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COLORADO: PROF. KELFALA M. KALLON: Several weeks ago, I described the APC government’s economic policies as “kohkohnomics” which I defined as “a collection of superstitions and rubbish” that starts with “the assumption that scarcity does not exist and that we can get everything without having to bear any opportunity costs.” Starting with the wasting of the nation’s scarce resources on a three-day coronation jamboree that was mislabeled as a presidential inauguration, to the president’s expensive international junkets, and the leasing of a 15 megawatt generator for 32 million United States dollars (using questionable bidding procedures), everything the Koroma government has done seems to demonstrate that they believe that economic theory is wrong in claiming relative scarcity to be the fundamental human problem.

 

Believing that efficiency is not a desirable goal of economic policy, Koroma’s brand of APC “kohkohnomics” has made government appointments not on the basis of merit, but rather on the basis of party affiliation, linguistic and regional identity, and perhaps quid pro quo considerations. Additionally, government expenditures are being undertaken not necessarily for the long-term public good but for procuring cheap popularity. Hence, cost-benefit analysis has been persona non grata in the evaluation of projects by the Koroma government. Moreover, the government purse (which was quite full when the APC took over the reins) has become to the Koroma government what a candy store is to a child – an alluring smorgasbord of goodies for instant gratification without any acknowledgment of opportunity costs.

 

Most importantly, the Koroma government’s actions exhibit a belief that the economy must be made subservient to politics in the sense that markets should be replaced by government edicts. Accordingly, price increases are allegedly caused by unpatriotic behavior on the part of sellers, not by the vagaries of the market. Hence, the first remedy for such shortages is the forced selling of goods at government-dictated prices. Of course, such strong-arm policies merely serve to exacerbate the problem by giving producers the incentive to hoard their wares.

 

And as it is their wont, APC partisans do not blame themselves for the consequences of their “kohkohnomist” policies. Instead, they have resorted to labeling Sierra Leoneans (their hapless victims) as unpatriotic saboteurs. As such, Sierra Leoneans are now being told that we need an attitudinal change in order to become more patriotic by our new rulers who are already behaving like quintessential African socialists – ruling elites who urge the public to work harder and more patriotically so that their leaders can grow fatter.

 

Economics teaches us that one of the prices we pay for macroeconomic profligacy is inflation. However, denying the obvious, President Koroma and his hand-picked central bank governor are claiming that all is well with the macro-economy even as the average Sierra Leonean struggles under the yoke of stagflation (the unusual dual problems of inflation and economic stagnation). Prior to the President’s rhetorical vanquishing of our economic problems, other APC partisans were claiming that the current acceleration in the inflation rate in Sierra Leone is caused by circumstances beyond the Koroma government’s control. Like their predecessors in the 1980s, these current defenders of the APC record blame higher crude-oil prices for Sierra Leone’s current economic woes. Some have even cited the fact that prices are also rising in the developed countries as evidence that the Koroma government bears no responsibility for the current economic hardships that Sierra Leoneans in all walks of life have had to suffer since the APC came to power six long months ago.

 

For obvious reasons, these APC partisans do not remember that the price of crude oil did not just start rising in 2007. They also do not remember that the APC regimes of Siaka Stevens and J. S. Momoh used the same excuse to explain Sierra Leone’s triple-digit inflation in the 1980s even though oil prices fell significantly in real terms during that period. Additionally, APC partisans also want us to forget that in spite of rising oil prices and a very economically suffocating brutal civil war, the prudent macroeconomic policies that the NPRC put in place reduced the triple-digit inflation that they had inherited from Momoh’s APC to low double digits. Definitely, the APC choristers have every reason to refuse to acknowledge the fact that oil prices continued rising during the SLPP’s recent stewardship of the economy. Again, as in the NPRC era, inflation was kept in check and no one had to toe-line for anything even though the SLPP regime had the misfortune of dealing with the economic consequences of the war and the AFRC menace.

 

It appears that the APC are now pushing the hypothesis that the international economy tends to conspire against them to raise prices whenever they are in power. The linchpin in this conspiracy theory is crude-oil prices. However, the available empirical evidence is not kind to it. For instance, in 1994, I published a paper which used IMF data (spanning the 1967-87 period) to study the factors that are associated with inflation in Sierra Leone. My results showed that inflation was essentially a monetary phenomenon during the sample period. Specifically, a percentage increase in the amount of money in circulation tended to raise the inflation rate by a full percentage point in the long run. On the other hand, a percentage increase in the price of Sierra Leone’s imports (including crude oil) was found to raise the inflation rate by 0.21 percent.

