7 Youth unemployment, inclusive growth
and the extractive industries
98. In Sierra Leone we were informed that there were
three million people of the population of six million who needed
jobs but that there were only 90,000 formal jobs in the economy.
An estimated 800,000 youth between the ages of 15 and 35 are actively
searching for employment.[152]
In Liberia the Finance Minister told us that out of the population
of four million there were 35,000 people entering the labour market
every quarter. The one clear message we heard throughout the inquiry
was that youth unemployment was the main concern for both countries;
there was a real fear it could be the trigger for a return to
civil war. The matter was raised by both President Dr Ernest Bai
Koroma and President Sirleaf Johnson when we met them: that although
there had been progress in both countries at post conflict redevelopment
some of the initial major causes of the civil wars—unemployment
and inequality—still existed. Action on Armed Violence said:
It is widely accepted in both countries that
many of the root causes which led to war remain unaddressed and
that many contributing factors to war, such as massive youth unemployment
and opaque practices in natural resource extraction, have not
been eradicated.[153]
Dr Jeremy Allouche and IRC made similar points.[154]
The UN has also recognised that 'large numbers of unemployed youths
are a potential source of insecurity given their vulnerability
to recruitment into criminal and violent activities'[155]
99. This is the same conclusion our predecessor Committee
reached in 2006 following its visit to Sierra Leone for its inquiry
on Peacebuilding and Post-conflict Reconstruction:
Much of what we heard during our visit convinced
us that one of the most significant issues facing Sierra Leone,
one with the potential to contribute to future conflict, is youth
unemployment.[156]
And concluded:
It seems clear that donors in Sierra Leone now
need to give priority to employment-generation initiatives, including
agricultural schemes.[157]
The Government at the time responded saying:
We agree that unemployed youth in Sierra Leone
are a potential source of future conflict. We believe the best
way of getting people into work is by attracting greater investment
into Sierra Leone, reducing the administrative barriers to business
start-up and through much more business-friendly regulations.[158]
100. DFID is aiming to create 30,000 jobs in Sierra
Leone by 2015. [159]
We are not sure how these ambitions are calculated. As Alex Vines
told us:
These sorts of targets are because Ministers
want targets. I cannot see how they are going to be accomplished.
I know you have to have a target and that these sorts of formulae
therefore appear regularly in different documents. In fact, achieving
the development goals and long term poverty reduction is a much
more complicated process, and these targets are a bit of a distraction
when that is really the end goal.[160]
101. In Sierra Leone we visited a number of projects
which created jobs. One was the Waste to Wealth programme in the
city of Bo which helped people set up waste collection enterprises
and to make productive use of the recycled materials. As a fee
is charge for providing the service, it should be sustainable.
Another was a moringa[161]
tea and related products processing and marketing company.
102. Youth unemployment is one of the biggest
problems faced by Sierra Leone, Liberia and indeed the rest of
the developing and developed world. It was raised by many of the
people we met on our visit and is a potential source of unrest
and political instability. In view of its importance, we have
decided to undertake an inquiry on 'Jobs and Livelihoods' this
autumn.
Economic Growth and investment
in Sierra Leone
103. Since our predecessors' report on Sierra Leone
highlighting the risks of unemployment and DFID's response that
it was helping to attract investment into Sierra Leone, economic
growth has averaged 6% a year since.[162]
Much of the recent growth has come from the re-establishment of
iron ore production which saw the economy grow by 15% in 2012
and by an estimated 13% in 2013.[163]
In the World Bank "Doing Business" index Sierra Leone
has moved from position 163 in 2008 to 140 in 2012 although it
had dropped back to 142 in the 2013 survey. [164]
104. While the extractive industries have been the
main source of economic growth in recent years they have not created
a large number of jobs, nor, according to some witnesses, were
the industries making as a large a contribution to tax revenues
as they should. We consider the extractives later in the chapter.
