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The Commercialisation of Agriculture in Sierra Leone: Options for the Legal and Regulatory Framework

Beatrice Chaytor Table of Contents

2 INTRODUCTION

Background

1. Sierra Leone has abundant natural resources, good rainfall and vast acres of land suitable for a variety of agricultural products. Yet Sierra Leone has ranked bottom of the Human Development Index for the past four years and is seen by some of its development partners as a fragile State, whose legacy of war continues to cast a shadow over its future.

2. That said, there are signs that there is growing political will for key sectors of the economy such as agriculture to play an increasing role in lifting the majority of the population (and predominantly in rural areas) out of the grinding poverty that has been their lot for decades. Agriculture is a prominent theme in Sierra Leone’s PRSP and the Ministry of Agriculture, Forestry and Food Security (MAFFS) has a vision for the further development of the agricultural sector seeking to make agriculture the “engine for socio-economic growth in Sierra Leone”. Donor intervention in the sector is increasing and there are efforts by both NGOs and private sector in cultivation, quality standards, marketing and export of agricultural commodities. All this bodes well for Sierra Leone’s agricultural development.

3. However, since the 1970s, agricultural development has not been pursued in a comprehensive manner, and the policy and institutional support to it has been piecemeal. There are a number of initiatives on agriculture; however there is a distinct lack of an overall coherent policy framework to guide all these initiatives. Some policies are arbitrary or contradictory as will be shown below. Experiences over access to land for large scale agricultural development have been inconsistent and fraught with difficulty. Financing for the private sector, including agriculture enterprises, over the years has been dwindling and is now costly and short term, or non-existent. Moreover, Sierra Leone is missing out on some existing opportunities for increased regional and international trade through lack of compliance with sanitary and other quality standards, especially in key crops such as cocoa and coffee.

4. Sierra Leone is now faced with a rapidly globalising world which currently is in the midst of a major economic crisis. Global value chains dominate international trade networks, by turn integrating or marginalising economies. All this will require a complete paradigm shift in the way the country thinks about agriculture, its role in social and economic progress, and the opportunities for human and technological advancement. The focus for agriculture in Sierra Leone should be on the development of productive capacities which generates capital accumulation, technological change, structural change, employment creation and poverty reduction. This is not the responsibility of one Ministry alone. It requires a concerted national effort.

3 5. The Ministry of Agriculture, Forestry and Food Security (MAFFS) with the support of development partners is designing a National Sustainable Agriculture Development Plan (NSADP). The Plan is being developed in the context of the Comprehensive Africa Agriculture Development Programme (CAADP) of the New Partnership for Africa’s Development (NEPAD). There is general recognition that regional and international processes may have implications for the country’s agricultural sector, and moreover, that population growth, environmental and economic factors are likely to have a significant impact on the growth of the sector in Sierra Leone. Tax and fiscal policy, the judicial system, financial sector policies, land use planning, tourism development, trade policy, forestry regulations and science and technology issues all have implications for the sustainable development of agriculture.

Purpose of the Legal Options Paper 6. The GoSL has recognised that past laws and by-laws have impacted on the extent of investment in agriculture in the country. In the context of the development of the NSADP, this paper seeks to contribute key policy conclusions and recommendations for moving the agricultural sector towards a more commercial orientation. The terms of reference are set out in Annex 3 to the paper. The paper is structured as follows: Section 2 takes a brief look at the role of agriculture in Sierra Leone’s socio-economy, identifying a broad agricultural policy. In Section 3, the paper reviews the current tax and investment incentives relating to the agriculture sector. Taking a holistic approach, the paper considers complementary measures in Section 4 that would be necessary for commercialising agriculture in Sierra Leone. Section 5 considers the role of institutional structures such as farmer based organisations in developing the agricultural sector. Land tenure issues are examined in Section 6 and Section 7 provides perspectives from the regional and international context. In each substantive section, policy recommendations are presented as pointers towards the final key policy recommendations set out in Section 8 which will feed into the NSADP. The paper does not seek to set out a definitive legal and regulatory framework for agriculture, but presents selected options which may be considered in the elaboration of such a framework in the NSADP.

4 THE ROLE OF AGRICULTURE IN SIERRA LEONE’S SOCIO-ECONOMY

7. Agriculture is a key economic sector in Sierra Leone accounting for around 44 per cent of GDP in 2007.1 During the decade of civil unrest and conflict (1991-2002), agricultural activities were disrupted throughout Sierra Leone. For decades, despite fluctuations in output, labour-intensive subsistence agriculture has maintained its dominant role in the economy. The sector is predominately rain-fed; the main food crops are rice, cassava, sweet potato, sorghum, millet, and benniseed (small oval seeds of the sesame plant). Agricultural activity is carried out by nearly two thirds of the population in mainly small, family farms (with women as the predominant labour force), which use traditional methods with few inputs and a low degree of mechanisation.2 Farmers depend on the Government and non-governmental organisations (NGOs) for their supply of seeds; the surface area planted is largely determined by the assistance capacity of these agencies.

8. In the past, Sierra Leone was a net exporter of a number of agricultural commodities including cocoa, coffee, ginger, palm kernels, piassava, rubber, and rice. Presently, the situation is the reverse, with Sierra Leone a net importer of rice and some other food crops, and some parts of the country are still dependent on food aid.

9. However, domestic food production has steadily increased and estimates show that the share of households with adequate food consumption has increased from 56% in 2005 to 71% in the 2007.3 The level of rice self-sufficiency in the country increased from 57.4% to 71% between 2002 and 2007.4 The production of roots and tubers (mainly cassava and sweet potato) is currently far in excess of the national requirement for fresh consumption. In general, the production of the country’s major food crops (rice, cassava, sweet potato and groundnut), livestock (cattle, goat and sheep) and domestic fish rose from 2002 to 2007.5 In terms of exports, cocoa now has a growing presence in Sierra Leone’s international trade statistics, due to recent efforts to improve quality and increase levels of production. The total value of agricultural exports in 2007 was US$13.67 million, a modest increase from US$ 12.8million in 2006. 6 Of this figure, cocoa accounted for US$ 11.36 million of agricultural export earnings in 2007. However, agricultural exports fell to US$6.4 million in the first half of 2008 from US$ 8.6 million in the same period in 2007.

1 Draft Poverty Reduction Strategy, 2008-2012, An Agenda for Economic and Social Empowerment, Republic of Sierra Leone (‘Sierra Leone Draft PRS’). 2 Normally only manual tools. 3 SL Draft PRS, Section 6ff. 4 Ibid. 5 Sierra Leone PRSP Progress Report, IMF Country Report No 08/250, July 2008. 6 Bank of Sierra Leone Statement of Accounts 2007. 5 10. Sierra Leone’s Diagnostic Trade Integration Study (DTIS) undertaken in 2005-2006 reviewed agriculture, agro-industry and forestry as key themes for the development of Sierra Leone’s competitiveness and integration into the global trading system.7 It found that Sierra Leone could once again become competitive in certain agricultural commodities. Moreover, the DTIS notes that the development of agricultural exports will be critical in determining the growth of rural livelihoods and moving farming communities into the market economy.8

Government’s Priorities 11. The GoSL has signalled that agriculture is now a priority sector for the economy. This is evidenced through the attention given to it in the second PRSP (PRSP II), where it is asserted that “economic development and poverty reduction in Sierra Leone will only be sustained with developments in the agricultural sector”.9 In addition the GoSL’s 2009 budget identifies a prime objective as: “to accelerate economic growth by scaling up investment in agriculture and infrastructure as well as improving the business climate.”10 Moreover, Le3.4 billion is allocated in the domestic capital budget to support various agricultural projects.11 In addition, some development partners, notably the African Development Bank, the Islamic Development Bank, the International Fund for Agricultural Development, the European Commission and the World Bank are providing a total of Le37.7 billion, to fund various agricultural projects in support of the GoSL’s priorities on agricultural development. The priority in agriculture is therefore increased productivity and competitiveness. The development of the NSADP is a contribution towards this prime objective.

General Agriculture Policies 12. According to the PRSP, support to agriculture has been focused on reducing poverty and food insecurity, which is in accordance with Millennium Development Goal 1. Policies have therefore concentrated on small-holder farmers, and less attention has been paid to medium and large scale farming.12 Extension services have therefore targeted improvements in agricultural production from small farms and have not supported the growth of agro-industry in the country. The Sierra Leone Produce Marketing Board (though imperfectly operated) was intended to serve a variety of functions, including research and the provision of services which supported 7 See Sierra Leone: Adding Value through Trade for Poverty Reduction, DTIS, November 2006. Also at www.mtisl.org/programmemes 8 Sierra Leone DTIS, p. 28. 9 Sierra Leone Draft PRS, p. 50. 10 An Act to Provide for the Services for Sierra Leone for the Financial Year 2009 (GoSL Budget 2009), para. 7. 11 According to the Minister of Finance, the total amount of domestic resources allocated to the agricultural sector for 2009 is 64 percent higher than the amount allocated in 2008. See GoSL Budget 2009, para. 18. 12 Sierra Leone Draft PRS, pp 54-55. 6 technological upgrading of export crops. However this institution was dismantled as a consequence of economic liberalisation and privatisation.

13. Research effort since then has been patchy and has not focused on the needs of the agro-processing firms, including adaptive research on enhancing variety and ensuring the availability of fruit, vegetables and other crops all year round. There are no obvious policies on technology dissemination and technological upgrading for improved agricultural productivity. Science and technology infrastructure targeted at the agricultural sector over the years has declined and is fragmented. Public funding for research institutes, universities and technology policy coordination bodies has traditionally been low or non-existent. It is worth noting that the GoSL will provide Le2.2 billion to the Sierra Leone Agricultural Research Institute (SLARI) in the present budget, however, it will take some time for this investment to begin to show results. The disconnection between public research and development institutes and productive sectors is a constraint on learning and technological adaptation at the enterprise level.

14. More research that meets the needs of the agro-processing sector needs to be conducted, including adaptive research on enhancing variety, and ensuring availability of fruits and vegetables all year round. The scope of the agriculture extension policy also needs to be broadened to benefit the agro-processing sector. There is a need for an inclusive policy action that caters to the needs of the majority of the rural agro- processing firms. Low value addition capacity in the agricultural sector emphasises the need for policy support institutions that can help ensure that urban populations get access to well processed, quality domestic rice, and that quality of export crops will be increased.

15. The Ministry of Agriculture’s stated vision is to make agriculture the engine of socio-economic growth and development in Sierra Leone. To do this the Ministry will focus on a two-pronged approach: on the one hand seeking to promote food security and poverty alleviation and on the other, private sector development and growth. 13 To this end, the MAFFS has elaborated a number of key interlinking objectives and aspirations for this goal, including inter alia: enhancing increased agricultural productivity and production; promoting crop diversification; assisting small-farmers to get organized for market economy; reducing imports; and promoting sector infrastructural development such as roads, markets, and post-harvest facilities.

16. In seeking to increase agricultural productivity and diversification, MAFFS will assist in the widespread use and dissemination of agricultural machinery such as tractors, power tillers and harvesters; the establishment of supply chains for inputs such as fertilizers, pesticides and high yielding seed varieties such as NERICA; the increase of irrigation facilities to expand cropping cycles year round; the enhancement of agro processing marketing and distribution; and the encouragement of increased

13 Synopsis, Vision and Strategy for Agriculture Sector Development in Sierra Leone, Joseph Sam Sesay, Minister of Agriculture, Presidential Retreat, Bumbuna, 11-13 January 2008. 7 cultivation of food crops with farmer-based organizations of small-scale farmers and with medium to large scale farms.

17. Private sector participation in agriculture will be promoted by creating an enabling environment that is attractive for the private sector to invest in agriculture, including access to financial services, physical infrastructure such as roads and community markets, and post harvest storage facilities.

18. In 2004, the Ministry of Trade, in partnership with UNIDO developed a programme of support to SMEs in order to:

 support the post-conflict national reconstruction based on bottom up SME development strategies for poverty reduction, particularly the increase in food supply  address the poor capacity of micro, small and medium scale enterprises in Sierra Leone to manufacture, supply and service appropriate equipment and machinery for the agricultural and agro-processing sectors, and to generate employment in the industrial sector

19. The programme developed growth and production centres around the country; encouraged skills development among micro and small businesses; and facilitated trade by linking production centres to strategic marketing and distribution depots, and to export markets abroad.14 Machinery and technology for use and adaptation in local food industry was designed; and food processing (fruit juices, marmalades, jams, industrial starch, etc) took place.15

20. In order to further address the issue of availability of equipment and technology for manufacturing and industry, a Memorandum of Understanding was signed between the Government of Sierra Leone and the National Research Development Corporation of India that was designed to transfer technology, machinery and tools for use in: fruit processing, food products, agro processing, packaging materials, light engineering, cooling systems, agricultural implements, and utilities. It is unclear what the status of this project is as well as the status of the growth and production centres.

Key Issues and Policy Options for the Overall Approach to Agriculture in Sierra Leone

Policy Recommendations:

14 The programme developed 5 growth centres in: Bo (marketing of arts & crafts, gari processing, tin smithery); Pujehun, Binkolo, Kpandebu; Rotifunk, and a production centre (AMPC) in Freetown. 15 See www.mtisl.org/programmes 8  A paradigm shift which places the development of productive capacities at the heart of national agricultural policies to promote economic growth and poverty reduction. This approach has been promoted by UNCTAD and has been used by other international institutions including the UN Economic Commission for Latin America and the Caribbean.16 This is similar to the Japanese approach to economic development, which has been so influential in spawning a variety of East Asian development models.17

 An integrated development model for agriculture focusing on inter-sectoral dynamics in rural and non-rural activities, which sustain the inter-relationship between primary, secondary and tertiary agricultural sectors.

 Specifically, measures to support and stimulate simultaneous investments in agriculture, agro-industry and agricultural services along the value chain of the promising sectors.

 Promotion of exports, to stimulate upgrading and increased local value-added of available natural resources.

 Making constant agricultural growth linkages, e.g. development of local food processing industries through forward linkages from agriculture (development of manufacturing experience and skills); or increasing demand for local consumer goods and simple capital goods, stemming from the rising incomes associated with agricultural productivity growth provides a major stimulus for micro- enterprises to transform into small firms.

GENERAL POLICY AND LEGAL FRAMEWORK FOR INVESTMENT IN AGRICULTURE

21. If agriculture is destined to play a central role in the development of Sierra Leone’s economy, laws and policy on investment and tax should directly address inward investment in the agriculture sector. The current tax structure and investment policy have a direct bearing on the medium and long term investments in the sector.

Tax Structure 22. Unless taxes are carefully crafted, they may represent distortions that are harmful to the agricultural sector. The main fiscal instruments for this purpose include the

16 See Developing Productive Capacities, The Least Developed Countries Report 2006, UNCTAD; and Productive Development in Open Economies, ECLAC, 2004. 17 Cases in point include Korea, Singapore, Taiwan, Malaysia and Thailand. 9 Income Tax Act 2000,18 the Finance Acts of 2006 and 2007, and Sierra Leone’s tariff regime which effectively implements the ECOWAS Common External Tariff (CET).