 

Just in case the structure of the economy might have changed as a result of the war, I recently used a more sophisticated econometric technique to study the long-run causal factors of inflation in Sierra Leone. This time, the data available to me, which spanned the 1964-2005 period, were also from the IMF’s International Financial Statistics. Again, the evidence suggested that domestic money-supply growth is the primary cause of inflation in Sierra Leone. More importantly, crude oil prices seemed to have had no significant impact on the country’s price level during the sample period. Thus, the explanation proffered by successive APC governments that inflation is caused in Sierra Leone solely by increased crude-oil prices cannot be supported by empirical evidence.

 

This lack of causal impact of oil prices on the general level of prices in Sierra Leone can be explained by the fact that her economy’s production processes are labor-intensive, not energy-intensive. Indeed, very little, if any, crude oil is used in the country’s production of rice, coffee, cacao, cassava, palm oil, alluvial diamonds and gold, among others. Even our meat products are labor-intensive as we either eat bush meat or cattle that feed themselves by grazing. Hence, a rise in crude-oil prices has no direct impact on the cost of production of these commodities, which constitute the bulk of the nation’s output. Accordingly, it will only impact their prices to the extent that it raises transportation costs. Therefore, the claim that the current surge of inflation in Sierra Leone is caused by rising oil prices can only be taken at face value if one believes that the structure of the Sierra Leonean economy has changed so rapidly since 2005 that its production processes have become more mechanized and therefore energy-intensive.

 

Of course, the price of crude-oil impacts the prices of imported commodities. However, whether this will have a major effect on the general price level in our labor-intensive economy depends on whether the central bank ratifies the price increase with an increase in the money supply. Otherwise, the increase in the prices of imported goods relative to domestically-produced labor-intensive ones will cause consumers to switch their expenditures away from the former to the latter. This should lower the demand for imported goods, thus lowering their impact on the general price level.

 

Perhaps an explanation of the link between the money stock and the price level will make the above analysis clearer. Assume, for instance, that Sierra Leoneans as a whole produce only 100 bushels of rice in a given year. Assume also that their total money stock during that year is a million leones. All other things being equal, each bushel of rice will sell for a thousand leones. Now, suppose a populist government prints a million more leones and distributes it to the population. Without any increase in the supply of rice, too much money will be chasing too few bushels of rice. Consequently, each bushel of rice will now sell for two thousand leones. In order words, an increase in the money stock would produce a proportionate increase in the price level. This conclusion is independent of the rationale for the growth in the money stock.

 

We know that President Koroma government’s has engaged in uncontrolled spending during the past six months in order to finance his “kohkohnomist” populism. However, being populists par excellence, the APC government did not raise taxes in order to finance these increased expenditures. Instead, with their hand-picked appointee at the helm of the Bank of Sierra Leone, President Koroma’s government has been able to bankroll its “kohkohnomist” profligacy by increasing the money stock. Moreover, because these expenditures (for his coronation, his expensive foreign junkets, the refurbishing of Kabassa Lodge, and the over-priced electricity contract, among others) have been mostly targeted at Freetown, they have had no impact on the real productive sector of the economy. As such, real national output has not been affected by them. Hence, the price level has had to rise as a consequence.

 

Thus, when one contrasts the APC’s economic record with what obtained under SLPP rule (when the shops were full and prices were relatively stable even though the APC propaganda machine led Sierra Leoneans to believe otherwise), one is led to conclude that, as in their first coming, the wages of the APC’s “kohkohnomist” populism of the APC is the stagflation that Sierra Leoneans are currently experiencing. Accordingly, no amount of sermons about patriotism and attitudinal change (the new buzz phrases in APC-speak) will reverse the current situation. Only a return to sensible economic policies, such as those implemented by the former SLPP government (which targeted the productive sector of the economy), can reverse the consequences of the Koroma brand of APC “kohkohnomics”.

 

Of course, Sierra Leoneans know that the APC are legendary poster children for political repression and horrendous economic mismanagement. However, even by APC standards, the rate at which President Koroma’s regime is wrecking the recently buoyant Sierra Leonean economy is an unprecedented textbook case of how to ruin an economy. Perhaps we are just beginning to experience the consequences of what the management sciences describe as the Peter Principle – which is the promotion of people to their highest level of incompetence. If this is the case with President Koroma, then the disenfranchised voters at the 477 Kailahun Court Barries and the 250,000 voters whose votes went into thin air on September 17 during the 90-minute “cut-yah, put-yanda” operation of Christiana Thorpe’s crew should now be sporting bumper stickers that read as follows: “Don’t blame me for the stagflation because Christiana Thorpe did not count my votes”.

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