minimizing the Risk of Spreading Cocao Swollen Shoot Virus Disease. World Agroforesty Center. 55 World Bank. 2023. Sierra Leone: Pathways to a Transformation of the Agri-Food Sector SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 53 Horticulture yields are more difficult to compare as the range of possible crops is wide. Average yields of both vegetables (4 mt/ha) and fruits (5.3 mt/ha) are not significantly different from those in Nigeria, Liberia, Guinea, and Uganda but are very low relative to those in Ghana, Kenya, and countries in Asia and Latin America (Figure 39). These low yields reflect the fact that Sierra Leone has yet to experience a major business-led demand-driven investment in the horticulture value chain.56 The value chain is at a rudimentary state of development, with very few Figurebetween linkages 40: actors, high risks, limited diversification of products, and an overall low level of sophistication.57 [B] [A]AND FRUIT YIELDS IN SIERRA LEONE AND SELECTED FIGURE 39: FRESH VEGETABLE COUNTRIES Fresh Vegetables Yields - 2020 (mt/ha) Fruits Yields - 2020 (mt/ha) A . FR E S H VE G ETABLE S YI ELD S B . F RU ITS Y IE L D S 2020 (M T /H A) 2 0 2 0 ( MT / H A ) 35 35 30 30 25 25 Yield (mt/ha) Yield (mt/ha) 20 20 15 15 10 10 5 5 0 0 El un o Sa isia Ke r Vi nya a Gh ru ai a Ug nd Li in Si Ni ria Le a Gu ne ea El P a Sa eru Vi dor G m or a Be o ai n Tu nd Le ia Li ne Gu ria Ug nea da M gua at am Be a Ke a ca na Si Nig ia do al Th an ra ri ny M gu al d Th ini T cc c er er in s na Pe oc be er ge be in an Ni ha o o la la an ni em em Gu etn va va o i ra a et or ar at a ic Gu N Source: FAOSTAT Levels and Distributions of Net Returns Source: FAOSTAT The three value chains generate positive net returns for farmers, with implications for equality of access to safe, nutritious and affordable diets. (Figure 40, panel A). The distribution of returns within the three value chains differs, reflecting: (i) for rice: high transport costs and spoilage rates for farmers and traders, and intense competition among retailers; (ii) for cocoa: inadequate farmer organization and high farm-to-market transport costs; and (iii) for horticulture: high commodity value at farm gate, but high risk and spoilage in the retail segment (Figure 40, panel B).58 Net returns are highest for horticulture, but also more uncertain due to greater vulnerability to a wider range risks (e.g., pests and diseases). Cocoa’s relatively high returns are especially important given major opportunities in export markets. Rice has the lowest net returns. 56 Low investment levels, lack of required policies and institutions, and other factors have constrained growth in horticulture subsector. The World Bank value chain study mentioned in footnote 51 goes into more depth. 57 Ibid 58 Ibid 54 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security Figure 41: Representative farmer profitability and distribution of value chain returns for rice, cocoa, and horticulture in Sierra Leone FIGURE 40: REPRESENTATIVE FARMER [A] PROFITABILITY AND DISTRIBUTION OF VALUE[B] CHAIN RETURNS FOR RICE, COCOA, AND HORTICULTURE IN SIERRA LEONE Representative farm-level net returns for rice, Representative shares of returns across the rice, cocoa, A. R EPR cocoa, E S EN TAT I V and horticulture inE M -LE VE FAR Leone, Sierra L NET 2022 B . and R E horticulture P R E SE N TAT IV value E SH chains ASierra in R E S Leone, O F 2022 RE T UR N S FOR R I C E , C OC OA , A N D RE T U R N S AC R O SS T H E R IC E , C O C OA , HORT I C ULTUR E I N S I ER R A LEON E, 2 0 2 2 A N D H O RT IC U LT U RE VA LU E C H A IN S IN SIE RR A L E O N E , 2 0 2 2 35.00 29.6 Farm-level net returns per ha (%) 100% 30.00 7% 90% 21% 25.00 80% 36% 70% 46% 20.00 18.1 60% 49% 16% 15.00 50% 12.33 40% 10.00 30% 48% 49% 20% 5.00 30% 10% 0.00 0% Rice Cacao Horticulture Rice Cacao Horticulture Farmers Marketers Final Sellers Source: Based on data in World Bank. 2023. Sierra Leone: Pathways to a Transformation of the Agri-Food Sector Recommendations to Strengthen the Agri Food sector to boost Food Security Food insecurity is widespread and growing in Sierra Leone. Structural weaknesses of the food system as well as global shocks have negatively impacted the livelihoods and incomes of farmers and exacerbated food security risks. To mitigate these challenges, the priority areas for attention include (i) prioritizing safety net measures, including support through food and emergency aid to enhance short-term food availability and access for the most food- insecure and vulnerable households (particularly women and children), and at the same time (ii), continuing to address structural challenges to improve agriculture productivity and competitiveness and enhance the livelihoods of smallholder farmers. Sierra Leone’s agricultural policy has long harbored the twin objectives of export promotion and rice self- sufficiency – and recent policy shifts can bring about greater gains in productivity. Historically, Sierra Leone has had a two-track approach to agricultural development: (i) investing in export-oriented cash crops (cocoa, coffee, ginger, and palm oil) to generate foreign exchange; and (ii) investing in the production and marketing of rice, aiming to boost food security through rice self-sufficiency. However, the agrifood sector has yet to register a broad-based takeoff in productivity and incomes. The recently developed “Enhancing Private Sector Participation