Is Sierra Leone ready for foreign investments?

Sierra Leone ranked 148 out of 183 economies as the best place to do business. These comparative records included 46 countries in Sub-Sahara Africa, 32 in Latin America, 27 in Eastern Europe and Central Asia, 24 in East Asia and the Pacific,19 in the Middle East and North Africa (Source: World Bank Group-Doing Business 2010). Singapore is the top ranked economy according to the World Bank Group, while Guinea Bissau is the worst place to invest. The nation of Ghana top the list of Sub-Saharan nations, but Sierra Leone is before neighboring Liberia (149), behind Gambia (140) and significantly ahead of Guinea-Conakry (173). It is true to say that Sierra Leone is gradually becoming a good place to do business, but significant reforms are necessary to create the perfect climate for international investments. And for such economic dream to take a strong footing, Sierra Leone needs a new forward thinking approach, some sound business practices and fundamentally a change in the way we encourage investments. (Photo: Mohamed C Bah)

Thus, the apparent question about Sierra Leone’s readiness for foreign investments lies in two critical areas with sub components: the economic, logistical, legal and political indicators including the long standing “human elements” that are impeding the prospect of an advent of new industries in Sierra Leone. Let me begin with the latter, since it is contributing to the slow pace of attracting international investors. Evidently, the general mind set towards investments in Sierra Leone is one of “trivialization” compounded with a subjugated non-nonchalant attitude of complacency. Even though foreign investment is considered the twin engine of economic growth and job creation for Sierra Leoneans, many career politicians sees it as a lucrative way to snatch personal fortunes out of prospective investors. Many foreign nationals and private citizens who seek business opportunities on our shores are deeply troubled by the rampant “kick back” system, the significant loss of business time and the ritual ceremony of bribery by many bureaucratic witch doctors. A lot of credibility and confidence are destroyed when our nation fails to provide the needed reforms to protect investor’s assets and profits. Indeed, the burden of massive poverty and the lack of transparency in our governmental institutions are the keys that unlock the corrosive doors of corruption and bribery. Such destructive behaviors hinder the strong prospect of multi national investments and keep economists wondering why investors are unwilling to open new businesses in Sierra Leone. 

GOOD CLIMATE

However, the economic indicators of a good investment climate depends on the quality of infrastructural services, proximity to large markets, the security of property from theft and looting, the transparency of government procurements and legal process to protect contracts and business transactions. Let me review the 10 points indicators as identified by the International Bank of Reconstruction and Development/The World Bank group. First, the procedures to incorporate and register new businesses before they operate legally is a case in point. Sierra Leone scored 58 out of 183 countries surveyed as the best place to do business. What is causing such a weak performance in the “starting up business process” is the bribery culture that is slowing down new investment opportunities and discouraging many from even going through such difficult experiences. When investors operate on the “back channel” or conducts business informally, people are pushed into the illegal markets and consumer prices or fuel consumptions are bound to increase. Noteworthy, it is fair to point out that the processing time to obtain necessary permits, licenses and inspections have reduced from 26 days in 2008 to 12 days in 2010. Sierra Leone even leads Ghana (135) and Gambia (114) on the overall rating of starting a new business.

CONSTRUCTION PERMITS

When foreign companies submit project documents such as building plans for warehouses or factories to obtaining permits and completing all necessary inspections, many confronts the challenges of paying bribes to pass inspections or sometimes simply building illegally with no code of enforcements. In fact, it requires 25 procedures, takes 283 days and cost 368.47 GNI per capital to build a warehouse in Sierra Leone. Our nation ranked one of the worst countries in overall for dealing with construction permits (171 out of 183). Guinea Bissau and Liberia far exceeded Sierra Leone in lesser procedures, cost and time of obtaining construction permits. We cannot attract investments with too much red tape, cumbersome procedures and almost spending a year to open a business in Sierra Leone. No multi national company will consider Sierra Leone a credible market to invest when its procedures are out dated, clumsy and time consuming.

LAND TENURE LAWS

Furthermore, the land tenure system must be revised and reformed to help promote the transfer of land, encourage investment and give entrepreneurs access to formal credit markets. In Sierra Leone, large shares of properties are not formally registered. Thus, informal titles cannot be used as security in obtaining loans. Invariably, financing opportunities are limited for businesses that may be looking to grow and expand their markets. Again, it requires7 procedures, takes 236 days and costs 12.38% of property values to register a property in Sierra Leone. We are ranked 175 out of 183 overall for registering property behind neighboring Liberia (174) and Guinea (163). The Kingdom of Saudi Arabia is one of the top nations that lead this category (1) and Ghana (33) dominates the rest of Sub-Sahara Africa. A better system must be designed by government to effectively formalize property titles and reduce transactional cost. Such giant efforts can provide security of property rights and curb the endemic corruption in the Ministry of lands and environmental planning.

