CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

International experience has become critically important in today’s business world. Global trends have had an impact on the processes and outcomes of business fortunes even in developing countries; and have caused industrial relation actors to think differently about their goals. Every country is affected by business cycle; a situation whereby there is nationwide fluctuations in production, trade and general economic activities over medium-to-long-term in a free market system. The Sierra Leone economy currently faces the effects of the global economic crises which results to breakdown and decline in economic vigour. It is pertinent to understand the dynamics of the present global economic meltdown with careful study and examination of the issues involved. The Sierra Leone economy has continued to witness renewed and sustained recession, characterized by galloping inflation, unemployment and declining businesses. The general business cycle of recessions affects human resource management. Such factors as interest rates, inflation, and economic growth help determine the availability of workers and figure into organizational plans and objectives. Economic conditions hinge on overtime, decision on wages and laying off or hiring of workers.

The Sierra Leone economic situation has been weak due to the negative effects the global economic meltdown has had on the country. Every industry has had its fair share of the troubles and companies are licking their wounds with resultant effects on the masses. Retrenchment and downsizing has been the way forward, there is no sense in making it massive. This contributes to the growth of jobless individuals in the street since there are no jobs to which these individuals will find themselves attached when retrenched in one. This study will examine economic recession and the various challenges to the economic growth of the country. There are many causes of the current economic recession in Sierra Leone. Globally, there is geopolitical tension around the world, causing global crisis and commodity prices dropping, the drop in crude oil prices, Brexit, crucial American election in 2016, South China Sea issues, Russia-Syria crisis, ISIS, illegal migration and refugee crisis which are remote but important causes of the recession as Sierra Leone is an integral part of the global economy. This loss of confidence makes businesses and/or consumers stop buying and move into defensive mode. Once a critical mass moves toward the exit sign, panic sets in. That creates a destructive downward spiral. In short order, you get mass layoffs and rising unemployment which create a slowdown in retail sales. Manufacturers cut back in reaction to falling orders, further increasing layoffs. To restore confidence, the Federal government and the central bank must usually step in. However, it should be noted that a decline in the gross domestic product growth is a sign that a recession may be underway, but it is rarely a cause. That's because GDP is only reported on after the quarter is over. By the time gross domestic product has turned negative, the recession may already be underway.

The following are highlighted as the possible causes of recession that we are currently experiencing in Sierra Leone:

High interest rate: When rates rise, they limit, liquidity, or the amount of money available to invest. Federal Reserve often raised interest rates to protect the value of the dollar. The Fed raised rates to battle, stagflation, causing the 1980 recession. It did the same thing to protect the dollar/gold relationship, worsening the Great Depression.

A stock market crash: The sudden loss of confidence in investing can create a subsequent bear market, draining capital out of businesses. This is how a stock market crash can cause a recession.

Falling housing prices and sales: As homeowners lose equity, it forces a cutback in spending as they can no longer take out second mortgages. Over time, it will cause foreclosures. This served as the genesis cause that brought about the great recession, but for different reasons. Poor economic planning: Poor economic planning and no concrete implementation of her economic planning is the major cause of Sierra Leone current recession budget delay, exchange rate policy. The Sierra Leone government proclaimed the usual generalities that every government indulges itself in about; diversifying the economy, improving manufacturing/mining sector, raising agricultural output and encouraging foreign investment.

Increased inflation: Inflation refers to a general rise in the prices of goods and services over a period of time. As inflation increases, the percentage of goods and services that can be purchased with the same amount of money decreases.

In recession, there is usually a decline in certain macroeconomic indicators such as GDP, employment, investment spending, capacity utilization, household income, business income, and inflation, with the attendant increase in the rate of unemployment, (BSL, 2012). Chinguwo and Blewit, (2012) researched that economic recession, financial crisis and climate change problems combined to make life even more difficult for many working people and their families. Mailafia, (2016) n his own findings postulated that economic recession stagnates wage growth and increases the proportion of people on low pay, as well as swelling unemployment and underemployment. In a research conducted by Bauer, (2009), he ascertained that economic recession and the global financial crisis have inter-linkages with poverty incidence in developing countries. Economic recession does not just occur, certain factors trigger recession which include; inflation, loss of consumer confidence, excess supply over demand, excess demand over supply, and global economic crisis.

