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2010 Investment Climate Statement - Sierra Leone


2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2010
Report
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Openness to Foreign Investment

The Government of Sierra Leone's (GoSL) Ministry of Trade and Industry, the Administrator General and the Sierra Leone Investment and Export Promotion Agency (SLIEPA) are actively working to increase trade and foreign investment. The GoSL is working to build the industrial base to help develop the country and create jobs. Sierra Leone is starting from a low level. Officials point specifically to the need for foreign investment and value-added activity in a number of sectors, but they highlight agricultural and fisheries production and processing as areas where improvement is most vital.

Investment Laws: In 2007, Parliament amended the 2005 investment code. This amended act created SLIEPA. It is designed to put Sierra Leone on par with western countries concerning the protection of companies and encouraging and promoting investment and agricultural export. The Ministries of Trade and Industry, Finance, and others have submitted an annex to the code to Parliament, which will detail the investment incentives offered in specific sectors.

The sanctity of contracts is upheld in law. In practice, the judicial system is slow and inefficient and is widely regarded as corrupt. Even when a party receives judgment in its favor, such judgments may be unenforceable. The UK Government is undertaking a multi-million dollar judicial reform program.

There are no economic or industrial strategies that have discriminatory effects on foreign investors. There are also no general obstacles on foreign ownership or control. The 2009 mines and minerals policy has placed 25% compulsory Sierra Leonean share-holding, preferably from the community in which the proposed mining area is located. Sierra Leonean authorities do not screen investments. Companies have to register but private investors generally do not consider the business registration process as a major impediment to investing. There are three types of mandatory business licenses: general licenses for every business, special activity licenses for executing certain activities (hotel, supermarket, restaurant, factories, construction), and licenses for specific sectors like tourism, telecommunications, and mining.

Sector-Specific Restrictions:
Mining: In 2009, parliament passed the Mines and Minerals Act. The act seeks to address inadequacies in its predecessor, including environmental concerns, community benefits and employment opportunity. The mining sector is open to foreign investors. For mining investment over USD 100 million, the Minister of Mineral Resources can negotiate the conditions, fees, and taxes with the investor on behalf of the Government. For investments below USD 100 million, the licensing costs are as follows:

General:
-- Non-exclusive prospecting licenses: USD 10-50 per square mile per year
-- Exclusive prospecting licenses: USD 50-200 per square mile per year
-- Exploration licenses: USD 100-400 per square mile for three years
-- Mine leases for a maximum total of 40 years: USD 500-5,000 per square mile per year plus USD 25 per acre per year in income taxes

Diamonds:
-- Alluvial Diamond Exporters license: USD 35,000 per year or USD 20,000 per half year, with a limit of five agents per year plus income tax of 0.3 percent
-- Alluvial Diamond Exporter Agent's certificate: USD 4,000 per year or USD 2,500 per half year
-- Alluvial Diamond Dealer's license (Non-Citizen): USD 4,000 per year or USD 2,500 per half year, plus a rehabilitation fee of USD 128 per year or USD 77 per half year plus USD 154 per year in income taxes
-- Alluvial Diamond Dealer's Agent's Certificate: Not available to non-ECOWAS citizens
-- Artisanal and Co-operative Mining Lease: USD 38 per acre per year plus USD 38 per acre per year for rehabilitation fee
-- Small-Scale Mining Lease: USD 192 per acre per year, with company obliged to conduct rehabilitation
-- Mines Manager's Certificate USD 26 per acre per year
-- Corporate Mines Manager's Certificate (Non-citizen): USD 38 per year
-- Dredging license: USD 500 per year
-- Monitoring Fee: USD 38 per acre per year-- Surface Rent: USD 26 per acre per year
-- Government royalty on diamond exports: 3 percent of export value

