RESTRICTED UJ copy Report No. AW-3a

This report was prepared for use within the Bank and its affiliated organizations. Public Disclosure Authorized They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

THE CURRENT ECONOMIC POSITION

AND PROSPECTS

OF

SIERRA LEONE Public Disclosure Authorized

February 28, 1969 Public Disclosure Authorized

Western Africa Department CURRENCY EQUIVALENTS

1 Leone US $ 1. 20 1 dollar = LE 0. 833 THE CURRENT ECONOVC POSITION AND PROSPECTS OF

TABLE OF CONTENTS

Page No.

BASIC DATA

SUMMKARY AND CONCLUSIONS - iii

I. The Economy of Sierra Leone 1

A. Introduction 1 B. Structure of the Economy 2 C. 4 D. Hining 6 E. 7

II. Recent Performance in the Monetary Sectors 9

A. Growth and Investment 9 B. Balance of Payments 11 C. Public Sector Finance 13 Central Government 13 Public Corporations 15 D. Money Supply and Domestic Credit 16 E. The 1967/68 Stabilization Effort 17

III. Economic Prospects 21

A. The Future Direction of Sierra Leone's Development Effort 21 B. A Projection of Central Government Development Expenditure 25 C. Financing Requirements 29 D. Organizing for Development 32 E. Exports and Balance of Payments 33

STATISTICAL APPENDIX

ANTL: Some Notes on Sierra Leone's Experience with iedium-Term Suppliers' and Contractorst Credits

HAP

This report is based on the findings of a mission, consisting of Eessrs. Loreto Dominguez and Werner Hammel, which visited Sierra Leone in May and June, 1968. BASIC DATA

AREA

27,925 square miles

POPULATION

Total (1968) 2.5 million Rate of Growth 1.5% per annum

CUNSU1ER PRICE INDEX (1961-100) 1966 1967 March 1968 121.1 127.7 129.1

GROSS NATIONAL PRODUCT

at factor cost (1965/66) Le 231.8 million (US $ 278.2 million) per capita (1965/66) US$124

GROSS DOMESTIC PRODUCT

at current market prices (1965/66) Le 260.8 million 6 Annual average real growth rate (1963/64-1965/66) 5. oper historic long term trend (estimated) 3.0-4.0%

Distribution by sector (% - 1965/66) Agriculture 31.3 19.2 Manufacturing 6.3 Construction 3.6 Transport and conmunication 7.7 Public Administration and defense 5.2 Other sectors 26.7

INVESTMENT AND SAVING

(f% of GDP at current market prices - 1965/66) Gross domestic investment 15.3 Gross domestic savings 11.4 Domestic resource gap 3.9 Net factor payments -3.3

Current account balance 7.2 BALANCE OF PAYMENTS

(UJS$ million) 1963 1964 1965 1966 1967

Exports (f.o.b.) 69.5 81.6 75.8 70.9 60.7 Imports (c.i.f.) 71.6 85.2 92.4 86.0 78.0 Services (net) -12.8 -15.3 -13.1 -8.3 n.a. Transfer payments (net) .2 .1 .4 5.2 n.a. Curent account -1..7 -19.0 -29.3 -18.2 n.a. Capital account 11.9 18.5 20.0 15.1 Change of reserves -2.8 -. 5 -9.3 -3.1 -2.4 Projected annual export growth rate (1968-1973): 3% Commodity concentration of exports (diamonds) (1963-1967 average): 63% Net foreign exchange reserves (March 1968): $11.4 million

EXTERNAL PUBLIC DEBT As of June 30, 1968 US$59.0 million Debt ratio (goods and services - 1967) 11.6%

CENTRAL GOVERNMENT FINANCES (Le million) Compound annual 1961/62 1968/69 growth rate budget

Current revenue 27.1 1.7 6.4 Current expenditure 24.8 32.3 4.5 Central Government savings 2.3 9.4 22.0 Debt service 2.0 8.5 23.0 Capital expenditure 7.6 10.5 14.7 Capital receipts 5.4 8.6 6.9 Overall deficit 1.9 1.0 - SUMIARY AND CONCLUSIONS

1. Growth of the Sierra Leonean economy in the last decade was brought about by an expanding mining sector dominated by foreign enterprises. Diamonds alone account for 60% of exports; a diamond boom, which reached its peak in 1964, caused exports to expand by an average annual rate of 11% since 1950. However, income generated by mining exports has only modestly stimu- lated agriculture and manufacturing; instead, it induced imports and other remittances abroad. Sierra Leone thus has a divided economy with an enclave mining sector and a large and underdeveloped agricultural sector which occu- pies 80%1 of the population. The tens of thousands of individual diamond diggers in the country's interior are an exception, but despite their acti- vities and modest agricultural exports, the monetized sector of the economy is comparatively small. An average per capita income of $115 for Sierra Leone's 2.4 million people, though comparatively high by African standards, is thus a misleading indicator of the actual standard of living of most of the population.

2. In the past, the Sierra Leone Government has emphasized invest- ments in . Agricultural development was left largely to the Produce Marketing Board. Since the Board's plantation program failed, the agricultural sector has not benefited appreciably from past development efforts. Nevertheless, Sierra Leone has ccnsiderable unused agricultural potential. Her numerous inland swamps and river estuaries offer opportunities for increased production. Sierra Leone is not self-sufficient in rice, her major staple , and, with West Africa as a whole depending on rice imports, there may be possibilities for exports to neighboring countries once a surplus is achieved. Also, there are potentials for tree crops such as oil palm and cocoa. Fish and livestock development are still at rudimen- tary levels.

3. Agricultural development poses problems of organization and management, as well as of finance. This applies both to large-scale plan- tation development and to improving the productivity of the individual farmer. The effort cannot, therefore, be measured only in terms of funds earmarked for the sector. Building up an extension service or an equivalent organization, and encouraging cooperatives and agricultural credit involves institution building which is not necessarily costly. Sierra Leone has as yet only limited managerial and administrative resources. This applies not only to the private sector where expatriate entrepreneurs are very much in evidence in commerce and manufacturing in addition to mining, but also applies to the public sector where staff limitations have adversely affected the quality of public investment. Institution building will have to be part of Sierra Leone's future development effort if the investment pattern is to be governed more by economic priorities and less by the uneven capacities of various public sector bodies.

h. Since independence in 1961, the Government has made a remarkable effort to mobilize public savings. Current budget receipts increased by an average annual rate of 7% while expansion of current expenditures was held to 5%, which is commendable for a newly independent country assuming new functions and responsibilities. However, resulting public savings were in- sufficient to finance public investment, and the Government resorted to - ii - domestic bank borrowing and medium-term suppliers' and contractors' credits, resulting in a mounting debt service which has fully absorbed public savings since 1963/64. Efforts to prepare projects and sound investment programs in general were neglected, limiting the opportunities for external long-term borrowing. Credit expansion spilled over into imports, resulting in a con- tinuous loss of foreign exchange reserves. By mid-1966, net foreign assets had dropped to a level of Le 12.8 million ($15.4 million or 2 months' imports) capared with Le 25.4 million by the end of 1961. Thus, because of inadequate and inappropriate means of financing, the Government's efforts to develop the economy outside the mining sector jeopardized an open economy and risked the imposition of foreign exchange restrictions which, however, would be diffi- cult to enforce in a diamond-producing country.