CREDIT SYSTEM

Among the greatest barriers to establishing investment in Sierra Leone is access to getting credit. There are two primary functions of a good credit market. The credit registries and the legal rights of borrowers and lenders. Sierra Leone does not have the credit infrastructures to collect and distribute credit information on borrowers for lenders or investors to assess risk and allocate credit more prudently. A credit information index that measures the extent to which the rules of lending or borrowing standards are applied and the scope of information distributions must be the leading indicators of improving the credit problem in Sierra Leone.

Public registry coverage and private bureau must be established to build a sound credit history of individuals and firms so that a new database will be readily available to facilitate lending and borrowing. Also, the legal rights to collateral and bankruptcy protections from both borrowers and lenders must be strong, comprehensive and enforceable. It is no surprise that Sierra Leone ranked 127 out of 183 countries on the credit scale of doing business. Similarly, Liberia faced the same hurdle as Sierra Leone while Malaysia is the leading giant on a sound credit market system.

PROTECTING INVESTORS

According to the World Bank Group, a study finds that: “the presence of legal and regulatory protections for investors explains up to 73% of the decision to invest.” Every company grows by raising their capitals through bank loans or attracting equity investors. In countries where democracy and governments are unstable, investors worry about their monies and look for laws to protect their assets. There are three indicators to protecting investors: The primary one is the immediate disclosure to the public and shareholders of proposed transactions, requirements for disclosure in periodic filing and reports of external review of transactions before they take place. The second indicator is the liability of CEO and Board of Directors for damages, the ability to rescind the transaction, the availability of fines and jail time with self-dealing and the ability to pay back personal profit from transactions. The third one is the “due process clause” where shareholders or investors can sue in the court of law for any financial wrong doing.  These may include the availability of evidence during trial, the opportunity of investors to examine the defendants and other witnesses, shareholders access to internal documents and even the ability to bring a civil suit against directors and other company violators. From the World Bank Group chart of Sub-Sahara countries that scored the strongest protection of investors on the study group, Sierra Leone impressively ranked first (6.3) Ghana second (6.0) Guinea Bissau third (4.0) Liberia, fourth(3.7) Guinea, fifth (2.7) and Gambia, fifth (2.7). However, Sierra Leone is 27 out of 183 on the overall nations included on the global ranking chart.

PAYING TAXES

On the other hand, for Sierra Leone to grow its revenues and manage its economy more efficiently, paying taxes must be easy and simple. We ranked 160 out of 183 on the overall payment of corporate taxes. Ghana, Liberia and even Guinea Bissau have better tax structures on the number of tax payments per year, the number of hours per year to prepare, file returns and pay taxes including firm’s tax liability.

Additionally, the methods and collections of tax revenues in Sierra Leone must be revised and updated with better accountability standards at the National Revenue Authority.

LABOR LAWS

Also, the growing challenges of labor laws in Sierra Leone which does not protect workers and guarantees a minimum standard of living for its population are the new threat facing the government of Sierra Leone. The difficulty in hiring skilled workers with the complex contract of labor regulations and mandatory requirements on dismissals or reassignment obligations posed other significant problems for multi national companies. Sierra Leone ranked 166 out of the 183 economies surveyed on doing business in most third world countries. The employment indicators fall far below good business criteria.

TRADING ACROSS BORDERS

Furthermore, trading across borders is another business indicator the World Bank Group adopted to measure the strength of the best places to invest. These included exporting and importing by ocean transport. The World Bank statistical data ranked Sierra Leone (137) on the overall trading across border. Neighboring Guinea for the first time scored a better figure of (130) ahead of Sierra Leone and Guinea. The Republic of Gambia seem to be the leading Sub Sahara nation on this category with a strong performance of (81).The criteria used to measure these data are: documents required by custom and other agencies, documents preparation, custom clearance and technical control, port and terminal handling, inland transport and handling, cost to export and import- US $ per 20 foot container with no bribes or tariff included.

ENFORCING CONTRACTS

As the saying goes: “Justice Delay is justice denied.” The World Bank Group tracked the  transparency of the judicial  system in resolving commercial sale disputes, steps to file claims, obtain judgment and enforce court order, Sierra Leone scored 144 out of 183. The Republic of Ghana leads every Sub-Saharan nation (47) and most of the 183 countries listed on the survey with the exception of Luxembourg. It is surprising to note that Guinea scored (131) ahead of Sierra Leone while Gambia ranked (67) on the enforcement of contract category.