Gold:
-- Gold Exporter's license: USD 3,000 per year
-- Gold Exporter Agent's certificate: USD 1,000 per year
-- Gold Dealers license (Non-Citizens): USD 1000 per year plus USD 128 per year income taxes
-- Gold Mining Company Manager Certificate: Non-Citizen USD 167 per year
-- Artisanal Mining License: USD 26 per acre per year plus USD 15 per acre per year income taxes
-- Small-scale Mining Lease: USD 128 per acre per year plus USD 28 per acre per year for rehabilitation fee plus USD 15 per acre per year income taxes
-- Artisanal or Cooperative Mining Lease: USD 13 per acre per year plus USD 38 per acre per year for rehabilitation fee plus registration fees: USD 128 if solely Sierra Leone-owned and registered, USD 500 if majority Sierra Leone-owned, USD 1,000 if minority Sierra Leone owned, USD 2,000 if wholly foreign owned
-- Company Mines Manager Certificate: USD 51 per year
-- Dredging License: USD 500 per year
-- Monitoring Fee for mining: USD 28 per acre per year
-- Surface Rent: USD 28 per acre per year
-- Government royalty for export license holders: 2 percent of export value
-- Government royalty for small-scale license holders: 5 percent of export value
-- Valuation fee: 0.5 percent of export value
-- Monitoring fee for exports: 0.5 percent of export value
-- Gold Area Community Development Fund mandatory contribution: 0.5 percent of export value

Fisheries: Vessels must be registered and must have licenses specific to the types of fishing. Obtaining an industrial fishing license requires an offshore account and 45 percent of the crew must be Sierra Leonean. The licensing process is quick after the vessel is inspected. While ships engaged in unlicensed fishing are a major problem, there is a greater quantity of vessels with licenses violating the terms of those licenses. Licensing costs for vessels over 250 tons are as follows:

-- Shrimp: USD 60,000 per year plus royalties of USD 18,000
-- Fish: USD 40,000 per year with royalties of USD 15,000
-- Tuna purse seiners: USD 18,000 per year
-- Tuna long liners: USD 12,000 per year
-- Purse seiners for pelagic zone: USD 15,000 per year
-- Fish processing ships: USD 20,000 per year.

The treatment of foreign investors does not legally vary by sector, though mining and fishing regulation authorities tend to be dominated by corrupt officials who extract bribes based on the perceived wealth of the investor.

Privatization: In its privatization program of 24 publicly owned enterprises, the GoSL is looking for investors, especially foreign and expatriate investors, who will bring significant capital and expertise on how to improve the financial performance of the institutions. Foreign investors are invited to participate in every stage of the privatization process. The GoSL wants to avoid asset stripping, however, especially in the banking sector, which has attracted international investor attention. The GoSL-owned national radio station has finally been transformed through a privatization bill. The bill has been passed by parliament and is expected to come into effect in March 2010. The passage of this bill is the fulfillment of the requirement from the Independent Media Commission to replace political party radio stations with a national broadcaster that will be open to the public.

Investment Trend Analysis: Important impediments to foreign investment remain. There is a shortage of skilled workers and professionals in Sierra Leone, since many professionals left the country during the war, and those who remain often lack the means to carry on their duties properly. Sierra Leone's trade policies are relatively open and non-tariff barriers have been eliminated. Import and export licenses have been abolished for all but a small number of products. Importing and exporting problems have less to do with policy than with practice. Customs clearance is slow, cumbersome, costly, and opaque, though the GoSL is considering reducing its customs registration and documentation requirements, but no progress has been made in the past year. Tariff schedules are not always transparent, which allows arbitrary assessments, frequently padded with bribery. Sierra Leone continues to use the Brussels Declaration of Value, as it has not yet adopted the WTO Agreement on Customs Valuation. Sierra Leone uses minimum or reference values for rice, flour, sugar, cement, used clothing, and clothing accessories and gives customs agents discretion that eventually increases the costs of imports.

International indices:
-- TI Corruption Index; 146 of 180; 2009 Score: 2.2; Surveys Used: 5; Confidence Range: 1.9-2.4
-- Heritage Economic Freedom; 158 of 179; Freedom Score: 47.8; Change from previous year: -0.5
-- World Bank Doing Business Report: Ease of Doing Business Rank: 148 of 183; Starting a Business: 58 of 183; Dealing with Construction Permits: 171 of 183; Employing Workers: 166 of 183; Registering Property: 175 of 183; Getting Credit: 127 of 183; Protecting Investors: 27 of 183; Paying Taxes: 161 of 183; Trading Across Borders: 137 of 183; Enforcing Contracts: 144 of 183; Closing a Business: 147 of 183
-- MCC Government Effectiveness: -0.33 (29 percent)
-- MCC Rule of Law: -0.14 (35 percent)
-- MCC Control of Corruption: -0.29 (27 percent)
-- MCC Fiscal Policy: 5.9 (85 percent)
-- MCC Trade Policy: 62.8 (32 percent)
-- MCC Regulatory Quality: -0.23 (39 percent)
-- MCC Business Start Up: 0.873 (37 percent)
-- MCC Land Rights Access: 0.433 (12 percent)
-- MCC Natural Resource Management: 44.68 (13 percent)