105. DFID has plans to spend £6.3 million in
2014-15 on private sector development and improving the 'investment
climate', which involves working with the International Finance
Cooperation of the World Bank and African Development Bank to
help the Government of Sierra Leone. DFID has also been supporting
a Market Development Programme aimed at improving market systems
in agriculture and promoting the growth of the manufacturing sector
to increase jobs.[165]
AGRICULTURE
106. Agriculture—including and especially small-holder
agriculture—has great potential in Sierra Leone for creating
jobs and livelihoods, increasing food security and improving the
balance of payments. We were surprised to discover during our
stay that even chicken was imported and glad to visit a project—supported
in part by DFID through the African Enterprise Challenge Fund—which
was establishing a large scale poultry production farm (see Box
8 below).Box
8 Sierra Leone Poultry Farm visited by the Committee
| Pajah and IJ Limited is an indigenous Sierra Leonean company engaged in poultry farming and production of poultry products for the local market. The company was started in 2007 in Waterloo, about one hour from Freetown, with a 10,000 bird capacity farm producing broilers and table eggs for sale. In 2011, the company added another facility in Lumley, a suburb of Freetown, which houses a parent stock farm and a hatchery. The Lumley farm currently contains a 10,000 laying stock and produces 38,400 day-old chicks weekly. In addition, the farm turns over approximately 18,000 cartons of fresh eggs weekly.
In 2012, Pajah applied to the African Enterprise Challenge Fund (AECF) for support. The AECF approved a grant of $750,000 to enable the company install a feed mill, establish an abattoir and support farmers to produce maize for Pajah and other poultry farmers. The feed mill is expected to produce 4,000 metric tonnes of poultry feed annually. Sierra Leone currently imports most of its poultry feed. The abattoir and cold storage facilities will produce package dressed birds for sale to supermarkets, hotels and catering concerns in Freetown and its environs. The abattoir should have a throughput of 1,000 birds per hour. When the feed mill and abattoir are completed, Pajah & IJ Ltd will be the first poultry industry of its kind in Sierra Leone.
The project is targeting 4,500 beneficiary farmers by 2018. Most of these will be women living in six districts. The projection is for these farmers to produce 2,500 metric tonnes of maize annually for sale to Pajah and other poultry producers. The company is also providing training to the farmers in improved maize seeds, land preparation and control of post-harvest losses.
|
Source DFID visit briefing
107. Ivory Coast, which is a near neighbour of Sierra
Leone, is the largest cocoa producer in the world: up to 1.3 million
tonnes per annum, bringing in anything from $1-3 billion a year
in foreign exchange and providing livelihoods to hundreds of thousands.
Sierra Leone, by contrast, which has similar growing conditions
produces some 10,000 tonnes[166]
but has the potential to increase that many times over. The world
cocoa market faces long-term supply deficits and hence there is
room for more supply from Sierra Leone.
108. We were told there were serious obstacles in
creating jobs through agriculture as young people were not interested
in farming instead migrating to the cities. Many of those who
had gone to the cities during the civil war were loath to return
to the country and work on the farms. However agricultural production
has the advantage of creating livelihoods both on the farm and
in processing plants, which can therefore provide work in urban
centres.
109. We recommend that DFID assess how it can
help Sierra Leone to develop its agriculture and agricultural
processing as part of its jobs and livelihoods programme.
ENERGY
110. As with most sub-Saharan African countries,
Sierra Leone and Liberia face a very substantial deficit in electricity
generation—only 10% of Sierra Leoneans have access to electricity.
Sierra Leone and Liberia currently have some of the highest energy
costs in the world. The average cost of generation for countries
in Sub-Saharan Africa is about US$ 0.15 per kWh and as low as
US$ 0.05 in Nigeria. The cost in Liberia is over US$ 0.50 per/kWh
due to its dependency on high-cost diesel generation.[167]
111. There are many opportunities for renewable
power generation, especially from hydro-electric power. We recommend
that DFID looks to identify viable projects and in doing so it
should consider working with EleQtra an institution which it funds.
