The author of the Bottom Billion, Oxford Professor of Economics and Director of the Centre for the Study of African Economies Paul Collier has said in Freetown that “If you use all the natural resources revenue just for consumption then you are plundering your kids future.”
Prof. Collier who is visiting Sierra Leone has done extensive work on the economies of post conflict African countries. He was asked what was it that Rwanda was doing right that Sierra Leone is not getting at all?
Answering Prof. Collier observed that Rwanda does not have much in resources like Sierra Leone and that they were land locked (or double landlocked), whereas Sierra Leone is on the West Coast and has a much better access to markets. Key to Rwanda’s remarkable recovery Prof. Collier said was the fact that their conflict was very short, and before the conflict they had a very competent civil service (otherwise the genocide would not have been carried out so quickly and efficiently). On the contrary Sierra Leone’s civil service is decayed and we had a very long conflict. However he said “the opportunity is there to sustain very fast growth”
Sierra Leone he said could transform itself if we are able to harness our resources because we have the basic characteristics. Not every country the Oxford scholar pointed out has been able to properly harness their resources and Nigeria was an example, although he cited Botswana as an example of a country which has been able to harness its resources well though landlocked country, and which has the fastest growth rate in the world such that it is no longer a least developed country but a developing country.
Paul Collier outlined four steps which he said if Sierra Leone gets them right then we would be able to transform.
Step 1 he said is that we need to discover the natural resources. The good news here he said is there is far more underneath the ground than we have discovered and it could be 5 or 6 times more. The fact that so little has been discovered he said tells you something is going wrong. Therefore he said we need to do quite a lot of geological exploration because companies will be willing to pay more if the geological information is available.
Step 2 he said is to capture the revenues for the public – the people. Historically he noted it has gone badly wrong because much of the natural resources of Sierra Leone is being captured by foreigners and crooks. Prof. Collier noted that we are not attracting good extractive players (the serious ones) and that there are too many cowboys so we need a better class of companies.
Step 3 he said is a lot of the revenue (money) captured from the resources has to go into investment, because the revenue is coming from depleting natural assets and we need to replenish that by building up real assets. Nigeria he noted has plundered its future total wealth adding that if you include natural assets the total wealth of Nigeria has been halved in the last 30 years, therefore Sierra Leone needs to have a big investment program. “If we use all your natural resources revenue just for consumption then you are plundering your kids future” he warned.
Step 4 he said, the investments need to have good returns – productive capital, and it has got to be selectively implemented. The Oxford Economics Professor warned that if any one of the 4 steps breakdown then the transformation does not happen, but if all 4 steps can be held up then within 20 years time we would be able to transform in 20 years time. He quipped that in the early 1960s South Korea was poorer than Sierra Leone. This is the opportunity that this government has he said stating that not everyone who has the opportunity to transform a country for the kids can do it in 20 years. Another important feature that needs to be encompassed Prof. Collier said is we need to have auctions instead of negotiations over a beer. In negotiations he pointed out the companies tend to win by hook or by crook. If three or four good companies are bidding against each other they have no choice but to pay fair value. Then we need to compliment the auction process by the tax system – we should tax stuff which is observable example royalties can vary with the world prices and we can build in any contingencies like for example when the world price goes up for the natural resource the royalties go up and when the world price comes down the royalties also comes down. He noted that presently there are lots of uncertainty and lots of negotiations which the companies tend to win.
In managing the revenue from the natural resources the Oxford scholar warned against too much spending on consumption than investment. For Sierra Leone to transform he noted we need a radically high investment policy. China he pointed out is investing up to 40% of its GDP. On average in Africa the investment rate is 20%. Sierra Leone is obviously lower but if we can invest 30% of our GDP that can sustain rapid growth and get a good return on the investment.
Coupled with all these he said we need to build capacity – to be able to select projects and implement them, therefore Sierra Leoneans with the skills have to be groomed and the organizational structures with the proper chains of decision need to be established. It is not enough he said to say that we can learn from others – we need to do it as a society and it has to kept going right for two decades. He maintained that this does not mean getting one good finance minister “it is not a matter of one or two guys it is getting it right. It has to be a distinct agenda not what others have done.”
Lastly Prof. Collier pointed out all of this will only work “If we have an informed society … Malaysia, Botswana all have an informed society” and it is working there because an informed society “will hold them (politicians) responsible and keep all the links (steps) working.”
The Rwandan leadership he said knew that it had a horrendous task i.e “they have an exile army so they realized their only hope is to build a strong economy fast otherwise they are all dead, and that sense of just one chance is the discipline. That same psychology is true of Singapore when it was thrown out of Malaysia and also South Korea. That sense of just one chance – landlocked – high population density in Africa and they are running out of land so where do they go – so the sheer situation drove them to taking the tough decisions – they are thinking long term – they can’t do industry so they are trying to build an E-service economy and it may take 20 years.”
Prof. Collier is in town to co-edit a book on economic policy choices in Sierra Leone which will cover a number of issues. There will be a couple of in country contributors and he hopes to co-author the book with former Central Bank Governor now Finance Minister Dr Samura Kamara. Presently he disclosed that he has already done one such book on Nigeria with the Governor of the Central Bank and leaving Sierra Leone he will head to Zambia and Kenya to do the same thing, because “each society is different with distinctive characteristics.” Prof. Paul Collier said he was “very keen on African Central Banks becoming voices of trusted authority on a range of issues.” Economic transformation of African countries “should not work by talking to someone like me (Paul Collier) or reading what the IMF has written but from within a trusted national institution” he said.