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Investment Policy


  1. Apart from the specific taxes and charges mentioned above, there is no overall investment policy for Sierra Leone.



Investment Promotion Act


  1. An Investment Promotion Act was enacted and entered into force on August 2004, replacing the 1969 legislative framework, and other laws.27 The Act is designed to promote and attract both domestic and foreign investment for production and value-adding activities; to improve export and provide employment opportunities; and generally to create an environment conducive to private investment and to provide for other related matters. It is worth noting that the package of incentives which should accompany the Act and give it effect did not get passed by Parliament.




  1. The Investment Promotion Act covers all sectors; the Act opened up for foreign participation sectors such as mining (including artisanal), manufacturing, transport, brick-making, and retailing. Additional special provisions relating to investment in fisheries, mining, banks and other non-bank financial activities, and tourism activities are contained in sector-specific Acts. The legal framework encourages competition by ensuring national treatment in virtually all areas for all private and public-sector investors. As from 1996, there have been no limits on foreign capital participation in sectors now covered by the Investment Promotion Act. Sierra Leone has provided more favourable payroll tax rates for investors employing ECOWAS citizens, and fiscal incentives in agri-processing activities with a requirement for 60% local input or value added.



Proposed Incentives


  1. The Investment Promotion Act would implement tax incentives as provided for in the income tax regulations (See Annex 1) mentioned above. Because the package of incentives has not been passed by Parliament, past tax benefits will remain in place until the legislation is passed. The proposed list to be annexed to the Investment Promotion Act is to divide the territory into two zones (Zone A – Western Sierra Leone; and Zone B all other regions in Sierra Leone). Capital allowance for the reconstruction of the country, and incentives such as duty and tax exemptions could be increased. Incentives in the tourism sector may be increased, and an allowance may be created for special research and training expenses.




  1. Investors are guaranteed freedom to do business (choice of suppliers, clients, provision of services); free entry, residence, movement, and exit of expatriates, and their families, subject to observance of the rules in force; freedom of management; freedom to transfer capital, including profits and dividends duly accounted for, and funds acquired as a result of the transfer or cessation of the enterprise’s activities, subject to the legislation in force; no expropriation measures28; and the right to settlement of disputes resulting from interpretation or application of the Act.29




  1. As pointed out, the incentives bill developed in 2004 is yet to be enacted. This situation needs to be addressed. The tax incentives for agri-processing activities requiring 60% of local input or value added to the product, could potentially be an important encouragement to manufacturing and agro-processing when coupled with the low import duties for capital goods for agri-business (now clarified at 5 percent). Added to the fact that investors in rice farming and tree crop farming pay no corporate tax for the first 10 years of operation, this could potentially be an attractive package for investors in large scale commercial agriculture.




  1. The 2009 GoSL budget outlines specific concessions to the agriculture sector. For a start, the definition of qualifying expenditure is to include:







  • Constructing access roads, bridges, buildings and structural improvements on land for the purpose of crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits




  1. In view of the time lag between start-up and processing activities, integrated agricultural projects qualify for investment allowance of 60 percent for five years after expiration of a tax holiday on expenditure incurred for processing operations.30 Moreover, corporate tax for the first ten years will be zero percent consistent with the Income Tax Act. Import duty on agricultural input is also zero percent but subject to the implementation of ECOWAS CET. Payroll tax for non available skills is subject to an exemption for the first two years of employment subject to an extension to a maximum of three years. In addition to the incentives available for the agricultural sector, agro processing enterprises will have reduced import duty on immediate goods at half of the prevailing rate of 20 per cent. 31




  1. These incentives should be built upon and mainstreamed into more long term approaches for investment in the sector; in particular they should be included in a new comprehensive package of incentives attached to the Investment Promotion Act 2004. Without such an approach incentives become arbitrary and uncoordinated, instead of being structured and targeted. It has been observed that further incentives and tax deductions may be negotiated with the Ministry of Agriculture. However, such a situation encourages rent seeking and leaves much discretion in the hands of Ministry personnel. Moreover, individual incentives negotiated may not be honoured and implemented by the tax collection agency (NRA). The optimum position would be to have clear and permanent incentives specifically targeted and set out in legislation or policy which is on public record and available to all potential investors.



General Business Environment


  1. In making decisions about the location of investment, investors consider the entire business environment and not merely isolated incentives. Thus the focus should be on the general business environment which will also impact on the development of commercial agriculture.




  1. In Sierra Leone’s Vision 2025, private sector-led growth is singled out as a strategy that will drive trade and a competitive liberal economy. In the medium term, this aspiration can only be sustained by the country’s economic performance, which should generate the resources required to sustain new systems and structures established as part of specific reform programmes, including the agricultural sector development plan. Furthermore, it is clear, as is recognised by the PRSP ll, that improved economic performance will be determined by the success or otherwise of the private sector in generating wealth and associated employment.




  1. Impediments to private sector growth have begun to be removed. In 2007, two new pieces of legislation were passed, the Business Registration Act 2007 and the General Law (Business Start Up) Amendment Act 2007. The legislation on business start-up has reduced the time, number of steps and the costs required to set up new businesses. The second piece of legislation deals with the merger of work and residence permits. Under the project to simplify business operations, customs procedures have been markedly simplified, involving the reduction of documentation, reduction of duplication, elimination of unnecessary steps, and the introduction of a risk-based system for customs inspections. At the same time, the advance tax to the National Revenue Authority (NRA) has been removed, which eliminates the need for businesses to pay one fourth of their taxable income prior to registering their business.




  1. The table below shows the rankings for Sierra Leone and other Mano River Union countries in the World Bank Doing Business Index. Since 2004, Sierra Leone has made incremental progress in the DBI rankings.



Table 2: Sierra Leone and MRU countries in the Doing Business Index





Sierra Leone: Doing Business Indicators, 2009 (181 countries)



Sierra Leone

Guinea

Liberia

Côte d'Ivoire

Mano River Countries Other than Sierra Leone (average)

Starting a business

53

177

88

167

144

Dealing with licenses

169

162

177

160

166

Registering property

163

157

172

139

156

Getting credit

145

163

131

145

146

Protecting investors

53

170

142

150

154

Paying taxes

160

168

59

148

125

Trading across borders

132

110

115

155

127

Enforcing contracts

141

131

165

124

140

Closing a business

145

109

146

68

108













Overall rank

156

171

157

161

163

Source: World Bank, Doing Business Index, 2009













  1. That said, there is a perennial problem with the enforcement of contracts due to the difficulties with the justice system. Therefore the transaction costs for many company and commercial undertakings are high. The proposed establishment of a Commercial Court should contribute towards addressing this problem.



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