Transparency of the Regulatory System
Sierra Leone’s regulatory system is not robust, as legal, regulatory, and accounting systems lack transparency and are not fully consistent with international norms. This has been a realm of significant capacity building projects by international donors in recent years.
The Government of Sierra Leone develops laws and regulations at the national level, but the public and business community at large have few opportunities to provide input into proposed laws and regulations. The Constitution requires publication of proposed laws and regulations in a government journal, the Gazette, for a period of 21 days. However, stakeholders assert that they often do not receive notice of relevant regulatory changes, and a proposed regulation may automatically take effect unless overturned by Parliament. The Sierra Leone Chamber of Commerce, Industry and Agriculture represents the business community, but the private sector and civil society still have a too-limited role in pushing for regulatory change.
In recent years, Sierra Leone has taken various steps to promote and improve regulatory transparency. The Right to Access Information Act passed 2013 should make government records and information available to the public. However, the implementation of this Act has been incomplete since the establishment of the Right to Access Information Commission in 2014, though it prompted attention for the public to access vital information as a way to effectively monitor corruption and encourage quality service delivery. Sierra Leone joined the Open Government Partnership (OGP) in 2014 to make governments more transparent and effective, and encourage greater civic participation for citizens. Over the last five years, the Office of the Auditor General produced comprehensive and credible annual audits, including supplementary reports which focused on the expenditure of the Ebola response funds and budgetary subventions to ministries, departments and agencies (MDAs). While the audits identified numerous serious deficiencies and challenges, most of the Auditor General’s recommendations have not been implemented by the responsible MDAs. Sierra Leone joined the Extractive Industries Transparency Initiative (EITI) in 2008, and after a brief suspension for insufficient disclosures, the country has been EITI compliant since 2014. As discussed above, the government has simplified and streamlined the business registration process into a one-stop shop. The enactment of the Public Financial Management Act in 2016 reformed the budget process and improved transparency in the expenditure of public funds, and the Fiscal Management and Control Act of 2017 directed government MDAs to transfer revenues and all other monies they receive into the Consolidated Revenue Fund. One of the first executive orders of newly elected President Maada Bio in April 2018 was to order all MDAs to transfer immediately their residual funds into the Treasury Single Account (TSA), a key conditionality of the International Monetary Fund (IMF) to improve governmental budgetary oversight and controls.
International Regulatory Considerations
Sierra Leone joined the World Trade Organization (WTO) in July 1995 and the General Agreement of Tariff and Trade (GATT) in May 1961. Sierra Leone has never been a party to a dispute case before the WTO, and it has not notified the WTO of any measures that are inconsistent with the WTO’s Trade Related Investment Measures (TRIMs) obligations. As a member of the World Customs Organization (WCO) since November 1975, Sierra Leone acceded to the International Convention on the Simplification and Harmonization of Customs Procedures in June 2015. Otherwise referred to the Revised Kyoto Convention, Sierra Leone successfully completed the WCO Time Release Study in support of the country’s commitments to the WTO Agreement on Trade Facilitation in 2016, and finally notified the WTO of acceptance of the WTO amendment of the Agreement on Trade facilitation in May 2017.
Legal System and Judicial Independence
The Sierra Leone legal system is derived from the English common law system, but outside of the capital, Freetown, local courts apply customary law to many disputes. The courts provide a venue to enforce property and contract rights. The country does not have a consolidated written commercial or contractual law, but numerous, disparate pieces of legislation, leading to uneven treatment of commercial disputes.
The Superior Court of Judicature consists of the Supreme Court, the Court of Appeal, and the High Court. Commercial disputes brought before the High Court are generally heard by the Commercial and Admiralty Division. In 2010, Sierra Leone created a Fast Track Commercial Court, in the hope of reducing the duration of a typical commercial case from 2-3 years to 6 months. To date, the court has had minimal effectiveness due to resource limitations. In 2017, Sierra Leone hosted a commercial law summit to address gaps in the justice system, and came up with concrete recommendations in key areas, including arbitration, anti-corruption and bribery, public-private partnerships, and reform of the court process. There is now a draft Arbitration Bill which when passed into law will bring arbitration proceedings in Sierra Leone up to international standards.
Inasmuch as the judicial system is presumed to be independent, it is generally believed that it occasionally comes under the direct influence of the executive, which has adversely impacted the competence, fairness and reliability of the judicial system. Although foreign investors have equal access to the judicial system, in practice the system is slow and often subject to financial and political influences.
Laws and Regulations on Foreign Direct Investment
Sierra Leonean law generally ensures that foreign investors may compete on the same terms as domestic firms. The Investment Promotion Act 2004 protects foreign entities from discriminatory treatment. The law creates incentives and customs exemptions, provides that investors may freely repatriate proceeds and remittances, and protects against expropriation without prompt and adequate compensation. The law establishes a dispute settlement framework that allows investors to submit disputes to arbitration in accordance with the rules of procedure of the UN Commission on International Trade Laws (UNCITRAL). Export licenses are required only for certain goods and materials. While the export of gold and diamonds must comply with internationally-accepted standards such as Kimberley Process certification, the permits required to export goods such as cocoa and coffee are issued automatically, and legally at no cost.