5. Unsatisfactory financing of Government investment was exacerbated by deteriorating finances of public corporations. The country's railway, constructed between 1895 and 1916, has been losing traffic to more economical and flexible road transport, and its large deficits have increasingly burdened the budget. The Sierra Leone Produce Marketing Board, originally established as a marketing organization for export crops, expanded its activities into plantation development after independence. Due to inadequate planning and management, these plantations developed formidable losses. It is estimated that the Board expended about Le 10.5 million between 1964 and 1967 for non- marketing purposes. Thus it not only exhausted its accumulated price stabili- zation fund and current marketing surpluses, but also a Government loan of Le 1 million. Substantial borrowing from a commercial bank was required in 1966/67 to keep the Board afloat. Eventually, marketing of produce began to suffer, which contributed to a drop in agricultural exports in 1967.

6. Deteriorating finances of public corporations, and finally the 1966/67 budget, which showed a further steep increase in development expen- diture and an uncovered overall deficit of Le 19.3 million, forced the Govern- ment to review its finances. Foreign exchange reserves had reached a low level and in September 1966, the Government approached the IMF for assistance. The subsequent standby arrangement was accompanied by a stabilization program, which inevitably stressed improvements in public sector finances. However, because of elections in March 1967, budget cuts and changes in public corpora- tions were slow to be implemented. The 1966/67 ended with a record deficit, although less than originally budgeted, and only the use of counterpart funds from the INF drawing prevented a further upsurge of bank borrowing. However, public finances improved markedly under the military and police regime which ruled Sierra Leone from March 1967 to April 1968. Bank borrowing disappeared in the fiscal year 1967/68, mainly due to an 18% reduction of development expenditure. The Sierra Leone Produce Marketing Board was drastically reorganized and its finances were consolidated with a medium-term commercial bank loan. Also, the then Government decided to phase out the railway and to abstain from further suppliers' credits.

7. This stabilization program led to a slackening of economic activity in 1967 and, because of tax measures imposed on diamond dealers, a sharp drop of recorded exports. However, when the Government quickly rescinded these measures, the economy, stimulated also by a revival in the marketing of agricultural produce, picked up momentum in early 1968. Re- - iii - serves increased by 36% in the first quarter, which is more than the usual seasonal upswing; exports and private trade expanded, and registered unem- ployment in the capital decreased. In April of 1968, Sierra Leone returned to parliamentary rule and the 1968/69 budget, introduced in July of this year by the new Government, augurs well for a continued improvement of public finances. As the debt burden levels off, Sierra Leone should be able to utilize a rising share of public savings for her development effort. On the average, 40% of the Government development expenditure during the five years will be financed by domestic resources. Sierra Leone will thus depend heavily on external assistance and hence cn the availability of projects and programs suitable for external finance. As it happens, such projects are comparatively well advanced in infrastructure, and during the next five years, investments in roads, electricity, water supply and education will. dominate the public sector investment program. Agricultural projects are still in early stages of preparation, and it will be necessary to improve the institutional capacity for both project preparation and execution in this sector in particular.

8. Debt service in the past has posed more a budgetary than a balance of payments problem. The recent fiscal performance and,:in particu- lar, the expected financial improvements of public corporations may reverse this trend. With exports projected to grow at an average annual rate of about 3% during the next five years, foreign exchange earnings rather than public savings will limit Sierra Leone's ability to service external debt. The ratio of debt service to earnings from goods and services is estimated to rise to 13.1% by 1969 and then drop markedly, thus giving Sierra Leone some margin to service new debt. If the Government continues vith its policy of abstention from further suppliers' and contractorst credit, Sierra Leone has considerable capacity for additional borrowing on conventional terms, But assuming average annual borrowing of Le 6-7 million over, say,the next five years by the public sector, a level which would support the- feasible expansion of public sector investments, Sierra Leone should aim at obtaining some external assistance on concessional terms. Such borrowing would help to avoid a rapid build-up of debt service and make possible a modest increase in reserves which have recently been at a precariously low level. I. THE ECONOMY OF SIERRA LEONE

A. Introduction

1. Sierra Leone, a former British Colony on the West Coast of Africa (7-9 degrees north of the Equator), attained its independence in 1961. Except for 13 months of military and police rule (from March 1967 to April 1968), Sierra Leone has had a parliamentary government. The country is relatively small in area - 27,925 sq. miles or approximately the size of Panama, Ceylon or Ireland. Its resource endowment is compara- tively good - particularly in regard to minerals, namely diamonds, iron ore, and rutile. The country's land, even though not of exceptional quality, is uniformly usable and, because of the prevailing rainfall pattern (heavy rains during three or four months of the year) generally covered by thick vegetation. 1ost of this vegetation consists of bush and grass; little primary forest is left. Nearly 70% of the land is at elevations of less than 1,000 feet and only 2.4% shows elevations above 2,000 feet. The drainage network consists of nine main river systems with rather small basins (the largest, that of the Sewa River, covering only 5,500 sq. miles) and many small coastal creeks and estuaries.

2. The 1964 census showed a population of 2,180,300; as of the middle of 1968 this number may have risen to 2.5 million. The resulting population density is 85 persons per square mile (32 persons per square kilometer). Even though this figure may not point to undue pressure on land the situation is much less favorable when, as will be seen, the pre- vailing land rotation system is taken into account. With the exception of the savannah area in the Northeast, the population is evenly spread over the country. It consists of a variety of tribes of which the Mende in the South and the Temne in the Northwest are numerically the most important. The Creoles, who are descendants of liberated slaves and constitute a substantial portion of Freetown's population, have traditionally been important in education, administration and the judiciary. Since indepen- dence this role has been challenged by Sierra Leoneans from the interior. Tribalism has occasionally been a political issue and recently tribal difficulties have emerged on a serious scale. So far the Government has been able to control rivaling factions and responsible Sierra Leoneans realize the potential dangers of tribal friction. But prospects of the economy will depend heavily on a greater degree of cohesion among the people of Sierra Leone.

3. Sierra Leone's population growth is estimated at 1.2% 1/ per annum, which is comparable to neighboring but below the West African average of 2.0-2.5%. The reason most frequently advanced for this difference is that the death rate is higher in Sierra Leone while the birth rate is about the same as in other countries in the area. Infant mortality is said to be very high. One source estimates that in the rural areas 50% of all children die within the first five years, mainly because of nutritional deficiencies and endemic diseases. Given the traditional desire for large families, which are looked upon as a means to secure material support for parents in their later years, family planning in Sierra Leone stresses the opportunity to achieve a desired family size with less births and the beneficial effects on the

1/ U.N. Demographic Yearbook. Other sources suggest a range of 1.2-2.24%, - 2 - health of the mother and the children already born. The "Planned Parenthood Association of Sierra Leone" has an annual budget of Le 11,000 provided in cash and kind by the International Planned Parent- hood Federation. It is looked upon sympathetically by the Government, especially by health authorities, but it has not yet been officially endorsed, presumably because the population growth is not considered alarming. It is operating with increasing success in Freetown, where exposure to economic pressures of an urban area has prepared the ground for family planning. It has plans to carry its campaign to the rural areas, but a shortage of funds is so far preventing a major effort.