BANKRUPTCY PROTECTION

The last indicator of the best place to invest is the bankruptcy laws and the ability of third world countries to reorganize viable companies when they face financial crisis. Sierra Leone does not have the financial capital to keep assets and human capitals of failed investment companies from relocating their shares and wealth to other productive areas. Indeed, the lack of such economic capability becomes a strong deterrent to investment since companies eventually lose access to credit. Also, non performing loans and financial risk will grow because creditors cannot recover overdue loans. In fact, the bankruptcy laws in Sierra Leone are so weak that creditors hardly ever use them and investors are cognizant of such high risk factor. Thus, Sierra Leone ranked (147) on the overall rating of the best place to invest.

NATIONAL SOLUTIONS

Despite the modest progress Sierra Leone is doing to improve the bankruptcy laws by encouraging ailing businesses to first reorganize before going straight into liquidation, the new act  that makes it easier for companies to get credit, the better trained tax professionals and equipments  at the national revenue authority  that allow companies to pay taxes more easily, the new investor protection laws that enhance director’s liability and improve disclosure requirements , our nation has a long journey ahead to attracting the kind of investments that will spur economic growth and create millions of jobs for our people.

Today I represent the think-tank of concerned Sierra Leoneans who are more interested about Sierra Leone’s national strategies in building the financial infrastructures, instituting more business reforms and creating the climate for foreign investments than political affiliations or allegiances to political parties. Millions of Sierra Leoneans are tired of being subjectively sympathetic to any kind of leadership that fails the people whether it is APC, SLPP or PMDC. Our people deserve more than empty slogans and investor workshops that produce strains on national budget.

If colonialism, on the one hand, promoted nationalism and led to statehood, political party fanaticism on the other hand stifled progress, incubated an insidious culture of hate and discourage honest national debates. For almost half of a century, we have played the “politics of division and isolation” instead of the capitalistic instinct of business innovations and technological advancements.

We have encouraged a kloptocratic philosophy of marginalization and unpatriotically reduced our people to a “third class citizens.” Instead of promoting the welfare of the state by building bridges, roads, new hospitals, schools and public infrastructures, we have allowed tribalism to dominate our political structures and shaped our national policies for almost 48 years.

Indeed, foreign investment is the new economic power-house that will save our nation from the tumultuous war on poverty and the state of social degradation. Thus, we must ease the process of getting construction permits like Liberia by reducing the fees and consolidating the procedures into one stop shop. We must abolish the requirements to obtain tax waiver certification before submitting documents for building permits. Like the United Arab Emirates, we must shorten waiting time by establishing an online application center for quick processing; restructure our building codes with the goal of conducting proper inspections. Bribery and corruption must be fought with mandatory jail time and serious fines that will deter such treasonable behaviors. The Kyrgyzstan Republic eased the process of obtaining construction permits by streamlining the fees structure, introducing a risk-based system of approval and building control, allowing low risk projects to conduct internal building controls and simplifying the process of obtaining utility connection.

Property registration must be reviewed and the reduction of procedures must be adjusted to make it easier to register on line any real estates or properties at minimum of 8 days with a waiver on preliminary agreement sales fees. Our labors laws must also be strengthen and revise. Like Macedonia, the hiring of workers must be flexible to allow greater use of fixed term contracts, easing restrictions on working hours and making redundancy dismissals more optional or easier. Government must also protect the labor rights of workers and guarantees a minimum standard of living for the working population. Trading across the border indicator must be improved by increasing our capacity and resources to manage our port. We must eliminate the terminal handling receipts as required documents and create a more discipline organization at our sea port.

CONCLUSION

Finally the creation of “ a customer service desk as the one-stop shop ” like Ghana, Liberia and Tajikistan to streamlining new business start ups is a forward thinking approach to encouraging foreign investment in Sierra Leone. Unlike nations such as Gambia and Guinea where no major reforms were instituted, Sierra Leone must be commended for making some effort to internally realign its golden wheels on the high lanes of investments. What is badly needed is a collective effort by government, the private sector and prospective investors to build together a climate of trust and lasting credibility. If  Sierra Leone  can take a more serious approach to  overhauling the credit systems, the bankruptcy and labor laws, reducing the time to obtain construction permits and registering properties, simplifying the tax code and protecting investors, creating a special crime fighting unit at the Criminal Investigation Division (CID) in coordination with the anti-corruption commission (ACC) to arrest and prosecute corrupt public officers who shamefully accepts bribes or citizens who defraud investors, then Sierra Leone will be on the right track to becoming the new Singapore of Africa. For now, foreign investments seem like a pregnant idea impatiently waiting to be born.

 

SOURCE: DOING BUSINESS 2010 IN SIERRA LEONE- 2009, The Intentional Bank of Reconstruction & Development/The World Bank. ISBN: 978-0-8213-7965-3

 

By Mohamed C. Bah Guest Writer and EX-President Sierra Leone Community Atlanta, USA

 

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