The current economic recession has negative and also some positive impacts on aggregate economic activities in Sierra Leone. It causes extreme poverty and suffering of the masses, children’s right to quality education, affordable inclusive healthcare are deprived, there is adverse demand and supply shocks. It has contractionary effects on aggregate demand and supply resulting to volatile shocks in economic activities. There is scarcity of foreign exchange, few money, reduced income, decreased finances available to households and businesses. There is also weak purchasing power, reduced consumer spending and decrease in sales of goods and services. The purchase of goods and services by individuals, households and firms has drastically reduced as a result of the economic recession. Business activities are now at the low ebb, there are jobs losses and increase in unemployment rate. The reduced employment is due to decreased sales of goods and services by business owners, companies, street vendors, farmers, shop owners, retailers and wholesalers. The aggregate spending power has sharply declined.

Following the loss of jobs is the loss of income; the cost of living has gone astronomically too high for the core poor and the middle class. There is sharp decline in savings and investment; decline in the stock market activities, as some investors have pulled out their funds from the stock market due to high risks and uncertainties. There is also increase in the crime rates as life gets harder for a greater number of the population(the poor), living conditions are getting worse, crime rates have escalated; increase in robberies, petty stealing, street hawking, kidnapping, child trafficking, fraudulent schemes and other financial crimes. The aggregate poverty incidence continues to increase. There is budget deficit in government spending. The national and state budgets are experiencing spending difficulties due to shortfalls in government revenues. The governments are borrowing as an option to cover for the fall in revenues. This has geometrically increased the debt burden of the federal and state governments. There is high rate of inflation attributable to hike in pump price of petroleum, low domestic production capacity, dependence on imports, a weak Leones, scarcity of foreign exchange as well as high cost of doing business in Sierra Leone, high interest rates, poor electricity supply, lack of portable water, high cost of transportation and poor state of aggregate infrastructure.

Sierra Leone should change the course of its economy and find a solution to the ongoing recession. More than four million people lost their jobs in 2016, and this number has continued to increase in 2017, according to the national bureau of statistics. More than half of population in Sierra Leone live in poverty and hardship. The beginning of this year, 2017 showed some positive changes, but they have not affected the whole aspect of the Sierra Leone economy. One of the main solutions to the economic recession is that the government should try and increase control over BSL Governors. BSL governors kept funding their banks in Sierra Leone and this can be said to be one of the main problems of the BSL Governor, so it gives them dirty advantages over other banks. Bankers have been the only governors of BSL. There is no question that they know the banking sphere and it makes sense that they should be governors. Still, the control over their actions should be increased as often use BSL as their own bank.

The government should create alternative sources of capital for small businesses. Large companies must be properly taxed. They shouldn`t have much support from the government if they keep dropping. Small and medium enterprises should be supported as they grant jobs to 80% of the population. Also, made in Sierra Leone should not just be a slogan. One of the main reasons why Sierra Leones do not buy Sierra Leone goods is the reliability. Sierra Leone government should increase the standardisation boards of the country. Customers should be one hundred percent secured by the government. Companies who failed to fulfil their warranties should be shut down. Products should be certificated by the Ministry of Industry.

Devaluation of Leones is necessary if there must be a lasting solution to the economic recession in the country it`s impossible to create a stable economy if there are two spectrum for the Leones. The official Inter dollar ranks for today is 19.5 Leones for one dollar, where the black market sells it for 20.5-25.5 Leones. This situation can only lead to corruption. The corrupt bank officials can make money out of thin air. They can earn about 5 Leones for every sold dollar in the black market. The revenues made by this scheme can be result in millions of dollars. They do not agree with official positions toward this issue. If Sierra Leone devaluates Leones and the official and black market will be equal, then Sierra Leone can expect more investors in the inner market.