B. Structure of the Economy

4. Available economic information indicates that Sierra Leone's level of per capita income (Le 96 or approximately $115) is higher than that of many other nations of Africa and ksia. In spite of this it is clear that the economy of Sierra Leone is at a very early stage of development. This fact stands out upon an examination of the major characteristics of the economy and of its principal sectors. Sierra Leone has a dual economy. Approximately 80% of the active population were estimated in 1963 to be engaged in agricultural, hunting and fish- ing pursuits which in a large measure are rudimentary and of a subsistence nature. In the modern sector, four mining companies produce exclusively for export, operating with highly mechanized equipment and employing about 8,000 persons. Diamond mining under the so-called Alluvial Diamond Scheme, provides employment and money incomes for about 40,000 persons engaged in diamond digging with simple equipment. Taken together, the four companies and the diamond diggers provided 90% of recorded exports and about 20% of GDP in 1967. The manufacturing sector proper consists of a score of modern industrial establishments employ- ing perhaps 2,000 persons plus a number of household and cottage process- ing activities occupying another 40,000 persons. The rest of the active population (about 110,000 persons) is in building construction, trade (mostly single traders), transport and communications and various ser- vices including government services - the latter employing approximately 11,000 persons.

5. The bulk of Government revenue cam be traced directly or in- directly to the operations of the mining sector: export duties on dia- monds, income taxes on foreign mining companies and their personnel account for around one-third of all Government revenues. Import duties account for another 0% of such revenue. Since mining exports and capital investment of the mining companies are the source of a large proportion of the foreign exchange used to finance imports, it can be seen that the mining sector originates perhaps two-thirds of all Govern- ment revenue. Agriculture provided 8% of total exports, but 30% of GDP, in 1967. 6. Sierra Leone's banking system consists of a (The ) and three co-mercial banks. Banking statistics show that credit is largely restricted to a small group of large enter- prises: as of June 1967, 10% of all loans and advances consisted of operations in excess of Le 10,000 each; yet these operations accounted for 87% of all credit extended. By contrast, small loans and advances (up to Le 10,000 per operation) represented 90% of all operations but accounted for only 10% of all credit extended. The main, even though limited, sources of credit available to the native producer or business- man are the thrift and credit societies or cooperatives of which in 1965 there were nearly 500 with a total membership of approximately 22,000.

7. The volume of money supply and its composition in terms of currency and demand deposits also reflects the small degree of monetiza- tion of the economy and the importance of the subsistence sector, Thus money supply during 1967 represented approximately 10% of estimated GDP; further, only one-third of the money supply was in the form of demand deposits - the bulk ccnsisting of currency in circulation.

8. Sierra Leone's compact shape and coastal situation facilitates transportation. From Freetom, the capital and most important port, the maximum direct distance to any part of the country is about 200 miles. But with the population spread evenly over the country, the road network has to be fairly dense if access to rural areas is to be adequate. There are presently 171 miles of modern asphalt roads and another 143 miles with hard surface. An inventory of laterite roads has never been under- taken. Such an inventory would be difficult anyway, because these roads disperse into innumerable bush tracks. However, some laterite roads form parts of the main road system and flooding during the rainy season seriously hampers year-round traffic. With UTDP assistance, a land transport survey was recently undertaken and, on its basis, a investment program was formulated. Preparatory work on four priority roads is well advanced; and with external assistance, substantial im- provements of Sierra Leone's road system are planned during the next five years. The Government also accepted the survey's recommendation to phase out the railway's 310 miles long narrow gauge line which was built between 1895 and 1916. It has lost substantial traffic to faster and more flexible road service, and has been incurring heavy losses. This will leave Sierra Leone with a $2 mile private mineral line from the iron ore mine at Marampa to the loading port of Pepel. Bauxite and rutile are evacuated by a combination of dump trucks and barges through the South.

9. The Government of Sierra Leone has shown considerable concern about improving the country's educational levels. Government current expenditures for education have risen from Le 3.7 million in 1961/62 to Le 6.7 million in 1966'67, when education absorbed 21% of current expen- diture. The educational system includes about 1,000 primary schools with over 130,000 pupils and 3,500 teachers; and 61 secondary schools with a total of 13,500 pupils and 750 teachers. In addition, there are nine teacher training colleges, a technical institute (at K!enema), two rural institutes (at .lenema and Batkanu) and four vocational schools (at Freetown, Moyamba, Lunsar and Bo). The University with its two colleges - Fourah Bay College and Njala University College - receive 25% of education expenditures. The Government's emphasis on educa- tion is justified as at present only 20% of all children of school age attend primary schools. Given the fiscal constraints and the desira- bility of curbing current expenditures, such emphasis will have to be on improvements, rather than expansion of the educational system. Fiscal considerations contrast with the dearth of skilled and professional talent which is evident in many areas, especially on the middle level. As an example, it is estimated that there is only one medical practi- tioner per 25,000 people.

C. Agriculture

10. Sierra Leone's agriculture is, as a rule, carried out on very small plots where the individual cultivator produces a rather large number of crops for his own use. Production for the market is the exception; hardly any mechanical equipment is used by individual farmers and even the range of tools employed is rudimentary and limited. The main staple food is rice, followed by cassava. TWild oil palms, goats, poultry and fish provide a supplement to the traditional diet.

11. Statistical information on the levels of output of various crops is scarce except for export crops, viz. palm kernels, cocoa, , piassava and ginger, whose value, volume and unit prices are shown in Table 17. Production of milled rice was estimated at 235,000- 260,000 tons in 1965/66. In 1966, imports of 41,000 tons were required in order to satisfy demand. Since the diamond boom in the later 19501s, when tens of thousands of upland farmers left their land to dig for diamonds, Sierra Leone has not been self-sufficient in this major staple. However, the reduction of rice imports, to 22,000 tons in 1967 and, probably, about the same tornage in 1968, suggests that domestic rice production has been going up lately. There are reports that better use is being made of inland swamps where yields are higher than on dry up- lands. Also, improved seeds from the rice research institute at Rokupr are said to be popular with an irreasing number of farmers. These trends have raised the hope that, with a forceful campaign, self-suffi- ciency could be reached within the foreseeable future.

12. Of Sierra Leonet s total area of 17,873,000 acres only 5.61o or approximately 1 million acres, was under cultivation in 1965/66. Forest reserves and protected forests accounted for another 752,500 acres. The balance of over 16 million acres consists mainly of bush fallow. On the average, agricultural plots reverting to bush are cleared again after approximately nine years. This average, obtained in the course of a 1965/66 agricultural survey of the country, together with the proportion of acreage under cultivation in recent years, suggests that over a nine year period nearly 60% of the land is actually under cultivation at one time or another. Land under continuous culti- vation is mostly in swamp-land areas and used mainly for rice cultivation. - 5 -

13. There are approximately 250,000 land holdings, each support- ing, on the average, six persons. Sixty-five percent of the land hold- ings consist of less than 5 acres. !ixed crops prevail. The exception is swampland rice where the majority of fields contain pure rice stands. Dry upland rice still accounts for 80% of total production. Yields on upland rice are estimated at 1,000 pounds of paddy per acre, compared to 1,900 pounds on the swamplands. The Agricultural Survey mentioned above indicates that the portion of producers selling part of one crop is rather small - at most, 20%. Even though this figure may be low due to under-reporting by farmers, it clearly indicates that production for the market is the exception rather than the rule.

14. Harketing of rice, consisting of imports and an estimated 18% of domestic production, is the only area where commercialized hand- ling of produce has gained ground. Rice marketing is largely in the hands of private traders, many of whom are non-Sierra Leoneans. As will be seen later, the Government's Rice Corporation has largely failed in its effort to take over this trade. Other produce is largely marketed in the traditional fashion by occasional sales at local markets. The Sierra Leone Produce Iarketing Board (SLPNB) has a monopoly in the export of palm kernels, cocoa, coffee and piassava. It is using Licensed Buying Agents to purchase produce in the villages and deliver it to its stores. ren though the Board is setting producer prices and a commis- sion for its agents, it has no effective control over the prices actually paid to the farmers for their produce.