Import Duties 23. Materials directly related to production in most agriculture related sectors face few import duties. Raw materials, plant and machinery (tractors and appliances, harvesters, veterinary drugs and implements) may be imported at a duty rate of 5 percent. There is an import duty rate of 20 percent for intermediate and 30 percent for final goods. The import duty on rice has been lowered from 15 to 10 percent.

24. All commercial imports are subject to an additional ECOWAS levy of 0.5 percent of the CIF value for imports from non-ECOWAS countries. In addition, a 3% withholding income tax is levied on most common imports.

25. Pre-shipment inspection (PSI) is applicable to all imports above US$2000 and has recently been reduced to 1.10% of the FOB value of goods or $225 whichever is higher. For rice imports, PSI is 0.25% of the FOB value. A special fund has been established whereby 0.15% of the 1.10% PSI charge is to be put aside and used for enabling the Customs Department to acquire internet technology and IT systems. Agricultural goods of tariff heading 1 through 8 are exempted from PSI. Petrol attracts a standard excise duty of 30 per cent. This cost is an important factor in the costs of all other inputs, as well as marketing and processing costs.

26. It will be important to determine in which category of import duties, capital goods fall. At first glance, it seems they would attract a duty rate of 5 percent. However, closer examination determines that capital goods needed for agriculture probably would be imported at rates of 20 or 30 percent. Imports of capital goods are the main source of innovation for many firms in least developed countries (LDCs) like Sierra Leone, and are a major source of their technological effort. This is because of the possibility of technological learning and adaptive innovation by local firms associated with the technology embedded in those goods (‘reverse engineering’). Evidence from studies by UNCTAD has found that the composition of capital goods imports by LDCs to a large extent mirrors changes in their productive structure and trade specialisation as well as their overall level of technological development.19 In recognition of the possible anomalous situation of the tariff treatment of capital goods used in the manufacture of agro-industrial products, the Minister of Finance has stated in the 2009 budget:

“…we are also aware that certain raw materials for some manufacturing industries are in the form of finished intermediate or finished products, which can be sold directly to consumers. As such, over the years, companies whose raw materials fall under this

18 As amended by the Income Tax Amendment Acts 2004 and 2005. 19 Knowledge, Technological Learning and Innovation for Development, The Least Developed Countries Report 2007, UNCTAD 10 category have been paying duty rates applicable to intermediate or finished products, which is higher than the duty rate of 5 percent applicable to raw materials and capital goods. To ensure fairness and encourage domestic production, where goods are imported as raw materials and it could be proved that they are being used solely for that purpose, they would attract the duty rate of 5 percent applicable to raw material imports”.20 (emphasis added)

Other Taxes 27. All imports incur a sales tax of 15 percent.21 Only baby food, tea, computers, generators, plants and machinery are exempted from this. There is a domestic sales tax of 15 percent of the taxable value on domestic output; and exemptions apply only if the output is exported. However, companies with turnover of less than Le 200 million (US$ 6,656) are exempt from paying domestic sales tax on outputs. Instead, such companies are required to pay sales tax only on imported inputs.

Export Taxes 28. There are few incentives for exports. These are limited to:  Duty draw back system for imported inputs for all exports;  Elimination of export taxes for export oriented industries (with the exception of cocoa and coffee (Section 3.2);  Exemption from excise tax for 75 percent of export output22

Income Taxes 29. A corporate tax of 30 percent is payable by all companies; and this would include agro-processing companies. Income earned from rice and tree crop farming is exempt from tax for a period of 10 years from the date the activity starts. The threshold for income tax on employment income is Le 1.25 million, while the top marginal rate of tax for employees, self-employed and property owners is 30 percent, which applies to most small-scale farmers. Non-ECOWAS businesses must pay a payroll tax of Le1 million per head while for ECOWAS citizens attract a charge of Le100,000. The amount of investment allowance to be deducted from business income is 5 percent on the new purchase in the first year of operation. Repatriation of after tax profits or dividends is subject to the payment of withholding tax of 10 percent. Foreign owned businesses may repatriate not only 100 percent of their profits but are also permitted to repatriate the original loan or interest payment thereon, know-how fees and other services at the exchange rate prevailing at the time of repatriation. A capital allowance deduction is allowed for depreciation of a taxpayer’s depreciable assets.

20 GoSL 2009 Budget, para. 115. 21 Finance Act 2006, s.5. 22 The excise tax is 30 percent. 11 Procedures and Restrictions affecting Agricultural Trade 30. In addition to these tariffs and taxes, imports and exports are subject to a number of port, stevedoring, demurrage and other fees associated with shipping which add to the cost of doing business for firms. In contrast, Sierra Leone’s nearest neighbours, Guinea and Liberia operate free ports,23 effectively making Sierra Leone products uncompetitive. Add to this the costs of transportation, the absence of logistical infrastructure (storage and warehousing facilities), and the present landscape for commercial agriculture appears challenging.

31. Most export taxes were eliminated in 1993. However, exports of cocoa and coffee products remain subject to a levy, currently set at 2.5% of the f.o.b. export value, payable to the Government via the Ad Hoc Committee on Produce. The Chamber of Commerce, Industry & Agriculture issues a mandatory certificate of origin and certifies other export documents against payment of a Le50,000 (US$16.5) fee for exports to ECOWAS countries and to the EC.24

32. Export restrictions and licensing: Export restrictions are maintained for a variety of reasons including health, safety, and environmental protection. A special permit issued by the Ministry of Agriculture is required for the export of plants and charcoal. 25 A phytosanitary/fumigation certificate must be issued by the MAFFS certifying that shipments of perishable goods meet the relevant international health requirements, or have been fumigated with the prescribed chemicals under international requirements. The Ministry charges a fee for fumigating the goods, as well as for issuing the certificate.

33. For some time, the GoSL has maintained a ban on the export of palm oil; recently it has extended this to include the export of rice. The rationale for this appears to be short term scarcity of these commodities in the domestic market. However, bans are an imperfect instrument for rectifying structural market failures, and should always be temporary where they are unavoidable. Moreover, in this case, it pits the interests of small rural farmers against those of urban consumers; this undermines one of the central tenets of the move towards agricultural productivity. In effect, producers are penalised for increased production.

34. Import restrictions: A special permit, issued by the Ministry of Agriculture is required for the import of plants, seeds, soil other than sterilized peat and special rooting compost, and any material mixed with any soil.26

23 Liberia is an official free port, while Guinea operates a free port de facto. 24 It may be interesting to explore whether this levy could be applied by the proposed Chamber of Agriculture with the funds from the levy going to support SLARI’s research on cocoa and coffee. 25 The Agricultural Act (Public Notice No. 66 of 1974) - (cap 185), 12 December 1974; and the Rural Area Act (Public Notice No. 16 of 1990) - (cap 75), 31 December 1990. 26 The Agricultural Act (Public Notice No. 66 of 1974) - (cap 185), 12 December 1974. 12 35. Generally, export procedures are rather cumbersome and need to be streamlined and simplified. Table 1 presents the export procedures for all sectors in Sierra Leone.

Table 1: Export procedures in Sierra Leone 1. The exporter submits sales contract/pro-forma invoice as proof of an export order to Customs Department. 2. The exporters fill out Exports Forms C1 and C2. These forms are prepared in seven sets. A repatriation of export proceeds form, addressed to the exporter's local bank, is also filled out. The forms are given to the exporter. 3. The exporter submits both forms C1 and C2 to his local bank. The local bank completes the repatriation form, signs and stamps it, confirming that export proceeds will be collected by the bank. 4. The exporters of agricultural products (cocoa, coffee, piassava, kola nuts, ginger, and cashews) go to the Sierra Leone Commercial Bank to pay 2.5% of the export value into the "marketing fund account" of the Ad Hoc Committee on Produce, as required. This amount is payable in U.S. dollars or in the currency of the pro-forma invoice/sales contract if not denominated in U.S. dollars. 5. The exporter armed with all the documents and receipts from steps 1 to 4 proceeds to the Chamber of Commerce and applies for a mandatory Certificate of Origin which is issued for a fee of Le 50,000 (US$16.50), only for agricultural products. 6. The exporter returns to the Custom Department and submits all forms and receipts from steps 1 to 5. 7. The Customs Department issues a EUR I Forma to the exporter. Permission is then granted to the exporter to export his products. 8. The following institutions/departments are required to witness the stuffing/loading of the goods into the container(s): (i) customs department; (ii) shipping agency; (iii) produce ad hoc committee; (iv) produce inspection division; (v) bureau of standards, and. (vi) insurance company (only for c.i.f. contracts). 9. The goods are transferred to the port of loading and loaded on board a ship. 10. The exporter collects bill of ladingb from ship's master. 11. The exporter presents all shipping documents to local bank or posts them to the buyer, depending on the terms of trade. a Form required for exports to the European Communities and ACP Countries. b Bills of lading are usually issued in sets of three originals and three non- negotiable copies. When goods are carried by air, an air-consignment note will be issued. Both documents are issued free of charge. Source:SLEDIC (undated), The Beginners' Guide to Exporting.

13 Investment Policy 36. Apart from the specific taxes and charges mentioned above, there is no overall investment policy for Sierra Leone.

Investment Promotion Act 37. An Investment Promotion Act was enacted and entered into force on August 2004, replacing the 1969 legislative framework, and other laws.27 The Act is designed to promote and attract both domestic and foreign investment for production and value- adding activities; to improve export and provide employment opportunities; and generally to create an environment conducive to private investment and to provide for other related matters. It is worth noting that the package of incentives which should accompany the Act and give it effect did not get passed by Parliament.

38. The Investment Promotion Act covers all sectors; the Act opened up for foreign participation sectors such as mining (including artisanal), manufacturing, transport, brick-making, and retailing. Additional special provisions relating to investment in fisheries, mining, banks and other non-bank financial activities, and tourism activities are contained in sector-specific Acts. The legal framework encourages competition by ensuring national treatment in virtually all areas for all private and public-sector investors. As from 1996, there have been no limits on foreign capital participation in sectors now covered by the Investment Promotion Act. Sierra Leone has provided more favourable payroll tax rates for investors employing ECOWAS citizens, and fiscal incentives in agri-processing activities with a requirement for 60% local input or value added.

Proposed Incentives 39. The Investment Promotion Act would implement tax incentives as provided for in the income tax regulations (See Annex 1) mentioned above. Because the package of incentives has not been passed by Parliament, past tax benefits will remain in place until the legislation is passed. The proposed list to be annexed to the Investment Promotion Act is to divide the territory into two zones (Zone A – Western Sierra Leone; and Zone B all other regions in Sierra Leone). Capital allowance for the reconstruction of the country, and incentives such as duty and tax exemptions could be increased. Incentives in the tourism sector may be increased, and an allowance may be created for special research and training expenses.

40. Investors are guaranteed freedom to do business (choice of suppliers, clients, provision of services); free entry, residence, movement, and exit of expatriates, and their families, subject to observance of the rules in force; freedom of management; freedom to transfer capital, including profits and dividends duly accounted for, and

27 The Non-Citizens (Trade and Business) Act of 1969. 14 funds acquired as a result of the transfer or cessation of the enterprise’s activities, subject to the legislation in force; no expropriation measures28; and the right to settlement of disputes resulting from interpretation or application of the Act.29

41. As pointed out, the incentives bill developed in 2004 is yet to be enacted. This situation needs to be addressed. The tax incentives for agri-processing activities requiring 60% of local input or value added to the product, could potentially be an important encouragement to manufacturing and agro-processing when coupled with the low import duties for capital goods for agri-business (now clarified at 5 percent). Added to the fact that investors in rice farming and tree crop farming pay no corporate tax for the first 10 years of operation, this could potentially be an attractive package for investors in large scale commercial agriculture.

42. The 2009 GoSL budget outlines specific concessions to the agriculture sector. For a start, the definition of qualifying expenditure is to include:

 Plant and machinery used to pursue crop cultivation, animal farming, aquaculture, and agricultural or pastoral pursuits

 Constructing access roads, bridges, buildings and structural improvements on land for the purpose of crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits

43. In view of the time lag between start-up and processing activities, integrated agricultural projects qualify for investment allowance of 60 percent for five years after expiration of a tax holiday on expenditure incurred for processing operations.30 Moreover, corporate tax for the first ten years will be zero percent consistent with the Income Tax Act. Import duty on agricultural input is also zero percent but subject to the implementation of ECOWAS CET. Payroll tax for non available skills is subject to an exemption for the first two years of employment subject to an extension to a maximum of three years. In addition to the incentives available for the agricultural sector, agro processing enterprises will have reduced import duty on immediate goods at half of the prevailing rate of 20 per cent. 31

28 A guarantee that the State of Sierra Leone will not take any measure to expropriate investments it has made, subject to special cases for public purposes as laid down in the terms of the National Constitution and laws. Expropriation measures include either taking over the majority company shares or the operation of the company. Compensation will be as directed by the International Court for the Settlement of Investment Disputes (ICSID). 29 If any dispute between an investor and a non governmental party in respect of an enterprise is not settled amicably, the matter is referred to the relevant legal authority in Sierra Leone for settlement, in accordance with laws and regulations governing such transactions. 30 GOSL 2009 Budget, para 151. 31 GoSL 2009 Budget, paras. 151-154. 15 44. These incentives should be built upon and mainstreamed into more long term approaches for investment in the sector; in particular they should be included in a new comprehensive package of incentives attached to the Investment Promotion Act 2004. Without such an approach incentives become arbitrary and uncoordinated, instead of being structured and targeted. It has been observed that further incentives and tax deductions may be negotiated with the Ministry of Agriculture. However, such a situation encourages rent seeking and leaves much discretion in the hands of Ministry personnel. Moreover, individual incentives negotiated may not be honoured and implemented by the tax collection agency (NRA). The optimum position would be to have clear and permanent incentives specifically targeted and set out in legislation or policy which is on public record and available to all potential investors.

General Business Environment 45. In making decisions about the location of investment, investors consider the entire business environment and not merely isolated incentives. Thus the focus should be on the general business environment which will also impact on the development of commercial agriculture.

46. In Sierra Leone’s Vision 2025, private sector-led growth is singled out as a strategy that will drive trade and a competitive liberal economy. In the medium term, this aspiration can only be sustained by the country’s economic performance, which should generate the resources required to sustain new systems and structures established as part of specific reform programmes, including the agricultural sector development plan. Furthermore, it is clear, as is recognised by the PRSP ll, that improved economic performance will be determined by the success or otherwise of the private sector in generating wealth and associated employment.

47. Impediments to private sector growth have begun to be removed. In 2007, two new pieces of legislation were passed, the Business Registration Act 2007 and the General Law (Business Start Up) Amendment Act 2007. The legislation on business start- up has reduced the time, number of steps and the costs required to set up new businesses. The second piece of legislation deals with the merger of work and residence permits. Under the project to simplify business operations, customs procedures have been markedly simplified, involving the reduction of documentation, reduction of duplication, elimination of unnecessary steps, and the introduction of a risk-based system for customs inspections. At the same time, the advance tax to the National Revenue Authority (NRA) has been removed, which eliminates the need for businesses to pay one fourth of their taxable income prior to registering their business.