Conversion and Transfer Policies

The Investment Code guarantees foreign investors the right to repatriate earnings and the proceeds of sales of assets, and also allows expatriate employees to repatriate earnings. There are no restrictions on converting or transferring funds associated with investments, including on remittances of investment capital, earnings, loan repayments, and lease payments. Outflows of wealth from Sierra Leone are dominated by the export of diamonds and other minerals, not financial flows. Cash outflows are mostly for physical capital expenditures and to make payments abroad for expenses.

There are no restrictions on converting or transferring funds associated with an investment. Investors can withdraw and remit any amount from a commercial bank and have it transferred into any freely convertible currency and at legal market clearing rates with little or no delay. Sierra Leonean banks are well connected with the international banking network. The Central Bank has conducted weekly foreign exchange auctions, limiting each bidder to $100,000, but the auctions do not meet the needs of importers. There are rumors of plans to increase the frequency of foreign exchange auctions, as insufficient access to foreign exchange has driven most business owners to exchange currency on the black market, and has driven a 30 percent devaluation of the local currency over the last year. Additional foreign exchange is available through the banking system, but banks will provide cash only to customers who have deposited cash. Customers who have deposited transfers can obtain only transfers.

Expropriation and Compensation

There is no history of expropriations in Sierra Leone.

Dispute Settlement

The legal system inherited from the UK protects property and contract rights in the modern sector and there have been few notable disputes with property or contract rights affecting U.S. or other foreign investors. Investors have access to the judicial system, but the system is slow and is often subject to financial and political influence. Arbitration clauses in contracts and foreign judgments are respected. The Law Reform Commission is considering a new Commercial Law, but progress has been slow. One specific U.S. investor has claimed repeatedly over several years that his competitors are allowed to undervalue imports, thus paying less in duties and underselling him. Other investors complain that undervaluing goods bound for retail is necessary to reduce what many believe are exorbitant customs duties. The GoSL has expressed the desire to find a solution to this problem, but they have yet to resolve the issue.

Sierra Leone is a party to the Convention on Settlement of Investment Disputes between States and Nationals of Other States (The Washington Convention), which it ratified and put into force in October 1966, but the Embassy is unaware of any efforts to enforce it.

Performance Requirements and Incentives

According to WTO records online, the GoSL has not notified the WTO of any measures it deems inconsistent with TRIMs requirements. The host government/authority does not maintain any measures that are alleged to violate WTO's TRIMs text.

The GoSL has established no performance requirements incentives. The annex to the Investment Code is expected to define investment incentives to be offered in some specific sectors, but it has not yet been released. There is no requirement that investors purchase from local sources or export a certain percentage of output, and there are no legal limits on access to foreign exchange. There is no requirement that nationals own shares or that the share of foreign equity is reduced over time. There are also no requirements that technology is transferred on certain terms. There are no offset requirements or conditions on permission to invest. There are also no government financed research and development programs.

The only discriminatory visa, residence, or work permit requirements are those giving preference to nationals of other countries in the Economic Community of West African States (ECOWAS). Visas are easily obtained at any Sierra Leonean Embassy. Work permits cost between USD192 and USD641, while Residence permits cost between USD928 and USD1,282 per year. Each takes approximately one week to obtain.

There are no discriminatory or preferential export or import policies affecting foreign investors.

Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all sorts of remunerative activities. Foreigners are free to establish, acquire and dispose of interests in business enterprises.