15. The country's savannah area in the northeast is an important grazing ground for cattle. Their number is estimated between 150,000 and 200,000 out of which 12,000 to 13,000 head are slaughtered annually, according to official records. An inventory of cattle is difficult because herds migrate in and out of and from one grazing area to another. Development of Sierra Leone's livestock potential is hampered by the inaccessibility of the cattle area. Also the familiar argument is advanced that large herds are a symbol of wealth which discourages a commercialized livestock industry. Given the degree of economic development in that area, however, it is not surprising that there is little incentive to earn cash. Improved access to urban markets could go a long way in mobilizing the potential of that area.

16. Fisheries offer similar opportunities for development. It is estimated that 70% of fish is landed by canoe and 305 by foreign fishing boats. Fish imports in 1966 are recorded at 10,000 tons or roughly one-third of estimated landings. There is effective domestic marketing by a private company, but it has abandoned its own trawler fleet, and now distributes imported fish. Thile fleets from all over the world are operating in the fish-rich South Atlantic, Sierra Leone has not been able yet to benefit from the potential off its coast. Traditional canoe fishing techniques are still the mainstay of its fish- eries and, as a result, imports are reouired to supply the growing urban markets. It would appear that there is considerable scope for private initiative in this field. - 6-

D. Mining

17. The origins of the mining industry in Sierra Leone go back to the early 1930's when exploitation of deposits of iron ore, chrome ore, gold and diamonds started. At present, mining activities involve diamonds, iron ore, bauxite and rutile ( dioxide). Diamond production takes place under two different arrangements - thT A1Tlvial Diamond Nining Scheme, and, as a result of a concession agreement, the Sierra Leone Selection Trust Ltd., (SLST), a subsidiary of Consolidated African Selection Trust Ltd. Under the Alluvial Diamond Scheme, Sierra Leone citizens, after obtaining a diggers' license,can mine diamonds in plots of up to 1,000 ft. by 400 ft., and employ for that purpose up to twenty laborers. The marketing of all diamonds produced by independent diggers must take place through the Government Diamond Office which, in. turn, sells exclusirely to the Diamond Corporation of `Jest Africa (Dicorwarf), a subsidiary of the de Beers group. Dicorwarf also acts as naging agent for the Government Diamond Office. In 1962 SLST entered into an agreement according to which it has to sell at least 50% of its production to Dicorwarf and may sell the remainder to licensed purchasers* It is not allowed to sell at prices lower than the valuation of the Government valuer.

18. The Government Diamond Office's buying monopoly inevitably leads to the smuggling of diamonds whenever the prices paid by this agency or the taxes imposed by the Government make it profitable for independent producers or dealers to sell in Liberia - where there is a ready market for smuggled stones. The fact tht diiamond smuggling is most difficult to prevent places, in fact, a limit on the taxes that the Government can impose on the diamond output and forces official buying prices to remain at levels competitive with those of Liberia. Losses from diamond smuggling to the national econory consist mainly of those suffered by the Government through reduced tax revenues as cash earnings of laborers, diggers or dealers obviously do not suffer from the method of disposal of the output.

19. Diamond production and exports expanded greatly after 1956, and reached a plateau in 1960/61 of about 2 million carats valued at Le 32 million. Production of alluvial diamonds has been going down since and there are indications that the diamond boom is slowly fading away. Corporate diamond mining, on the other hand, is stable and has good prospects. Sierra Leone is presently producing about 10-15% of world diamond supply in terms of value. Over 90% of the value of the diamond output is represented by stones of gem quality. In 1967, 1-16 million carats, with a value of Le 29.7 million, were exported, com- pared with 1.32 million carats (Le 31.3 million) in 1966. However, exports were su-]pressed in 1267 following the Government's attemt to raise the o::port duty for di&monds frc". 7.5 to 10,7, which promptly led to increased smuggling. The rise in duty has since been rescinded. In ,hy 1967 the Government also tried to levy a "once and for all" income tax on diamond dealers who were known to have amassed in some cases substantial fortunes. A target figure of Le 1.5 million was given to the dealers. Eventually, they raised Le 200,000 but in the process they demonstrated their indignation by avoiding conspicuously large sales to the Government Diamond Office. 20. Iron ore deposits at "Varampa in the Northern Province have been mined since 1933 by the Sierra Leone Development Company Ltd. (Delco). The ore is concentrated to at least 64% iron content at the mine and shipped by rail to the Port of Pepel. In 1967, Delco exported 2.1 million tons of concentrates at an export value of Le 9 million. In order to fulfill a long-term (10 year) contract recently signed with Japanese buyers, Delco will, during 1968/69, expand its capacity to 3 million tons per year with an investment of Le 5 million. Bauxite deposits have been exploited since 1963 by the Sierra Leone Ore and Metal Co. Production during 1967 reached 330,000 tons with an export value of Le 1.05 million. The company plans to reach an annual produc- tion of 400,000 tons. Very important rutile deposits are being mined by Sherbro 1inerals Ltd. Exbports of rutile are expected to reach a level of 100,000 tons per year, in the next two or three years, with a value of approximately Le 10.0 million. Expansion plans up to 150,000 tons are under consideration. It is said that apart from Australia, Sierra Leone's rutile deposits are among the richest in the world.

E. 1nufacturing

21. Approximately 41,000 persons (4.8i of the active population) were engaged, in 1963, in Imanufacturing activities". However, in the same year, only 4,452 worked in establishments with more than six employees. "Repair of motor vehicles" and "printing, publishing and allied industries" accounted for about 350 of these 4,452 employees; it follows then, that manufacturing establishments proper - apart from household and cottage processing activities - provided employment for sonewhat less than 3,000 persons. By the end of 1967 this number had probably risen to somewhat over 4,000 persons.

22. Statistical information on manufacturing, apart from that given above, is scarce. Table 15, listing various types of industrial establishments that are already established or in various stages of planning, provides an interesting survey of the kind of manufacturing undertaken in Sierra Leone. 11ost enterprises are owned and operated by expatriates. Larger plants such as the brewery and the cigarette factory are sub-divisions of British firms. A flour mill was recently set up by U. S. interests, and Lebanese entrepreneurs are manufacturing, inter alia, umbrellas, nails, and plastic sandals. One of the biggest and most successful enterprises, however, is the state owned Forest Industries Corporation which is producing sawn timber and wooden furni- ture and has plans to expand, with foreign participation, into chipboard production.

23. The basic law governing Sierra Leone's policy of industrial promotion is the Development Act of 1960. New industrial activities nualifying under this Act obtain "development certificates" entitling investors to a three-year, and under special circumstances a five-year, tax holiday. Raw materials, building materials, vehicles as well as machinery and equipment needed for the installation and operation of - 8 - the factory can be imported duty free. Further, the finished product ill be protected against foreign competition both through tariff duties and by placing the competitive foreign products in a list of commodities for which general or specific import licenses are required.

24. Industrial expansion is handicapped by the smallness of the market; the limited demand does not allow for economies of scale so that costs of production tend to be high in spite of the advantages con- ferred by low labor costs. Horeover, since industrial development is in its infancy new processing activities cannot be supported by already existing industries. As a result, most of the industrial establishments in existence or planned are either assembly establishments or, otherwise, are engaged in simple processing of an imported raw material. Under these circumstances the foreign exchange Itsaving" resulting from the ex- pansion of the industrial sector is probably small. Exchange of manu- factured goods with neighboring countries has yet to emerge, although econoric integration in West Africa is slowly receiving more attention from the Governments concerned. 9-

II. RECENT PERFORMNCVE IN THE METARY STCTORS

25. It follows from the discussion of Section I above that the indexes of economic change conventionally used have limited - or rather a special - significance in an economy such as that of Sierra Leone. One reason, of course, is that indicators of price changes, unemploy- ment, export and import levels, money and credit and balance of payments conditions refer to sectors which comprise, even in the aggregate, a relatively small proportion of the total population. Changes in such indexes do not reflect, then, in the same measure in which they do in advanced countries, changes in "general economic conditions" and even less so changes in real income and living standards. But the subsis- tence sector can be assumed to be rather static and in the following discussion of developments in the purely monetary sector it must be born in mind that they do not appreciably affect the majority of the popula- tion. It should be remembered, however, that income in the monetary sector may be transmitted to some degree to the subsistence sector t1:rough migrant labor remittances.