48. The table below shows the rankings for Sierra Leone and other Mano River Union countries in the World Bank Doing Business Index. Since 2004, Sierra Leone has made incremental progress in the DBI rankings.

16 Table 2: Sierra Leone and MRU countries in the Doing Business Index

Sierra Leone: Doing Business Indicators, 2009 (181 countries) Mano River Countries Other than Sierra Sierra Leone Guinea Liberia Côte d'Ivoire Leone (average)

Starting a business 53 177 88 167 144 Dealing with licenses 169 162 177 160 166 Registering property 163 157 172 139 156 Getting credit 145 163 131 145 146 Protecting investors 53 170 142 150 154 Paying taxes 160 168 59 148 125 Trading across borders 132 110 115 155 127 Enforcing contracts 141 131 165 124 140 Closing a business 145 109 146 68 108

Overall rank 156 171 157 161 163 Source: World Bank, Doing Business Index, 2009

49. That said, there is a perennial problem with the enforcement of contracts due to the difficulties with the justice system. Therefore the transaction costs for many company and commercial undertakings are high. The proposed establishment of a Commercial Court should contribute towards addressing this problem.

17 Key Issues and Policy Recommendations for Incentives in Agriculture

Policy Recommendations:

 With the paradigm shift towards a value chain approach to productive capacities, investment policies and the tax structure should target each part of the value chain in agricultural production, agro-processing and agricultural services.

 The incentives package designed to be attached to the Investment Promotion Act should be revised to be reflect the new incentives outlined in the 2009 GoSL budget.

 The reforms in the general business climate should be further deepened to provide a level playing field, certainty and predictability for domestic and foreign investors.  Sierra Leone should take advantage of the flexibilities in the WTO Agreement on Agriculture to provide protection for infant agriculture industry (See Section 7).

Access to Finance 50. Despite recent reforms in the private sector development area, there nevertheless remains a missing link. Many studies and surveys point to access to finance and the associated financial environment as major hindrances to the development of the private sector.

The Sierra Leone Financial Sector Landscape 51. The Sierra Leone financial sector is relatively small, but with some recent movement in the number of players, the sector could see substantial growth over the next few years.32 The banking presence outside Freetown, although growing, is still thin. Access to rural and agricultural finance has proven to be a challenge for various reasons including high cost, perceived limited market potential, limited know-how in terms of agricultural finance, limited access to long-term finance, lack of clarity in rural land titling making collateralization of land difficult. The nature and characteristics of agricultural production mean that sustainable and long term funding for its growth and development will be required. Many aspects of agricultural production and agro- processing involve considerable risk. In addition, much of the agricultural production in the country is in the hands of small holders and SMEs, which are considered too small and too risky for the types of loans provided by the banks. For this reason, the approach taken towards financing of agriculture should be long term and comprehensive.

32 By the end of 2008, Sierra Leone had 16 commercial banks, mainly comprising of new entrants from Nigeria. 18 52. However, commercial banks are risk averse and do not routinely lend to small farmers and SMEs. Indeed high rates on Treasury bills provide no incentive to banks to lend to the private sector, particularly to those investing in agriculture. In effect, there is a ‘crowding out’ of the private sector from available financial services. This contributes to limit the range of financial products available and restrict access to financial services for agricultural enterprises. High lending rates (of close to 30 percent) discourage investment despite excess liquidity in the banking system.

Risks in Agricultural Finance 53. Most banks are willing to lend only against certain fixed assets that serve as collateral or that provide sufficient guarantees. Banks typically require collateral such as real estate that is easy to sell or liquidate in the event of default. On the other hand, the collateral that most farmers, processors and traders can offer, such as inventories, may be difficult to sell, especially where markets are located abroad or the commodities are not well graded. Even where the borrowers are able to provide collateral, the banks may impose fixed repayment schedules that do not reflect cash flows and cash flow risks in agriculture.

54. Credit providers are extremely wary of supplying funds to producers, processors and exporters in Sierra Leone because they perceive the risk of default as being high. Yet, the poorer producers, processors and agricultural traders are, the more constrained they are in their ability to obtain credit and finance. This is because they have little land and few capital resources to fall back on in the event of emergency. Ironically, their vulnerability makes them poor credit risks.

55. As a result of these financial constraints, it is difficult to organise production and processing efficiently. Cash flow is always a problem. The most profitable techniques are unavailable because the machinery cannot be purchased. This results in lack of competitiveness, especially in export markets. Exporters are unable to effectively trade with large buyers and users because they do not have sufficient capital to provide deferred payment terms on their own account as required by such users. Lack of investment in processing and storage also leads to high losses and the inability to meet standards. Without working capital, farmers are forced to sell at harvest time, when prices are low. Thus it is difficult to break the cycle of poverty since lack of capital leads to low income which contributes to lack of capital.

Sources of Agricultural Finance 56. In the past, a number of financial institutions played a role in rural and agricultural finance, such as the National Development Bank, the National Cooperative Development Bank and the Post Office Savings Bank. The National Development Bank (NDB) owned by government, used to undertake project financing with a credit line 19 from the African Development Bank, but high costs and a large number of non- performing loans resulted in severe liquidity problems. The National Cooperative Development Bank (NCDB), also owned by government, in pre-war years, provided financial services to a large number of cooperative societies across the country. The Postal Savings Bank was established in 1990 and its operations mainly comprised of savings from small depositors, salary accounts for employees of small businesses, and loans to depositors. However, none of these institutions are viable contenders at the moment in the provision of financial services for agriculture.

57. Subsidised lines of credit were provided through agricultural projects and the NDB, often with the support of donors under various integrated rural development projects. However, default rates were high and the credit schemes were unsustainable without donor support. This, coupled with the failure of the NDB has had a huge negative effect on the development of the financial sector in rural areas. Also, a credit guarantee scheme, used to operate through a Credit Guarantee Fund, which was designed to encourage the commercial banks to direct part of their portfolio of loanable funds to small borrowers, especially in the agricultural sector. The objective was to enhance the supply of credit to priority sectors while providing the participating financial institutions some guarantee against future losses. The Fund would guarantee 80 per cent of commercial bank loans to agricultural and agri-business projects. About 61 percent of the approved loans went to agricultural projects.

58. At the same time, an Export Credit Guarantee Scheme (ECGS) was established, with the objective of encouraging financial institutions to provide credit to individuals or groups in the export business, particularly exporters of non-traditional products such as pineapples, horticultural products, gari and batik. The ECGS guaranteed participating commercial banks 66 2/3 per cent of any amount in default by the exporter because of insolvency or protracted default. Although the ECGS was fairly innovative, the commercial banking community never really gave it wholesome support citing the high costs of lending small amounts to numerous and widely dispersed enterprises. Valuable lessons should be learnt from these experiences. The issue of default needs to be tackled through financial education programmes for farmers and SMEs, as well as arbitration procedures for the quick recovery of debts in the absence of a strong and effective justice system. In addition, it is important that the main interlocutors in the finance system: the commercial banks, become partners in any future credit guarantee schemes.

Micro-Finance Schemes 59. A number of microfinance institutions (MFIs) currently service the rural and low income markets, providing small loans and credit to traders and farmers. Similarly, self- help groups called “Osusus” are formed to provide credit among people with similar incomes and social status. This grouping is more prevalent among the women of Sierra Leone. Some Village Savings and Loans (VSL) schemes operated by CARE International

20 and other NGOs have also proved useful in remote areas. In this way, microfinance institutions have been most successful in reaching rural areas, with 48% of their outreach outside of Freetown. However, supply only covers a fraction of demand,33 and the demand for credit is higher than for savings. Moreover, microfinance is insufficient to meet SME needs especially for long term loans.

60. The limited interventions to farmers have been achieved only through linkages with private sector initiatives. As such, in the short term, expansion in rural areas will need to be closely linked with private and public rural development initiatives. It will be necessary for financial institutions to be informed of investments and projects in order to assess how financial services may be offered. Only in this manner, can financial services support rural economic development.

Community Banks 61. The GoSL has established a number of Community Banks in rural areas to provide improved access to finance for rural communities, including micro-finance. 34 However, these banks are weak and need substantial restructuring if they are to continue to play a role in deepening financial services across the country. Some commercial banks, such as Union Trust Bank, have started forming associations with the Community banks in order to further leverage their presence in rural areas. This is a welcome development since it can address the anomalous situation where Community banks and MFIs do not have enough funding to grow, whilst several commercial banks have excess liquidity due to their investments in treasury bills. That said, Standard Chartered Bank through a specialised off-shore team of agricultural lending experts, is appraising loan proposals for two large agricultural investment projects. It offers loans ranging from $2 million to $10 million.

NASSIT 62. The National Social Security and Insurance Trust (NASSIT), the national pension fund, along with general insurance companies could be important potential sources of medium and long-term capital for agricultural development. So far, NASSIT has restricted its asset portfolio to investments in government securities and real estate, although there are indications that the institution is prepared to review the agricultural situation with a view to investment.

Current Initiatives Implicating Agricultural Finance 63. The current draft of the Ministry of Agriculture’s agricultural development strategy calls for a long-term financing vehicle dedicated to agricultural credit. The agricultural sector within Sierra Leone is working on a plan to convince commercial banks to serve agricultural businesses. A proposal has already been made in this respect

33 6% for loans and 8% for money transfers. 34 Four banks are in operation, with four more planned to be established. An IFAD supported project would see the establishment of six more Community Banks. 21 by a number of stakeholders for the establishment of a dedicated agricultural finance bank.35

64. In this respect, the Private Sector Development Strategy Programme (PSDSP) of the Ministry of Trade and Industry proposes to motivate banks to lend to Micro, Small & Medium Enterprises (MSMEs) by establishing a pilot partial credit guarantee scheme that will reduce the risk the banks face in advancing loans to MSMEs. The programme is to be known as Salone BEST - Salone Business Expansion Scheme Trust. 36 Management of the scheme will be implemented by a designated organisation that will receive technical assistance from the programme. The reduction in the risk from a loan default provided by the partial guarantee should result in lending at significantly reduced cost, i.e. a lower interest rate. Salone BEST guarantee will not exceed 40% of the value of each loan ensuring that the banks remain committed to the scheme.

65. Salone BEST will provide a partial guarantee against loans made to MSMEs of between Le3,000,000 (US$ 1,000) and Le30,000,000 (US$ 10,000) from the Participating Lending Institutions (PLI) for a wide range of business needs, including buying assets and providing funding for working capital. Ideally, Salone BEST is designed to guarantee two types of loans: a.i) Small loans for working capital purposes up to a duration of 12 months. a.ii) Larger loans for investment in fixed capital for a period of up to 3 years.

66. The Salone BEST Concept Note identifies the key gap in the availability of finance is between small, NGO funded microfinance and loans provided by the commercial banks, and declares that it is this gap that Salone BEST is intending to close.37 The Concept Note further asserts that in order to ensure that Salone BEST is not misapplied as an umbrella for difficult loans;  The participating bank will be required to rigorously apply its standard loan evaluation criteria;  The borrower need not know that the loan is being partially underwritten under the scheme and;  The participating bank will request from the Scheme Manager a “no-objection” to proceed with all loans awarded under Salone BEST.38

35 Report of the Agricultural Finance Technical Sub-Committee on Financing Private Investment in Agriculture. 36 Salone BEST – a pilot loan guarantee scheme targeted at assisting the expansion of micro and small businesses, Concept Note 12 January 2009 37 Ibid. 38 Ibid. 22 67. The Salone BEST programme has not yet begun operations due to delays with the establishment of its institutional structure.39 While the programme is a welcome addition to a more robust and effective financial services sector, the loans it will guarantee are small and the programme depends on the active participation of the commercial banks.40

68. The Ministry of Agriculture manages a $6.3 million IFAD-funded project with the objective of expanding rural finance, through the establishment of new Community Banks. In addition, both the MTI and the MAFFS are collaborating on a US$30 million World Bank-funded rural and private sector development programme that is intended to:  Consolidate domestic supply chains for specific crops and products  Improve rural market infrastructure to address critical infrastructure needs for select products  Provide technical assistance and knowledge management in order to improve access to market information and identification of opportunities

This programme has had some initial teething problems and is to be redesigned to ensure successful implementation.

69. Presently, reform of the entire financial sector in Sierra Leone is being addressed through a comprehensive Financial Sector Development Plan (FSDP) coordinated by the Bank of Sierra Leone.41 The FSDP seeks to address the needs of long term funding for agricultural finance through, inter alia, the establishment of a private finance company.42 Sierra Leone’s development partners should be requested to pool their resources through a basket fund to support the establishment and operation of such a finance vehicle that would provide long term finance for a variety of sectors including agriculture. In the short term, the IFAD- funds could be used in this vein.

70. The MAFFS, the MTI, the Ministry of Finance, and the Bank of Sierra Leone should all work closely together on the solutions to long term finance for agricultural development in order to avoid duplication and to ensure that resources are used optimally.

39 The scheme was due to start on 16 March 2009 40 Apparently, EcoBank, Pro-Credit, Rokel Commercial Bank, and Guaranty Trust Bank have already shown serious interest.

41 See Bank of Sierra Leone, Report of Experts’ Workshop on the Financial Sector Development Plan, 20th February 2009. 42 Financial Sector Development Programme, Financial Sector Strategy 2009-2013. 23 Special consideration for crop insurance 71. Risk in agricultural lending is greater than other types of business lending because of the potential for systemic risk either due to crop failure or a sudden change in prices on the international market for export crops. While risk is not the most immediate constraint in terms of agricultural lending (as cost and long-term funding have been cited by all financial institutions), it will eventually become a concern as the other constraints are addressed through innovations, mobile technology and the new financing vehicle.

72. Weather-based crop insurance and price insurance could eventually be important tools to encourage agricultural lending through mitigating systemic risk. Such insurance would need to be re-insured either regionally or internationally. While the demand for this is not immediate, it will take time to gather the necessary information to appropriately assess risk of crop failure due to weather, such as trends in rainfall and other indicators. With the onset of climate change, this kind of insurance will become a crucial part of the puzzle for agricultural finance. If Sierra Leone is to be able to offer such insurance within the next decade, it will be important to start to gather information from the outset of the agricultural development plan.

73. Experts estimate that crop insurance is likely to be a long term need, and particularly important in the future to protect farmers from vulnerabilities, and promote lending.43 Crop insurance can be indexed to price or weather. Price indexed insurance is typically offered for export crops, such as coffee which could be affected by drops in the international prices. Weather indexed insurance covers loss due to poor weather conditions. More preparation would be needed to monitor and assess rainfall and weather patterns throughout the country so as to inform the risk level and pricing. All this presupposes a level of planning and product development prior to launching for sale on the market.

