Africa - When small is not beautiful
Some people are born to wealth, and others to poverty. Yet, others are born into economies where their lifetime incomes will be challenged by the value of the currencies of their nations.
Cassava chips are a mainstay of any market in Sierra Leone as a national staple. It is also one of the primary exports. (Creative Commons)
Let’s take Sierra Leone, for example. After five decades of independence, Sierra Leone’s GDP has reached a high of only $14 billion, and this is the output of 8.9 million people.
Sierra Leone exports mostly cassava, rice, palm fruit, sweet potatoes, citrus fruit, and groundnuts. Most of its industries are associated to diamond mining, iron ore, and small scale manufacturing.
Approximately, 56.8% of the population remains below the poverty line, and the Gini coefficient stands at 35.7 percent, two very concerning numbers.
Sierra Leone’s leone is the weakest currency in Africa, and the fourth weakest currency in the world. With mostly unprocessed exports, considerable debt, and high inflation, this makes the leone a very volatile currency.
The value of the leone is partly a function of the size of Sierra Leone’s economy, and the nature of their unprocessed exports. Small countries like Sierra Leone have limited potential to raise large amounts of hard currency from export, and thus continually face shortages of foreign exchange needed for imports, and for development.
Sierra Leone isn’t oil rich. and struggles to compete with the world’s larger economies. Sierra Leone simply can never come out ahead when it comes to their terms of trade with other larger nations with economies of scale.
Trillion dollar economies, and the value of their currencies, are at a much higher valuation when compared to Sierra Leone’s leone, and its relatively small economy. After all, Elon Musk’s net worth which is $246 billion, is about 17 times greater than Sierra Leone’s annual GDP.
Sierra Leone is not the only small economy facing this quandary. Several other African nations like Malawi, Guinea, Somalia, Burundi, and many other African non oil exporters, face similar challenges.
The similarities of each of these countries is that their economies are small, their export levels are small, and are negligible in global trade. As a result, their currencies reflect the weakness of their economies vis-à-vis the world’s largest economies. This is why currencies like the leone will continue to be anemic regardless of the economic progress Sierra Leone achieves.
The bottom line is if you’re born to a world where your lifetime income will be in leone, this is a very different proposition in comparison to those born to lifetime incomes in US dollars, British pounds, or the Chinese Yuan.
Yes, prosperity is a function of several factors, but the stability and purchasing power of your national currency can haunt you for a lifetime. If you’re born into a nation with a crippled currency, your chances of escaping extreme poverty are that much bleaker.