Vocational and skills training
112. A problem that was repeatedly raised in discussions
was the lack of human capacity and skills in country, which reduced
people's employment prospects.[168]
Moreover, even those with higher education do not seem to have
the right skills. The level of graduate unemployment in Sierra
Leone is 70%.[169]
We asked how in a country that was crying out for greater human
capacity was there such a high graduate unemployment rate but
we did not find a satisfactory answer. The DFID Minister told
us it was because of the "lack of appropriate skills in terms
of getting jobs" amongst graduates.[170]
We also heard that there was corruption in the exam process with
a culture of buying qualifications and certificates. In addition
we were told that the graduates all wanted employment with the
government but that these jobs were already all filled with people
who were often of poor quality and ineffective but impossible
to remove.
113. While it seemed evident there was a great need
for vocational and skills training, the Minister told us:
We do not do it. We have not directly supported
skills training programmes, because we concentrate allocated funding
on delivering against the 2015 operational plans, and they are
geared towards the MDGs for the education outcomes at primary
and junior secondary school, so we are locked into that at this
moment in time.[171]
The Minister argued that "basic education is
economic development. Getting a cohort through who are capable
of work and better work and go on, ultimately, to tertiary skills".
However as we highlighted in an earlier chapter, skills and vocational
training is a major priority for the President of Sierra Leone,
which he raised in our discussions with him. The Acting Head of
DFID Sierra Leone and Liberia believed that although it was a
priority for the President there was not the leadership in the
Ministry of Education in Sierra Leone to take it forward. He told
us of an African Development Bank programme, which had provided
a tertiary skills college but the Ministry of Education had then
not provided any teachers for it or money to pay any teachers.[172]
114. Tanya Barron of PLAN praised a UNDP programme
called Youth Empowerment and Employment worth $3 million for 850
young people which provided them with training for employment
and working with employers.[173]
She also highlighted the public-private partnership approach the
German Development Agency was using with the coffee and cocoa
industries to target and train urban and rural youth. Keith Wright
told us that DFID had been asked many times to be a member of
the Partner Group on Youth Employment but declined. He said that
this was "most unfortunate" because:
DFID's great network with Government and in particular,
its involvement on macro-economic policy would have been (and
still can be) a very valuable asset to the Partner Group.[174]
While he recognised that DFID was requested to be
a member of many initiatives in Sierra Leone and that priorities
had to be made, it was "widely accepted that employment,
and youth employment in particular, is of critical significance
for the country."[175]
115. We asked the Minister what work DFID was doing
with the private sector in relation to training and employment
and she told us:
there are quite a lot of calls from the private
sector for DFID to take on the role of teaching […] and the
cost of providing skilled Sierra Leoneans, because it is not attractive
to the private sector itself, apparently, to do that. I want to
use the opportunity of the Committee here to push back that message
and say: actually, there is an onus on the private sector itself
to get involved and be willing to accept their responsibilities
and to foot some of the bill.[176]
However the Minister did say that DFID had been "scoping
the possibility to support skills training programmes in Sierra
Leone since 2013, not just with the aim of increasing the number
of young people with qualifications but also to increase the number
in meaningful employment."[177]
But she pointed out that many of the donors already involved in
tertiary education were experiencing difficulties; for example,
the German programme was struggling to scale up because of the
'lack of a clear steer' from the Sierra Leone Government. Acting
Head of DFID Sierra Leone and Liberia suggested one role for DFID
would be in translating the President's priority message on skills
training into budget allocations from the Ministry of Education—so
providing technical and budgeting advice on how funds could best
be spent by the Ministry of Education in designing and facilitating
skills training.[178]
116. DFID focuses on primary and junior secondary
education in Sierra Leone, leaving vocational education to other
donors. We recognise there are obstacles to working in this area,
not least the inadequacies of the Ministry of Education. Nevertheless,
given the importance of vocational education, the fact that it
is a high priority for the Government of Sierra Leone and that
other donors want DFID to work in this area, we recommend that
DFID work with other donors and the private sector on vocational
education and training. The centrally managed education programme
funding may be better spent if it were diverted to a bilateral
vocational training programme.
Extractive Industries
117. Sierra Leone is rich in natural resources. Adam
Smith International (ASI) reported that, starting from around
£1 million in 2006, extractive revenues to the Government
of Sierra Leone were expected to reach £50 million this year
and the IMF predicted they would reach circa £130 million
by 2016. As ASI highlights, this will be far in excess of total
annual DFID support to Sierra Leone currently of £70 million.