Protection of Property Rights

Secured Interest in property: Mortgages exist in Sierra Leone, but since there is only a small stock of vacant buildings, the real estate market is minimally active and mortgages are not common. When they are given, mortgages can carry long terms, but are more commonly of short duration and high interest. Short-term bank loans for new construction are more common, but the vast majority of Sierra Leonean individuals and businesses will enter into construction projects with whatever funds they have amassed, and halt construction when the money runs out until they can save more. In this way, a single-family home can take a lifetime to build, but remains in families for generations.

Acquisition and Disposition of Property: There are two legal types of land tenure in Sierra Leone. Freetown and the Western Area, the former British colony of Sierra Leone, operate under a freehold system. Outside the Western Area, land is governed under a leasehold system. Foreigners cannot own land under either system, but can lease land for terms of up to 99 years. Officially there is complete and open access to the court system if an individual or enterprises thinks its interests to be compromised, but judicial practice is widely reported to be open to political or financial influence. There is no effective land titling system to validate property rights. Because it can be difficult to verify ownership, land is frequently sold by individuals who have no legal ownership of the land, thus restricting and complicating investment. The Ministry of Lands placed a moratorium on selling land in November, 2008, because of a variety of abuses. While the government has lifted the ban on the sale of private land, the sale of public lands remains prohibited. The government is receiving support from external donors to redesign the land tenure system, and is still being reviewed.

Sierra Leonean citizens can acquire private land (in Freetown and the Western Area only) in a fairly straightforward fashion, though the system is rife with corruption, fraud, and abuse. State lands can be obtained from the State Lands Committee and the Ministry of Lands via a bureaucratic process that typically takes 65-70 business days. In many cases, State Land has been appropriated by government officials allegedly for personal use without proper sale or procedures. Under the Customary Land system, an investor can lease land by entering into a joint venture for economic purposes with the local paramount chief who controls the land in his district. This system is designed to protect the livelihood of indigenous traditional users of the land: householders, subsistence farmers, herders, and small producers. In practice, it stifles development in areas outside of Freetown.

Intellectual Property Rights: Popular music and films are illegally copied and sold on a substantial scale in Sierra Leone. While some recorded American music and films are affected, this practice mostly affects local and regional music and Nigerian films. The GoSL is taking steps to develop policy and laws that will bring it into compliance with TRIPS. So far, these measures do not include amendments to the copyright law, which is 40 years old. Per WTO agreements, Sierra Leone had until 2006 to fully implement TRIPS but extensions were recently granted to all Least Developed Countries until July 1, 2010.

Transparency of Regulatory System

While the official laws appear to foster competition and establish "clear rules of the game," red tape and excessive delays have caused major problems in the past. SLIEPA is in the process of trying to streamline procedures, and Sierra Leone has moved to the 148th position in the World Bank's "Doing Business" ranking. Though Sierra Leone is highly-ranked in comparison with other West African countries in terms of starting a business and protecting investors, issues with licenses, contract enforcement, and high tax rates are considerable problems. One notable effort to improve clarity is the Government's establishment of a "one stop center" where investors can obtain all required permits and licenses. SLIEPA has encouraged agricultural production and other activities geared towards export; provided exporters with marketing services; identified and encouraged potential investors in agriculture and other economic sectors; and promoted investment opportunities in Sierra Leone, both locally and internationally.

The Government does not use tax, labor, environment, health and safety or other laws and policies to distort or impede investment. There is no discrimination against foreign investors within any regulatory processes. All proposed laws are published in draft form, but are frequently difficult to obtain because they are available to purchase only in person from the government printing office. There are no private sector or government efforts to restrict foreign participation in industry standards-setting consortia or organizations.

While not all legal, regulatory, and accounting systems are transparent and consistent with international norms, there has been significant progress in recent years, and we expect such progress to continue. The Ministry of Finance and the Central Bank are preparing the Anti-Money Laundering and Countering the Financing of Terrorism Act, which Post is told will soon be forwarded to parliament. It addresses weaknesses in the 2005 Act and incorporates terrorism and financing issues that were previously omitted. The law requires that money transfers over USD 10,000 be sent through the banking system to ensure transparency and provide paper trails for all transactions. The West Africa Bankers Association (WABA) had actively encouraged establishing a credit card-friendly environment in Sierra Leone, and 2009 has seen dramatic progress toward that goal, with the first international ATMs and point of sale terminals opening in the past year.

