In this AFKInsider series, we explore the regulatory conditions that an entrepreneur is likely to face when setting up a business in sub-Saharan Africa. AFKI presents Doing Business in Africa: Sierra Leone.
Doing Business in Africa: Sierra Leone
Bordering Guinea to the north and east and Liberia to the southeast, Sierra Leone is a West African country with a troubled history that is only now coming out of decades of political conflict and civil war.
While Sierra Leone is still a desperately poor, fragile state, recent investment into its mining sector has led to a pronounced uptick and growth that, if it continues, could well put the country on a sustainable growth path for some years to come.
Sierra Leone became a European trading outpost early on in the European Age of Discovery during the 16th-century when Portuguese, Dutch, and later English traders set up outposts along the coast of West Africa and used the region as source of forced labor for colonial ventures further afield.
However, Britain became the dominant force in the country that would become known as Sierra Leone and by the turn of the 18th century it became a resettlement colony for British Africans who had remained loyal to the Crown during the American Revolutionary War and for those freed by the Britain after slavery was abolished in 1807.
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As in America’s Liberia—which was to some extent based on Britain’s colony in Sierra Leone—the resettled black loyalists and repatriated former slaves formed a mélange, creole society that adopted much from white, British culture.
The creole Sierra Leoneans as a result leveraged their familiarity with Britain in order to serve as middlemen for the British in both trade and colonial administration—becoming more important as Britain expanded its influence into the interior after the turn of the 19th century.
This led to a basic division of Sierra Leonean society in which an Anglo-Creole elite living mostly on the coast dominated a tribal interior. Unfortunately, this division was one that was never effectively overcome while under British rule and when independence came in 1961 conflict—as in Liberia—was inevitable.
This was made doubly certain after the untimely death of the country’s first prime minister— Milton Margai—in 1964, a man widely-respected then and now for being personally uncorrupt and a fair-minded supporter of both independence from Britain and political pluralism in post-independence Sierra Leone.
Without his leadership the country quickly fell prey to the inter-communal squabbling typical of post-independence Africa and in short order coups and threats of coups forced the post-Margai ruling party from power and into the hands of the opposition in 1967.
Still, this proved no solution to the country’s internecine infighting and, inexorably, the country and its ruling party moved into a more authoritarian direction such that by the mid-1970s Sierra Leone was effectively a one-party state.
In 1990 a brief attempt a multi-party democracy was tried but quickly fell apart under the weight of accumulated grievances and distrust and Sierra Leone collapsed into a catastrophic civil war that lasted until 2002.
The country that emerged at the other end of that decade of bloodshed was much changed. Interventions from surrounding countries linked events in Sierra Leone with the maelstrom of violence in neighboring Liberia, which resulted in 50,000 Sierra Leoneans being killed and countless others maimed and displaced between 1991 and 2002.
Much of the country’s infrastructure was destroyed and its human capital base either fled abroad to the West or ended up living as refugees in surrounding countries.
Still, with outside assistance the rebels were defeated and the government voted into power in the mid-1990s led by Ahmad Tejan Kabbah was reelected under the watchful eyes of the international community in 2002.
In 2005 UN Peacekeepers were withdrawn from the country and two years later Ernest Bai Koroma, a former insurance executive, was elected president. Koroma is currently serving out his second term, which he won in 2012.
Ease of Doing Business
So how does all this influence business conditions? According to the World Bank, Sierra Leone currently ranks 143rd out of 183 countries on its Ease of Doing Business Index – a measure created by the Bank to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses. By way of comparison, the United States ranks 4th on ease of doing business, right after Singapore, Hong Kong, and New Zealand.
What does this ranking mean? Take, for instance, the Bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. From the figure one can see that the Bank defines business-creation costs as consisting of the time and money outlays involved in the series of legal steps necessary for the entrepreneur must take in order to legally establish an in-country firm. Using this framework, the Bank then tasks researchers to go through this process in order to establish in-country averages.
When this metric is applied to Sierra Leone, the Bank finds that Sierra Leone ranks 61st out of 183 in ease of starting a business, making Sierra Leone one of the less difficult places on Earth to start a legal commercial enterprise. To start a business in Sierra Leone one has to complete six bureaucratic procedures that take a total of just 12 days at a total cost of about $374 with no minimum capital requirement imposed by the government.
How the World Bank Measures Ease of Starting a Business
Using similar metrics for other aspects of business operations, the Bank has ranked Sierra Leone in a number of other areas. To obtain a construction permit, for instance, Sierra Leone does much worse by ranking at 166th out of 183 as it takes the completion of 25 procedures, which takes on average 252 days at a cost of $1,166. Clearly this is a very high price to pay and a clear barrier to your average citizen of Sierra Leone in building or expanding a business.
Continuing in its assessment, the World Bank has determined that in order to obtain and register property, Sierra Leone also does poorly as it ranks 169t out of, again, 183 countries measured. To register property in Sierra Leone the Bank finds it takes the completion of seven bureaucratic procedures that takes, on average, 86 days and costs 12.2-percent of the property’s financial value in fees and other costs to complete. This makes Sierra Leone a very difficult place in which to register property.