Leasing 74. In addition to providing cash and equity for agricultural investments, given that SMEs have little access to long term finance for the purchase of equipment, there is also a need for companies to lease out machinery and equipment to farmers and other business people. This provides economies of scale and reduces the need to buy costly machines. The Other Financial Services Act 2001, as amended 2007, provides for leasing activities. Such provisions could guide the establishment of private companies in this business area to provide access to capital equipment for farmers and SMEs.

Key Issues and Policy Recommendations on Agricultural Finance

43 See Access to Finance and Rural Finance in Sierra Leone, Eileen Miamidian. 24 Policy Recommendations:

 Financing for agriculture must be long term and comprehensive. MAFFS should work with the Bank of Sierra Leone in the design of the Financial Sector Development Plan.

 A financing vehicle for long term lending to the agricultural sector, such as the proposed agricultural finance bank, should de established as a matter of urgency. Such a finance institution should provide subsidised lines of credit for farmers and smallholders.

 An export credit guarantee scheme should be designed and established in the medium term to provide support to exporters of traditional and non-traditional export commodities.

 In the long term, insurance companies should be encouraged to develop packages of crop insurance for farmers and SMEs in agricultural production.

 Other long term solutions include establishment of credit unions to encourage savings, provision of trade finance, and development of long term bonds by the finance institutions.

COMPLEMENTARY MEASURES TO SUPPORT INDUSTRIALISATION

There are a number of policy measures ancillary to the development of productive capacities in the agricultural sector in Sierra Leone.

Intellectual Property Rights 75. Despite the fact that SMEs and smallholder producers in Sierra Leone have low innovative capacity, it is worth exploring the role that intellectual property rights (IPRs) could play either as a direct incentive for innovation or as an indirect incentive enabling knowledge generation and spillovers (through various technology transfer mechanisms such as licensing, imports of equipment or government-firm technology transfer). IPRs have application not merely in agro-processing but also in plant breeders’ rights; access to genetic resources for use in cosmetics and pharmaceutical products; and agricultural research. In other developing countries, IPR strategies are an important part of industrial policy and commonly include the following types of interventions:  Provision of access to patent information systems and databases for researchers and businesses.

25  Awareness raising activities on the value and uses of IPRs for universities and the private sector  Subsidized IPR registration services for small enterprises to encourage acquisition of patents and trademarks;  Provision of business advisory services to small enterprises on integration of IPR management strategies within the business model and marketing plans (e.g. use of trademarks to support brand development).

76. The Ministry of Trade and Industry has developed an IPR policy and from that, a few pieces of legislation on patents, copyrights and trademarks have been drafted. It is imperative that this draft legislation is enacted without delay. Further policy and legislation will also be needed on protection of plant varieties and plant breeders’ rights, geographical indications and access to genetic resources. Moreover a specific strategy to promote innovation and creativity through IPRs systems for agri-business is warranted.

Competition Policy 77. Sierra Leone does not yet have a competition policy or regime. Yet, many market failures such as restrictive business practices or collusion and cartels are symptoms of the absence of a competition law and institutional framework. To reduce the incidence of the abuse of dominant positions or other types of monopoly behaviour in agriculture and to provide protection for smallholders and farmers, legislation on competition should be enacted.

Environmental Policies 78. Environmental management is vital for the sustainability of agricultural yields and productivity. There are a few key areas where Sierra Leone may be vulnerable and needs to take action.

Climate Change 79. Although Sierra Leone does not suffer from severe weather and natural disasters, agriculture nevertheless will be affected by climate change in a number of ways, some of which are direct, while others are more indirect. Direct effects are loss of forest cover, soil erosion, increasing semi-arid conditions, water scarcity, increased prevalence of pests and change in weather patterns (such as longer or unpredictable rainy season). The indirect effects are loss of soil productivity, reduced agricultural land, loss of species, ecological stress, food insecurity, hunger, malnutrition, exacerbation of income and economic inequalities, and generally the non-achievement of the Millennium Development Goals. This scenario means that it is imperative for GoSL to develop a comprehensive climate change policy which includes mitigation and adaptation

26 measures, as well as using carbon-off sets and carbon credits to address the looming climate change crisis. A comprehensive planning policy which includes well developed warning systems is also critical for the agriculture sector.

Policy Recommendation: Develop a comprehensive policy on climate change together with regulations on use of carbon credits to encourage reforestation and afforestation.

Biodiversity and Forest Resources 80. Sierra Leone is rich in plant and animal life, as well as being well endowed with diverse natural ecosystems. Agricultural production and other human activities have increasingly impacted on the natural ecosystems and their biodiversity. With nearly 28 categories of protected areas in representative ecosystems, the area still represents less than 4 percent of the total land area of the country.44 Most of these protected areas suffer from inadequate protection in law, due to a number of constraints relating to human, technical and financial resources. A number of Sierra Leone’s agricultural commodities are tree crops, which need to be coordinated closely through management of forests. In addition, Sierra Leone’s agro-biodiversity assets consist of some 70 crop species, including edible fruit trees, oil palm and other crops with economic value. The maintenance of biodiversity is therefore specifically linked to agricultural productivity and diversity. The NSADP should therefore include specific reference to Sierra Leone’s National Biodiversity Action Plan which has been developed by the Department of Environment in the Ministry of Lands.

Agricultural Services 81. In terms of agricultural development, Sierra Leone should not limit itself merely to products, but also think about agricultural services for which the country could develop a competitive advantage. The services sector makes a direct and significant contribution to GDP and job creation, and provides crucial inputs for the rest of the economy, thus having a significant effect on the overall investment climate in the country, which is an essential determinant of growth and development. The share of services in Sierra Leone’s GDP increased from 18.2% in 1995 to 25.1% in 2003.45 During the period 2005- 2007, the services sector contributed a constant average of 40% of GDP. 46 The sector accounts for 5-15% of total employment. Agricultural services such as research or extension services not only play a role in domestic production, but can be traded. In this way, export of agricultural services can help Sierra Leone to expand its productivity outputs in agriculture where it has a comparative advantage, thereby creating jobs, contributing more to GDP and generating foreign exchange. Agricultural services exports could thereby become an important part of the country’s growth strategy. 44 Biodiversity Status and Trends in Sierra Leone, Republic of Sierra Leone and UNDP, 2003 45 Sierra Leone Trade Policy Review Report, February 2005, Section 2. 46 Sierra Leone PRSP Progress Report, IMF Country Report No 08/250, July 2008. 27 Labour Policies 82. The labour force is an important productive resource for Sierra Leone, and a key challenge in the agricultural sector is to ensure that the labour force is more fully and productively employed. Most workers in agriculture have to earn their living using their raw labour with rudimentary tools and equipment, little education and training, and poor infrastructure. Labour productivity in agriculture is low and there is widespread under-employment. Creating productive employment opportunities for the expanding labour force is not only a major economic and social problem; it is also a major economic opportunity. If the latent energies and enterprise of under-utilised labour are harnessed, it should be possible not only to reduce poverty but to accelerate economic growth.

83. The role of technical colleges, universities and other higher learning institutions are critical in this respect. Their curricula should be aligned as closely as possible with the main promising commodities in agricultural production and agro-industry. There is also a role for private companies in the development of skill sets and knowledge networks; universities and research institutes should form partnerships with private companies to deliver the skills required in the work force. Moreover policy initiatives are required in order to translate individual capabilities into organisational capabilities so that human resources available in the agricultural sector can be harnessed appropriately.

STRUCTURES FOR COMMERCIALISING AGRICULTURE

84. In the absence of large-scale private enterprise, or groups of small holders, rural agriculture has attracted a number of interventions from a variety of players, including the GoSL, local and international NGOs working with local farmers and small holders, mainly on subsistence levels. However, in the commercialisation of agriculture there is no substitute for private companies and it is imperative to explore the role of other players in this respect.

Investment and Export Promotion Agency 85. The former Sierra Leone Export Development and Investment Corporation (SLEDIC) has been restructured and formed into a new institution called the Sierra Leone Investment and Export Promotion Agency (SLIEPA). The functions of SLIEPA are (a) to encourage and promote the development of agricultural production and other activities oriented towards export; (b) to encourage the diversification of export goods; (c) to encourage and promote investment opportunities in all sectors of Sierra Leone’s economy; and (d) to facilitate the export oriented operations of small scale producers

28 and manufacturers. SLIEPA is also responsible for implementing the provisions of the Investment Promotion Act 2004; therefore it has a crucial role to play in the efforts to place agriculture in Sierra Leone on a more commercial footing.

86. For instance, in export development, SLIEPA could assist agricultural companies with market entry and penetration where there is already market access, e.g. EBA (EU) and AGOA (US); identification of new markets for existing products, e.g. China, South Africa, Brazil; and the development of new products for both traditional and new export markets. SLIEPA’s list of priority sectors for investment in Sierra Leone include agriculture – both cultivation and agro-processing which includes food and beverages, cocoa and coffee, fruit canning, commercial cotton, fertiliser production and processing of edible oils, such as palm oil.47 In this regard, SLIEPA should work closely with MAFFS and the MTI to develop investment and export development packages in agriculture that would be attractive to domestic and foreign investors in the short and medium term.

Farmer based organisations 87. The need for farmer groups, as business units, co-operatives, or similar structures, as the only way to consolidate volume and work to improve quality of products is now acknowledged. Usually, farmers or other individuals who share common interests organise themselves into organisations; they are known as Community or Farmer Based Organisations (CBOs/FBOs). They represent the interests of their members and are usually accountable to them. Most of their activities are rural-based and they cooperate with the GoSL or MAFFS to stimulate rural employment, raise incomes and improve living standards. To date, these groupings have taken two forms – informal and formal.

Informal Farmer-based Organisations 88. These are “social organisations with an economic purpose which are not registered as business entities with the government, and therefore not registered as bodies corporate before the law”. Informal groups play an important role in facilitating training, education, and accessing credit from NGOs and donor funded programmes. These groups are effective at supporting their members’ self-employment activities through mutual aid, and access to development assistance programmes. Most rural development agencies work closely with these informal groups for training and technology transfer, and to facilitate credit for farming, trade and food processing activities. 48

47 See an Investors Guide to Sierra Leone, September 2004, SLEDIC 48 For further information on these groups, see Agriculture Sector Review and Agricultural Development Strategy Vol 1, Ministry of Agriculture, Forestry and Food Security, in collaboration with FAO, IFAD, UNDP and World Bank, TCP/RAF/2904, (‘MAFFS Agriculture Sector Review’) section 2.2ff. 29 Formal Farmer Based Organisations 89. Farmers in Sierra Leone have recently been organised into formal farmers associations, limited liability companies, and cooperatives.49 The farmers’ associations offer a good potential for reaching the farmers in the rural areas since they are fairly representative of their farming communities. They are well placed to support the mobilisation of village groups to access needed inputs and services in the farming communities.

90. FBOs are membership organisations created by farmers (or other groups) to provide services to them, with objectives that include:

(i) Expansion of access and better management of natural resources - the basic means of production (i.e. access to land, forest, pastures and water resources). (ii) Improved access to services, credit and marketing outlets, processing, by leveraging them as a result of their representative and advocacy activities, or their financial clout. (iii) Making their voices heard on decision-making processes in which resource allocations are determined, as well as policies that affect the context in which they produce, market, transform, and export their products. In larger numbers, farmers gain bargaining power and can have a more effective input in decision-making processes that affect their lives.

National Federation of Farmers of Sierra Leone (NAFFSL)

91. Farmers in Sierra Leone have formally organised themselves into local farmers’ associations or co-operatives to facilitate their cooperation in crop production, processing and marketing activities as well as all other operations associated with fish and livestock. The National Federation of Farmers of Sierra Leone (NaFFSL) is an umbrella organisation of “approved” farmer based organisations in Sierra Leone.50 NAFFSL is intended “to function as an apex body of the approved FBOs to defend members’ morale (sic) and material interest at grass-root level (villages, chiefdoms, wards, district, and national) and International level by development actions, constructive dialogue, lobbying, advocacy and experience sharing to meaningfully engage farming as a business.”51

92. Traditionally, farmers associations such as the National Association of Farmers in Sierra Leone have worked very closely with technocrats mainly in the Ministry of Agriculture, the Co-operative Department, NGOs, agricultural research institutions etc,

49 The Cooperative Societies Act 1977 is in need of review and amendment in order to assist with restructuring the Cooperative societies in Sierra Leone. 50 Article 1.3, NAFFSL Constitution. These include the National Farmers Association of Sierra Leone; National Farmers Cooperative Union- Sierra Leone; Agricultural Business Units/Farmer Field Schools; District Women’s Farmers Cooperatives 51 Article 1.4, NAFFSL Constitution. 30 offering agricultural extension and other delivery services to them. The establishment of NAFFSL is likely to have a positive impact on this relationship, with a stronger voice for the farmers’ organisations. The stated vision of NAFFSL is “to be an umbrella farmers’ organisation of Sierra Leone, a framework of reference, of dialogue and coordination, sharing vision and action, which offers better services and security to the members and which influences the policies and strategies as regards sustainable rural development at all levels.” NAFFSL will take a keen interest in commercial agriculture as outlined in its objectives (See Box 2).

Farmer Field Schools 93. Farmer Field Schools (FFS) are schools where the fields and the village environment provide the learning places in which adult education methods are applied. Originally developed in Asia for promoting the uptake of Integrated Pest Management system in rice farming, FFS are now being used in many developing countries to empower farmers’ groups to acquire, adapt and act upon knowledge on many other aspects of farming and rural life relevant to their particular needs.52 Originally FFS were facilitated by government extension staff but in recent years the trend has been to encourage and train farmers to become facilitators, with the government services and NGOs offering training, referral and monitoring services. Farmer Field Schools have been set up by different NGOs in various communities throughout the country, offering technical training, access to inputs and markets for crops, with varying degrees of success.

CORAD/LINKS Programme 94. The Consortium for Rehabilitation and Development (CORAD) which has been working together since mid-2003 is currently implementing two programmes supported by a US Cash Grant and a Title II Grant to restore agricultural-based livelihoods, improve food security and build community resiliency.53

95. Building on the successes and lessons learned from a previous Title II programme, CORAD is in its third year of implementing a 3 year USAID funded “Promoting Linkages for Livelihood Security and Economic Development” (LINKS) Programme to expand economic activities in rural communities and to re-establish agricultural input and output marketing linkages between these communities and the mezzo and national level market players.

96. The Livelihood Expansion for Asset Development (LEAD), the current Title II programme, is specifically designed to add value to the LINKS programme by building on the foundations established by a previous Title II programme the Developmental Relief

52 Agricultural Sector Review, pp 53 Assessment of CORAD Farmer Field Schools in Sierra Leone, July 2008, Enterprise Development Solutions. 31 Programme (DRP) in the rural areas in the agriculture and health sectors with new activities that leverage impact; specifically target and enable poor farmers and economically marginalized youth to undertake new or expanded livelihood activities; expand community resiliency with improved linkages to health services, community water and sanitation, agricultural infrastructure and community-managed safety nets and to empower community-based groups to practice and promote principles of good governance.

97. In its effort to build community resilience and ensure a market led development process CORAD has been using the FFS as a vehicle for development in the implementation of both the LINKS and LEAD programmes.