in Agriculture” scheme, commonly known as the “MAF Policy Shift”, captures the urgent need for reform and increased private participation in the sector. Not only does the MAF Policy Shift feature a major scaling back of direct public spending on agriculture (especially subsidies)59 alongside an expanded role for the private sector, but it also includes new requirements in policy and program coherence and coordination. Meanwhile, uncertainty in global food markets suggests continued motivations to retain rice self-sufficiency as a policy goal. As the MAF Policy Shift unfolds, the challenge is to reconcile this long-standing objective with others that are vital to agrifood sector performance, and thereby to food security, growth, and poverty reduction. There is a tradeoff between food security and efficiency objectives. 59 Input subsidies went from SLL 31 bill in 2014 to SLL 78 bill in 2017 but dropped to 10.2 bill in 2018 and 12.6 bill in 2019. World Bank. Sierra Leone: Review of Public Policies and Expenditure Programs in the Agriculture Sector. 2022 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 55 The country annually imports about US$500 million » Harvest and post-harvest management centering worth of a wide range of agricultural produce while on the role of the private sector, especially in exporting just US$120 million worth of a small transport, storage, processing, and contract number of goods (total exports including agricultural farming. These demand-pull factors along with produce). With continued rapid urbanization, ever major improvements in rural infrastructure are greater shares of food consumption will be sourced central complements to supply-side interventions in from urban markets. Whether these urban markets are varietal development and release, input provision, supplied by domestic farmers or imports is a major food mechanization, and extension, aiming to limit security policy issue. Based on the experience of the physical defects, spoilage, and contamination. last 15 years, the reality is that both will be needed, » Output distribution and marketing revolving and policy efforts should balance both the needs around effective logistics and supply chain to boost domestic production, streamline domestic management, focusing on the highly constrained markets and supply chains, but also to facilitate imports. small-scale famers and traders who dominate Furthermore, even some domestic farmers will continue Sierra Leone’s value chains but face international to supplement their own production with imported food. competition. Deliberate action across public and The overall recommendation is therefore for focused private domains is required to boost the physical, geographic and thematic investments that boost organizational, financial, and technical capacities both productivity and purchasing power through: (i) currently lacking for small-scale actors. competitive local production; and (ii) export promotion and diversification. In the face of high and increasingly volatile prices in Trends and conditions in the rice, cocoa, and global markets, rice self-sufficiency may seem like an horticulture value chains help clarify strategic obvious policy objective, but reality is more complex. opportunities and the related policy and investment Experience from Asia indicates that rice self-sufficiency requirements. As detailed in the World Bank’s recently is technically feasible, through trade barriers and completed value chain report (Sierra Leone: Pathways domestic price controls backed by food reserve stock to a Transformation of the Agri-Food Sector), the management. However, its achievement is costly, both strategic opportunity for rice and other imported fiscally and in forgone economic opportunities and only staples is competitive local production. For cocoa and to the extent that competitiveness can be achieved in other valuable exports (e.g., coffee and cashew nuts), a short amount of time (a critical condition that is far competitive export promotion and diversification is from obvious).60 Meanwhile, the final price of rice in the the aim. For Sierra Leone’s wide range of horticulture domestic market is a potent policy and political issue, products, both competitive local production and subject to the so-called “food price dilemma.” Producers competitive export promotion and diversification are – most of whom are poor – want protection and higher relevant (see the Annex for detailed recommendations). prices; consumers – also largely poor and including For all three classes of commodities, key strategic areas most rice producers – want access to imports to lower for policy and investment include: food prices.61 These pressures persist. Attempts to shift this cost to consumers by raising rice prices increases » Inputs, mechanization, and advisory services poverty. featuring development and dissemination of new varieties with higher yield potential and climate- resilience, improved crop and natural resource management, improved management of pests and diseases, expanded irrigation, and introduction of mechanical techniques that are compatible 60 C. Peter Timmer, The Changing Role of Rice in Asia’s Food Security. ADB with local agronomic, socioeconomic (especially Sustainable Development Working Paper Series, No. 15, September 2010. https://www.adb.org/sites/default/files/publication/28552/adb- financial), environmental, and institutional wp15-rice-food-security.pdf conditions. 