Sierra Leone: Leveraging SME Finance as an Engine for Economic Growth and Job Creation

Download logo

The new economic update for Sierra Leone indicates that the economy grew by 3.1% in 2021, after shrinking by 2.0% in 2020. Agriculture contributed nearly half of total growth in 2021; The analysis offers several recommendations, including the need to develop a coordinated national approach to expanding access to finance for SMEs; The report also outlines several reform priorities for the government to consider, including prudent fiscal management to balance emerging spending needs and limited fiscal space.

Small and medium-sized enterprises (SMEs) are key to achieving economic diversification goals, including expanding Sierra Leone’s agriculture-based economy into sectors such as tourism and fisheries, according to a new report. World Bank economic analysis for Sierra Leone.

Sierra Leone Economic Update 2022, Leveraging SME finance and digitalization for inclusive growth, notes that the government’s sector reform program should focus on measures to urgently develop adequate financial services that meet the specific needs and financing requirements of SMEs to achieve economic growth and improve livelihoods. subsistence. It further notes the need for key structural reforms in the financial sector that go beyond specific SME and digital finance reforms. The report found that weak business skills among entrepreneurs make it difficult for SMEs to become creditworthy or investment-eligible businesses, as venture capital and bank finance providers said it remains very difficult to find investable companies in the country. This is mainly because entrepreneurs and SMEs in general lack the basic business skills to build resilient businesses that can respond to market challenges.

Sierra Leone’s economy grew by 3.1% in 2021, after shrinking by 2.0% in 2020. Agriculture contributed more than half of total growth, followed by services and industry. Manufacturing has been the fastest growing subsector, growing 12.3% in 2021 after a 6.7% contraction the previous year, benefiting from government support for SMEs through the Fund MUNAFA and the Bank of Sierra Leone’s 500 billion leone special credit facility, as well as increased investment in agribusiness. However, public finances have deteriorated since the onset of COVID-19 while inflationary pressures have accelerated since mid-2021, driven first by the post-pandemic rebound in consumption and then by chain disruptions. global supply chain since the start of the war in Ukraine, and pressures to depreciate the Leone.

While SME financing has been recognized as a priority for the government through demonstrated efforts such as the creation of SMEDA, the SME policy and the more recent deployment of the MUNAFA fund, the effectiveness of these efforts has been questioned. challenged by lack of focus and fragmentation of efforts. There is a need for these interventions to be scrutinized to ensure their effectiveness to ensure that the current loan amounts and on-lending price cap have the intended reach and market impact for SMEs,” said Kemoh Mansaray, World Bank Senior Economist and lead author of the report.

The report indicates that economic growth is expected to reach 4.4% over the period 2022-2024 with contributions from investments (especially in mining and agriculture) on the demand side, and from agriculture , tourism, construction, and mining and manufacturing on the supply side. However, the growth outlook faces significant risks and uncertainties due to the war in Ukraine, global inflationary pressures and the continued threat of COVID outbreaks. Headline inflation is expected to remain elevated in 2022 due to continued global supply chain disruptions.

While prudent policy measures are being taken to meet the financing needs and requirements of SMEs as well as to ensure a sustainable recovery of the economy, the report also recognizes the major role that government plays in the development of the sector and the industry. country’s overall economy and makes recommendations for several areas. Key reform priorities include:

  • Robust performance Comments: continuous monitoring and evaluation of government MSME programs should ensure that public spending is having the intended impact on growth priorities
  • National definition of MSMEs: develop a coordinated national approach to expand access to finance for SMEs, develop and implement a uniform national definition of MSMEs, and systematically expand data collection on SMEs and SME finance from government agencies and financial institutions
  • Remove structural barriers: existing structural barriers need to be overcome for digital financial services to be delivered to entrepreneurs, including rural farmers and agribusinesses
  • COVID crisis assistance: expand social safety nets and increase cash transfers to cover more households and businesses affected by rising food and fuel prices
  • Prudent budget management: this is crucial to balance new spending needs and limited fiscal space
  • Monetary Policy: maintain the balance between lower inflationary pressures and a stronger recovery. With inflation mainly fueled by supply-side shocks, too rapid a tightening of the policy stance could stall the recovery

In addition to investing in SME development, the report identifies the need to prioritize structural reforms to diversify the economy. Reforms should focus on creating an enabling environment for the private sector to support long-term economic growth, which in turn will support determined domestic revenue mobilization.

Distributed by APO Group on behalf of the World Bank Group.

This press release was issued by APO. Content is not vetted by the African Business editorial team and none of the content has been verified or validated by our editorial teams, proofreaders or fact checkers. The issuer is solely responsible for the content of this announcement.

Comments are closed.