Establishment of Producer Companies: Lessons from the Indian Experience 98. The success of the FFS and other farmer organisations is hampered by the uncertainty over their status in law. As mentioned above, they are not bodies corporate. They are therefore unprotected by the law, limiting access to finance as well as their ability to engage in formal commercial activities. Current policies make it difficult to formally register farmers groups as anything but cooperatives or associations. When there are large numbers of individuals in an organisation, complications might exist in incorporating a company limited by shares.

99. The experience of farmer based enterprises in India is instructive. The Indian Companies Act 1956, as amended by the Act of 2003, makes provision for a separate legal entity called Producer companies. These are mainly farmer based organisations, which are given legal status to operate as commercial entities. Producer companies are therefore bodies corporate. In the same way, in Sierra Leone, FFS and other informal FBOs could be constituted as Producer companies under the new draft Companies Act. Although the Companies Act is largely fully drafted, an amendment may be made to it and submitted to Parliament at the same time as the main Act, through a Notice of Amendment. Annex 1 provides an outline of the main provisions that could be incorporated into the Companies Act (as amended). In order to move this forward without delay, the Minister of Agriculture could table a Cabinet Paper on this, with a proposal for the drafting of the relevant sections to be attached as an amendment to the Companies Act.

Public-Private Partnerships for Investment in Agriculture 100. There is now a general trend towards public-private partnerships in agriculture. This may be developed between public research institutes and agro-processing and other agricultural firms, or in the case where clustering is fostered, between

32 government provision of physical infrastructure such as warehouses and storage facilities (on the one hand) and groups of small firms (on the other). Public-private partnerships could also take the form of cooperation between government and large firms in state plantation farming linked to factory production of agro-processed foods.

Key Issues and Policy Recommendations on Structures for Commercialising Agriculture

Policy Recommendations

 The new SLIEPA should collaborate with the MAFFS and the MTI to produce selected investment and export development packages to attract domestic and foreign investors to agriculture.

 Public-private partnerships in agriculture, particularly on infrastructure and research, should be encouraged through the use of fiscal and other instruments.

 A new type of company called ‘Producer Company’ (specific to agriculture and similar fields) should be established through an amendment to the pending Companies Act, which should be drafted without delay. In this respect, the Minister of Agriculture should present a Cabinet Paper on this issue at the next available Cabinet meeting.

 The Cooperative Societies Act 1977 should be reviewed and redrafted in accordance with the modern functions and roles of cooperative societies.

ACCESS TO LAND FOR AGRICULTURAL DEVELOPMENT

Land Tenure 101. Sierra Leone has a land mass of which 850,000 hectares is arable; land in the provinces excluding the Western Area makes up over 90% of that land mass. However, land tenure in Sierra Leone is characterised by a dual ownership structure. The Western Area including the Freetown Peninsula is governed by an English system of land ownership which includes fee simple conveyances, mortgages and leases. Freetown and its environs was a Crown Colony. History shows that this area was bought by the British from King Naimbana in 1788 for the benefit of the free community of settlers, their heirs and successors (the Krios). The Krios settled in these areas and acquired ownership and possession of the purchased area. This was a large area and it follows that the areas

33 unoccupied and uncultivated became or remained Crown land. Thus, land in these areas is either owned by individual families or is Crown land. Communally owned land does not exist in the Western Area.54

102. Land in the rest of the country (i.e. the majority of the agricultural land) is held in communal ownership under customary tenure and is controlled by traditional rulers who administer it on behalf of their communities in accordance with customary principles and usage. Though there are minor differences among the various ethnic communities, the general trend is that land is considered a divine heritage, which the sprits of the departed ancestors expect to be preserved and handed down to future generations.55 The responsibility to ensure the preservation of the land and subsequent enjoyment by future generations therefore rests on the community as a whole. A community is, however, not a very well defined entity. It could range from a small family to an entire tribe. The absolute interest in land vests in families. In other words, it is the land-owning family, which deals in its land.56 The paramount chief is regarded as the custodian of the land on behalf of the entire Chiefdom but decisions regarding the land are the preserve of heads of the various land owning families. One very important consequence of the fact that the absolute interest in land is vested in the family is that it invests every member of the family with an inherent right to the occupation and use of any part of the family land. In areas where shifting cultivation is practiced for instance, except where the individual family member cultivates perennial crops, the land available for farming is shared by the family head at the beginning of each farming season to all family members.

103. In terms of access to land for commercial use generally, the problem with the customary land law system in the Provinces is -:

1. Identifying what the custom is 2. Ascertaining who to talk to: whether it is paramount Chief, council of chiefs or family members 3. Securing all the consents 4. Assessing what actually has been transferred in terms of land area, etc. 5. The absence of enforceable legal documents to back up a purchase or grant.

Land Acquisition 104. Due to the differences in legal status, the practice of otaining land also differs between the Western Area and the Provinces. Nevertheless, land may be acquired for any purpose by private individuals or corporate bodies. Rather, it is the process which may be a deterrent to serious investment. In Freetown and its environs, because the land is held in freehold ownership, a person seeking to acquire land will negotiate with

54 Maurice Garber, Whose Land is it Anyway? Garber and Co, Freetown. 2007. 55 See MAFFS Agriculture Sector Review, p. 138ff. 56 Ibid. 34 the landowner to reach agreement on a sale (usually of the freehold) at a specific price based on the size, quantity and location of the land. Once agreement is reached, the land is then surveyed. The site plan is taken through the Validation Process in the Ministry of Lands. After the Validation Process, a solicitor draws up a deed of conveyance, which is then registered in the Deeds Registry at the Office of the Administrator and Registrar-General (OARG).57

105. While Sierra Leoneans can acquire fee simple title in the Western Area, non Sierra Leoneans can only acquire leaseholds. The Non-citizens (Interests in Land) Act, 1966 (No. 30 of 1966) introduces limitations on the interests foreigners may acquire in land in the Western Area. Section 3 of the Act prohibits a non-citizen of Sierra Leone from acquiring a freehold interest in land in the Western Area. Non-citizens are also barred from acquiring interests longer than twenty-one years in land in the Western Area without first obtaining a licence from a Board comprising the Minister of Lands (as Chairman), the Ministers of Trade and Industry, Finance, Development, and the Attorney-General. In this way, the law acts as a disincentive to investors in urban development and effectively infringes the rights of land owners in Freetown to deal in their lands.

106. In the Provinces, there are two basic processes involving town lands and farmland though there are some minor differences among the various tribal areas. Differences also exist among family members and strangers. Where an individual family member requires land for farming, s/he will approach his/her family head at the beginning of the farming season and will be allocated a piece of land for his/her use. However, it is unclear whether the proceeds of the harvest from his/her labour are exclusive or to be shared with the family.

107. For “strangers” which include non-family members who are nationals of Sierra Leone58 and foreigners generally, the procedure involves the person requiring the land to call on the Paramount Chief to make the request for land; they will usually do this in the company of a citizen of the community. The Paramount Chief then directs them to the land-owning family whose land they require. All negotiations are done with the family head and the principal elders; the Paramount Chief is not expected to be present.59 The required monies are paid to the family head.

108. Where the land required is for the cultivation of annual crops, usually no money is paid but at the end of each farming season the farmer must give some token produce of the farm to the family head; this is usually the equivalent of a bushel or two of rice and the purpose is to remind the farmer that he is a tenant of the family. The family head then gives the Paramount Chief part of the money received.60 However, the interest

57 See section 6.4 for a discussion about the pitfalls of the registration of conveyances. 58 But not the Krios, Kroos or Akus. See section below. 59 However, the usual practice is that the Paramount Chief plays an important role in the land transaction. 60 See MAFFS Agriculture Sector Review, p. 141ff. 35 conveyed in this transaction is not clear. The grantee of such land can occupy and use the land for as long as they wish to remain in the community. In addition they must be a worthy member of the community, participating in all activities and generally be on good terms with the Paramount Chief and the land-owning family. In effect, despite the appearance of a clear process of acquisition, much discretion about the status of the land still rests with the family and the Chief. Such a situation does not provide the certainty and predictability which is required for large commercial investments.

109. In some cases, the families grant leaseholds. In such situations, the procedure is the same as described above except that after the payment of the money to the land- owning family, a surveyor is employed to demarcate the land and prepare a site plan. This goes through the validation process and is signed by the grantor and the grantee, the Paramount Chief, the Survey and Lands Division in the Ministry of Lands and Housing, and the Town Council. In addition, a deed of conveyance is prepared by a solicitor and may sometimes be registered in the Deeds Registry. No freehold interests can be granted in farmlands. The laws governing acquisition of land in the Provinces date back to Colonial times and are clearly discriminatory.61 Section 3(1) of Cap. 122 states “No land in the provinces shall be occupied by a non-native unless he has first obtained the consent of the tribal authority to his occupation of such land”. Section 4 states “No Non-native shall acquire a greater interest in land in the provinces than a tenancy for a term of fifty years . . . for a second or further term not exceeding twenty- one years.”

110. Some Sierra Leonean citizens, such as the Krios, Akus and Kroos are categorized as non-natives by the above statute and are thus deprived of customary land rights even in the provinces. The two provisions should be repealed without further delay. In effect, the impact of the two sections is to discourage any serious investor from investing in the Provinces. Leases are inherently terminable, and an investor who has invested time, effort and money is potentially vulnerable where the investment is tied to a short term lease. Issues of litigation and enforcement of contractual provisions against Tribal Authorities are problematic as is the proper forum for such actions.

111. The multiplicity of interested parties when dealing with large tracts of land in the provinces is also a particularly thorny issue frequently encountered by mining companies. Even the government is sometimes frustrated in its attempt to acquire large tracts of land for development purposes. This is compounded by the lack of proper documentation confirming ownership and possession when dealing with family owned property. In Nigeria, the Land Use Decree 1978 was passed which vested all land in the Nigerian government subject to certificate of occupancies being granted to purchasers and grantees. This Act to a large extent resolved the problem of inalienable customary land and opened up all land to title ownership and development throughout Nigeria.

61 Such antiquated laws, designed in colonial times to divide and rule, cause resentment and undermine social cohesion in the country. 36 State Lands 112. Can the fragility of the land tenure system in the Provinces be mitigated by the intervention of the GoSL, by buying up large tracts of land to make available to large scale investors? The situation is unclear. There are two types of State lands in the country: Crown Lands (in the Western Area) and Government Reservations (in the Provinces). Crown Lands comprise lands which have been acquired “for the service of the Colony” under the Public Lands Ordinance, 1898 (Cap 116), and lands which were “claimed as Crown Lands” under the Unoccupied Lands Ordinance, 1911 (Cap 117). The Crown Lands Ordinance, 1960 (No. 19 of 1960) specifically defines Crown Lands as: “all lands which belong to the Crown by virtue of any treaty, cession, convention or agreement, and all lands which have been or may hereafter be acquired by or on behalf of the Crown, for any public purpose or otherwise howsoever and land acquired under the provisions of the Public Lands Ordinance and includes all shores, beaches, lagoons, creeks, rivers, estuaries and other places and waters whatsoever belonging to, acquired by, or which may be lawfully disposed of by or on behalf of the Crown.”

113. Under the Public Lands Ordinance, 1898 the government can acquire any land in the public interest simply by publishing a declaration in the Gazette and informing the owners of the land accordingly. The Ordinance also provides for the payment of compensation to those affected by the declaration. Such lands are taken over by the State and are managed and controlled by the State.62 Though the Ordinance does not expressly state this, its provisions demonstrate clearly that the Ordinance does not apply to the Provinces.

114. The Unoccupied Lands (Ascertainment of Title) Ordinance, 1911 (Cap 117) states that whenever it appears to the government that any land is unoccupied for upwards of 12 years, the government can declare such land to be Crown Land and proceed to control and manage such lands as public lands. There is evidence that this provision may be misunderstood by some village headmen and chiefs in the Western Peninsula who are assigning land through conveyances and leases to unsuspecting buyers. Until there is a proper devolution of authority to the Local Council from Central Government to distribute crown land on behalf of the state, these grants and conveyances of vacant land are of no legal effect.63 Admittedly with a prolonged period of occupation, (12 years) land can be acquired by prescription. However, it is doubtful if prescription rights can be acquired over Crown land and against the government; rights of prescription normally inure to the benefit of the individual and are not an unincorporated entity. 64 From a practical point of view also, should such documents prove to have no legal effect, this sends a powerful negative signal to potential investors about the process and validity of conveyances in Sierra Leone.

62 This usually happens in the case of construction of a road or other physical infrastructure, or in the case of a mining development. 63 Legal Opinion from Maurice Garber, Garber and Co, 2008. 64 Maurice Garber, Whose Land is it Anyway. p. 4. 37 115. Government Reservations are lands leased from traditional authorities. Section 9 of the Concessions Ordinance, 1931 (Cap 121), empowers Government to acquire interests in land of any size for periods longer than 99 years. It is unclear whether, but unlikely that, this includes freehold interests given that the system does not allow transfer of land through freehold. Lands acquired in this way are referred to as Government Reservations. Such lands were usually reserved as residential quarters for government employees, offices for the machinery of government, forest reserves, etc.

Registration of Title vs. Registration of Conveyance 116. Notwithstanding a formal system of land ownership in the Western Area, many families inherited property without properly documenting their lineal transfer of ownership. The problem was compounded by a failure of successive governments to introduce and implement a system of land registration of title. In the case of Seymour Wilson v Musa Abess, (1979) the late Chief Justice, Livesey Luke commented about this problem which was causing a plethora of land lawsuits. He stated “In my opinion, registration of an instrument under the Act confers priority over other instruments affecting the same land which are registered later. Registration of an instrument under the Act does not confer on the purchaser, mortgagee etc. title nor does it render the title of the purchaser indefeasible.” In other words, although each land owner has their own conveyance, the fact that it is registered does not denote good title.

117. To compound the problem, land surveys are usually plotted using beacons which are unfortunately removable. In the absence of a digitally drawn G.P.S. mapping, many owners are unable to track the exact coordinates of their land once the beacons have been removed. In some cases, neither the GoSL nor the public are truly aware of who owns what land and neither side has the requisite title instrument to back up their claim to ownership. Presumably, the government relies on its assertion that the land is Crown land and shifts the onus to the private individual to show that the land in question is not state land but private land. The law however is that he who claims ownership must prove it. Unfortunately, Sierra Leoneans do not have a culture of taking the government to court so where they occur, many of these claims of state land ownership are not challenged. Those that have proof spend years in court, effort and money trying to claim what is rightfully theirs.

Implications of Land Tenure for Commercial Agricultural Development 118. The existing land tenure system is just adequate for the kind of small-scale subsistence agriculture currently prevalent in the country. However, where Sierra Leone is competing with other countries in the sub-region and worldwide for foreign direct investment, the land situation bears closer scrutiny and review to ensure that land is put to productive use for the benefit of the current and future generations of farmers and businesses in the country.