Unfortunately, the majority of the population does not feel it
is benefiting. As Alex Vines noted:
the wider population is saying, "What's
happening to the wealth? We don't see any benefit from it."
The human development indicators are stubbornly low for Sierra
Leone, despite these impressive growth rates based on iron ore.
The single most important question is how to get inclusive growth
in Sierra Leone, and that is not happening. It is the big scary
message of Sierra Leone at the moment that there are way too many
people who do not have anything to do and are not benefitting
from the iron ore boom, diamond revenues or other things that
are taking place.[179]
Adam Smith International said that notwithstanding
the unavoidable lead times between improvements in mining operations,
government revenue and exports which create more jobs, business
opportunities and services for Sierra Leonean citizens; a failure
to translate economic growth into poverty reduction would lead
to ongoing suffering and significant social tensions.[180]
The increase in tax revenues are bringing benefits and there have
been improvements in healthcare. The government of Sierra Leone
needs to demonstrate to its citizens how the revenues from the
extractive industries are being used for their benefit.
118. The President's Agenda for Prosperity 2013-18
aimed to harness the wealth of the natural resources for the good
of the people so that it could reach middle income status in the
next 25 years. Alex Vines said that to do this it was important
that mining "contracts are negotiated for good deals"
for the Government.[181]
Asked about the support DFID gave to the Sierra Leone Government
on its negotiations with multinational mining corporations, the
Acting Head of DFID Sierra Leone and Liberia said that it was
not so much about providing the lawyers to negotiate the contracts
"but getting a legal framework in place on the statute book
that gives the Government a better position for negotiating."[182]
He told us DFID:
· had
supported the establishment and operation of the National Minerals
Agency; and
· was supporting
a programme with the World Bank worth £2.4 million called
the Extractive Industries Technical Assistance Project.
119. Action on Armed Violence recommended that British
companies engaged in resource extraction should not only act responsibly
but ensure that the concessions are the fairest they could be
for the countries' citizens. Christian Aid argued that UK registered
companies in Sierra Leone were not doing this but benefiting from
huge tax incentives.[183]
120. Christian Aid said that there had been a massive
rise in revenue losses in Sierra Leone since 2009 as a result
of tax incentives granted to firms in the mining sector investing
in the country between 2010 and 2012. Using figures obtained from
the National Revenue Authority it estimated that the Government
lost revenues from customs duty and goods and services tax exemptions
worth approximately US$224 million in 2012, 8.3% of GDP. In addition
Christian Aid has estimated that the Government will lose revenues
of US$131 million in the three years from 2014-16 from corporate
income tax incentives granted to five mining companies—the
organisation argued that nearly all of these losses were the result
of the agreements with African Minerals[184]
and London Mining[185]
both UK listed companies. Christian Aid added that research showed
that such tax incentives were not an important factor in attracting
foreign investment.[186]
Far more important were good quality infrastructure, low administrative
costs of setting up and running businesses, political stability
and predictable macro-economic policy.[187]Box
8
| Tax reform and the National Revenue Authority
DFID is the largest donor for tax reform in Sierra Leone. DFID said that
· with its support revenue collection had increased from 8% of GDP to 12% of GDP this included the introduction of General Sales Tax and Taxpayer Identification Numbers;
· revenue collection still remained chronically low - the sub-Saharan African average is 24%;
· low revenue collection constrained total expenditure, which amounted to under £500 million in 2013, or £80 per person compared to around £11,000 per person in the UK; and
· low expenditure levels severely limit public service provision.