61 Kagbo, R. B. 2022. Review of the Rice Value Chain in Sierra Leone. Report prepared for the International Finance Corporation. 56 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security If greater rice self-sufficiency is to be pursued, it must extension systems) and reducing non-competitive be driven by rapid and broad-based productivity elements in rice importation are more efficient and growth in the rice value chain to boost its underlying effective in reducing food insecurity over the long run. competitiveness and climate resilience. Subsidy-based Sierra Leone must strike a balance that prioritizes rapid support for both rice producers and rice consumers is and sustained productivity growth, focusing on small- costly and unsustainable, leaving little space to address scale farmers and traders. For these small-scale farmers other objectives. And thus, policies and investments and traders, profitable diversification of the agrifood to increase farm productivity and marketing efficiency system beyond rice is vital. in other value chains have not been sustained. The traditional rice value chain may be sufficiently profitable In Sierra Leone’s small open economy, macroeconomic to service its huge but low-quality, low-margin segment stability built on fiscal and monetary discipline of the value chain, but it cannot compete in the more is essential to both food security in the short- to lucrative high-value import-dependent segment without medium-term and growth and poverty reduction significant investment in production and processing over the long-term. Without a stable macroeconomic capacity.62 Domestic production largely meets rural environment reflected in a stable real exchange rate consumption needs, while imports serve Freetown and a low rate of inflation, vital investments to enhance and the nearby hinterland. Transport costs reduce the productivity through increases in physical and human competitiveness of domestic production in Freetown capital will not be forthcoming. Nor will the vibrant but also make imports less competitive in rural areas. demand and expanded employment opportunities and The dual system likely will persist into the medium term. livelihood options that underpin and sustain a dynamic With focused geographic and thematic investments market-driven rural economy and thereby spur broader that boost productivity and underlying competitiveness structural transformation. The importance of this aspect of the domestic supplies, the balance could eventually of the food security policy agenda cannot be overstated. shift. Meanwhile, the role of rice imports in promoting food security and overall stability cannot be ignored, Sierra Leone’s fiscal constraints imply limited scope pointing to the need to ensure sustained capacity to for public financing of market-oriented food security- finance imports. enhancing investments; the private sector must be supported and empowered to undertake the Several other factors matter for boosting food required investments in Sierra Leone’s agricultural security that have not been explored in this chapter sector. Missing, ambiguous, flawed, excessive, or but require closer analysis, such as targeted resource poorly implemented policies and regulations that transfers and price subsidies. The purchasing power raise risks and impede private investment in rural and and food security of vulnerable groups can be protected urban agribusinesses must be identified, assessed, through targeted resource transfers. Price subsidies and and prioritized for removal or adjustment. The stability resource transfers (in-kind or cash-based) that merely and predictability of agrifood policies and programmes shift income from one group in society to another do not must also be significantly enhanced. Coordination and lead to structural transformation. They may, however, coherence between agriculture, trade, and exchange be needed to protect the nutrition of vulnerable groups rate policies must be strengthened. (e.g., pregnant and lactating women, young children, and elderly and disabled people). Given the scale of needs alongside Sierra Leone’s acute fiscal constraints, focusing narrowly on protecting these nutritionally vulnerable groups may be the only viable transfer- based intervention. But measures to address structural impediments to productivity growth (e.g., rehabilitating irrigation infrastructure and revitalizing research, 62 World Bank. 2023. Sierra Leone: Pathways to a Transformation of the Agri-Food Sector. SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 57 Conclusions Food insecurity and hunger are on the march again in Sierra Leone; the policy and investment response must be commensurately large and urgent. The negative impacts on growth and poverty reduction are potentially immense. There is an urgent need to meet immediate and short-term consumption needs of vulnerable groups and simultaneously address underlying drivers of household vulnerability to food insecurity. It is vital to support food production broadly – through on and off-farm interventions to boost productivity, market access, and ultimately farmer and other value chain actors’ profitability – in the coming cropping seasons to improve food availability, while also promoting export crops to enhance food access, by generating much needed additional incomes. The rapidly escalating food and nutrition security