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Special Economic Zone (SEZ) for Sierra Leone: Laying down the Foundation for Economic Growth?

Abdul R Thomas
Editor - The Sierra Leone Telegraph

28 January 2010

The Government of Sierra Leone in a press statement has announced the signing of an agreement, between the Ministry of Trade and Industry and the American - owned FIRST STEP Economic Opportunity Zone, Inc., to develop a fifty acre Special Economic Zone (SEZ) near Waterloo, Freetown.
The aim of the Special Economic Zone (SEZ) is ‘to spur economic growth and attract foreign investment to Sierra Leone.’ Under the joint venture agreement, FIRST STEP will build, operate, and in conjunction with the Government of Sierra Leone, market the fifty acre industrial park to international investors and manufacturers.
The Sierra Leone Telegraph has been consistent in making the case for growing Sierra Leone’s economy through state intervention strategies that will address crippling market failures or barriers to economic growth. The provision of suitable commercial and industrial properties is just one such proposition.

On the 2 April 2009, in response to the launch of Sierra Leone’s Private Sector Development Strategy, the Sierra Leone Telegraph published an article - ‘New Private Sector Development Strategy Revealed as Poverty in Sierra Leone is Predicted to Continue into 2018.’

Whilst we agreed with the President, that: “Private Sector Development is a fundamental principle underlying economic growth”, we stressed that; “clearly the market has failed in Sierra Leone. Government’s intervention in the market to stimulate business investment is now more than ever required. Cutting the time it takes to start a business and red tape is fine, but not many indigenous entrepreneurs will embark on a new venture or expand their existing businesses if the cost of doing so is too high.”

We also emphasised that; “Government can provide ‘seed corn’ investment funds targeting the manufacturing and agro - based processing sectors that will create meaningful jobs. It should also intervene in the industrial and commercial property market, by providing access to suitable land and buildings for industrial production, as a priority for stimulating Private Sector led growth. “

Also, on the 18 April 2009, the Sierra Leone Telegraph Editorial Team published another article - ‘Huge public sector borrowing set to haemorrhage Sierra Leone’s Economy’, in which we advised that:
‘‘The government needs to guarantee access to affordable finance; access to a pool of skilled and trained workforce; access to suitable industrial premises, managed workshops and business incubators; provision of reliable energy and water supplies; good roads and telecommunication network. These are the building blocks upon which a modern economy is built. Industry in Sierra Leone needs them NOW.’’

  According to the Honorable Minister of Trade & Industry - Mr. David O. Carew;

“The consummation of this agreement marks a watershed moment for the country of Sierra Leone that will build on our recent eighth position improvement in the 2010 Doing Business Rankings; and shows that we are serious about attracting investment and creating prosperity for our nation’s citizens. With this agreement, we continue to announce that Sierra Leone is open for business.”

But is Sierra Leone really and truly open for business? The government’s announcement is mute on key elements, such as the cost of developing this fifty acre Special Economic Zone (SEZ) near Waterloo; the government’s (tax payers’) share of that cost; and the number of industrial units to be built.

What are the quantifiable benefits of the government’s equity investment in this important public – private partnership venture – number of new jobs to be created, number of indigenous businesses to be established or expanded, number of foreign investors expected to relocate to the Park, and the expected Gross Value Added on GDP?

Furthermore, it is not yet clear what fiscal incentives will be offered to lure foreign direct investors and businesses to relocate from other overseas locations, where they are already established.

According to World Bank’s 2007 estimates, there are more than 3,000 similar projects taking place in Special Economic Zones (SEZs) across 120 countries worldwide.

For Sierra Leone to successfully compete with these other SEZs, the government must be clear about the ‘unique selling proposition (USP)’ it will offer potential investors. No doubt, FIRST STEP will be hoping to yield a rate of return on their equity investment of 10% - 20%, if not higher.

While FIRST STEP will offer consulting services to potential tenants occupying the industrial park, it must be noted that other competitor countries that are succeeding in attracting inward investors to their enterprise and economic zones, offer significant and attractive relocation incentives, such as:

  • 100% tax allowances for capital expenditure on constructing, improving or extending commercial or industrial buildings

  • exemption from Business Rates for industrial and commercial premises

  • simplified planning procedures

  • exemption from raw materials import duty

  • faster processing of export documentation

  • favourable export duty concessions

The Government of Sierra Leone appears confident that, ‘a varied and diverse range of businesses from around the world will locate their production facilities within the SEZ to manufacture products for export to the international markets.’

The Chief Executive Officer of FIRST STEP - Mr. Richard Schroeder said: “We are eager to continue our partnership with the Government in this endeavour, and look forward to attracting ethical investors and manufacturers to Sierra Leone in order to encourage economic growth and to create jobs for the people of Sierra Leone.”

Based in Alexandria, Virginia, USA - FIRST STEP is a wholly-owned subsidiary of World Hope International, an international relief and development organization - the largest microfinance institution in Sierra Leone - with a track record of operating in the country, spanning the best part of 10 years.

According to Richard Schroeder; “FIRST STEP was created with the expressly stated purpose of helping to jumpstart the economies of developing countries through public-private partnerships that attract labor-intensive, export processing industry to those countries, while building the capacity of local institutions to provide services that enhance the developmental impact of the industry and safeguard labor rights and environmental protections.”

This major initiative has the potential to stimulate Sierra Leone’s economic growth, if the optimum mix of industrial and commercial property portfolio is offered to indigenous as well as foreign investors. But it must, once again be emphasised that there are well over 3,000 similar projects, taking place in Special Economic Zones (SEZs) across 120 countries worldwide. This is the competition that Sierra Leone is up against.

Success would very much depend on the range and level of fiscal incentives that will be offered to potential investors, especially to those businesses that are already located in other countries, where labour is not only cheap, but the availability of a skilled workforce is abundant; road infrastructure is good; water and electricity supplies are reliable; the standard of living is higher; and political insecurity is not an issue.

Notwithstanding this challenge, Sierra Leone needs to begin to develop its manufacturing base. According to the World Bank, ‘the government of Sierra Leone must now develop new engines of growth in agriculture, energy, mining, private sector investments and tourism to bring Sierra Leone out of poverty.’

This Special Economic Zone (SEZ) to be built near Waterloo is certainly a step in the right direction.

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