1.2   Statement of the Problem

Sierra Leone has been an economically slavish neo-colonial state. The current economic recession in Sierra Leone is as a result of long-term ills in the structure of the economy that became full-blown under the present government. The recession seems to affect socio-political structures, Sierra Leone’s credit condition, general living standard, imports, production and employment as well as consumption demand in Sierra Leone. Fast developing economies like China, India, Brazil, including Vietnam and Thailand depend on exports to drive their economies. Sierra Leone cannot afford to do otherwise 80 percent of Sierra Leones still lack access to electricity, decent housing, portable water and good healthcare. The figure is growing as a result of increasing unemployment caused by the recession. For many years, The importation of petroleum products covers 30 percent of Sierra Leone’s gross domestic product, importation of toothpick, rice, fish, cassava starch, sugar and processed tomatoes take 20 percent; importation of garments and fabrics 15 percent, importation of cars and electronics 20 percent; resulting to sky-rockets inflation of 17.8 percent in the year 2016.The demand for foreign exchange and imports (including imports of petroleum products) remained high in the face of dwindling oil revenue.

Sierra Leone is faced with the twin problems of reduced volume of exports and reduced price of crude, resulting to reduced revenue. The implications are that the federal and state budgets cannot be funded adequately resulting to external borrowing and debt financing. These have negative implications on foreign exchange and imports of raw materials, low absorptive capacity, job losses, increased tax evasion and avoidance, low purchasing power, low standard of living caused by economic recession. The question is that why the performance of the Sierra Leone economy always should be determined by industrialized external powers, if not for the internal structural deficiencies working against self-reliance? The Sierra Leone economy is now in the intensive care unit where America and Thailand’s agribusinesses have collapsed Sierra Leone’s agriculture, China’s garments and fabrics business has collapsed Sierra Leone’s textile industries, Japan and Germany’s automobile businesses have collapsed Sierra Leone’s Ajaokuta steel company.

In spite of the efforts of the researchers to identify the prevailing factors that determine economic recession in Sierra Leone, there seems to be none that has ever thrown more light on the causes, effects and solutions to the economic recession in Sierra Leone. Certainly, that is what this study tends to focus on with reference to the Sierra Leone economy among small, medium and large scale economies in Sierra Leone. There is obviously, a need to investigate the issue of economic recession which can be perceived virtually among all sectors of the economy in Sierra Leone.

1.3   Research Questions

The following are some of the questions which this study intends to answer:

i)  what is the prevalence of economic recession in Sierra Leone?

ii) what are the prevailing factors that influence economic recession in Sierra Leone?

iii) what are the reasons for the influence economic recession in Sierra Leone?

1.4   Objectives of the Study

The main objective of this study is to investigate the causes, effects and solutions to economic recession in Sierra Leone among small, medium and large scale entrepreneurs in Sierra Leone. The specific objectives are: to;

i)   assess out the prevalence of economic recession in Sierra Leone

ii)  examine the prevailing factors that influence economic recession in Sierra Leone

iii)  establish the reasons for the influence economic recession in Sierra Leone

1.5   Significance of the Study

This study sought to investigate the causes, effects and solutions to the economic recession among small, medium and large scale entrepreneurs in Sierra Leone. It will show the reason why there is economic recession in the country and give insight on how economic recession directly affects economic growth and proffers a lasting solution to the Sierra Leone government. The study will help small, medium and large scale entrepreneurs, government, unemployed and underemployed individuals in the country to understand the risks that economic recession posses. This study will also contribute to academic literature by bringing about the relationship between causes, effects and solution to economic recession in the country. This study can also serve as a foundation for further research to be conducted in Sierra Leone.

1.6   Scope of the Study

This study covered small, medium and large scale entrepreneurs, government, unemployed and underemployed individuals in the country. Variables of interest include: economic ‘recession’, causes, effects and solutions in the country. While causes, effects and solutions in the country are independent variables, economic recession is the dependent variable.

1.7   Limitation of the study

This study entailed investigation into a variety of issues to be able to achieve a comprehensive study of the problems; a lot of constraint were encountered in form of data collection, lack of adequate information from the respondents. The main limitation of this survey was the difficulty in getting accurate information from the small, medium and large scale entrepreneurs as well as unemployed and underemployed individuals in the country.

1.8   Definitions of Terms

The following terms were used in the course of this study:

Economic Recession: Is a period of general economic decline and is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market.

Cause: A person or thing that gives rise to an action, phenomenon, or condition.

Effect: A change which is a result or consequence of an action or other cause.

Solution: Solving a problem or dealing with a difficult situation.