A. Growth and Investment

26. Official national accounts have only been compiled for three years (1963/6)4 - 1965/66). They suggest average GDP growth rates of 10% in current and 5.8% in constant prices between 1963/64 and 1965/66. However, the real growth may even have been lower considering the fact that money supply during that period increased on the average by only 4.-5,, despite price increases, and the possibility that changes in agri- cultural output have not been substantially greater than population growth. Interestingly, almost the entire increase of money supply was in quasi-money which coincides with the sharp upturn of alluvial dia- mond production in 1964. It may well be that a substantial part of revenue from diamonds is deposited in time and savings accounts, at least by dealers. !ational accounts confirm that mining has been the major source of in Sierra Leone. Though total food im- ports may have increased in line with population growth, data on recent rice imports indicate that rice production may have grown somewhat more raoidly. This would coincide with the decline of alluvial diamond pro- duction after 196) which suggests that diggers may be finding their way back to the farms once their plots have been exploited and attractive new ones are not available. 71ational accounts were not prepared after 1965/66. But judging again from money supply, the economy may have grown by 2.5 - 3.5% in 1967 which would reflect the slack of economic activity in that year following the Government's stabilization effort. There are indications that the econoMy recovered rather swiftly later in that year and in early 1968. A growth rate in the range of 3 - )4" may well reflect the potential of the econony at this stage. Ultimately it will hinge on the success with efforts to develop agriculture. - 10 -

27. National accounts suggest an increase in the investment ratio from 10 to 15.3% between 1963/64 and 1965/66. Even though these data must be interpreted with caution, the trend would properly reflect a steep increase in mining and public sector investments. During that period the bauxite mine was opened up and equipment for the rutile mine was arriving. Investment in the latter is estimated at Le 16 million which, when compared with total gross fixed investment of Le 24.6 million in 1963/64, points again to the crucial role of foreign-operated mining. Completion of these mines will inevitably reverse the sharp increase of the investment ratio. Other private investments are assessed on the evi- dence of imports and construction permits, which neglects investments in agriculture such as hut building and land clearance. There is no evidence that private investment other than in mining had a major impact on economic growth in that period.

28. Series on public sector investments cover longer periods and depict the magnitude of the investment effort that was launched after in- dependence. Relevant data from Tables 23 and 24 are summarized below (in Le million):

Table A 1961/62 62/63 63/6 64/65 65/66 66/67 6/68

Savings 2.5 3.9 8.1 6.5 8.2 11.0 11.h

Public Corporations - .6 .5 .4 .6 1.9 1.4 3.1 Central Government 3.1 3.4 7.7 5.9 6.3 9.6 8.3

Investments 7.7 8.4 10.4, 12.1 16.5 21.4 13.8

Public Corporations .1 1.7 2.9 4.3 5.6 8.8 4.8 Central aovernment 7.6 6.7 7.5 7.8 10.9 12.6 9.0

Public Sector 5.2 4.5 2.3 5.6 8.3 10.4 2.h Resource Gap

29. Within five years public sector investments almost trippled with public corporations and the Central Government sharing in the expan- sion. Unfortunately, the growth impact of these investments was and will not be commensurate with their magnitude. The Central Government placed heavy emphasis on infrastructure investments and, to a lesser extent, on public buildings. As a result Sierra Leone has a modern airport and will have a modern port with a capacity that exceeds the needs of the country. Roads were built of which at least one is of dubious priority. Reliance on suppliers and contractors for project selection and execution further distorted the relationship between cost and economic benefits and con- tributed to the rather incoherent pattern of public investments during that period. Investment in agriculture was largely left to the Sierra Leone Produce _,arketing Board (SLP3). It is generally accepted that the impact of the Board's ambitious plantation program was negligible. - 11 -

Out of 16 plantations and several nurseries for a variety of crops such as oil palm, cocon2ts, citrus fruits, rubber, coffee, cocoa and cashew nuts, only a few appear to be salvageable among w-hich is an oil palm nursery at Gambia which is planned to become the nucleus of a 10,000 acre oil palm plantation. In contrast, investments in electricity and water supply were well planned and executed by two public corporations. In general, public sector investments tended to be most successful in infrastructure but largely failed in agriculture.

30. Although public sector savings increased remarkably, they did not generate sufficient resources to support the upsurge of invest- ments, so that considerable external borrowing and domestic credit expan- sion were required to finance the development programs. Similarly, in- vestments in mines were financed from abroad. As a result, domestic savings covered a decreasing share of capital formation. During the period 1963/64 - 1965/66 the domestic savings rate increased from 10.11 to 11.4% which was then sufficient to support 74% of gross investment compared with 95% in 1963/64. The means chosen to bridge this resource gap, especially after 1964/65 when investments were increased by 33% for two years in a row, finally culminated in a serious disequilibrium of both domestic and external finances and led the Government to request in mid-1966 an IHF standby arrangement with supporting stabilization mea- sures.

B. Balance of Payments

31. In 1938 Sierra Leone's exports were at a level of Le 4.3 million. From this low level they rose steadily to Le 32,8 million in 1959 - an increase representing a compound annual rate of 10%. In the 196 0rs Sierra Leone, due to an expansion in diamond mining, reached an export plateau of Le 50-60 million, when the diamond boom reached its peak. Out of total exports in 1960 (Le 51.9 million) diamonds accounted for 63%, other minerals for 16% and agricultural and other products for 21%. This pattern largely prevailed through 1966.

32. Since 1964 there has been a tendency for exports to fall, mainly because of a decline in alluvial diamond digging. In 1967 exports were down to Le 45.4 million. There are no structural reasons to account for this sharp drop, but rather temporary developments. First of all, sales of alluvial diamonds to the Government Diamond Office were depressed due to the fiscal measures mentioned above. 1/ Secondly, a sharp drop in agricultural exports from Le 10.9 million in 1966 to Le 3.6 million con- tributed to the unsatisfactoyy export performance in 1967. Reductions in export value were solely due to lower quantities. Price fluctuations had little inmact on exports and if anything were in favor of Sierra Leone like in the case of cocoa and palm. kernels. Reduced quantities reflect the near collapse in mid-1967 of the SLP-B which has the export monopoly for the most important agricultural products.

1/ See paragraph 19. - 12 -

33. As will be seen later, the Board's ambitious investment pro- gram not only rapidly absorbed its accumulated price stabilization fund as well as current surpluses, but eventually cut into working capital needed to purchase produce. Towards the end of 1966 it exhausted credit facilities with commercial banks as well as a Government loan of Le 1 million made in that year. Eventually the Board was unable to pay the licensed buying agents for produce delivered to the Board. By June 1967 arrears had reached Le 1.1 million and, not surprisingly, agents became increasingly reluctant to sell to the Board. Instead they either hoarded or exported themselves, chiefly to Liberia. Reasons for the drop of both diamond and agricultural exports have been remedied in the meantime and initial returns for 1968 show that exports are recovering. Moreover, with the rutile mine beginning to operate after some technical difficul- ties in 1967, exports should be strengthened further.