Efficient Capital Markets and Portfolio Investment

Policies generally facilitate the free flow of financial resources, and are continuously improving.

Citizens and foreigners have access to credit under the same market terms. However, credit is rarely a problem for foreign investors as they typically bring in capital from outside the country and have well-established banking relationships that enable them to obtain working and trading capital. Credit is much more difficult to obtain in the indigenous private sector because problems with the land tenure system make collateral difficult to establish. Most private businesses in Sierra Leone use overdraft on bank accounts as their only form of revolving credit.

Portfolio investing has not taken hold in Sierra Leone, as it is just now advancing from being a cash-only economy to one with electronic transactions.

As of December 2008, the largest banks had the following estimated total assets, according to the Bank of Sierra Leone (audited figures for 2009 will only be available in March 2010):

-- Sierra Leone Commercial Bank: USD 109 million
-- Rokel Commercial Bank: USD 93 million
-- Standard Chartered Bank: USD 71 million
-- Union Trust Bank: USD 55 million
-- Eco Bank: USD 49 million
-- Guarantee Trust Bank: USD 29 million
-- First International Bank: USD 23 million
-- Access Bank: USD 15 million
-- Pro-Credit Bank: USD 11 million
-- International Commercial Bank: USD 9 million
-- Skyy Bank: USD 8 million
-- United Bank for Africa: USD 7 million
-- Zenith Bank: USD 5 million

The commercial banking sector is sound. There is no evidence of cross-shareholding and stable shareholder arrangements in Sierra Leone. There is no history of hostile takeovers in Sierra Leone.

Competition from State-Owned Enterprises (SOEs)

In some cases, private enterprises compete with public enterprises. When this happens, it is under the same terms and conditions with respect to access to markets, credit, and other business operations. For example, in the internet service provider market, SierraTel operates alongside several commercial entities. Private radio and television stations operate in competition with the national public radio station. In contrast, electricity is provided only by the government, as are telephone land lines. However, those monopolies are more the result of physical infrastructure discouraging competition than any policies preventing private enterprise from operating. SOEs operate in the telecommunications, power, water, transport, and construction sectors.

Each SOE is managed uniquely, though most report through an office to a cabinet minister. During the privatization process, boards of directors are beginning to be established. This was an area of controversy when, in one case, the privatization bill of an SOE included a clause that the chair of the Board of Directors would be appointed by the President; the bill has been recalled for amendments and has yet to be finalized.

Sierra Leone does not have a Sovereign Wealth Fund. SOEs are not required by law to publish and annual report or to submit their books to independent audit.

Corporate Social Responsibility:

Corporate social responsibility has been a neglected aspect of business investment over the last several decades. Greater competition in the communications industry has forced business to take corporate social responsibility seriously. Mobile phone companies in particular have demonstrated a willingness to fund projects of all sorts in exchange for sponsorship credit. Recently, Africell financed a beautification project at the cotton tree, the center of the city and Freetown's most prominent landmark.

Political Violence

There have been incidents in past few years of politically motivated clashes that resulted in damage to projects and installations. A U.S.-funded community radio station outside Freetown was vandalized and robbed of a substantial portion of its equipment. Despite the recent coup in Guinea, Sierra Leone remains stable. Disruption of cross border trade with Guinea has a direct effect on availability and cost of foodstuffs and other goods. There is the potential for political rallies to snarl traffic and damage property. With extensive UK and UN training and new equipment, the Sierra Leone Police have increased capacity to handle such events and performed well during the 2007 national elections. The security agencies are cautiously monitoring the political situation in Guinea to guard against possible destabilizing spillover of unrest into Sierra Leone.

Corruption

Sierra Leone established its independent Anti-Corruption Commission (ACC) in 2000, and significantly strengthened it in the Anti-Corruption Act of 2008. The ACC is charged with investigating cases and educating the public to reduce corruption in its many forms. The ACC has many pending investigations, and several indictments, including. In 2009 alone, the Minister of Health resigned facing an ACC indictment, the head of the National Revenue Authority was put on indefinite leave facing an ACC investigation, and the head of the regulatory body for the gold market was sacked facing an ACC investigation. While the ACC still has a way to go before it can be called a fully effective enforcement body, recent progress is promising. The Anti-Corruption Act is not used disproportionately against foreigners.

