A Closer Look: Post-Brexit Concerns in Sierra Leone

Mathew Sand, a financial sector management professional with senior experience working at IMF, the World Bank and the government of Sierra Leone offers his thoughts on how Brexit could Sierra Leone. Sand is also an OnFrontiers Expert. 

Constantly striving to source the most detailed and accurate information possible, OnFrontiers continues to cover Brexit as possible effects on emerging markets develop.

The impact of Brexit on Sierra Leone is not yet apparent, but it has introduced a degree of economic uncertainty that could affect the prospects in the medium term. While the short-term outlook remains unaffected at the moment, the medium-term outlook could be affected in various ways including a decline in future budget support for government projects and programs, slowed rates of investment and trade with the EU and UK, volatility of exchange earnings, and a decline in migrant remittances.

While the EU is anticipated to maintain its short-term budget support commitment to Sierra Leone, future budget support could be affected by Brexit. When Britain eventually leaves the EU, Sierra Leone’s advocacy base at the EU could weaken due to the absence of its former colonial master. Therefore, Brexit would shrink the leverage of support that Sierra Leone has at the EU, especially upon the end of current support provided to Sierra Leone by the European Development Fund (EDF). The ongoing EDF support from the EU is among the largest budget aid packages to Sierra Leone, estimated at about €266.2 million (about US$300 million). Furthermore, almost all major intercity road and bridge construction projects have been funded by the EU. In addition, as part of the EDF, the EU provides a significant amount of direct budget support to Sierra Leone using the multi-donor budget support framework. If this assistance declines at the end of the current period of EDF allocations, it would have a significant fiscal impact on Sierra Leone which would then generate future pressures on budget implementation, as well as pose socioeconomic challenges.

The economic uncertainty posed by Brexit could also affect the flow of foreign direct investment (FDI) and international trade among Sierra Leone, the EU, and the UK. The EU has been helping Sierra Leone to meet EU standards for various exports, including high-quality marine products like fish, lobster, and shrimp. These exports are estimated to be valued at over US$100 million annually.  It is uncertain whether or not EU guidance and political support would continue after the UK’s exit from the organization. This is to say that the progress that Sierra Leone has made towards EU certification standards may not bear the country’s desired result. Adding to the delicacy of the situation is the fact that neighboring countries like Senegal and Côte D’Ivoire are already accessing the international fisheries market.

The EU and Britain are Sierra Leone’s two largest trading partners, excluding China which has been importing iron ore from the African country since 2011. A depreciation of the British pound would make Sierra Leone’s exports to the UK more expensive and affect overall competitiveness. This comes as Sierra Leone continues to struggle with a worsening exchange rate of the domestic currency which has depreciated by over 30% since the twin shocks of the iron ore price collapse and the outbreak of the Ebola virus in 2014. Additionally, the capital that used to flow from the UK and the EU for investment in Sierra Leone’s mining sector may not be forthcoming if Brexit continues to weaken the UK and EU’s economic activities. This poses challenges for the iron ore sector, and thus also affects Sierra Leone’s relationship with China, especially if international prices of metals and other precious minerals (diamonds, gold) are affected by reduced economic growth in Europe. In sum, the attendant decline in aggregate demand for Sierra Leone’s mineral exports abroad would cause foreign exchange earnings to decline further, exacerbating the exchange rate pressures facing the country.

Beyond the aforementioned challenges, migrant remittances from the UK and EU to Sierra Leone might decline because of Brexit. There is a significant number of Sierra Leoneans who are residents of the two regions. The slowdown of economic activities in these regions would lower the earnings of Sierra Leonean workers, in turn affecting migrant remittances.
Given the above challenges facing Sierra Leone and other economies posed by Brexit, there is the urgent need for an unveiling of the full Brexit package by British and EU authorities. Full disclosure of the complete Brexit plan of action would go a long way to tame the worldwide uncertainties it has created. This considered, it would be necessary for the Brexit plan of action to include a navigation guide for all affected countries (advanced economies, emerging markets, middle and low-income countries, and countries affected by fragile situations) to help mitigate potential risks and to assist in mapping a clear strategy for moving forward.

Previous blog on post-Brexit concerns in emerging markets.

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