Foreign companies may own or invest in Sierra Leonean entities, with limited exceptions. Small mining investments require a minority partnership with a Sierra Leonean company. The Sierra Leone National Carrier Ratification Agreement of 2012 provides preferential treatment in shipping to the Sierra Leone National Shipping Company. The Petroleum Exploration and Production Act 2001 restricts licenses for petroleum exploration and production to companies registered or incorporated in Sierra Leone. The government of Sierra Leone has also identified certain restrictions on foreign investment in its Schedule of Specific Commitments to the General Agreement on Trade in Services, from August 1995, which established limited restrictions on business services, financial services, and the maritime and airport sectors. Businesses providing such services must establish local partnerships or joint ventures.
The Local Content Policy, adopted in 2012, promotes the utilization of locally produced goods and locally provided services, and the employment of Sierra Leonean nationals. While failure to follow the policy previously resulted only in a denial of investment incentives, the Sierra Leone Local Content Agency Act 2016 requires compliance. More information is available below in the “Performance and Data Localization Requirements” section.
Sierra Leonean authorities do not screen, review, or approve foreign direct investments. Companies must register to do business in Sierra Leone, but the Embassy is not aware of any complaints that the registration process has been used to block particular investments or discriminate against particular investors. In the case of investment guarantees (e.g. by the U.S. Overseas Private Investment Corporation-OPIC), the GoSL established certain procedures with the U.S. government in agreements signed on December 28, 1962 and November 13, 1963, whereby GoSL authorities grant approval for external investment guarantees in Sierra Leone.
Additional information about the laws and regulations applicable to foreign investments is available on the website of SLIEPA at http://sliepa.org/ .
Competition and Anti-Trust Laws
Sierra Leone does not have a competition law. The European Union (EU) and the United Nations Conference on Trade and Development (UNCTAD) have supported the Ministry of Trade and Industry’s attempts to develop a competition policy, but the parliament has not yet adopted the relevant legislation.
Expropriation and Compensation
There is no history of expropriation in Sierra Leone. The Constitution authorizes the government to expropriate property only when it is necessary in the interests of national defense, public safety, order, morality, town and country planning, or the public benefit or welfare. In such cases, the Constitution guarantees the prompt payment of adequate compensation, with a right of access to a court or another independent authority to consider legality, determine the amount of compensation, and ensure prompt payment.
ICSID and New York Convention
Sierra Leone has been a party to the International Convention on the Settlement of Investment Dispute (ICSID) since 1966, but not a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Section 13 of the Arbitration Act 1960 allows foreign arbitral awards to be registered in Sierra Leonean courts and enforced in the same manner as a domestic judgment or court order. However, registration of foreign arbitral awards is not automatic but instead left to the discretion of the presiding judge.
Investor-State Dispute Settlement
Investment disputes in Sierra Leone can take a long time to resolve, given heavily centralized decision-making, the slow pace of government actions, and substantial court backlogs.
In 2016, the Embassy received multiple reports of cases where U.S. companies experienced challenges in asserting their investment interests. One company reported that the government denied regulatory approval for the firm’s acquisition of a Sierra Leonean entity in part because preference should be given to Sierra Leonean buyers. Two other companies reported challenges in collecting payments owed by the government in services contracts; mounting arrears in GoSL payment of invoices is an issue the new GoSL administration has stated requires urgent attention. As of April 2018, these three matters remain unresolved.
International Commercial Arbitration and Foreign Courts
The Arbitration Act 1960 allows investors to arbitrate disputes, but the procedures set forth in the law are outdated and not in compliance with international standards. The country does not have a central arbitral institution, and instead arbitration is conducted on an ad hoc basis, including through pretrial settlement conferences and alternative dispute resolution mechanisms before the Commercial and Admiralty Division of the High Court. The Investment Promotion Act 2004 allows investment disputes to be referred to arbitration in accordance with UNCITRAL procedures or the framework of any applicable bilateral or multilateral investment agreement.
Judgments of foreign courts can be enforced under the Foreign Judgments (Reciprocal Enforcement) Act 1960, provided the country has a bilateral or reciprocal enforcement treaty with Sierra Leone.
The Bankruptcy Act 2009 establishes a process of bankruptcy for individuals and companies. Bankruptcy is a civil matter, but it may disqualify an individual from holding certain elected and public offices and from practicing certain professions. The Bankruptcy Act 2009 also encourages and facilitates reorganization as an alternative to liquidation. The World Bank ranked Sierra Leone 159 in the ease of resolving insolvency in 2018. While the country’s regulatory framework for bankruptcy is relatively strong, on average secured creditors receive only 11 cents on the dollar (compared to 20 cents average throughout sub-Saharan Africa) and the proceedings cost approximately 42 percent of the estate’s value.
Following the passing of a Credit Reference Act in 2011, Sierra Leone established a Credit Reference Bureau within the Bank of Sierra Leone mandating all financial institutions to pass all information regarding loan applications for credit history checks. The credit history checks will detail all outstanding loans, when and where a loan was taken, and the repayment history guiding financial institutions in their loan decision.