38 119. Hernando de Soto, a Peruvian economist estimated that the value of rural land ploughed or grazed by African farmers, which they did not formally own; or owned but had no formal title was worth over $30 billion dollars. Customary or informal land ownership effectively undermines the ability of rural communities to make their lands productive. Babashola Chinsman in his book “Uncommon Thinking” referring to the situation in Sierra Leone, explains “The most crippling effect of poverty stems not from the inadequacy of incomes, but from a lack of assets”65 He goes on to explain: “Even the land on which most of them live or depend for their livelihood, is often not secured by proper title, leaving them without any assets”.66 The irony is that the prime asset which many rural communities have, which is land, remains locked in a system of ownership which leaves them effectively poor, i.e. without assets. This explains the urgency of many Sierra Leoneans to buy up land in the Western Area which has a formal system of land ownership.

Security of Title 120. The freehold system has obvious advantages, which may assist in agricultural development. In the first place, the freehold interest provides its owner security from dispossession – an overriding advantage over the communal system of ownership. Freehold confers ownership and not mere use-rights. Moreover, one can transfer the freehold interest without any hindrance, either inter vivos or by testamentary disposition. It is therefore inheritable and ensures security and sustenance to the landowner’s survivors. Acquisition of interests in the Provinces does not confer any of these advantages. It has been acknowledged that even where land has been lawfully acquired from traditional authorities, the beneficiaries could be dispossessed for a number of reasons including (a) if they challenged the interest of their landlords, (b) if a new chief was installed who considers the grantee a threat or an enemy for whatever reason, and (c) if at some future date the community felt it needed its land. It is unclear whether the interest acquired from the communal owners is registrable67 and capable of being inherited.

121. For large-scale commercial farming, it appears that there already exists some movement towards formal arrangements under which farmers acquire longer term leases on land. This is permitted in accordance with the Concessions Ordinance, 1931 (Cap 121). Section 5 of the Ordinance provides for Tribal Authorities to alienate land for cultivation only under the Ordinance or under the Protectorate Land Ordinance, 1927 (Cap 122) except that all alienations made under Cap 121 should receive the assent of the Governor.68 Section 9 of the Ordinance limits the interest that could be alienated by the Tribal Authority in land larger than 50 acres to 99 years except where the land is alienated to the GoSL for a public purpose. In many cases, these leases have been

65 Babashola Chinsman, Uncommon Thinking, p.17. 66 Ibid, p. 23. 67 There have been some instances of registration of leases on Provincial lands, but this is not common. 68 Nowadays, this would probably be the President. 39 arranged informally between the farmer and the family head and only a few have formally been registered in the Deeds Registry.

122. One simple way, in the short term, to provide security of title to land in the provinces would be to recognise and routinely register leasehold interests.69 These are different from mere leases (whether short or long term) currently used in Sierra Leone, which are sort of tenancy agreements. A leasehold interest on the other hand is a legal interest in land, which lasts for a number of years, entitles the holder to quiet possession of the land and which can be passed on to one’s successors after death. The lease could be for either bare land (ground lease) or developed land (occupational lease) and it is a condition in all leases that the leaseholder pays a rent to the landlord.

123. In the case of a ground lease, the rent reserved in the lease is a ground rent, which is usually minimal and does not reflect the true value of the land. This is because, as is the case in all leases, on the expiry of the lease, the leaseholder must surrender the land and all fixtures on it to the landlord. For the purposes of agricultural development, the fixtures may be in the form of structures or economic trees cultivated by the leaseholder. The landlord and the leaseholder may also agree to some conditions (covenants), which may be inserted in the leasehold document to guide their relations. 70 In the case of Sierra Leone’s agricultural development, the optimum approach would be to provide leasehold interests in land for terms of 50, 75 and 99 years, in order to provide security of title and investment.

Access to Credit 124. Secure title makes assets fungible, so the absence of formal documents of title precludes loans and financing from banks. Also, banks cannot provide farm credit based on the current system of land holding because they do not consider the existing system provides sufficient security on which farm credit could be advanced. The individual’s usufructuary estate does not provide the needed security, because the individual cannot mortgage the land on which s/he works without the consent of the family head and even where s/he can obtain the consent, the financial institution cannot sell the land to a third party who is not a member of the family should the farmer default in payment. Where there are good property laws, almost anyone can use a house or a piece of land as collateral to raise a loan. The key issue here is the transformation of land into a useful economic asset. However, given that the issue of land tenure is a politically sensitive one, care must be taken in crafting alternatives to the present system in the Provinces.

69 Leasehold interests are used in many Commonwealth countries, including the United Kingdom which has routinely used them to provide access to land absent of the freehold. Should the freehold interest be available, it is then the subject of sale through a routine property transaction. 70 MAFFS Agriculture Sector Review, p. 145. 40 125. As noted above, a simple solution would be the recognition in law of leasehold interests in land in Sierra Leone. One of the advantages of the leasehold interest is that it is a valuable asset which may be bought, sold or inherited. It is acceptable by banks and other financial institutions as collateral for credit. Because it is a legal relationship recognised by the law and enforceable by the courts, it provides the leaseholder with sufficient security to enable them to plan their agricultural investments. A major advantage to the lessor is the fact that while the leasehold interest generates periodic incomes to them, at the end of the lease the land and everything on it reverts to them. They can then occupy the land themselves or lease it to another tenant.

126. Another similar approach to the transformation of land into economic assets can be found in Tanzania, where a solution to this particular problem was found, which may be instructive for Sierra Leone. In Tanzania, the underlying system of communally owned land has been kept intact. An additional system has been superimposed on top of the communal system; a system of user rights which are tradable and capable of being mortgaged. After a mapping exercise to determine what land was lying unproductive, the government of Tanzania re-classified certain land in order to establish a system of user rights. Such user rights are transferred to individuals and firms on payment of a land grant or fee, usually a one-off payment. Under the terms of the right, a particular user has rights similar to that of an owner. The land is transferable and can be leased and mortgaged, and may be inherited. The title to the user right is registered in a permanent Register of Title as would be the case with a freehold interest. Sierra Leone could consider adopting this system of user rights both to provide security of title to farmers and to provide a way for their rights over land to be more collateralised, and therefore capable of being put to productive use.

Security of Investments 127. During the Agriculture Sector Review process, it was found that the traditional landowners in the Provinces indicated a willingness to accept the leasehold interest as a basis of alienating land to investors while at the same time securing the interests of unborn generations. However, they found difficulty with the duration of the leaseholds. Some of the traditional landowners preferred shorter leasehold periods of up to 25 years while others accepted that the duration should be long enough to enable the investor to recoup their investment.71 A minimum fifty-year duration would certainly be adequate since it would give sufficient time for investors to realise their investments in perennial crops. It is necessary, however, that adequate safeguards are built into the system to secure the interests of both the lessor and the lessee. The following clauses, among others, could be considered for insertion into the leasehold agreements:  renewal of the lease for appropriate periods;  adequate rents (either ground rents or economic rents)  periodic rent reviews 71 See MAFFS Agriculture Sector Review, p. 140 41  a specific period of the lease beyond which, if the land is not put to the required use, the lessor may re-enter and resume possession of the land;  lessees would not be able to assign, sublet, mortgage or otherwise part with possession of the land without the consent, in writing, of the lessors,72 such consent not to be unreasonably withheld.

128. Other issues that would require further examination in the case of leasehold interests include the nature of the legal relationships that should be created. For example, should ground rents be charged, such that at the end of the lease, the land and all its fixtures would revert to the landlord? Or should economic rents be charged with the result that at the end of the lease either the leaseholder removes all fixtures on the land or the landlord pays them for such fixtures if they so desire? The latter was the relationship envisaged under Section 11 of the Protectorate Land Ordinance, 1927 (Cap 122).

Promoting Joint Venture Partnerships in Agriculture 129. One of the easiest ways to open up agricultural land to more commercial investment would be to consider promoting joint ventures in agricultural development. The Investment Promotion Act 2004 permits 100 per cent foreign ownership of companies. Yet at the same time, in a contradictory measure, foreigners cannot buy land in the Western Area, and the land tenure system in the Provinces is an uncertain minefield in terms of investment. This undermines a fundamental goal of the GoSL: to promote private sector investment in the country.

130. For many foreign or Diaspora businesses seeking to establish business in Sierra Leone, a joint venture with a local company would be the most feasible way to establish. Such companies would want to invest in some sort of fixed assets, such as land or buildings. A rationale for a Sierra Leonean partner to enter into such joint ventures would be to obtain capital for further investment in the business or farm. Making the land fungible (i.e. an asset convertible to cash), in the ways suggested above, would enable the land to be put up by the Sierra Leonean partner/farmer as a contribution to the joint venture. This land component of the joint venture could be extremely valuable, enabling a major stake in the joint venture company for the Sierra Leone partner (farmer).

72 To prevent speculation by land speculators. See Agriculture Sector Review, p. 142ff. 42 Key Issues and Policy Options for Access to Land for Agriculture

Policy Recommendations:  Establish central G.P.S based mapping of not only the Freetown Peninsula area but also the Provinces, including Crown land and Government reservations, in order to determine the status of the available land for cultivation and development. This will enable centralised planning which will ensure the smooth introduction of utility lines, access roads, pipes, drainage etc to assist in the transformation of idle land into structured economic assets.

 Immediately establish an additional system of property interests in land in Sierra Leone known as leasehold, and give it legal status through enactment of legislation.

 Repeal the law prohibiting ownership of land in Sierra Leone by foreigners subject to a residual oversight by government where large tracts of land are being bought by non-Sierra Leoneans.

 Once the State Lands have been mapped, establish a system of user rights over this type of land. Establish a registration system for user rights which enables them to be tracked and monitored.

 Establish land regulations with clear rights and responsibilities of communities and traditional leaders regarding their role in the process or land acquisition, including zoning, community preservation areas for watersheds, spiritual or ecologically sensitive areas.

 Immediately implement a system of ‘Title Registration’ based on the GPS mapping for freehold and leasehold title to property in Sierra Leone. Once a landowner’s title is duly registered, s/he would be conclusively regarded as the true owner of the property interest.

 Establish a mechanism, such as a Lands Tribunal or Lands Arbitration Board that will adjudicate initially the claims of competing land ownership and enforce land agreements/contracts, subject to a right of appeal to the courts.

REGIONAL AND INTERNATIONAL CONTEXT

43 131. There are a number of regional and international developments which have implications for Sierra Leone’s agricultural sector.

The World Trade Organisation 132. Sierra Leone’s membership of the World Trade Organisation (WTO) presents both opportunities and challenges. That said, Sierra Leone may be able to exploit the Doha Round to its advantage, by first focusing on where it could have comparative advantage which could be turned into a competitive advantage in agricultural products. Sierra Leone could use the Doha Round to gain better access to foreign markets, not merely in the developed countries but also in the fast growing markets of large developing countries, such as China, India, South Africa and Brazil. Although some of these markets are heavily protected through tariff and non-tariff barriers, China for instance has provided Sierra Leone with fairly comprehensive market access through a trade agreement. Some of the other larger developing countries could be persuaded to do the same thing. The WTO Hong Kong Declaration of December 2005 calls on all developed countries (and those developing countries in a position to do so) to extend duty and quota free market access to least developed countries.

133. Sierra Leone already has preferential access to its current main overseas trading partners. The EU offers duty free and quota free access to all products under its Everything but Arms (EBA) initiative, for an indefinite period. For its part, the US operates the African Growth and Opportunity Act (AGOA) which offers duty free access for most but not all products, until 2015.73 These schemes however, have not been as effectively used by Sierra Leone; its main agricultural exports are cocoa and coffee, and to some extent ginger, which already qualify for duty free access. Therefore Sierra Leone should be exploring the export of other products which may be eligible under these schemes. Sierra Leone should concentrate on the promotion of exports of new products, particularly agro-industrial products in order to make the shift to a more diverse export base.

134. At the same time, the opportunities for Sierra Leone for major exports under these schemes are undermined by restrictive rules of origin. The basic rule of origin under AGOA requires that 35% of the price of the product be due to activities in Sierra Leone or other AGOA beneficiaries.74 This precludes the export of finished products

73 The Chinese agreement is basically similar to the AGOA, with a list of mostly finished goods which Sierra Leone does not currently produce. 74 AGOA authorizes the US President to provide duty-free treatment under GSP for any article, after a determination that the article is not import sensitive when imported from African countries. On December 21, 2000, dutyfree treatment under GSP was extended to AGOA eligible countries for more than 1,800 tariff line items in addition to the standard GSP list of approximately 4,600 items available to non-AGOA GSP beneficiary countries. The additional GSP line items which include such previously 44 derived from processing inputs imported from non-AGOA countries, and there is limited scope for sourcing competitive inputs domestically or even regionally. A relatively high value added requirement makes it particularly difficult for countries with low labour costs such as Sierra Leone.

135. Sierra Leone should push (in alliance with other countries) for non-restrictive rules of origin to apply (as in the case of apparel under AGOA), which allows it to use third country inputs in the making of finished products from Sierra Leone (cumulation). This would also help with developing and sustaining value addition in agriculture. For instance, a 10% value added rule or regional cumulation would make a significant different to making effective the market access granted under AGOA and EBA. This coupled with the 60% local content rule in Sierra Leone’s package of incentives would help to promote investment in agro-industry.

136. Sierra Leone should therefore take a strategic approach towards international trade and its membership of the WTO. Effectively, Sierra Leone should use the WTO as a component of its export strategy for agricultural products and services. In the first place, it should decide which agricultural products (both traditional and non-traditional) it will seek to develop its competitive advantage. It should then identify which WTO Agreements and provisions affect its market access in such products. Where negotiation is on-going on such provisions, it should seek to influence the negotiations in order to increase market access in the markets of both traditional and new trading partners. In other areas such as SPS and rules of origin, Sierra Leone should take a bilateral and diplomatic approach to resolving market access issues with trading partners, particularly where interpretation of provisions and flexibility are concerned. In effect, Sierra Leone should seek to use international trade to support capital accumulation, technological change, structural change, employment creation, and poverty reduction. In other words, not just maximise trade but maximise the beneficial effects of trade.

137. The optimum situation would be for Sierra Leone to establish a presence (permanent mission) in Geneva to defend the country’s interests on trade policy issues. However, given that these negotiations are extremely time consuming and that Sierra Leone, with other competing priorities, may have a limited ability in the short term to influence the outcome of negotiations in its favour, it would do well to associate itself with the decisions and concerns of regional groupings in the WTO, such as the African Caribbean and Pacific (ACP) group, the African group, and the least developed country (LDC) group, in order to defend its interests. excluded items as footwear, luggage, handbags, watches, and flatware were implemented after an extensive process of public comment and review. Sub-Saharan African beneficiary countries are also exempted from competitive need limitations which cap the GSP benefits available to beneficiaries in other regions.