34. The rise in export values was accompanied by a very rapid increase in imports. Over the past 15 years, the trade balance of Sierra Leone has been positive in only two years (Table 16). Complete state- ments of the balance of payments exist for only four years - 1963/66 - with some preliminary data for 1967. These statements, even though cover- ing only a limited period, indicate that trade deficits tend to be asso- ciated with periods of heavy foreign investment as reflected in fluctua- tions of private capital inflow on capital account. Also the composition of imports as shown in Table 7 points in the same direction. Therefore, changes of reserves are a better indicator of Sierra Leone's imbalance with the rest of the world. As may be seen from Table 10, loss of foreign exchange reserves began on a substantial scale in 1962 and continued through 1967, practically without interruption. During that period net foreign assets dropped from Le 26 million to Le 9.1 million, or the equivalent of one and a half months of imports. This loss, as will be seen, can largely be ascribed to the credit expansion which took place during this period.

35. In conclusion, the major threat to balance of payment stabil- ity stems from domestic credit expansion. With prudent monetary policy foreign exchange flows should remain in balance. Alluvial diamonds en- tail an element of instability in exports but then the level of imports has so far varied correspondingly which should be expected in an economy where the production for exports is the primary source of monetary in- come and hence of demand for imports. External resources generated by exports flow out quickly either as remittances of mining companies or as imports. At the present state of Sierra Leonets development, domestic supply is basically inelastic and cannot fully satisfy the kind of demand generated by income from buoyant exports. The export growth of the last decade has thus created an open economy with practically no foreign ex- change restrictions and a lively market for imported goods. But judging from the present state of development in agriculture and manufacturing, not very much of this primary export inccme has spilled over into demand for their output. Thus export growth has generated balanced economic growth only to a limited extent. It seems the responsibility for diver- sifying the structure of output lies largely with the Government which, in attempting to do so, will have to mobilize financing for public - 13 - investments in a way consistent with a liberal foreign exchange regime which is necessary to support the important private mining sector.

C. Public Sector Finances

36. Sierra Leone's public sector consists of the Central Govern- ment including Posts and Telecommunications which are still operated as a Government department; the local governments and eleven public corpor- ations 1/, most of which were vested in 1.964 and 1965. The R3ai-way, though formally a Government department, publishes separate annual esti- mates and only appears with its net deficit in the Central Government budget. In the following discussion it is treated as a public corpora- tion. Grants from the Central to local governments have been construed as the overall deficit of the latter. Investments by local governments have been neglected since they are estimated at only Le 0.5-0.7 million annually. In addition, there are a few joint ventures such as the cement factory and Sierra Leone Airways which are treated as part of the private sector.

Central Government

37. Since independence the Central Government has made remarkably successful efforts to increase savings. Current receipts were increased by an average annual rate of 7% between 1961/62 and 1966/67. If receipts of five Government departments, which were converted into separate auto- noious corporations in 1965, are excluded the average annual growth rate was as high as 10.2,. Expansion of current expenditure was kept to an average rate of 5% which is comendable for a newly independent country assuming new functions and responsibilities.

Central Government Finance MLe i olli F

Compound Annual Growth Rate 1961/62 64/65 65/66 66/67 61/62 - 66/67

Current receipts 27.1 35.0 33.8 38.0 7.0 Current expenditure 24.8 31.1 29.7 31.6 5.0 3urrent surplus 2.3 3.9 7.1 -6. Debt service 2.0 4.5 4.9 6.5 26.0 SuLrplus (+), Deficit (-) for development + .3 - .6 -- .8 - . Development expenditure 7.6 7.8 10.9 12.6 10.6 Overall deficit 7.3 . 11.7 12.7

1/ They are listed in Table 24. - 14 -

Resulting savings, however, were insufficient to finance development expenditure and the Central Government eventually faced fiscal diffi- culties because of methods chosen to finance the resulting deficit. Bank borrowing of Le 2.4 million was required as early as 1961/62 and medium.- term suppliers' and contractors' finance became a standard feature of development finance. As a result, the mounting debt burden largely ab- sorbed savings and left only a small surplus for development despite satisfactory performance on current account. Government finances deteri- orated seriously from 1965/66 on when development expenditures were in- creased ambitiously again with increased recourse to suppliers' credits and bank borrowing. Realistic budgeting was virtually abandoned in 1966/67. In that year the budget showed an uncovered deficit of Le 19.3 million mainly on account of a development budget which bore little rela- tionship to available resources. Under a stabilization program introduced in September 1966 with IiF guidance, more realistic estimates were worked out in the course of the year but the actual deficit still reached a record level Le 12.7 million. Only the availability of counterpart funds from the I.F drawing could prevent massive recourse to bank borrowing in that year. Despite bank borrowing as an important element of development finance, credit expansion did not result in excessive price rises. The consumer price index for Freetown rose by 27.7 points between 1960 and 1967 and even less up country. Instead, as should be expected in an open economy, excess demand manifested itself in an expansion of imports and a reduction of foreign assets to a level so precarious as to necessitate IIF standby assistance in late 1966.

38. Growth of revenue was brought about by successive increases in import duties. In 1967 they came to 27% of total imports compared with 17% in 1961.

Percentage Distribution of Revenue a/

1961/62 1966/67

Import duties 40.9 ) Export duties 5.7 ) 64.2 Excise duties - ) Direct taxes on companies 17.6 17.1 on individuals 4.1 3.9 Other revenue 31.7 14.8

a/ Cf. Table 20 for details.

Total duties accounted for 64.2% of revenue in 1966/67, as against 46.6% in 1961/62. In contrast the contribution from direct taxes on companies including mines grew at the same rate as total revenue, i.e., by 7% per annum. However, the Government has entered into a series of negotiations aimed at modifying concession agreements with mining companies. Most - 15 - recently it has asked the bauxite and rutile companies to agree to amend- ments in their tax privileges. It is to be hoped that it will succeed in achieving its fiscal objectives without jeopardizing Abe conditiohs which in the past have been conducive to foreign investment.

39. A summary of Central Government finances is shown in Table 23. Overall budget deficits increased from Le 7.3 million in 1961/62 to Le 12.7 million in 1966/67. Towards these deficits long-term loans and grants of about Le 3 million annually were obtained. Yain sources were the and , with a great number of charitable organizations providing grants for health and education purposes. In contrast, suppliers' and contractors' credits were contracted on an increasing scale and,the resulting debt burden is bound to weigh heavily on the budget through the next five years even though the Government is trying to realize the production potential of some of the projects financed in this manner. As usual with this financing, there is only a short period between disbursements and repayments, and significant supplemental re- sources are obtained in this way over the medium term only by signing more and more contracts. Fortunately for Sierra Leone this spiral was interrupted before the debt burden reached unmanageable proportions. The Government meanwhile committed itself to abstain from further medium- term financing. However, there has also been a recourse to bank credit for financing the deficit. On the average from 1961/62 to 1966/67 bank borrowing financed 23% of the annual deficits. Such borrowing, which occurred on an almost constant annual level, brouTht about a considerable net expansion in credit. Under the 1967/68 stabilization program credit to the Government was effectively curbed.

Public Corporations

4O. The deterioration of Central Government Finances between 1961/62 and 1966/67 was paralleled by a similar development among public corporations as a group. As shown in Table 24, these corporations in the aggregate were not financially self-sufficient during the period. They enjoyed subsidies from the Central Government resources and resorted to external and domestic credit to finance their deficits. However, there were important differences in the individual performance of these corpor- ations.

