S/Leone: The Covid-19 Impact on the Economy

S/Leone: The Covid-19 Impact on the Economy

Thursday, September 17, 2020 3:38 pm

Rice cultivation

The hideous tour of COVID-19 of many countries of the world has adverse impacts on different economic sectors of Sierra Leone

The COVID- 19 pandemic crashed world economies, similar to other previous disasters like the Asian flu of 1918, the first and second world wars of 1914 and 1935, the world economic depression of the 1930’s and quite recently, the 2008 global economic recession.
Sierra Leone was on a recovery growth trajectory of 5.4 percent, driven mainly by agriculture and services, when COVID-19 struck. Before the outbreak of COVID-19, Sierra Leone economic prospects for the medium were very promising. The economy was projected by the IMF to grow by an average of 4.5 per cent over the medium term (2020-2022). Agriculture and services were expected to be the primary drivers of growth. Inflation was also projected to moderate in 2020 and 2021 and to return to single digits by 2022. Domestic revenues were projected to increase to further to 14.8 percent. Government expenditures will be kept at an average of 22 percent of GDP in order to bring the budget deficit to below 3.0 percent of GDP. Exports were also projected to increase by 28 percent in 2020 on the expectation of the re-opening of the Tonkolili iron ore mines by the Chinese company, Kingho, who took over from another Chinese Company, Shandong Iron and Steel.
As part of efforts to contain the spread of the disease, the Government of Sierra Leone, like other nations, adopted several containment measures including suspension of flights, closure of borders, restrictions on inter-district movements, partial lock-downs, night curfews, ban on gatherings, closure of schools, mosques and churches.  While these measures were meant to save lives, they are having unintended adverse consequences on livelihoods.
The COVID-19 containment measures adopted by Government like other countries adversely affected activities in key sectors, thereby weakening growth prospects for 2020. The impacts of COVID-19 is felt virtually in all sectors of life including households, businesses, educational institutions, hospitality, entertainment, recreational amenities, public and private sector engagements, as well as sporting activities. The IMF and the Sierra Leonean authorities projected that the economy may contract by 3.1 percent in 2020.

The Agriculture is being negatively affected by the measures adopted to contain the spread of COVID-‘In particular, social distancing, restrictions on inter-district movements and partial lockdowns may adversely affect activities in the agriculture sector, given the labour-intensive nature of local farming practices. The inherent bad feeder roads due to the long history of infrastructure deficits in the country also impeded the movement of agricultural goods during the COVID containment period. However, with the lifting of the inter-district lockdown in June 2020, relative normalcy has returned to this sector, with Sierra Leone Roads Authority SLRA embarking in upgrading major feeder roads across the country. The Ministry of Agriculture has also been supporting farmers with improved seeds, fertilizers and tract‘ors for land preparation.

The disruptions in FDI inflows into the mining sector by COVID-19 is also delaying the resumption of iron ore mining in both Tonkolili and Marampa and commencement of bauxite mining in Port Loko. The cancellation of flights also made it difficult for diamond mining companies and dealers to ship out diamonds for sale overseas.

Industrial mining

Artisanal mining

Industrial mining

The disruptions in global supply chains continue to make it difficult for manufacturing companies to receive supplies of raw materials and intermediate goods. This is resulting in lower manufacturing output.

Garment factory

Tourism and Hospitality Sector
The Services sector, the second largest sector of the Sierra Leone economy has been the hardest hit. In particular, trade and tourism have been affected most severely. The COVID-19 containment measures, including travel restrictions, flight cancellations and quarantine measures, reduced tourist arrivals and hotel occupancy levels to almost zero.

Atlantic Beach

The tourism and hospitality sectors employ about 30 percent of the country’s population as the country’s topography is surrounded by the Atlantic Ocean, with breath-taking views, white-sand beaches, marvelous hotels and wild life sanctuaries, putting the country on the spotlight as a tourist destination. With the closure of airports worldwide, along with hotels and restaurants, this sector is currently receiving bailouts from the Government. Recently, Government gave out Le 4.8 Billion to this sector as palliative for salaries for 3 months for workers and over head costs. However, the Lungi International Airport has commenced commercial flights on the 22nd July amidst stringent protocols and advisories issued by the National COVID-19 Emergency Response Centre (NACOVERC).
Impact of COVID-19 on Domestic Revenue Mobilisation
•  The Commissioner-General of the National Revenue Authority (NRA), Dr. Samuel Jibao, a renowned Tax Economist and his team who have done extremely well in collecting revenues since mid-2018 disclosed that the COVID-19 containment measures and the related contraction in economic activities is negatively affecting domestic revenue collection. The Commissioner-General disclosed domestic revenue collection was negatively affected by COVID-19 in the second Quarter (April to June) of the year. Domestic revenue collected in the second Quarter amounting to Le1.28 trillion (US$128 million) was 22 percent lower than the target for the Quarter. It was 11 percent lower than the amount collected during the same period in 2018 and 11.3 percent lower than the amount collected in the first Quarter of the year.