45 Compliance with Sanitary and Phyto-Sanitary Measures 138. One of the most important issues in development of agricultural trade is sanitary and phytosanitary (SPS) standards. Sierra Leone has only limited and isolated capacity to manage food safety, agricultural health and environmental risks. Thus, market access for many of Sierra Leone’s agricultural products is eroded due to weak SPS standards and poor quality assurance systems. Cases in point are cocoa and fisheries products. However a distinction should be made between quality issues and SPS measures. A product may not necessarily face any mandatory SPS standards, but may still be subject to quality issues in the importing country. This is the case for cocoa, which has been discounted in European markets on the basis of quality. On the other hand, a product may be of sufficient quality, yet has to comply with strict SPS standards set by the importing country. This is the case for fish from Sierra Leone, for which specific mechanisms must be set up to prove compliance with SPS standards established by the EU. It should be noted that according to the WTO Agreement on Sanitary and Phyto- sanitary (SPS) Measures, a country can maintain higher SPS standards than international standards. This is the EU’s justification for its high SPS standards on food generally.75

139. At the same time, distinctions should be made between standards set by public and private institutions. International trade in agricultural products is increasingly affected by the establishment and maintenance of privately run standard setting bodies. This is the case for many organic products. Many of these standards are driven by the market based on consumer preferences and tastes. They are typically higher than the official standards, and involve rather burdensome and costly procedures for compliance. For instance, compliance would involve up-front investment in infrastructure, equipment, management systems, and human capital. They also typically include certain recurrent costs such as inspection and testing. Although government run standards are subject to the rules of non-discrimination in the WTO,76 privately run standards are not, yet they may have a greater impact on market access for Sierra Leone’s agricultural products than the standards officially set by governments.

140. The bedrock of Sierra Leone’s agricultural export development should be compliance with SPS standards and quality requirements. Yet, Sierra Leone has no law on SPS or other food safety standards. Under the Standards and Trade Development Facility, a six agency initiative hosted by the WTO, a project proposal has been discussed which seeks to develop the institutional structures and the regulatory framework for compliance with SPS standards in Sierra Leone. This process is being led by the Sierra

75 The EU maintains very high SPS standards on all food products (usually known as the ‘farm to fork’ policy) in which it requires the traceability of the food all along the value chain. 76 According to the Agreement on Sanitary and Phytosanitary Measures, an SPS measure should not arbitrarily or unjustifiably discriminate between countries where the same or similar conditions prevail. Neither should the measure be applied in a manner which would constitute a disguised restriction on international trade. SPS Agreement, Article 2. 46 Leone Standards Bureau. As a matter of urgency, Sierra Leone should seek funding for the implementation of this programme, with a priority on the drafting of legislation on SPS systems and management.

Sierra Leone Standards Bureau 141. Sierra Leone has rather rudimentary institutional capacity for management of standards. The Sierra Leone Standards Bureau (SLSB) is the coordinating body for all standards issues in the country. However, many public and private institutions should be involved in the setting and enforcement of standards. The SLSB, under the supervision of the Ministry of Trade and Industry, develops and adopts standards, is responsible for inspection of goods and provides testing and quality control services. Although its current efforts are focused on consumer protection, since its mandate is to ensure the safety of food consumed in Sierra Leone, the SLSB (in collaboration with MAFFS) should quickly turn its attention to the standards of goods exported from Sierra Leone. In such case, the challenge for Sierra Leone would be to facilitate the emergence of standards infrastructure in the medium term which supports export diversification into new, higher value-added products where standards are critical to market access.77

142. As a WTO member, through the development of legislation and institutional structures, Sierra Leone should therefore seek to comply with both the SPS and TBT Agreements. One of the requirements of the agreements is for the establishment of both TBT and SPS enquiry points.78 The SLSB has been nominated as the TBT and SPS enquiry point for Sierra Leone. However, an effective notification and enquiry point requires trained staff and the technical and logistical resources to undertake inter- agency and inter-ministerial contacts and coordination and the necessary flow of information. SLSB will need technical assistance to obtain the necessary training and to establish the required systems and internal lines of communication needed for the notification and enquiry roles for both the TBT and the SPS to be effectively undertaken. In the medium term, the SLSB in conjunction with MAFFS and SLIEPA should establish an information centre for Sierra Leonean agricultural exports regarding information on standards in overseas markets.

143. The SLSB does not have its own laboratory. Generally in Sierra Leone, laboratory capacity is weak. As part of the development of SPS infrastructure, Sierra Leone should build capacity in testing services. Here the SLSB should separate its consumer protection role from that of trade and export facilitation. Exporters of new products will require internationally recognised conformity assessment services for testing, inspection and certification. Conformity assessment procedures can be developed for specific products or sub-sectors. Sierra Leone should approach its development partners to explore the development of a laboratory, possibly based in the University of Sierra Leone which already has some basic infrastructure but no equipment. The benefit of a University 77 SL DTIS, p. 114. 78 Sierra Leone Trade Policy Review Report, February 2005. 47 based lab is that it can also be used to improve teaching through practical lab experience. An increase in the number of scientists with practical experience would be of relevance to firms in the longer term which could develop their own testing capacities and to private labs that would emerge as the economy develops and diversifies. 79

Economic Community of West African States (ECOWAS) 144. Sierra Leone, as a founding member of the Economic Community of West African States (ECOWAS) has embraced regional integration. It was the first member outside of the West African Economic and Monetary Union (WAEMU) to adopt the Common External Tariff (CET), which is based on the WAEMU tariff. Sierra Leone is gradually aligning its tariff lines with those under the CET. Once fully implemented, the average tariff will fall from 16.9% to 13.3%. With the adoption of five bands of tariff rates (0% to 30%),80 Sierra Leone is achieving an important improvement in the levels and simplicity of its tariff structure.

145. While member states should implement the CET in full, each country has the option to identify a few products for which they can change the tariff rate currently assigned under the CET. Sierra Leone has proposed one change: on the tariff for rice, wishing to raise it from 15% to 18%. This is an acknowledgement of the sensitivity of rice as a staple and the implications for increased competition under the EPA.

146. With the CET now taking over the ECOWAS trade liberalisation scheme (ETLS) as West Africa moves towards a customs union, the aim is to deepen intra-regional trade. However, the experience on the implementation of the CET among West African countries is patchy, mainly due to concerns over loss of customs revenue. Thus, trade in primary products is still not free in the sub-region. Various countries place unofficial barriers on trade usually for food security reasons. Indeed concern is often expressed in Sierra Leone over the prevalence of cross-border trade in some food products, especially rice and palm oil, the export of which has recently been reinstated. Not only is this inconsistent with intra-regional trade, it is contrary to the expressed aspirations of government policy to promote private sector development. Cross border trade (to Guinea or Liberia) usually means better prices for Sierra Leonean farmers and hence higher incomes. It may also mean greater incentives for them to expand production or to add value to agricultural products.

79 SL DTIS, p. 115. 80 The initial CET framework had four bands: 0%, 5%, 10% and 20%. The recent change to five bands has come about through further discussion in ECOWAS on the implications of the EPA and the identification of sensitive products. Nigeria has successfully negotiated an additional band of 35% to which it applies all sensitive products. 48 ECOWAP 147. ECOWAS Heads of State and Government adopted a new Vision 2020 in June 2007 and instructed the ECOWAS Commission to produce a Community Development Programme to buttress this vision which is the transition from a Community of ECOWAS states to ECOWAS people. The ECOWAS Commission has adopted a common regional agricultural policy (ECOWAP) with an action plan for implementation.81 The ECOWAP vision is “a modern and sustainable agriculture based on effective and efficient family farms and the promotion of agricultural enterprises through the involvement of the private sector”. The three major themes of the regional agricultural policy are:

 Increasing the productivity and competitiveness of West African agriculture  Implementing a trade regime within West Africa  Adapting the trade regime vis-à-vis countries outside the region

148. The first axis of intervention focuses on improving food security, increasing producer incomes and recognising their status, and reducing poverty. The second and third axes aim to facilitate access to regional and international markets to dispose of the increased volume of produce generated by the modernisation of the region’s production systems.

149. A first group of eight countries is implementing the regional action plan for the implementation of ECOWAP. Sierra Leone is not among this group, but together with the remaining seven countries will start working on national assessments and modelling investments. In the context of the implementation programme, emergency actions have been taken to ensure that agricultural issues are taken into account by the CET, and plans to liberalise trade with the EU within the framework of the Economic Partnership Agreement (products likely to be excluded from liberalisation). ECOWAP could provide Sierra Leone with an opportunity for expanded sub-regional trade and technical assistance for trade facilitation in this regard.

The Economic Partnership Agreement 150. Under the auspices of ECOWAS, Sierra Leone is negotiating an Economic Partnership Agreement (EPA) with the European Union (EU). Negotiations cover a broad range of trade and trade-related policies beyond the mere reduction of tariffs. Effectively, Sierra Leone and other ECOWAS countries will have to offer duty free access to most imports from the EU. This will have a significant effect not merely on government revenue through tariffs, but also have important impacts on domestic producers including farmers and industries, which over time will have to compete with

81 The objective of ECOWAP is to improve agricultural productivity in order to attain food sufficiency, standardise agricultural products; improve the dissemination of agricultural information; enhance health, alleviate poverty and improve the international competitiveness of farmers in the sub-region. 49 increased EU imports. The EPAs are designed to bring the arrangement that the EU has with about 70 African, Caribbean and Pacific (ACP) countries into conformity with the WTO.82

151. Given that Sierra Leone is already a beneficiary of the EBA initiative, which accords duty and quota free market access, the EPA is only likely to provide the country with new market access if the EPA is carefully designed. Market access can only be improved with the relaxing of restrictive rules of origin, the development of supply capacity and the deepening of regional integration among ECOWAS countries. Sierra Leone has not been participating effectively in the EPA negotiations, and it needs to give a more concerted effort to these negotiations which have the potential to have a more immediate and lasting impact on its economy than even the Doha Round. The irony is that without specific attention to the regional integration element, the EPA may result in the ECOWAS countries giving the EU better access to their markets than they provide for each other. The ECOWAP and the EPA are therefore important components of Sierra Leone’s plan to develop agriculture further.

152. As a first step in its EPA preparations, Sierra Leone has developed a list of sensitive products which include rice and palm oil, which may be exempted from liberalisation schedules under the EPA. However, Sierra Leone needs to examine the opportunities presented by the EPA for agricultural development and export. In particular, Sierra Leone should consider which agricultural products could be developed for regional trade and focus attention on all the aspects of trade facilitation to encourage exports in this regard.

Key Issues and Policy Options for Sierra Leone’s Agricultural Trade

Policy Recommendations:

 Negotiate more flexible rules of origin under EBA and AGOA and in the future EPA.  Make more use of the flexibilities in the Agreement on Agriculture to protect infant and other vulnerable agricultural industry  Comply with SPS standards for cocoa, ginger and other important agricultural commodities  Develop and enact comprehensive law and regulations on SPS, including systems and management

82 The current agreement between the EU and the ACP countries is the Cotonou Agreement. 50 POLICY CONCLUSIONS AND RECOMMENDATIONS

153. A careful mix of policy, smart incentives, institutional support, and technology applications is necessary in developing the agricultural sector in Sierra Leone, which is critical in ensuring the growth and prosperity of rural livelihoods and moving farming communities into the market economy. That said, Sierra Leone’s agricultural sector has good prospects for commercialisation. The Government of Sierra Leone (GoSL) has signalled, in important policy statements backed up by fiscal instruments and other measures that agriculture is now to be the centre piece of Sierra Leone’s growth and development. The private sector is to play a significant role in this transformation.

154. While progress has been made on the food security front, there is still a significant agricultural potential that has yet to be tapped by the country. Lessons are therefore being learnt by the MAFFS and other actors in agriculture from the past policies and there is a move towards a more coherent approach to policy making and implementation. The proposed NSADP is a step in this direction.

155. Because many of the measures to addressing commercialisation of agriculture are not the province of one ministry alone, the agricultural sector should therefore not be viewed in isolation, but should be seen as a key component of the economy linking other economic sectors, promoting social cohesion, and charting a sustainable development paradigm in Sierra Leone. For this reason, it will be important that the GoSL takes a holistic approach to the development of the agricultural sector.

156. Due to the destruction of most social and economic systems in the country during the war, Sierra Leone is virtually starting from scratch. This gives the country the opportunity to chart a different path from the previous economic development model adopted a few decades ago. It would require a paradigm shift in the approach to agriculture and its role in economic development.

157. The focus should be on development of productive capacities all along the value chain of selected products that will enable a stronger role for agriculture in the country’s development. This can take place through a strengthening of the domestic knowledge systems; further development and transformation of FBOs and SMEs to more commercial features; improvement in the scientific and research infrastructure; development of skills and institutions necessary to ensure inter-sectoral linkages; institutional collaboration and use of trade policy as a tool for further facilitating agricultural development.

158. This paper has identified critical gaps in the infrastructure and policy framework necessary to reform the agricultural system in Sierra Leone towards a more market oriented path described above. Specific policy recommendations are set out for

51 consideration below, and are listed in the same sequential manner, as outlined in the foregoing text, for ease of reference and efficient action.

Policy Recommendations for Commercialising Agriculture in Sierra Leone: [This section revisits the policy recommendations outlined in each section of the paper].

Integrated Agriculture Approach  Develop productive capacities all along the value chain of promising agricultural products using a clustering approach (agriculture, agro-industry and agricultural services)  Make constant agricultural growth linkages between small and medium scale farms and local food processing industries for the tourist industry or for export

Agriculture Investment Policy  Target investment incentives and tax relief at each part of the value chain in agricultural production, agro-processing and agricultural services.  Revise the Investment Promotion Act’s package of incentives to reflect the new agricultural incentives in the 2009 GoSL budget. Disseminate the package as widely as possible.  Deepen the reforms in the general business climate to provide a level playing field, certainty and predictability for domestic and foreign investors.

Agricultural Financing:  MAFFS (and the MTI) should work with the Bank of Sierra Leone to finalise the draft Financial Sector Development Plan which envisages increased lending by the commercial banks to the private sector.  Establish an efficient (private sector-led) financing vehicle for long term lending to the agricultural sector, providing subsidised lines of credit for farmers and smallholders.  Establish an export credit guarantee scheme in the medium term to provide support to exporters of traditional and non-traditional export commodities.  Provide incentives for insurance companies to develop packages of crop insurance for farmers and SMEs in agricultural production.  Establish a regulatory framework for credit unions to operate in order to encourage savings among small farmers.

Institutions  SLIEPA, MAFFS and MTI should collaborate to produce selected investment and export development packages to attract domestic and foreign investors to agriculture.  Encourage public-private partnerships in agricultural related infrastructure and research, through the use of fiscal and other instruments.

52  Establish ‘Producer Companies’ through an amendment to the pending Companies Act.  Review and amend the Cooperative Societies Act 1977.

Agricultural Land  Establish central G.P.S based mapping of not only the Freetown Peninsula area but also the Provinces, including Crown land and Government reservations, in order to determine the status of the available land for cultivation and development.  Immediately establish an additional system of property interests in land in Sierra Leone known as leasehold, and give it legal status through enactment of legislation.  Repeal the law prohibiting ownership of land in Sierra Leone by foreigners subject to a residual oversight by government where large tracts of land are being bought by non-Sierra Leoneans.  Establish a system of user rights over state lands. Establish a registration system for user rights which enables them to be tracked and monitored.  Establish land regulations with clear rights and responsibilities of communities and traditional leaders regarding their role in the process or land acquisition, including zoning, community preservation areas for watersheds, spiritual or ecologically sensitive areas.  Immediately implement a system of ‘Title Registration’ based on the GPS mapping for freehold and leasehold title to property in Sierra Leone.  Establish a mechanism, such as a Lands Tribunal or Lands Arbitration Board that will adjudicate initially the claims of competing land ownership and enforce land agreements/contracts, subject to a right of appeal to the courts.