crisis in Sierra Leone is driven to a large part by food access. The recent riots of August 2022 are exemplary of the critical importance of food access as high food price inflation has substantially outpaced non-food inflation and has prevented affected families, particularly the poorest, from meeting their basic food intake needs. While bolstering agricultural livelihoods and productive capacities, it is necessary to strengthen access to food. For instance, growing the country’s horticulture value chains can and should be accompanied by improved access to domestic and export markets, and enabling connections with school feeding programs. This could result in triple wins, namely: (i) increasing food availability through domestic production; (ii) improving access to food through increased incomes and purchasing power of farmers; (iii) enhancing food utilization by increasing access to fruits and vegetables which helps to combat malnutrition among children – the most vulnerable population. In a largely agricultural economy like Sierra Leone’s featuring limited structural transformation, food security is a determinant and reflection of rapid growth in the macro economy, of poverty reduction through rural economic growth, and of stability of the agrifood system. In principle, there would appear to be considerable overlap and complementarity between policies and investments to boost food security and those intended to spur growth and poverty reduction. But such overlap and complementarity are not automatic. Food security policy is equivalent to growth and poverty reduction policy only to the extent that it addresses structural impediments to agricultural productivity growth and competitiveness. And growth and poverty reduction policy in Sierra Leone is contiguous with food security policy only insofar as it improves the performance of the country’s food system. 58 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security ANNEX: RECOMMENDATIONS FOR STRENGTHENING VALUE CHAINS (SOURCE: SIERRA LEONE: PATHWAYS TO A TRANSFORMATION OF THE AGRI-FOOD SECTOR. WORLD BANK 2023 ) TEMPORAL PRIORITIZATION* WHO DOES WHAT? Recommendation Short Medium Long Public Sector Private Sector Term Term Term Rice Modernization of the seed Investments 1. system featuring public- ● and Institutional Investments private partnerships (SP1) Strengthening Strengthening irrigation and 2. water resource management ● Investments Investments in targeted regions. Enable and incentivize privatization Incentives and 3. ● Investments of mechanization (SP1) Regulations Support for expanded modern 4. ● Incentives Investments contract farming arrangements (SP2) Support for institutional Investments 5. food procurement from ● and Institutional local producers (SP3) Strengthening Incentivize importers to participate in 6. ● Incentives Investments the domestic rice value chain. (SP3) Cocoa Introduction of climate- Investments and 7. ● Investments resilient technologies (SP1) knowledge Rehabilitation of overage and 8. ● Investments disease-infested plantations (SP1) Investments, Support for cocoa research and Institutional Investments and 9. ● seedling commercialization (SP1) Strengthening, Knowledge and knowledge Support for increased traceability, Investments, Investments, compliance with international 10. ● Incentives and Technology, standards, and certification Regulations Knowledge for niche market (SP1) 11. Strengthen rural infrastructure (SP1) ● Investments Increase access to credit Incentives and 12. ● Investments for cocoa farmers (SP1) Regulations Develop a strategy and support implementation to access/expand 13. access the domestic and the Africa ● Knowledge Continental Free Trade Agreement (AfCFTA) market opportunities (SP2) Support for private investment 14. in innovative processing ● Investments technologies (SP2) Institutional Strengthen Institutions for Cocoa 15. ● Strengthening Policy Implementation (SP3) and Regulations SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 59 TEMPORAL PRIORITIZATION* WHO DOES WHAT? Recommendation Short Medium Long Public Sector Private Sector Term Term Term Horticulture Develop a long-term national horticulture strategy for 16. ● Knowledge competitive export promotion and diversification z(SP1) Support for irrigation and related 17. ● Investments Investments modern production infrastructure (SP1) Promotion of climate smart production Investments and 18. practices aiming to meet minimum ● Investments Knowledge global quality standards (SP1) Support for marketing 19. ● Investments Investments cooperatives (SP2) Support high-value horticulture domestic and regional market Incentives and 20. development, leveraging ● Investments Regulations demand from the hospitality and tourism industries (SP2) Facilitating learning from more 21. advanced countries about horticulture ● Knowledge export promotion pathways (SP3) Launching of a local horticulture Investments, knowledge management Institutional 22. ● Investments platform, including market Strengthening, intelligence services. (SP3) and Incentives Expected impact: ● Major ● Moderate ● Limited. In approximate terms, short term is within the next 2 years, medium term is within the next 4 years, and long term is within the next 7 years. SP denotes strategic priority. 60 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security 61 62 SIERRA LEONE Economic Update | Enhancing Value Chains to Boost Food Security