President Julius Maada Bio, in the middle; Minister of Finance, JJ Saffa, right and Minister of Tourism, Maimunatu Pratt, left  presenting the  Net Cash support of Le 4.8 Billion to Tourism and Hospitality workers

The NRA, however, missed the revised half-year COVID-19 revenue target by a mere 1 percent mainly due to the two partial lockdown to stem the transmission of COVID-19. The amount collected during Quarter 2 of 2020 translates into daily average collection of Le22.2 billion in the midst of COVID-19 restrictions is laudable and the NRA deserves commendation. Some of the reasons for the weak revenue performance especially during the second Quarter of the year include, among others, weak tax compliance. For example, only 85 out of 184 large tax payers filed their 5th instalment by end of 30th April. Likewise, out of 838 Medium Tax Payers expected to file their 5th Installment, less than 300 did, and with only 90 of them making a positive declaration of their 5th installment. Further, as many as 28 taxpayers have either closed their business or applied for suspension or cancellation of their income taxes.

CG NRA Dr Samuel Jibao

National Dance Troop

• Mining sector revenue: Mining royalties and licenses marginally increased by 2% for the first half of 2020 compared to same period in 2019. However, mining revenue dropped by 49% in Q2,2020 compared to Q2, 2019.
In a bid to support taxpayers and importers in order to enable them to continue their operations, the NRA worked with MOF to develop procedures for tax deferment: These include:
• Allowing importers of essential commodities to utilise the customs warehouse suspense regime. The usual stringent requirement for a commercial bank bond was also relaxed allowing beneficiaries to use the insurance bonds, and the usual application fees waived by the Commissioner General.

• Provision of income tax reliefs/concessions in the form of tax deferrals for an initial period of three months – most affected sectors of the hospitality and aviation industries.

• These income tax reliefs were also extended to businesses whose products do not have a readily available market domestically and whose key customers and partners are currently out of business or closed both locally and internationally, as well as local and international NGOs whose sources of funds have been suspended or terminated due to COVID-19.

•   Deferred import GST payments amounted to Le11.3 bn. Deferred import duties amounted to Le28.0 billion and deferred income taxes for hotels alone amounted Le4.5 billion and for mining companies, Le15 billion. .7bn Delayed royalties and licences from mining sector is $1.64 million

Effect on Tax Administration Reforms
The spread of COVID-19 has also delayed the implementation of tax administration reforms including the automation of tax processes. The implementation of the Integrated Tax Administration System (ITAS) has been delayed to end of the year as the vendors had to leave the country. There is also delay in the introduction of the Electronic Cash Registers for the electronic administration of GST. Several capacity building programmes supported by DfID and the African Development Bank have also been delayed.

NRA’s Business Continuity Programme (BCP): In a bid to conform with government regulations on COVID-19 pandemic whilst continuing with the business of tax administration, the NRA Developed a BCP for the first time. The purpose of the BCP is to develop and communicate to the public and our taxpayers how we will continue to do our tax administration business as well as the changes in the way we do our tax administration amid the restrictions of COVID-19

The BCP covers:
• Establishing dedicated email addresses to receive taxpayers’ returns
• Drop boxes for depositing of tax returns for taxpayers with no emails
• Relevant forms have been made available for download on the NRA’s website,
• NRA staff communicate with taxpayers regarding deadlines, assessment notices and other information via text message and email.
• Call centre for lodging of complains and seeking clarification
• Focus on desk audit
• Focus on desk research and data analytics
• Online planning meetings and trainings

• CG NRA Dr Samuel Jibao

•  Atlantic Beach

•  President Julius Maada Bio, in the middle; Minister of Finance, JJ Saffa, right and Minister of Tourism, Maimunatu Pratt, left  presenting the  Net Cash support of Le 4.8 Billion to Tourism and Hospitality workers

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