International and Regional Trade in Agricultural Products and Services  Negotiate more flexible rules of origin under EBA and AGOA and in the future EPA.  Make more use of the flexibilities in the Agreement on Agriculture to protect infant and other vulnerable agricultural industry  Comply with SPS standards for cocoa, ginger and other important agricultural commodities  Develop and enact comprehensive law and regulations on SPS, including systems and management

53 Annex 1: Investment incentives proposed under Investment Promotion Act 2004 Measure/Coverage Current situation Indicative list to be (Non-Citizen (Trade and annexed to the Business) Investment Promotion Act of 1969, and other Act, 2004 Acts)

Corporate tax General rate 35% Zone A: 30%; Zone B: 25%a Agriculture (tree and food Rice: exempt first 10 years Exempt first 10 years crops) and forestry (cultivation) Agri-processing (60% local 35% Exempt first 10 years input) Agri-processing (below 35% First 10 years: Zone A – 60% input) 20%; Zone B – 10% Forestry (processing) 35% Zone A – 30%; Zone B – 20% Tourism Exempt 1 to 5 years Zone A – 25%; Zone B – 20% Losses write-off Allowable, subject to Allowable, subject to maximum annual write-off maximum annual write-off of 50% of succeeding years of 50% of succeeding years profit profit Import duty Raw materials 5% (malaria and HIV drugs Duty free exempt) Plant and machinery 5% Duty free Generator for operations 5% Duty free Tourism Duty-free concession for (i) Duty-free concession for new construction, new approved extension or renovation of construction, verified an existing one, applicable extension, restoration of to building materials, tourist facilities and machinery or equipment amenities, including that is not easily available renovation due to force in Sierra Leone for the major, determined by the period of construction or Tourist Board. This is rehabilitation applicable to imported materials for construction,

54 Measure/Coverage Current situation Indicative list to be (Non-Citizen (Trade and annexed to the Business) Investment Promotion Act of 1969, and other Act, 2004 Acts) furnishings, and equipment for first three years or to date of completion if less than three years. (ii) 50% duty rate reduction for upgrading during first 12 months of work or to date of completion if less than 12 months Intermediate products 20% 20% Operational vehicles 5% (between 0 and 4 years) 5% (between 0 and 4 20% (over 4 and up to 10 years) years) 20% (over 4 and up to 10 30% (above 10 years) years) 30% (above 10 years) Sales tax Plant and machinery Tax free Tax free Other: at entry (advance 17.5% 10% tax) at final assessment 17.5% (production over Le 17.5% (all production) 100 million) vehicles 17.5% 17.5% Payroll tax General Non-ECOWAS citizens: Le Non-ECOWAS citizens: Le 1,000,000 (US$370) per 1,000,000 (US$370) per year; and ECOWAS citizens: year; and ECOWAS Le 100,000 (US$37) per citizens: Le 100,000 year (US$37) per year Exempt if enterprise exports US$1 million or more during the year Tourism Exempt for non-available Exempt for non-available skills for first three years of skills for first two years for employment for up to six up to three personnel persons Investment allowance 5% in first year of new 7.5% in first year of new

55 Measure/Coverage Current situation Indicative list to be (Non-Citizen (Trade and annexed to the Business) Investment Promotion Act of 1969, and other Act, 2004 Acts) purchase purchase Incentives for exports Export/excise tax Exempt for 75% exported Exempt for 75% exported output output Export Processing Zones n.a. Special incentives to be enacted Duty drawback Allowed on raw materials Allowed on raw materials for goods exported for goods exported Research and training n.a. Initial allowance: 40%; expenses (capital annual: 20% investment only) Local employment n.a. 2.5% of business income allowance (number of exempt from tax (under employees) 51 employees) 5% of business income exempt from tax (between 51 and 100 employees) 7.5% of business income exempt from tax (over 100 employees) n.a. Not applicable a Zone A: Western Sierra Leone; and Zone B: all regions in Sierra Leone outside Zone A. Source:The Non-Citizen (Trade and Business) Act of 1969; and Law No. 9 the Investment Promotion Act, 5 August 2004.

56 Annex 2

Some Relevant Provisions to establish Producer Companies under the Sierra Leone Companies Act

1. Producer would mean any person engaged in any activity connected with or relatable to any primary produce.83 In this respect, primary produce could be:

 produce of farmers, arising from agriculture (including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products), or from any other primary activity or service which promotes the interest of the farmers or consumers; or  produce of persons engaged in handloom, handicraft and other cottage industries;  any product resulting from any of the above activities, including by- products of such products;  any product resulting from an ancillary activity that would assist or promote any of the aforesaid activities or anything ancillary thereto;  any Activity which is intended to increase the production of anything referred to the first four sub-clauses or improve the quality thereof;  "producer" means any person engaged in any activity connected with or relatable to any primary produce.84

2. Other institutions which do similar activities can also be similarly constituted. 85 The objects for which Producer companies are established can be fairly wide. They can include:

 production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit :

 Provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution;

 processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members;

83 Indian Companies Act 1956, as am 2003, s. 581A (v). 84 Section 581A (l). 85 Section 581A (m): ‘Producer institution’ means “a Producer company or any other institution having only producer or producers or Producer company or Producer Companies as its members whether incorporated or not having any of the objects referred to in section 581B and which agrees to make use of the Producer company or Producer companies as provided in its articles.”

57  manufacture, sale or supply of machinery, equipment or consumables mainly to its Members;

 providing education on the mutual assistance principles to its Members and others;

 rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members;

 generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce;

 insurance of producers or their primary produce;

 promoting techniques of mutuality and mutual assistance;

 welfare measures or facilities for the benefit of Members as may be decided by the Board;

 any other activity, ancillary or incidental to any of the activities referred to in the forgoing clauses or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner

 financing of procurement, processing, marketing or other activities specified in the forgoing clauses which include extending of credit facilities or any other financial services to its Members.86

3. To take account of the large numbers usually found in the FBOs, any ten or more individuals, each of them being a producer or any two or more producer institutions, or a combination of ten or more individuals and producer institutions, can form an incorporated company as a Producer Company. Producer companies are incorporated as companies limited by shares. 87 They are required to be registered in the normal way by the Registrar of companies,88 once the memorandum and articles of association are satisfactorily prepared. This should normally happen within 30 days and a certificate of incorporation issued.

86 See Indian Companies Act 1956 as amended 2003, Section 581B. 87 Section 581C (2), (3). 88 The Office of the Administrator and Registrar-General (OARG). 58 4. Producer companies would be permitted to have at least five and not more than fifteen directors. The Board of Directors would have wide ranging powers in the operation of the Producer Companies, including the appointment of a Chief Executive, usually from outside the membership of the Producer Company. The share capital of a Producer company would consist of equity shares only. 89 Shares in the Producer companies are not transferable unless with the permission of the Board or on the death of a member.

5. Members receive the value of their pooled produce and the excess would be shared in cash or in kind, or in equity shares, in proportion to the produce supplied to the Company at the start of the year. Bonus shares or patronage bonuses would be allotted by the Board based on the contribution of the members to the company’s operations during the year. At their annual general meeting, the Members would decide the amounts proposed to be carried to reserve, the amount to be paid as limited return on share capital, and the amount proposed to be disbursed as patronage bonus.

6. Cooperatives would also be able to become Producer companies, as in India. In such case, shareholders in the cooperatives would be deemed to be registered shareholders in the Producer Company to the extent of their share values. All properties and assets of the cooperatives would then be vested in the Producer companies; and their debts and liabilities would be transferred in the same manner.

7. Special rights90 may be granted to an Active Member through the issue of appropriate instruments by the Producer Company, which could be transferable to any other Active Member on approval by the Board.

8. Financial assistance can be provided by the Producer Company to any of its members on approval by the Board in the form of credit facilities, loans and advances. Credit would typically be extended for a period of six months or less. And repayments on loans and advances would not exceed seven years. General reserves may be invested in order to secure the highest possible return.

9. Not only would Producer companies be able to acquire the shares of another Producer company, but they would also subscribe to the share capital of or enter into an agreement either by way of joint venture or formation of a subsidiary, with any other company (Producer company or otherwise). It would also be able to buy shares in any other company whether or not it is a Producer company, for an amount not exceeding thirty per cent of the aggregate of it’s paid up capital and free reserve. If a Producer company wishes to invest in excess of this, it

89 Section 581ZB. 90 "Special right" means any right relating to supply of additional produce by the active Member or any other right relating to his produce which may be conferred upon him by the Board. Section 581ZC. 59 would need the permission of the GoSL and a special resolution from its annual general meeting. Investments may be disposed of by the Board through a special resolution on approval from the members.

10. Each Producer company would be required to maintain a register containing particulars of all the investments, showing the names of the companies in which shares have been acquired, number and value of shares; the date of acquisition; and the manner and price at which any of the shares have been subsequently disposed of.

11. There would be substantial penalties in the case of contravention of any provisions of the Act establishing the Produce companies, including against directors and officers of the Producer companies, where there has been default relating to the accounts or failure to call a general meeting.91 Producer companies may decide to amalgamate, merge or to split into separate different companies. Disputes would be settled through conciliation or arbitration, and provision could either be made for it in the Act which establishes the Producer companies or it could be dealt with under the new provisions for arbitration in the draft FSDP.92

12. In recognition that the Producer companies would be within an overall company legal framework, there would be provision in the Act for all other provisions, limitations and restrictions applicable to a private company, to apply to a Producer Company, as if it is a private limited company under the Act insofar as they are not in conflict with the provisions in the Act on the Producer companies.93

91 In the case of India, the fine may extend to ten thousand rupees for every day the default or failure continues. In Sierra Leone, the fine should be suitably large enough to be a deterrent to default. 92 Section 581ZO. In India, this is in accordance with the Act which governs such procedures. 93 In the Indian legislation, this is provided for in section 581ZR. 60 Annex 3: Terms of Reference

MINISTRY OF AGRICULTURE, FORESTRY AND FOOD SECURITY (MAFFS)/FOOD AND AGRICULTURE ORGANIZATION (FAO)

NATIONAL SUSTAINBLE AGRICULTURAL DEVELOPMENT PLAN (NSADP)

TCP/SIL/3203 (D)

TERMS OF REFERNCE FOR A REVIEW OF THE LEGAL FRAMEWROK FOR THE COOMMERCIALIZATION OF AGRICULTURE

The Sierra Leone Government through the Ministry of Agriculture, Forestry and Food Security (MAFFS), with support from the Food and Agriculture Organisation (FAO) of the United Nations and the Economic Community of West African States (ECOWAS), is in the process of formulating a National Sustainable Agricultural Development Plan (NSADP) under the Comprehensive Africa Agriculture Development Programme (CAADP) of the New Partnership for African Development (NEPAD), based on the Government’s vision to make agriculture the “engine” for socio-economic growth in Sierra Leone, through commercialization and producer organization development”.

The Government recognized that various laws and by-laws were enacted in the past that had influence the current state of investment in the agriculture sector especially by the private sector. With this new vision of the government for the sector, a short term consultant is required to, under the overall supervision of the NSADP Coordinator, undertake the following tasks:  Review of the current Investment Incentive Regimes in the country, including taxation as they relate to the Agric. Sector  Review of the Agric Sector-related laws and their impact on investment in the sector  Suggest ways to promote Agricultural Public-Private Partnership (AgPPP) Schemes in Sierra Leone  Provide the legal framework for transforming Farmer-Based Organizations (FBOs) into legal commercial entities or legal faces  Recommend Legal Options for addressing land tenure issues in Sierra Leone

61  Review the sub- regional, regional and international Trade Agreements and issues as they relate to Sierra Leone and suggest recommendations that will lead to “Quick Wins” for the country.

Deliverables:

Taking into consideration the trends in population growth, increasing oil and food prices, climate change, green house emission and other immediate threat to the development of the agric. sector and based on his/her review, the consultant is expected to submit a concise but analytical report (in English) that successfully responds to the TOR with clear policy recommendations that will contribute to the development of a sustainable agricultural development plan. A draft of the report should be submitted six weeks after the signing of the contract, and then do an hour power point presentation of the key findings to the Agriculture Advisory Group (AAG). The final report which must take into consideration comments or observations from MAFFS, FAO-SL, Farmers’ Representatives and the AAG should be submitted two weeks after.

Consultancy Period: Eight (8) weeks

Qualifications:  An advanced degree in Trade and Investment Analysis or Trade Law and related field from a well recognized and reputable university  Proven track record as evident in assignments and reports  Fluency in English language is mandatory.

62 Annex 4

Summary of Proposals from Agriculture Finance Technical Committee

Creation and strengthening of public sector/parastatal structures  Enabling environment: The GoSL should create the enabling environment with the necessary regulations to safe guard financial institutions against risk exposure to lending to the agriculture sector. A similar environment should be created to secure the investments of equity investors.  Establishment of National Agricultural Fund (NAF) to mobilise resources internally and externally to ensure rapid response to global food shortages and higher prices, and mitigation of long term crisis.  Establishment of Sierra Leone Agricultural Development Bank (SLADB) under a public/private-sector partnership to finance agricultural ventures directly and indirectly.

Government Guarantees scheme  Provision of agricultural loan guarantee scheme by the Government through the BSL to minimise the high credit risk associated with agricultural finance.

Coordination among private sector/multilateral agencies/ and funds  Existing commercial banks, community banks and micro-finance institutions to organise on-lending to agricultural enterprises by accessing funds from NAF, SLADB, UN agencies and international financial institutions.  Use leasing companies to provide equipment finance for mechanised farming  Insurance companies to provide insurance scheme to comprehensively cover all risks associated with agricultural ventures.  Create credit unions (which may require amendment to Cooperative Act or other relevant Acts)

Networking, linkages and collaboration with other entities  Strategic partnerships with UN agencies (World Bank, International Finance Corporation, IMF, World Food Programme, Food and Agricultural Organisation, International Fund for Agricultural Development, and World Trade Organisation).  Strategic partnerships with other international financial institutions (African Development Bank, Afriexim Bank, Kuwait Fund, International Development Bank, Japanese International Corporation Agency (JICA), Chinese Development Bank, GTZ, BADEA, African Finance Corporation, etc) .

Formation of Technical Standing Committees  Formation of an independent institutional/technical structure charged with the responsibility of supervising, regulating and creating bench marks for every other institution that has the expertise to implement agricultural micro finance.

63  Maintain a broadly represented Ag. Finance Technical sub committee. This entity can sit within SLIBA.  Establishment of specialised sub committees to be charged with handling specific issues or sub sectors in agricultural financing.

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