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World > Africa > Sierra Leone > Economy (Notes)

Sierra Leone - Economy (Notes)


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, economic growth rate slowed because of a decline in the mining sector and increasing corruption among government officials. By the 1990s economic activity was declining and economic infrastructure had become seriously degraded. Over the next decade much of Sierra Leone?s formal economy was destroyed in the country?s civil war. Since the cessation of hostilities in January 2002, massive infusions of outside assistance have helped Sierra Leone begin to recover. 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 Government of Sierra Leone efforts to limit official corruption, which many feel was the chief culprit for the country?s descent into civil war. A key indicator of success will be the effectiveness of government management of its diamond sector.

About two-thirds of the population engages in subsistence agriculture, which accounts for 52.5% of national income. The government is trying to increase food and cash crop production and upgrade small farmer skills. Also, the government works with several foreign donors 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. However, not all of that passes through formal export channels, although formal exports have dramatically improved since the days of civil war (1999: $1.2 million; 2000: $7 million; 2001: $26 million; 2002: $42 million; 2003: $76 million; 2004: $127 million; 2005: $142 million). 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.

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.

Since independence, the Government of Sierra Leone has encouraged foreign investment, although the business climate has been hampered by a shortage of foreign exchange, corruption, 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.

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. However, the MRU has been 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. Sierra Leone?s latest International Monetary Fund (IMF) poverty reduction and growth facility (PRGF) expired in June 2005. A new agreement is not yet in place, but Sierra Leone?s economic policy is expected to shift 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 bilateral donors include the United States, Italy, and Germany, but the largest are the United Kingdom and the European Union.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





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