DFID is working to improve this by a programme to support reform in the National Revenue Authority (NRA) over the next three years, this includes funding four international experts for top-management positions within the NRA, of which there will be an international senior advisor for the Commissioner General and a Commissioner for Customs and Excise. DFID hopes that this support will:
· increase the tax-take;
· reduce leakages; and
· manage the significant increase in natural resource revenue expected in the near future.
|
121. DFID is providing support to the National Revenue
Authority (NRA) of Sierra Leone (see Box 4) and with its support
revenue collection has increased. ASI recommended that, as part
its work on tax, DFID focus on the creation of an effective tax
and control regime for the extractives industry. It said the 'considerable
concessions and waivers' which currently exist, should be reviewed
so the government is receiving the 'optimal amount' of revenue
from the sector. It pointed out that there was no specialist unit
within the NRA to focus on the extractives sector.[188]
London Mining told the All Party Group on Africa during its recent
visit to Sierra Leone that it acknowledged its contribution to
Sierra Leone through taxation was more important to the country's
development than its corporate social responsibility programmes.
The APPG and ASI recommended that DFID could play an important
role, supporting the Government of Sierra Leone to develop revenue
collection systems that ensured Sierra Leoneans receive the optimum
benefit from mining revenue.
122. While the extractive industries have been
the main source of economic growth in Sierra Leone in recent years,
the majority of the population have seen few benefits. We recommend
that DFID ensure that its work with the National Revenue Authority
links with its work with the National Minerals Agency to ensure
that tax waivers and incentives for the mining industry do not
mean that the natural resource wealth of Sierra Leoneans is lost
to the benefit of international investors. We recommend that a
specialist unit be set up within the National Revenue Authority
working with the National Minerals Agency to look specifically
at optimising revenue collection from mining companies and its
transparency. In addition the economy cannot rely on the extractive
industries alone which are subject to fluctuations of the commodity
markets—Sierra Leone must diversify its economy.
152 UNDP website: Tackling youth unemployment in Sierra Leone Back
153
Action On Armed Violence (SLL04), Back
154
Q2, International Rescue Committee (SLL12) Back
155
UN Peacebuilding, Joint Response to youth employment in Sierra Leone
Back
156
Sixth Report of Session 2005-06, Conflict and Development: Peacebuilding and Post-conflict Reconstruction,
HC 923-I, October 2006 Back
157
Sixth Report of Session 2005-06, Conflict and Development: Peacebuilding and Post-conflict Reconstruction,
HC 923-I, October 2006 Back
158
First Special Report of Session 2006-07, Conflict and Development: Peacebuilding and Post-conflict Reconstruction: Government Response to the Committee's Sixth Report of Session 2005-06,
HC 172, 14 December 2006 Back
159
DFID (SLL05) pg 9 Back
160
Q 34 Back
161
Moringa is a tropical tree with leaves which can be processed
into tea and oils considered to have health properties. Back
162
DFID visit briefing Back
163
DFID (SLL05), para 20-21 Back
164
DFID (SLL05) Back
165
DFID (SLL05), pg 3 Back
166
"Sierra Leone Seeks to Boost Cocoa Production to Pre-War Rates",
Bloomberg News, 16 October 2012 Back
167
DFID Committee briefing Back
168
Q33 Back
169
DFID visit briefing Back
170
Q131 Back
171
Q124 Back
172
Q127 Back
173
Q64 Back
174
Keith Wright (SLL02) Back
175
Keith Wright (SLL02) Back
176
Q125 Back
177
Q127 Back
178
Q127 Back
179
Q21 Back
180
Adam Smith International (SLL08), para 2.1 Back
181
Q26 Back
182
Q136 Back
183
Christian Aid (SLL14) and Losing Out: Sierra Leone's massive revenue losses from tax incentives,
April 2014 Back
184
African Minerals is listed on the Alternative Investment Market
(AIM) of the London Stock Exchange, and is headquartered in London,
United Kingdom. Back
185
London Mining is listed on the London Stock Exchange and is and
is headquartered in London, United Kingdom. Back
186
Christian Aid quotes from a report from the African Department
of the IMF which looked at tax incentives in East Africa. IMF, Kenya, Uganda and United Republic of Tanzania: Selected Issues,
1 December 2006 Back
187
Christian Aid quotes from a report from the African Department
of the IMF which looked at tax incentives in East Africa. IMF, Kenya, Uganda and United Republic of Tanzania: Selected Issues,
1 December 2006 Back
188
Adam Smith International (SLL08) Back
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