Sierra Leone: Economy

Rich in minerals, Sierra Leone has relied on the mining sector in general, and diamonds in particular, for its economic base. In the 1970s and early 1980s, the economic growth rate slowed because of a dropoff in the mining sector and increasing corruption among government officials. By the 1990s economic activity was declining and economic infrastructure had become seriously degraded. Much of Sierra Leone’s formal economy was destroyed in the civil war. Since the cessation of hostilities in January 2002, massive infusions of outside assistance have helped Sierra Leone begin to recover. The coming on line of the Bumbuna Dam hydroelectric project in 2009 and the installation of a 10-megawatt thermal power generating machine from Japan has alleviated chronic power shortages. Electricity generation improved by 29% in 2010 (170.45 gigawatt/hour).

Full recovery to pre-war economic levels will require hundreds of millions of additional dollars and many more years of serious effort by the Government of Sierra Leone and donor governments. Much of Sierra Leone’s recovery will depend on the success of the Government of Sierra Leone’s efforts to limit official corruption, which many believe was the chief reason for the country’s descent into civil war. A key indicator of success will be the effectiveness of government management of its natural resources. Besides mineral deposits, Sierra Leone has sizeable marine and timber resources. Both sectors are threatened by limited management and overexploitation.

Since 2007, the Government of Sierra Leone has tripled and quintupled public spending for development and anti-poverty measures, respectively, through infrastructure improvement (particularly road and school construction) and a free health-care program for pregnant women, lactating mothers, and children under 5 years old. As a result, it has reduced the country’s incidence of poverty (percentage of the population living on less than $1.25 per day at purchasing power parity--PPP) from 70% in 2005 to 60% in 2010. In 2010, Sierra Leone moved up 12 points from the bottom of the UNDP’s Human Development Index to 158. In November 2009, the government launched the “Agenda for Change” to focus on improving agriculture (which employs over half of the workforce) and addressing corruption. About two-thirds of the population engages in subsistence agriculture, which accounts for 49% of national income. The government is trying to increase food and cash crop production and upgrade small-farmer skills. The government is working with several foreign donors, including the United States, to operate integrated rural development and agricultural projects.

Mineral exports remain Sierra Leone's principal foreign exchange earner. Sierra Leone is a major producer of gem-quality diamonds. Though rich in this resource, the country has historically struggled to manage its exploitation and export. Annual production estimates range between $250-$300 million, not all of which passes through formal export channels, although formal exports have dramatically improved since the days of civil war. The balance is smuggled, where it possibly is used for money laundering or financing illicit activities. Efforts to improve the management of the export trade have met with some success. In October 2000, a UN-approved export certification system for exporting diamonds from Sierra Leone was put into place that led to a dramatic increase in legal exports. In 2001, the Government of Sierra Leone created a mining community development fund, which returns a portion of diamond export taxes to diamond mining communities. The fund was created to raise local communities' stake in the legal diamond trade. African Minerals, Koidu Holdings, London Mining Co., Ltd., and Sierra Mineral Holding Ltd. produced 83% of the country’s revenue from mining, primarily in iron ore, gold, diamonds, and bauxite.

Sierra Leone has one of the world's largest deposits of rutile, a titanium ore used as paint pigment and welding rod coatings. Sierra Rutile Limited, owned by a consortium of U.S. and European investors, began commercial mining operations near Bonthe in early 1979. Sierra Rutile was then the largest nonpetroleum U.S. investment in West Africa. The export of 88,000 tons realized $75 million in export earnings in 1990. The company and the Government of Sierra Leone concluded a new agreement on the terms of the company's concession in Sierra Leone in 1990. Rutile and bauxite mining operations were suspended when rebels invaded the mining sites in 1995, but exports resumed in 2005. In 2010, Sierra Rutile produced almost 10% of Sierra Leone’s mining revenue.

In September 2009, Anadarko, a U.S. oil company, and its partners Woodside of Australia, Repsol of Spain, and Tullow Oil of the U.K., announced that they had made an oil find off the coast of Sierra Leone. This oil deposit, the Venus field, may be similar to the 2 billion barrel Jubilee deposit that Anadarko discovered off of Ghana in 2007. The Venus well was drilled to a depth of about 18,500 feet in about 5,900 feet of water. Only further testing will ascertain whether the area includes commercially exploitable oil and/or gas deposits, and production will be at least several years off.

Since independence, the Government of Sierra Leone has encouraged foreign investment, although the business climate has been hampered by corruption, a shortage of foreign exchange, and uncertainty resulting from civil conflicts. Investors are protected by an agreement that allows for arbitration under the 1965 World Bank Convention. Legislation provides for transfer of interest, dividends, and capital. The government passed the Investment Promotion Act in August 2004 to attract foreign investors and has been working with international financial institutions to lower its administrative barriers to trade. In 2007, the Sierra Leone Investment and Export Promotion Agency was created to assist investors by creating a "one stop shop" for starting a business. In 2010, the International Finance Corporation's "Doing Business" guide ranked Sierra Leone 4th out of 16 West African countries and 26th out of 53 African countries in terms of ease of doing business. President Koroma’s October 2010 dedication of a Special Economic Zone in Freetown, operated by U.S. company “First Step,” led to the April 2011 completion of a plant to process fruit for export.

Sierra Leone is a member of the Economic Community of West African States (ECOWAS). With Liberia and Guinea, it formed the Mano River Union (MRU) customs union, primarily designed to implement development projects and promote regional economic integration. Cote d'Ivoire joined in May 2008. The MRU has been largely inactive because of domestic problems and internal and cross-border conflicts in all three countries. The future of the MRU depends on the ability of its members to deal with the fallout from these internal and regional problems, as well as adequately fund the union to carry out sub-regional activities. In June 2010, the Monetary Fund (IMF) approved a 3-year successor arrangement under the Extended Credit Facility (ECF) for Sierra Leone. Sierra Leone’s economic policy has generally shifted from post-conflict stabilization to poverty-reduction efforts, including good governance and fighting corruption; job creation; and food security.

Sierra Leone continues to rely on significant amounts of foreign assistance, principally from multilateral donors. The largest bilateral donors are the United Kingdom and the European Union; others include the United States, Italy, and Germany.

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