Sierra Leone signed the UN Convention against Corruption in December 2003 and ratified it in September 2004. Sierra Leone is not a signatory of the OECD Convention on Combating Bribery. There are no other local or regional anti-corruption initiatives of which the Embassy is aware.

U.S. firms have identified corruption as an obstacle to foreign direct investment, ranking Sierra Leone near other West Africa countries for corruption. Bribes, kickbacks, extortion, and skimming are prevalent in government procurement, transfers, dispute settlement, and taxation. Giving or accepting a bribe is a criminal act, both within Sierra Leone and from a local company or individual to a foreign official, and it is to be prosecuted by the ACC. Penalties vary dramatically based on the magnitude of the bribe.

While some government officials do take corruption seriously, recent resignations at the cabinet level following corruption charges confirm that there are corrupt officials at every level of the GoSL.

Several international watchdog organizations operate in Sierra Leone, including Transparency International and the Campaign for Good Governance.

Bilateral Investment Agreements

Serra Leone does not have a bilateral investment treaty or taxation treaty with the U.S. The Embassy is not aware of any bilateral investment protection agreements with other countries other than the ECOWAS free trade agreements.

OPIC and Other Investment Insurance Programs

The Embassy believes there is the potential for operation of OPIC in Sierra Leone. Sierra Leone is a member of the Multilateral Investment Guarantee Agency (MIGA).

Sierra Leone has a floating exchange rate. The Leone fluctuates, but has depreciated rapidly in the past year, mainly due to increasing demand for financing current consumption, especially of imported petroleum products, and a decrease of inflows of foreign currency resulting from decreased mineral exports and decreased foreign remittances. The U.S. mission uses approximately USD 2.2 million annually, and purchases currency at the mid rate.

Labor

Sierra Leone suffers from a shortage of educated and skilled workers and professionals. Brain drain to Europe and North America has been a significant drag on the economy for some years. Formal sector employment is largely governed by collective bargaining agreements between employers and unions. The statutory minimum monthly salary is Le 120,000 (currently approximately USD 30.77), but under the collective agreements, the practical minimum could be higher. The minimum figure goes up with qualifications so that a machine operator in manufacturing must be paid a minimum of Le 130,000 (currently approximately USD 32.75), a senior operator a minimum of Le 165,000 (currently approximately USD 41.57). The standard workweek is 40 hours with two consecutive days off mandatory, though many work 60 hours per week. Work beyond 40 hours is supposed to be paid at time and a half or double time. Contributions to the national pension plan, NASSIT, are mandatory. The employer pays 10 percent of the worker's salary and the worker contributes 5 percent.

Companies can find an employee redundant for commercial or financial reasons after trying and failing to find alternative employment, in consultation with the union. The employer can discharge workers only on the basis of seniority, with more junior workers being dismissed first. Employers must give two months notice and pay redundancy compensation according to a steeply rising schedule. Workers can be dismissed for incompetence, inefficiency, violation of rules, or serious offenses in a reasonably straightforward manner. In practice, evidence suggests these regulations are often ignored due to corruption within the Ministry of Employment.

Foreign Trade Zones/Free Trade Zones

Sierra Leone does not operate a duty free zone. Plans were under way to establish an export-processing zone with duty free status for re-exports prior to the civil war, but those plans have been abandoned.

Foreign Direct Investment Statistics

According to the 2009 UNCTAD World Investment Report, Sierra Leone attracted USD 30 million in foreign direct investment in 2008. Sierra Leone does not have Foreign Direct Investments abroad. According to the World Bank Sierra Leone's GDP was USD 1.95 billion in 2008, putting FDI at approximately 1.5 percent of GDP.

Accurate data on foreign direct investment is difficult to track, since many American investors in Sierra Leone are private individuals involved in the mining trade. There are two major companies--Seabord, which is wholly U.S.-owned, and Sierra Rutile, which is partially U.S.-owned--in operation in Sierra Leone. Figures on total investment are unavailable.



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