The Miracle That Became a Debacle: Iron Ore in Sierra Leone

Outstanding and explosive piece by David Mihalyi on revenue management posted on the Natural Resource Management Institute blog.

Mihalyi writes about the “deep turmoil” resource-rich, developing countries are experiencing due to low commodity prices:

The impact of the price fall on the plans of all of these countries is daunting, and their governments face steep challenges in reorienting national expectations. The case of Sierra Leone presents a particularly stark case. Three years ago, Sierra Leone’s media, using projections by the IMF and Sierra Leonean authorities, jubilantly predicted that the country would soon become Africa’s fastest growing economy. Unfortunately, this miracle—which was predicated on price projections that proved overly optimistic—did not take place. Worse yet, the erroneous forecast fueled expectations and prompted spending increases that weren’t sustainable.

He identifies three reasons for the “overly optimistic” projects: 1) Assumption of high commodity prices; 2) Over-reliance on company projections of expansion and 3) Tax base erosion. If we do not learn these lessons from these mistaken assumptions -because of fear of political repercussions- we will repeat them.

Mihalyi’s article begs the question:  What strategic thinking do we need now? David offers a few policy strategies based on the current reality: transparent mining projections; flexibility in renegotiated contract terms; ensuring contract compliance; and honest communication with citizens.

 The AMV provides a very good framework for transforming, not only mining but, the growth strategy for the entire mineral dependent economy. The biggest mistake that donors can now make is to encourage even force us to return to “normal”. Normal was taking us downhill.