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The GoSL has placed private sector-led growth at the heart of its economic strategy, acknowledging the need to assure investors that Sierra Leone is an environment conducive to FDI. Although challenges to doing business in Sierra Leone remain, several of these challenges themselves also give rise to promising opportunities for investment.
The purpose of this Guide is to identify and describe areas of opportunity for investment in Sierra Leone. The Guide considers the key features of the Sierra Leonean economy and its principal industry sectors and provides an outline of the applicable legislative framework.
We hope that this Guide faithfully reflects the progress that has been made in recent years in creating an attractive environment for foreign investment in Sierra Leone, as well as the key challenges that are being, and remain to be, addressed at the time of publication.
Sierra Leone’s economic fundamentals present an attractive investment proposition. In the four years preceding the outbreak of Ebola of early 2014, Sierra Leone’s economy had outperformed both the West African and pan-African averages year-on-year, placing it among the world’s top 20 economies by growth during that period.
Although Sierra Leone’s growth was devastated by Ebola during the 2014-15 crisis (and also affected by a significant reduction the price of iron ore during the same period), the medium-term outlook for Sierra Leone’s economy remains positive. Growth is projected to recover to 4.3% in 2016, and to increase to around 6.5% by 2020.
These rates would return Sierra Leone to a growth rate ahead of the global developing country average of approximately 5 per cent., a position it enjoyed before the Ebola crisis.
The Ebola crisis: economic impact and recovery
An outbreak of the Ebola virus began in Guinea in early 2014, and quickly spread to neighbouring Sierra Leone. The Ebola epidemic not only resulted in a devastating humanitarian crisis, but also caused very significant damage to Sierra Leone’s economy: the necessary restrictions on movement of persons, and the commitment of many Government resources to the resolution of the crisis, meant that normal economic activity became difficult. New foreign investment largely ceased, and many existing foreign investors were required to withdraw their expatriate personnel from the country.
To place the country back on its trajectory to meet its economic objectives, the GoSL’s published a Post-Ebola Recovery Strategy in 2015. This included a holistic review of the GoSL’s priorities, policies and systems underpinning social betterment and economic growth. The strategy indicated the GoSL’s willingness to reflect on what could have been done differently in the period preceding the Ebola outbreak and reasserted its commitment to creating a favourable investment climate in order to boost private sector participation and bring back the growth the country enjoyed before the outbreak.
Sierra Leone was declared Ebola transmission free on 7 November 2015, and is now preparing for its planned presidential elections in 2018.
Foreign direct investment in Sierra Leone
FDI into Sierra Leone has been increasing since the end of the civil war in 2002. The latest United Nations (UN) figures show US$519 million of inward FDI flows for 2015.1 This reflects what the UNCTAD has called “one of West Africa’s most ambitious reform agendas”.
Sierra Leone has made it a political priority to create a highly competitive environment for FDI. The country has recently been called “one of the world’s top ten business reformers”, and was in the top half of the sub-Saharan index for ease of doing business in the 2015 World Bank survey – above its neighbours Senegal, Guinea and Liberia.
The political landscape
Steady economic progression has been underpinned by political stability. Since 2002, there have been two democratic elections, including a peaceful transition of power between the two major political parties. Sierra Leone is one of Africa’s most religiously tolerant nations: as The Economist has noted, “Sierra Leone takes religious tolerance seriously… relations between the two main religious groups in the West African country are cordial”. Continued stability will be essential as the country aims to meet its objective of achieving “middle income status” (as defined by the World Bank) by 2035.
Without making any political assessment, the country appears to have benefited from a period of consistent leadership since President Koroma’s original election in 2007. He is now serving his second five-year term, the constitutional maximum, and the next presidential election ae expected to take place in 2018. Sierra Leone has a track record of over ten years of democratic legal reforms, promoted by both of the country’s leading political parties, which favour the private sector. A stable transition of power will of course be essential.
Overview of investment opportunities
Sierra Leone benefits from a number of enviable natural advantages. It has a strategic location on the Atlantic seaboard of West Africa, with one of the largest natural harbours in the world. It has over 5.4 million hectares of fertile agricultural land and forestry, almost 75 per cent. of which remains under-cultivated. It is also seeking to improve the exploitation of its significant fish stocks, yields for which are, at the time of publication, estimated at more than US$100 million per annum.
