Real Exchange Rate Impact on Sierra Leone's Agricultural Exports

This project delves into the critical relationship between agricultural export growth and the Real Exchange Rate (RER) in Sierra Leone. Given the agrarian nature of the West African economy and Sierra Leone's reliance on agriculture, contributing significantly to GDP and foreign exchange earnings, the study investigates the impact of RER fluctuations on the country's agricultural export performance. The research begins with an overview of Sierra Leone's economic landscape, highlighting the historical decline in agricultural output and the influence of macroeconomic policies, including exchange rate and trade reforms. The methodology involves a five-chapter structure, including an introduction, analysis of exchange rate policies, literature review, empirical analysis, and conclusions with policy recommendations. The project aims to identify the effects of RER fluctuations on agricultural export growth in Sierra Leone, considering the potential price inelasticity of agricultural supply. Furthermore, the study suggests areas for further research, including a secondary analysis of available data to identify the reasons for the compensation gap and a comparative analysis between the United States, Canada, Europe, and Japan. The final report combines empirical studies, theoretical understanding, and qualitative analysis to provide comprehensive insights into the subject.

Research Topic:
The relationship between agricultural export growth and the Real Exchange Rate (RER) in Sierra
Leone
Purpose:
In Africa agriculture has some examples of successful development on a local basis, but the
broad trends over recent decades have been adverse. This been most evident in the overall
reduction in food security. West Africa economy is basically an agrarian and a critical look at the
structure of agriculture shows that, mainly it could be divided into subsistence and commercial
agriculture. The economy of Sierra Leone like other West Africa countries also rest heavily on
agriculture. This sector contributing more than 30 % of the GDP and agriculture produce account
for about 30 percent of the total foreign exchange earnings annually1. The importance of
agriculture in the Sierra Leone economy is further reflected by the fact that about 65% of the
total populations are currently finding their likelihood in agricultural activities. Crop production
is the main sub-sector as it contributes about three-quarter of agricultural value added with rice
holding the dominant position. Agriculture also accounts for about 10 % of export earnings2.
Background
It is however evident that total agriculture output has been falling annually. Even before the rebel
incursion, production had been declining at an annual rate of at least 3 percent3. The period
1970-1980s was characterized by poor agricultural export performance which has been blamed
mostly on inappropriate and in consistent macro and micro economic policies that were
implemented. These policies undermined local production and placed agricultural exports at a
major comparative disadvantage.
Prior to the stabilization and adjustment reforms, the government played a dominant role in
agricultural development including price regulation, exportation of cash crops and in some cases
undertaking direct production.
The role was mostly performance by the Sierra Leone Produce Marketing Board (SLPMB)
which was charged with the sole responsibility of handling a variety of export crops to market,
promote growth and stabilize price4.
Due to poor performance in agricultural export characterized by large fluctuations in world
prices, this made the authorities to resort to the reassessment and implementation of various trade
policies within a view of attracting satisfactory and sustainable responses from agriculture. These
policies were implemented under over valued domestic currency which means low price for farm
products5.
Through the economics adjustment agenda, exchange rate and trade reforms occupied a core
position. The Real Exchange Rate (RER) by virtue of its impact on the International
competitiveness of an economy, assumed an overriding importance among the cohort of policy
variables. The overvalued exchange rate system mentioned by the Sierra Leone government over
the years made the domestic price of tradable to fall in domestic currency terms and hence
discouraged the exportation of agricultural products

Scope:
According to G.E Schuh’s pioneering articles linking exchange rate to countries performance in
the global agricultural market, several attempts were made to quantify the effects of nominal and
Real Exchange Rate movement on agricultural trade.
Despite these studies, inadequate attention has been directed towards analysis of underlying
policies that directly influence Real Exchange Rate and that indirectly affect trade performance,
specifically the issue of RER fluctuations has been ignored.
Real Exchange Rate fluctuations is a particularly relevant issue in Sierra Leone where agriculture
is a significant source of foreign exchange earnings and often the most import economic sector,
providing large employment opportunities. This study is therefore carried out investigate the
impact of Real Exchange Rate fluctuation on agricultural export growth in Sierra Leone.
Available literature suggests that an increase in the Real Exchange Rate i.e. a depreciation of the
Real Exchange Rate; will increase the international competitiveness of agricultural export there
by leading to an increase in export. But whether a depreciation of the Real Exchange Rate will
impact positively on Sierra Leone’s agricultural export which are believed to be price inelastic
supply needs to be investigated.
Methodology:
1. This study will be divided into five chapters.
2. The Introductory chapter (Chapter One) will be followed by chapter two which will give
an overview of exchange rate policies and misalignment of nominal exchange rate in the
fixed and floating regimes and trend in agricultural export in Sierra Leone. Chapter three
will conduct literature review an analysis of the methodology and empirical analysis of
the study are presented in chapter four. In the final chapter (Chapter Five) the summary
of findings and policy recommendations of the study are presented. Observe the findings
and see if there is any scope for further study which was not covered in their study. If any
scope exists then do further research on that to bridge the gap.
3. After identifying the scope a hypothesis should be formed to conduct the further research.
4. Conduct a secondary analysis of the available data to identify the reasons of the
compensation gap and why is it soaring high. Do a comparative analysis between United
States, Canada, Europe and Japan.
5. Write the final report that combines the previous empirical studies, the understanding of
relevant theory and practices and the qualitative analysis of the research.
Timeline:
The dates should be according to the deadlines of each submission.
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