41. The Sierra Leone Electricity Corporation, The Forest Industries Corporation and the Gura Valley T!ater Company are well managed and operate at a profit. The Railway's deficits, on the other hand, have been very large and the enterprise is basically inefficient and economically unjus- tified. Its narrow gauge (2 ft. 6 in.), steep gradients, and tortuous alignment result in low capacity and speeds; consequently it has been losing traffic to roads; and with improvements of Sierra Leone's highway system, this trend is certain to continue. Following a recommendation of a UIP-financed transport survey, the Government has decided to phase it out. The only remaining question is now the timing of the closure so that a maximum of surplus labor can be absorbed into new investment activities contemplated by the Government. Consultants are presently providing assistance to this end. Disappearance of the Railwayrs annual - 16 - subsidy of Le 1.0-1.2 million will have a most favorable impact on the finances of the public sector.

42. The Sierra Leone Produce Marketing Board was set up in 1949 to purchase and export agricultural commodities (palm kernels, cocoa, coffee, and piassava) and to administer a price stabilization fund. Since the fiscal year 1963/64 only rudimentary records of its financial operations are available. As of June 1967 accumulated net liabilities amount to Le 3.5 million. The fiscal year 1963/64 had ended with prac- tically no debt and a price stabilization fund of about Le 4 million, which was exhausted by 1967. There is no indication that during that period the Board made an overall loss on its marketing activities even though individual minor crops, such as ginger and benniseed, were heavily subsidized. From very incomplete records it can be estimated that between July 1964 and May 1967 the Board used about Le 10.5 million for non- marketing purposes. Indications are that most of it was invested in the Boardts ambitious plantation program and Consultant's services.

43. Another public corporation which is presently attracting Government's attention is the Rice Corporation. Originally set up as a monopoly to cover the annual rice deficit with imports and thus to sta- bilize the price of the countryts most important staple food, it diver- sified into mechanical plowing services for rice farmers and also buys domestic paddy for processing in its four rice mills. Here it competes with private rice dealers and since it is forced by Government to sell milled rice at a controlled price which is lower than the market price it cannot purchase paddy at competitive prices. As a result it has al- most been pushed out of the market for domestic rice. In the last years the amount of domestic rice handled by the Corporation has been declin- in!'g drastically - down to about 3,000 tons of milled rice in 1966/67. Not surprisingly the Rice Corporation had to subsidize the operation of its mills. In addition the Corporation was losing Le 200,000 a year on a mechanization scheme. These losses, however, were offset by profits on imported rice and the Corporation was able to transfer Le 0.5 million to the Central Government in 1967/68. In other years it more or less broke even.

D. Money Supply and Do.mestic Credit

44. As indicated in the previous section the Central Government during the period 1961-67 was forced to resort to domestic bank credit to finance development expenditures. Public corporations also used bank credit, particularly in recent years. Banking statistics (Table 25) show that net credit outstanding to the public sector remained stable at the level of about Le 4.0 million until the end of 1965 - expanding to Le 7.65 million by the end of 1966 and declining slightly during 1967. During the same period net credit to the private sector expanded rapidly - from Le 5.46 million in 1960 to Le 15.58 million in 1966; as in the case of the public sector a small decline occurred in 1967. - 17 -

45. The expansion of credit referred to above had vexy little impact on the level of money supply - which over the period rose at an average compound rate of approximately 2-1/2% per year. Also it hardly affected domestic prices. The Freetown coasumer price index (Table 26) shows that price rises over the past ten years averaged less than 3% per year. This credit expansion did, however, affect the balance of payments. The foreign reserves of Sierra Leone have been declining con- sistently since at least 1955. The fact that these foreign exchange losses occurred during a period when money supply and domestic prices remained comparatively stable indicates that in an economy with the structural characteristics of those of Sierra Leone credit expansion has a rather direct influence on the demand for imports.

E. The 1967/68 Stabilization Effort

46. The 1966/67 budget which, as passed by Parliament in mid-1966, sho7wed an uncovered deficit of Le 19.3 killion, finally alerted the Govern- ment to the need to im-orove its finances. The downward trend of foreign reserves had reached such alarming proportions that further credit expan- sion threatened the Central Bank's ability to meet the statutory currency cover requirements. In addition, the S[PMIB was headed for serious finan- cial difficulties and had to turn to the Government for a loan. In Sep- tember 1966, the Government approached the IF for assistance. The subsequent standby arrangement provided for drawings totalling $7.5 million and the use of the counterpart funds for budgetary support. It was accompanied by an economic stabilization program. However, the Government found it difficult to implement austerity measures since it was facing elections in March 1967, and claimed that only thereafter could it think of implementing the progra.,;i. In the wake of the elections, the army and police took over the Government of Sierra Leone. It was then that the stabilization program was implemented.

47. The new Government's first budget for 1967/68 provided for an overall deficit of Le 8.4 million or Le 2.7 million after external finan- cing. This compared with Le 12.7 million and Le 4.9 million respectively in the preceding fiscal year. In the course of the year, however, the revenue forecast proved too optimistic. Instead of Le 41.7 only Le 37.9 million or 9.1% less were collected. The unexpectedly sharp drop in imports as well as lower returns from export duties both on diamonds and agricultural exports accounted for the low level of revenue. Its impact could be mitigated to some extent by holding both current and development exoenditure below the budgeted level. In effect, current expenditures were kept on the 1966/67 level and development expenditures reduced by 29,. But the overall deficit was still Le 2 million higher than envisaged in the budget. The higher deficit was, however, more than offset by the sale of treasury bills outside the banking system, the special levy of Le 200,000 on diamond merchants, and unexpected receipts of Le 1.1 million from public corporations. In the case of the latter, favorable world market prices for Sierra Leone's agricultural exports provided some windfall benefits. With their help, bank borrowing disappeared in 1967/68- - 18 -

48. Equally important was the restoration of the financial viability of the SLP1B. In June 1967, arrangements were made which enabled the Board both to clear its arrears and resume current payments. Moreover, as part of the measures to put the Board on a sound financial footing, producer prices for palm kernels, coffee and cocoa were reduced by an average of 23%. Undoubtedly this had adverse effects on sales to the 3oard. Realizing this and encouraged by firm world market prices, the Board increased its producer prices in November and again in Decem- ber, after the devaluation of the Leone and in time for the new buying season for cocoa and coffee. As a disincentive to smuggling, the producer price for palm kernels, the mainstay of the Board's business, was raised further in July 1968. These price changes are summarized in the table below:

SLPIB Producer Prices (Le per ton)

Palm kernels Coffee Cocoa (Grade I) Piassava

1966/67 63.6 268.8 268.8 84.0 1967/68 (June) 46.0 224.0 200.0 84.0 (Nov.) 54.2 224.0 224.0 84.0 (Dec.) 61.4 291.2 257.6 92.4 1968/69 (July) 65.4 291.2 257.6 92.5

49. These successive price increases had the desired impact. Although the quality of some produce was affected by prolonged storage, the Board exported an estimated Le 7.7 million worth of palm kernels, cocoa and coffee during its fiscal year 1967/68. Improvements of the Board's finances are further evidenced by a transfer of Le 0.5 million to the Government in that year. Palm kernel exports reached 30,000 tons again, compared with 11,000 tons plus 4,400 of palm kernel oil in calen- dar 1967. The Board's palm kernel oil mill was closed in the meantime. At prevailing producer prices exports in 1968/69 are expected to reach Le 9.8 million again for the three commodities. With the exception of palm kernels, average eaport levels of previous years would then again be nearly attained. Palm kernel exports are expected to reach 42,500 tons in 1968/69, compared with a 1961-1965 average of 50,000 tons.