Rich deposits of a variety of important minerals lie beneath Sierra Leone’s soil, the most significant being iron ore. Sierra Leone is home to some of the world’s largest deposits, with an estimated 12.8 billion tonnes of iron ore reserves at the Tonkolili mine. In 2014, iron ore represented approximately 60% of Sierra Leone’s annual export revenues. This fell to 15% in 2015 as the iron ore price crashed and diamonds re-established its historical position as Sierra Leone’s largest export – demonstrating the significant reliance which Sierra Leone has historically placed on the price of iron ore.
Sierra Leone also has significant reserves of bauxite (including a reserve at Port Loko of around 100 million tonnes) and rutile (Sierra Leone produced an estimated 126,021 tonnes of contained titanium dioxide in 2015). The GoSL recognises that the effective exploitation of the country’s natural resources represents its best prospect of achieving its aims under the A4P.
Notwithstanding the natural attractions of Sierra Leone as an investment destination, foreign investors will nonetheless need to overcome certain obstacles. The most visible of these is the lack of adequate social and physical infrastructure and historic underfunding in education, health, transport and telecommunications, coupled with the diversion of scarce public resources caused by the civil war of the 1990s. This Guide sets out the measures the GoSL is taking to address these concerns, including infrastructure rehabilitation and construction projects.
The risk of corruption is another issue which will be familiar to investors in developing or low-income countries. In 2015, Sierra Leone ranked 119 out of 175 in CPI, ranking ahead of 20 other sub-Saharan African countries. The GoSL is trying to tackle issues of corruption through the development and strengthening of anti-corruption mechanisms, which are outlined in further detail in INVESTING IN SIERRA LEONE section of this Guide.
Sierra Leone was ranked 181 out of 188 countries on the UNDP’s 2015 Human Development Index which measures the risks associated with human development (eg the percentage of child labour and the number of employed people living on less than US$2 (in purchasing power parity terms) a day), the number of occupational injuries and the security which can be obtained from employment.
Opportunities for immediate investment range from Sierra Leone’s traditional strengths in mineral resources to largely un-tapped opportunities in agriculture and fisheries. There are also opportunities in biofuels and hydro-electricity along with potential in offshore oil and gas.
For specific details on the opportunities and challenges relating to the sectors summarised here, please refer to KEY SECTORS.
The GoSL is focused on increasing generation capacity and improving the transmission and distribution of power in the country, which presents opportunities for investment in the sector.
To address Sierra Leone’s low levels of installed power generation capacity, the GoSL has identified up to 27 potential hydropower sites, ranging from the US$580 million Yiben project to smaller projects, including mini-hydro plants below 1 MW. In addition, the potential for solar power is as great as 2200kWh/m according to the European Commission. Hybrid solar-hydro plants are being considered as a possible solution to managing reduced water levels during Sierra Leone’s dry season.
The GoSL is also raising capital to invest in the creation of a national grid through the 2015 Electricity Medium-Term Bond.
The extractives sector has been heavily affected by the drop in iron ore prices (and commodity prices in general). Production remains below Sierra Leone’s potential output and reserves remain under-exploited.
Sierra Leone has made efforts to improve the integrity of its mining sector to meet modern standards, complying with the global standards of the EITI.
Discoveries of offshore oil fields by African Petroleum and Anadarko display potential. The GoSL estimates that oil production could start in 2017. The size of oil resources and the financial viability of extraction are not yet clear, but estimates range from 500 to 700 million barrels of oil and preliminary drilling indicates that the oil is of good quality.
The GoSL has embarked on a programme of works to improve the country’s infrastructure, giving rise to opportunities for strategic partnerships.
Any improvements to the country’s physical and digital infrastructure will inevitably advance growth in other sectors. This includes Sierra Leone’s tourism sector, which has displayed potential with the opening of Freetown’s five-star Radisson Blu Hotel in 2014 and the development of IDEA (UK)’s Hilton Freetown Cape Sierra Hotel, due to open in December 2017.
Sierra Leone’s principal transport hubs are the Port of Freetown and Lungi International Airport. Both sites have been criticised in the past for being The GoSL has taken steps to address this:
- in November 2010, the NCP awarded a 20 year concession of the Port of Freetown terminal to Bolloré Africa Logistics, resulting in changes that are expected to increase the involvement of the private sector in front-line and back-up cargo handling and storage functions; and
- Lungi International Airport is also under renovation, with US$8.9 million funding from the World Bank and the participation of a number of European private enterprises. In addition, plans are in place for the development of a new airport at Mamamah.
In telecoms, the ACE submarine cable, which extends from France to South Africa, finally linked to the Sierra Leone network in February 2013. The country will also benefit from the ECOWAN in due course.
