STARTING A BUSINESS IN SIERRA LEONE:ENTRY REGULATION AND POLITICAL WILL

By Tanu Jalloh

When entrepreneurs draw up a business plan and try to get under way, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so burdensome that entrepreneurs may have to bribe officials to speed the process—or may decide to run their business informally.

The data on starting a business are based on a survey and research investigating the procedures that a standard small to medium-size company needs to complete to start operations legally. These include obtaining all necessary permits and licenses and completing all required inscriptions, verifications and notifications with authorities (government political will) to enable the company to formally operate.

In Sierra Leone the time and cost required to complete each procedure under normal circumstances are calculated, as well as the minimum capital that must be paid in. It is assumed that all information is readily available to the entrepreneur, that there has been no prior contact with officials and that all government and nongovernment entities involved in the process function without corruption.

To make the data comparable across economies, detailed assumptions about the type of business are used. Among these assumptions are the following: the business is a limited liability company conducting general commercial activities in the largest business city; it is 100% domestically owned, with start-up capital of 10 times income per capita, turnover of at least 100 times income per capita and between 10 and 50 employees; and it does not qualify for any special benefits, nor does it own real estate.

Procedures are recorded only where interaction is required with an external party. It is assumed that the founders complete all procedures themselves unless professional services (such as by a notary or lawyer) as required by law. Voluntary procedures are not counted, nor are industry-specific requirements and utility hook-ups. Lawful shortcuts are counted.

Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Before now, each procedure in this small West African country is a point of contact—an opportunity to extract a bribe.

But a 2008 analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption. As it is now, the country is witnessing the worst price hike for basic commodities since it returned to constitutional rule in 1996.

Sierra Leone's economy is predominantly agricultural, with about half of its workers engaged in subsistence farming. The principal food crops are rice, cassava, corn, millet, and peanuts. The leading cash crops, most of which are exported, are coffee, cocoa, palm kernels, and palm oil. Poultry, cattle, sheep, pigs, and goats are raised. The fishing industry is also important.

The country has an important mining industry, which is largely controlled by foreign companies. The main minerals extracted are diamonds (the country's major source of hard currency), iron ore, gold, bauxite, and rutile (titanium ore). However, the mining industry, like other areas of the economy, was severely affected by civil strife. The country's few manufactures include refined petroleum and basic consumer goods.

Sierra Leone has limited rail and highway networks, which mostly serve the central and western parts of the country. Freetown has excellent port facilities; smaller ports are located at Bonthe (on Sherbro Island) and Pepel (near Freetown).

The cost of Sierra Leone's imports is considerably higher than its earnings from exports. The principal imports are foodstuffs, machinery, transportation equipment, fuels, and chemicals; the chief exports are diamonds and other minerals, cocoa, coffee, and fish.

Diamond smuggling has been a problem since the 1960s, and during the civil war much of the diamond-mining area fell into the hands of rebel groups. Sierra Leone's leading trade partners are Belgium, Germany, the United States, and Côte d'Ivoire.
Sierra Leone is governed under the constitution of 1991 as amended. The executive branch is headed by the president, who is both head of state and head of government.

The president is popularly elected for a five-year term and may serve for two terms. The unicameral Parliament has 124 members; 112 are popularly elected and 12 are paramount chiefs who are chosen in separate elections. All members serve five-year terms.

Administratively, Sierra Leone is divided into 3 provinces and one area: northern, southern, and eastern provinces and the Western Area (Freetown general area).
However, after 12 years and following a brutal civil war that subsided in 2002, there seems to be some hope but this could be largely dependent on the political will to empower the private sector. There is prospect because the country’s economy has been rated 48.9 percent free, according to The Heritage Foundation online 2008 Index of Economic Freedom assessment, making it one of the world's 139th freest economies.

Its overall score of 1.3 percentage points higher than last year, reflecting moderate improvement in five of the 10 economic freedoms. Sierra Leone is ranked 32nd out of 40 countries in the sub-Saharan Africa region, and its overall score is below the regional average.

Sierra Leone scores better than the world average in terms of government expenditures, which are low in formal terms, although this is not likely a sign of government efficiency. It is slightly above the world average in fiscal freedom because of weak tax revenue collection, not low tax rates.

“Sierra Leone is recovering from a civil war and rates significantly below the world average in seven areas. The judicial system is riddled with corruption (as is virtually all of the civil service) and is often supplemented by traditional tribal courts in areas outside of the government's jurisdiction,” the report stated adding hat the labor market was highly inflexible and one of the world's least free.

Mining accounts for 30 percent of GDP, and diamonds are the primary export. Agriculture accounts for over 50 percent of the economy, and two-thirds of the population engages in subsistence agriculture.

It could be recalled that following the June 12, 2006 business forum in Freetown the ministry of trade and industry and partners designed a Reform Agenda to reduce administrative barriers to private investment. The reform, which looked at five main areas, was later approved by cabinet to be validated in the first Private Sector Forum meeting in April 2007.

The reform looked at issues of business start-up procedures, including company registration, licensing, expatriate visas/work permits; access to land, covering a broad agenda from resolution of conflicts among various legal regimes governing land ownership, procedures for accessing land under customary law, and urban land titling and registration; operating procedures, covering mostly business taxation and import-export procedures; reform of the institutions providing export and investment promotion services to the private sector; monitoring and evaluation, through a series of surveys meant to establish an investment climate baseline against which the overall program outputs could be measured at a later stage.

Meanwhile, deputy minister of trade and industry Mabinty Daramy was worried about the global food shortage which the country continues to face.
“The benchmark for rice in the world market, in December, jumped to all-times high. We will brainstorm with importers and petty traders on how to salvage this global food shortage trend while government embarks on other short-term, medium-term, and long-term plans for sustainable food import and production in Sierra Leone. There is a grand plan underway at the Ministry of Agriculture and Food Security for sustainable food production,” Daramy said.