Sierra Leone: Risk Assessment
Country Rating1
Rating: D
Business Climate Rating1
Rating: D
Risk Assessment2
Strong growth but accompanied by growing inflation
High agricultural production, especially of rice, coffee, and cocoa, contributed substantially to the strong economic growth in 2010. The services sector (construction) also recorded dynamic performance. And the rise of raw material prices, particularly of diamonds, resulted in a real rebound in exports. But exports of mineral resources remain modest, however, due to persistent difficulties with extraction and transport. The country experienced an increase in domestic prices associated with the introduction of a 15% tax on goods and services, in compliance with conditions imposed by the IMF in June 2010 for the granting of a three-year $45 million credit facility. This year, economic growth will receive a boost from infrastructure investments.
Crucial support of the international community
The trade balance is structurally in deficit, with Sierra Leone forced to import food goods representing 7% of GDP, in addition to capital goods imports. Both fiscal and current accounts are deeply in deficit. But the country is endowed with large foreign-exchange reserves. Although Sierra Leone was granted complete cancellation of public debt in 2006 under the HIPC and MDRI programs, the debt has climbed to 30% of GDP, a level that will only be sustainable if the country diligently refrains from taking on further non-concessional debt. The international community has maintained a high level of development aid, representing a third of GDP compared to just 10% on average for all countries included among the least advanced. In that regard, China took its commitments in Sierra Leone to a new level with the purchase by the Chinese state-controlled company Shandong Steel of a 25% stake in the Tonkolili iron-ore production company in June 2010.
A persistent level of poverty despite the relative improvement in governance
Despite strong growth in past years, Sierra Leone is still one of the poorest countries in the world, with GDP per capita barely reaching $700. The IMF has given priority to infrastructure modernization (remediation of roads and electricity networks, improved access to water and to the sewage system) and development of the private sector. The efforts being made are expected to pave the way for the return of foreign direct investment. For that to happen, however, it will be up to the public authorities to enhance transparency and keep up their efforts to stem corruption. President Koroma and his government should remain in power until 2012, with the political situation normalized since the end of the Civil War in 2002 and the general elections in 2007. The prospect of elections in 2012 could, however, stoke unrest in a population riven by ethnic divisions and who have benefited little from the economic dynamism in the wake of the Civil War.
Strengths
- Support of international institutions for the reconstruction effort
- Mineral resources including world’s third-largest magnetite reserves, diamonds, bauxite, gold, rutile
- Agricultural resources including rice, cocoa, coffee
- Newly discovered oil fields
Weaknesses
- Dependence on the agricultural and mining sectors
- Reconstruction still fragile after 11 years of civil war
- Deficient infrastructure, especially in energy and transport sector
- Rated 180th out of 182 countries for human development
- Regional instability with persistent tensions in Guinea and Liberia