The Ebola crisis had a significant effect on Sierra Leone’s healthcare sector, with the loss of many hospital staff and resources to the disease. The New Statesman has reported that “reconstructing the health system in the post-Ebola period will require significant investments in every aspect of the health system”.
Agriculture and Fisheries
There are opportunities for investment in agriculture and agribusiness in Sierra Leone, with around 5.4 million hectares of fertile land. Sierra Leone compares favourably against comparable countries in terms of labour costs, leasing costs and resource costs.
There are tax incentives are available to certain agribusinesses, for example the GoSL is promoting investment in cash crops such as cocoa, coffee and palm oil and is also planning to establish (tax free) export-processing zones in the country.
Fisheries and marine resources are one of Sierra Leone’s lesser known sources of untapped wealth, yet they have the potential to become the country’s second largest sector for exports after minerals.
The GoSL’s A4P programme is aimed at boosting the country’s investment climate and capitalising on the current political stability. The programme emphasises private sector-led growth, with a particular focus on diversifying the economy and improving the enabling environment for private sector-led growth through, for instance, improvements in energy, water and transport infrastructure. Further details can be found in the sector-specific sections in KEY SECTORS.
The IPA, which serves as the foundation of the private investment regime in Sierra Leone, has as its purpose the promotion and attraction of private investment, both domestic and foreign, “for the development of value-adding opportunities, export creation and investment opportunities”. As outlined in more detail in INVESTING IN SIERRA LEONE, the IPA offers significant incentives to foreign investors in Sierra Leone, including the ability to repatriate profits and capital without restriction, the ability for companies to carry forward losses indefinitely and customs exemptions for expatriate workers and their families.
A variety of tax and non-tax incentives for both local and foreign investors have been designed to channel investments to specific industries and encourage engagement in eligible new enterprises and expansion projects in agriculture, agro-industries, manufacturing and construction. Incentives include income tax exemptions, deductions for income tax purposes and import duty exemptions. These are explored in greater detail in INVESTING IN SIERRA LEONE.
The IPA supplements these incentives with a framework for the settlement of disputes in an international forum, providing, inter alia, for UNCITRAL arbitration (or resolution under such other international machinery as the parties may agree) in the event of a dispute between an investor and the GoSL with respect to (a) an investment in a business enterprise, or (b) investments that have been obstructed or delayed by the GoSL.
Sierra Leone has an Economic Partnership Agreement with the EU, and investors from the UK and Germany also benefit from BITs, which prohibit discriminatory treatment, provide for MFN treatment, and refer investor-state disputes to ICSID The UK’s BIT with Sierra Leone will not be affected by Brexit, but at the moment it is not clear if the will continue to be a party to the EU’s Economic Partnership Agreement following Brexit.
Sierra Leone signed a BIT in 2001 to provide standard investment protections; this BIT is not yet in force. There is, however, a deepening relationship between the two countries, as evidenced by President Ernest Bai Koroma’s visit to Beijing in December 2016.
At a regional level, Sierra Leone is a member of the ECOWAS, a 15-member regional group and, more locally, the MRU, a smaller regional group consisting of Côte d’Ivoire, Guinea, Liberia and Sierra Leone. Both groups exist to develop intra-African trade by promoting economic co-operation and the removal or harmonisation of tariffs and other barriers.
In the context of an increasing focus on human rights within businesses around the world, the GoSL has taken steps to enhance human rights protection. These are explored in SIERRA LEONE AT A GLANCE. This includes the establishment of the Commission in 2004, which has a mandate to protect and promote human rights across the country, and the National Commission for Social Action, which has been active in disability rights and provided rehabilitation grants to over one thousand conflict victims, including amputees. Legislative reforms include the Persons with Disability Act 2011, which transposed the Convention on the Rights of Persons with Disabilities into domestic law, gender justice laws and the Child Rights Act 2007.
Key GoSL contacts for investors
Sierra Leone has developed a political framework for the promotion and facilitation of inbound investment. The SLIEPA was established in 2007, which provides existing and potential investors with information and support relating to investment in Sierra Leone. Potential investors may find it helpful to make contact with SLIEPA early in the investment process.
Alongside SLIEPA, the Public Private Partnership Act 2010, as amended in 2014, established the PPP Unit as an agency of the GoSL’s executive arm. The PPP Unit sources, develops, supports and conducts due diligence in respect of public-private investments in Sierra Leone, with particular regard to investments in infrastructure and other long term projects.
We hope you enjoy this Investor’s Guide to Sierra Leone.