Score is 47.9, making its economy the 157th freest in the 2010 Index. Its score remains almost the same as last year. Sierra Leone is ranked 36th out of 46 countries in the Sub-Saharan Africa region, and its overall score is below the global average.
Sierra Leone is still reconstructing in the aftermath of a decade-long civil conflict. Economic growth has been averaging about 6 percent over the past five years, but the challenges to maintaining growth momentum are considerable. The overall environment is not conducive to entrepreneurial activity, and the private sector faces significant constraints.
Mismanagement in public spending remains a serious problem and ultimately hurts implementation of necessary reforms. The protection of property rights is weak, and the judicial system lacks both independence and transparency. Legal proceedings are vulnerable to political interference and commonly subject to pervasive corruption. High tariffs and non-tariff barriers hinder trade.
Background Back to the top
Sierra Leone’s civil war, which seriously damaged the country’s infrastructure and economy, ended in 2002 with the help of African, British, and U.N. peacekeepers, but recovery has been fragile, the infrastructure remains deficient, and the people are still very poor. Ahmad Tejan Kabbah, elected president in 1996, was ousted in a coup, reinstated by Nigerian-led forces in 1998, and re-elected in 2002. Opposition candidate Ernest Bai Koroma was elected president in 2007 in the first peaceful transition of power from one party to another since Sierra Leone achieved its independence. Industry (primarily mining) accounted for about 25 percent of GDP in 2007. Diamonds are the primary export. Two-thirds of the population depends on subsistence agriculture, and agriculture accounted for an estimated 46 percent of the economy in 2007.
Business Freedom54.6 Back to the top
The overall freedom to start, operate, and close a business is restricted under Sierra Leone’s regulatory environment. Starting a business takes an average of 12 days, compared to the world average of 35 days. Obtaining a business license takes more than the world average of 18 procedures and 218 days. Bankruptcy proceedings are fairly straightforward but costly.
Trade Freedom62.8 Back to the top
Sierra Leone’s simple average tariff rate was 13.6 percent in 2007. Liberalization of the trade regime is progressing, but import taxes and fees, non-transparent regulations, inefficient customs implementation and non-transparent customs valuation, inadequate infrastructure, and corruption add to the cost of trade. Ten points were deducted from Sierra Leone’s trade freedom score to account for non-tariff barriers.
Fiscal Freedom80.9 Back to the top
Sierra Leone has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 30 percent. There is also a tax on interest. In the most recent year, overall tax revenue as a percentage of GDP was 10.4 percent.
Government Spending80.5 Back to the top
Total government expenditures, including consumption and transfer payments, are relatively low. In the most recent year, government spending equaled 25.5 percent of GDP. Measures to widen the tax base and clamp down on expenditures are on the reform agenda, but weak control of public spending management remains a central problem. A goods and services tax (GST) was set to be enacted in September 2009.
Monetary Freedom71.7 Back to the top
Inflation has been high, averaging 13.6 percent between 2006 and 2008. Most prices are freely set in the market, but the government influences prices through state-owned enterprises and utilities. Five points were deducted from Sierra Leone’s monetary freedom score to account for policies that distort domestic prices.
Investment Freedom40.0 Back to the top
Foreign investment receives national treatment and is not screened, but it is restricted in certain sectors. All investors face licensing requirements and must register with the government. The judicial system is slow and prone to corruption. Weak regulatory enforcement, lack of administrative capacity, restrictive labor rules, licensing, weak contract enforcement, inadequate infrastructure, and corruption also deter investment. Residents and non-residents may hold foreign exchange accounts. Foreign exchange and capital transactions may be subject to some restrictions and certain approval requirements. Foreigners may lease but not own land.
Financial Freedom20.0 Back to the top
Sierra Leone’s financial system was undermined by prolonged economic and political instability, and the recovery process has been rather sluggish. The banking sector has gradually expanded, with 13 commercial banks operating in the country. However, government-owned banks still account for a majority of banking assets, and the government’s frequent bond auctions tend to crowd out credit to other markets. Non-performing loans have stayed at over 20 percent of total loans in recent years. A considerable portion of the population remains outside the formal banking sector, and scarce access to credit is a major impediment to vibrant business activity. Poor enforcement of contracts discourages lending, and corruption is endemic. A substantial shadow market in U.S. dollars hinders efforts to combat money laundering. The Sierra Leone stock exchange was launched in 2009.
Property Rights10.0 Back to the top
Property is not secure. There is no land titling system, and judicial corruption is significant. Traditional tribal justice systems continue to serve as a supplement to the central government’s judiciary, especially in rural areas. Optical discs and tapes of popular music and films are illegally copied and sold on a substantial scale.
Freedom From Corruption19.0 Back to the top
Corruption is perceived as pervasive. Sierra Leone ranks 158th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008, a drop from 2007. International companies cite corruption in all branches of government as an obstacle to investment. Bribes, kickbacks, extortion, and skimming on contracts and payments are common forms of corruption.
Labor Freedom39.0 Back to the top
Sierra Leone’s labor regulations are inflexible. The non-salary cost of employing a worker is moderate, but the difficulty of firing workers is a significant disincentive to additional hiring.