Friday, July 20, 2007

The Road to Direct Foreign Investment in Sierra Leone

With the present opportunities for foreign investors who wish to invest in various sectors of the economy in Sierra Leone expect a good return of capital investment, whilst at the same time contributing to the development of the country, the experience in the country over the years and elsewhere suggests that some directions along the financial sector should evolve to meet the needs of the investors. It is vital that interventions be undertaken to support broad-based development in the financial sector in general and rural finance in particular. This approach is in contrast to the subsidized, direct credit schemes of the past which undermined the development of the financial sector that attract investors.
What we must consider as extremely important is that foreign direct investment could only be attractive if we improve strategies to increase resources for our local business sectors. The rural areas contribute to enhance economic growth but the experience with the National Cooperative Development Bank and the Microfinance institutions suggests that the importance of group lending based on credit history for development of the financial sector in rural areas is important. Although the initial size of loans is often insufficient for small and medium enterprises, those with a good credit history should be able to move ahead as individual borrowers of overtime.
An effective trade policy process that attracts investors requires a clear trade and export strategy, effective consultation with the private sector, successful inter-sectoral coordination in the business sector, access to accurate trade information, capacity for analyzing trade policy issues, and effective trade support institutions – standards, export promotion, customs. In all these areas the country is having a weak capacity. The Ministry of Trade and Industry needs to move away from its old structures and create a business friendly atmosphere for investors.
The existing trade division should be abolished and in its place, an industry and commerce division developed to operate along side the existing administration and co-operative divisions, and the policy, planning and research divisions.
The capacity to meet commercial quality requirements and comply with standards is increasingly important. Quality and standards are closely related but they are not identical. A product may not face any mandatory standards yet it may suffer serious quality issues. Other products that attract investors may be of sufficient quality yet the mechanisms are not in place to prove their compliance to the satisfaction of the investor. The development of broad awareness and promotion of the adoption of good agriculture and manufacturing practices and quality management systems will set the stage for later development. Initial efforts should focus on particular higher risk gains in investment oriented sub-sectors that require specific regulation and institutional structures.
Fish and cocoa are clearly the main products demanding attention at present together with the maintenance of the integrity of the Kimberley process for diamonds.
In particular, it is recommended that more attention be devoted to the economy so that a better service is ensured for foreign direct investment. We recognize the fact that there is a strong partnership agreement being negotiated between the Economic Community of West African States and the European Union, to determine how best to approach these negotiations. Sierra Leone should also improve the implementation of the ECOWAS Free Trade Area.

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