Sierra Leone in uphill battle to avoid "resource curse"

Reuters News
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Posted: Jan 25, 2012 7:34 AM
Sierra Leone in uphill battle to avoid "resource curse"

By Simon Akam

FREETOWN (Reuters) - On the fifth floor of Sierra Leone's main government office building, a decaying hulk where working toilets are scarce and the lift unreliable, Mines Director Jonathan Sharkah exudes optimism.

He is, after all, one of the most powerful figures in the West African country's iron ore sector, and its revival could potentially create jobs and infrastructure in a nation struggling to recover from a civil war.

"It means a lot to us. Lots of revenue, lots of employment, and lots of everything," he told Reuters during a recent interview in his office in the Youyi Building, which towers over its corner of the seaside capital Freetown.

To redeem this promise, however, Sierra Leone will need to fight an uphill battle to avoid the 'resource curse' of high-level graft, civil unrest and a lack of economic diversity that has afflicted many regional neighbors, whose economies depend on their rich deposits of metals or oil.

A recent bribery scandal in the office of the vice president, along with worries the government is not up to the mammoth task of overseeing the industry, have sparked fears ordinary Sierra Leoneans will miss out on the boom.

"We are making a genuine effort to make sure we don't make mistakes that others have made," said Unisa Sesay, a spokesman for President Ernest Bai Koroma. "We are not waiting for the problems to happen before we start addressing them."

Sierra Leone holds some of the world's richest iron ore deposits, but the industry ground to a halt ahead of a 1991-2002 civil war that claimed some 50,000 lives and ruined its infrastructure and exports stopped.

That changed last autumn with the first shipment in more than two decades, a major step for a country eager to rebuild and create jobs and a potential boost for Koroma as he seeks re-election in November.

The International Monetary Fund predicts that, with the onset of mineral revenues, Sierra Leone's gross domestic product will grow by a staggering 51.4 percent in 2012, a rate that could prove the highest in the world.

HIGH EXPECTATIONS

Sierra Leone is one of the poorest countries on the planet with the average person living on less than $1 a day. The United Nations ranks it 180th of 187 countries on an index measuring health, education and wealth.

Iron could provide a jolt.

State revenues from iron ore shipments will hit $580 million in 2015 as output rises, roughly matching the country's 2011 annual budget, according to the IMF, though inflows between now and then will be much smaller.

Two companies, African Minerals and London Mining, are behind the iron ore renaissance.

African Minerals is developing a find at Tonkolili in the centre of the country that it says is the world's largest deposit of magnetite. The company announced its first trial shipment from Tonkolili in November last year, and it plans to export 15 million tonnes of ore in 2012.

London Mining, which is redeveloping an abandoned iron ore mine at Marampa, plans to make its first export around the end of January. The company targets 1.5 million tonnes of production from this smaller undertaking for 2012.

In Freetown it is hard to find anyone not familiar with the names of the iron ore companies.

"A lot of jobs. That is what we are expecting from them," said Samuel Kargbo, a 19-year old motorbike taxi rider waiting astride his machine at a filling station.

Lansana Gberie, a Sierra Leonean researcher now resident in New York and author of a history of the country's civil war, says president Koroma will aim to make political capital from iron ore in the run-up to November polls.

"Koroma will be arguing, it seems to me, that, 'I created the enabling environment that allowed these companies to operate'," he said. But he added that a failure to deliver on promises of jobs could be dangerous, setting up the possibility of unrest while the number of unemployed youth is ballooning.

RESOURCE CURSE

Sierra Leone lies in the midst of a region seemingly cursed by its rich natural resources. Its own diamond mines are believed to have funded rebels during the war.

Elsewhere in West Africa, vast oil production in OPEC-member Nigeria has failed to raise local communities out of poverty and has given rise to a rebel group angry over alleged human rights abuses by oil companies and widespread pollution.

In Guinea, workers in the country's bauxite sector, the world's largest, routinely strike over pay and conditions, and residents of the country say they have seen little benefit from the multi-billion dollar industry.

In an effort to head off similar problems, Sierra Leone's cabinet passed legislation to create a new National Minerals Agency, a separate body that would handle regulation and leave a slimmer mines ministry to focus on policy.

The government has also set up public web sites detailing mining revenues and government expenditures and has consulted on policy with officials in nearby Ghana, a major gold miner and nascent oil producer.

But Sierra Leone's ability to manage the revenue has been undermined by a slew of scandals, including allegations the vice president's office accepted a bribe in return for an illegal timber deal.

Its anti-corruption commission, set up in 2000, has also been criticized as toothless. In 2011 it settled a big case involving the social security agency out of court instead of prosecuting.

Sesay said the corruption cases "are reasons why we are establishing all these checks and balances."

Sierra Leone adopted a new mining law in 2009 designed to improve the state share of the country's resource wealth by raising royalty rates. Previous legislation also established a tax rate of 37.5 percent for mining companies.

Both London Mining and African Minerals obtained substantial tax discounts in their contracts and are paying well below the percentages outlined, even after London Mining's accord was renegotiated.

African Minerals' "lease was granted by the government and unanimously approved by the parliament of Sierra Leone," a company spokesman said in an email message, adding that it does not expect the lease to be renegotiated.

"The limited tax contribution from the mining companies has huge implications for poor people in Sierra Leone," Danish watchdog DanWatch said in a recent report.

(Additional reporting and writing by Richard Valdmanis, editing by Jane Baird)