By Moin Siddiqi, Economist
The outbreak of Ebola has complicated the economic dynamics in Sierra Leone, which stood on the verge of an unprecedented era of boom, driven largely by revenues from iron ore, gold, diamonds and potentially offshore crude oil. This post-conflict nation of six million-plus people – classified a success story by the Bretton Woods Institutions – had made great strides towards improving democratic institutions and establishing pluralism as well as achieving robust growth in the last decade with a sustainable public debt level, improved fiscal and external positions and currency stability.
Indeed, Sierra Leone was one of the fastest growing economies in Africa. In early 2014, an International Monetary Fund (IMF) Mission to Freetown concluded: “Sierra Leone’s economic growth momentum continued in 2013, with output expanding by 20% and inflation falling to single digits, mainly reflecting increased food supply. Real gross domestic product (GDP) growth is projected to remain in ‘double-digits’ at 14% and 10.8%, respectively, this year and next, driven by soaring iron ore and other mining production, sustained and robust expansion in agriculture, services, and construction, and a recovery in manufacturing as energy supply improves in 2014. An improving trade balance coupled with expected capital inflows will help strengthen the external and fiscal positions, whilst building up gross international reserves.”
The government, headed by H.E President Ernest Bai Koroma, has embarked upon one of Africa’s most ambitious programmes of infrastructure building and structural reforms – focusing on fiscal probity, the business climate and financial sector as well as privatisations – with the objectives of unlocking mining potential, whilst nurturing a vibrant/diversified economy and mobilising higher inflows of domestic and foreign direct investments (FDIs).
Opening for Business
HE President Koroma strongly believes that economic growth should be, and indeed, will be driven by the private sector rather than solely through public sector activities and foreign aid. The country has actively encouraged private investment by establishing a one-stop shop for investors, the Sierra Leone Investment and Export Promotion Agency (SLIEPA), and through the implementation of key trade-promotion activities under the Integrated Framework, as well as revising the legal and regulatory frameworks.
Consequently, Sierra Leone rated reasonably well in the 2014 World Bank’s Ease of Doing Business Report – placed [second] out of 16 West African peers and 18th in sub-Saharan Africa. Its rating dropped in 2015 because of heightened Ebola-related uncertainties and a downturn in new business set-ups. Nonetheless, the number of procedures, time plus cost required for licensing a business and registering a property has all improved since 2005. Other features of improved support for entrepreneurs included fully computerised credit information system, a functioning fast-track commercial court and the Automated System for customs data, which simplifies the process of exporting goods.
The country offers an open and friendly FDI regulatory regime and firm guarantees against expropriation. Sierra Leone ranked among the top-five countries in Africa for investor protection in recent years. Most business sectors are fully open to foreign equity ownership and the Investment Promotion Act offers a level-playing field for all domestic and foreign investors with respect to ownership of local companies. The legal system is based on English Common Law & Customary Law.
Political stability and sound macroeconomic fundamentals led to increased FDI (net) inflows totaling US$2bn over 2010-14, up steeply from US$402mn on the previous five-year period, according to UN Conference on Trade & Development (UNCTAD). In general, FDI is concentrated in Freetown, where there is a stronger physical infrastructure than other regions, and within three major mining zones – Kono and Kenema (in the west for diamonds) and Bonthe (in the south for rutile and bauxite).
The Ebola outbreak had derailed rising trend of inward FDI of recent years. But with the resumption of international flights and other commercial activities now underway, there are signs of renewed investor interest in non-resources sectors, particularly, in agriculture and light manufacturing.
Although the extractive industry and telecommunications have received the bulk of foreign investments, an UNCTAD report indicated Sierra Leone has a lot of scope for FDIs in agribusiness, fisheries, ecotourism, and manufacturing. Foreign manufacturers enjoy duty-free access to both the European and American markets under the Everything But Arms Initiative and the US African Growth and Opportunity Act (AGOA), as well as China’s ‘Zero Tariff’ and India’s Duty Free and Quota Free privileges.
Developing reliable infrastructure and improving the business environment are prerequisites for attracting the world’s leading companies in key sub-sectors. But FDI inflows are still well below their potential – based on unmet local demand and the availability of untapped opportunities in Sierra Leone.