Fitch Solutions has revised Sierra Leone’s real GDP growth upwards from 3.7 percent to 4.8 percent, buoyed by the more bullish view on the country’s key iron ore industry.
Fitch Solutions’ forecasters project that Sierra Leone’s iron ore production will grow by 850.0% year-on-year in 2021, up from the previous projection of 300.0%.
This is due to the commencement of full-scale operations in the Tonkolili iron ore mine. This follows an agreement between China’s Kingho Mining Company and the Sierra Leonean government for Kingho to operate and take over the mine.
Additionally, Fitch Solutions forecast that iron ore prices will increase from US$105.0/tonne in 2020 to USD160.0/tonne in 2021 (up from a previous projection of USD120.0/tonne). The forecasters accentuate that the strong demand from the Chinese steel industry and lagging supply growth will put upward pressure on prices.
Following the increased profitability in the iron ore industry, it is expected that investment in the industry will also recover. This, combined with the US$ 50.0 million grant from the International Development Association (IDA) will improve businesses’ productivity and profitability. Also, encouraging more capital formation in the country in 2021.
As a consequence, Fitch Solutions expect that capital formation will grow by 4.0%, adding 0.4pp to GDP growth. While the contribution of capital formation to GDP will be positive, it will be the lowest out of all of the GDP components. It will also be smaller than its average contribution of 1.7pp over 2007-2017.
Meanwhile, Fitch Solutions believe that as the government continues to respond to the health and economic impacts of the Covid-19, expenditure levels will remain above 2019 levels. And as such, government consumption will grow by 4.0% in real terms, contributing 1.0pp to GDP, Fitch solutions asserts.
Downside risks to delay real GDP growth
However, economic recovery is likely to be delayed earlier this year. This is due to the impact of the imposed lockdown measures in Freetown, the nation’s capital, and its accompanying restrictions. Also, the slowdown in the administration of COVID-19 vaccines will keep risks of further restrictions and lockdown measures elevated, hampering private consumption.
Fitch Solutions forecasters indicate that the economy will grow by 6.9% in 2022. They expect that consumer and business activity will improve. Considering that the government’s Covid-19 vaccination programme progresses to cover the bulk of the vulnerable adult population.
In addition, the research firm believes that there will be a further uptick in demand for Sierra Leone’s exports. This is based on the receding of the global impact of the pandemic. The forecasters project that net exports will add 2.3pp to headline growth.
However, Fitch Solutions forecast that it appears that risks to the forecasts are tilted towards the downside. Risks of extreme weather events in the form of flooding and drought could destroy food crops and limit activity in the agricultural sector.
As a result, this makes up over 50.0% of GDP. Additionally, reduced availability of food could lead to higher food inflation at 9.0% in March 2021, based on available data. Thus, it puts further constraints on household consumption.
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