50. In the process of rehabilitating the Board, about 3,000 plan- tation workers were dismissed. This, as well as fiscal austerity, created unemployment and depressed the economy in 1967. In addition, for reasons mentioned elsewhere in this report, both exports of produce and diamonds dropped appreciably, which further added to the slack of economic activity, even though increased smuggling presumably helped to maintain the income levels of the population producing for exports. Inevitably the unemploy- ment situation concerned the authorities, especially since they had just assumed power. It appears, however, that the traditionally close links with their families in the villages helped the unemployed to find their way back into subsistence sectors of the economy. Unemployment in the cities, however, is more serious and indeed it reached a peak in September - 19 -

1967. It has dropped steadily since as economic activity picked up momentum.

51. In line with earlier observations about the interrelation- between cash generation through exports and the level of imports, the trade deficit in 1967 increased only slightly. It nevertheless caused net foreign assets of the banking system (excluding drawings on the IHF - cf. Table 25) to decrease through the third quarter of 1967. By then they had reached a level of US$104. million, or one and a half months' imports. From this low level, reserves have recovered since. By the end of Arch 1968 foreign assets of the banking system had reached US$13.6 million again and the increase continued through June. Even though the increase in the first half of this year is to some extent seasonal due to a concen- tration of agricultural exports, the recovery reflects a genuine improve- ment of Sierra Leone's balance of payments situation. As mentioned earlier, restoration of confidence in the SLPMB combined with higher producer prices inproved agricultral exports. Furthermore, Sierra Leone was among the countries that devalued by 14.3% in the wake of the sterling devaluation, which had favorable effects on the mines, particularly on the iron mine with its substantial sales outside the sterling area. in 1968 it has so far been producing at a rate of 2.75 million tons a year, compared with 2.1 million tons in 1967. Also, the reduction in the diamond export duty to 7.5% encouraged exports through official channels. Altogether,- economic activity recovered towards the end of 1967. Comerce revived and credit to the private sector increased modestly. Thus, Sierra Leone's stabilization program appeared to have been effective.

52. In April 1968, the Government of Sierra Leone changed again. The military regime was deposed and the party which had won the M--arch 1967 elections formed a new Government by constitutional process. Par- liament was reopened in June and the presentation of the 1968/69 budget was one of the first items on its agenda. It proposes a modest increase in current expenditures which will be more than offset by a 10% increase in revenue. This increase would not only reflect higher exports and imports as well as the general recovery of economic activity, but also increased taxation of mining companies. The expected revenue, even if it turned out to be somewhat optimistic again as in the previous year, would still result in a further reduction of the deficit, and would also accommodate higher development expenditures. A ceiling of Le 1 million on bank borrowing was agreed upon with the 1U!F. In view of the improved foreign reserve position and in order to maintain the pace of recovery from the 1967 depression, it was felt that a modest credit expansion was preferable to further cuts in expenditures. - 20 '-

Central Government Finance

1966/67 1967/68 1968/69 actual revised budget estimate

Current expenditure 31.6 31.5 32.3 Debt service 6.5 7.8 8.5 Development expenditure 12.6 9.0 lo.5

Total 50.7 48.3 51.3

Current receipts 38.0 37.9 41.7 External financing 7.8 5.7 7.7

Deficit 4.9 4.7 1.9

Financed by: Bank borrowing 2.6 - 1.0 IMF 3.8 1.0 - Other domestic sources -1.5 3.7 0.9

53. The budget and supporting statementsby fiscal authorities augur well for continued fiscal discipline, which will be crucial to avoid the danger of another imbalance of external finances. This is most important because a diamond producing country can hardly afford foreign exchange control. A third standby arrangement with the IMF was requested in late 1968 in support of continued stabilization efforts. Also the new Govern- ment reconfirmed an earlier decision by the military Government to avoid further suppliers' and contractors' credits which should help to stabilize both external and Central Government finances. With a sound fiscal pro- gram and financial improvements in public corporations, of which the re- habilitation of the SLPMB and the closure of the Railway are the most important elements, Sierra Leone should be able to embark on a develop- ment effort which, if grouped around projects suitable for long-term external borrowing, would preclude the unsatisfactory financial conse- quences that characterized the past. - 21 -

III. ECONO,I0 PROSPECTS

A. The Future Direction of Sierra Leone's Development Effort

54. Sierra Leone's development effort should emphasize agricultiure. In the past, economic growth has largely taken place in enclaves, creating an illusion of relative wealth when measured statistically in terms of per capita income. Important as the mining industry is as a source of foreign exchange and Government revenue, it has left the economy's agricultural sector largely unaffected. If economic development is to raise the standard of living of the people, it must reach the 70-80% of the population now living on a subsistence basis with only margiial cash incomea3 It must counter the deep-rooted opinion that economic development takes place in the cities or the "modern" sectors and that individual advancement can best be achieved there. The task, therefore, is to guide the agricultural sector into the cash economy by helping the farmers to produce more, and ensuring markets for what they are able to produce in excess of their personal needs.

55. The agricultural sector, in the first place, should focus on achieving self-sufficiency in foodstuffs that can be grown in Sierra Leone. Rice, which is Sierra Leone's major staple food, clearly is the primary target. At present, a 10% increase in rice production would be sufficient to cover Sierra Leone's needs and save about $2.5 million worth of imports. Moreover, Sierra Leone has the potential to produce rice. Her numerous in- land swamps and river valleys and estuaries offer good prospects for rice development and scope for decreasing reliance on low-yielding upland varie- ties. These areas do not suffer from poor soils and erosion. In the second place, export crops should be advanced and, from this point of view, rice again offers good prospects. Competition with Asian rice on the world market will be difficult in the foreseeable future because of low quality and high production costs. But, with West Africa as a whole being a rice deficit area, there should be good scope for trade with neighboring count,ries The obvious attraction of a forceful campaign for increased rice production lies in this export potential. For rice, unlike most other domestic fcod crops, the absorptive capacity of the Sierra Leonean market is not a limiting factor. Other suitable export crops are cocoa, palm oil and, with certain limitations, coffee,__/

-2 The controlled price for imported rice in Liberia, for instance, is presently $240.80 per long ton in coastal areas and up to $265 on the black market. Up country domestic rice is traded at around $180. The market price in Sierra Leone is presently about $200, with imported rice selling below this price. There is a distinct consumer preference for domestic rice. The landed price for low quality Burma rice in Freetown has recently increased to about $140 compared with $120 in 1966.

.2/ See paragraph 91. - 22 -

56. Ranking third are other crops for domestic consumption, with some emphasis on broadening rather than increasing supply. Cities and eventually rural areas themselves provide potential growing markets for vegetables, fruit, fish and meat; but the slow growth of disposable income will limit their expansion. It would be dangerous to encourage production of commodities where surpluses would depress prices and thus frustrate the farmers' cautious ventures into cash production. Initially, it would appear to be the best approach to leave the market for such produce to itself in the hope that a better road system will speed transportation, reduce its costs and thus improve the flow of produce to the major markets. Given the lack of basic information, there is little scope for effective Government influence and it would be well advised at present to rely on the private traders to serve both the markets and the farmers most flexibly.

57. This leads to the certainly most difficult question of how increased production can be achieved or, in different words, how the Government can bring about agricultural development, recognizing the fact that at Sierra Leone's stage of development price incentives alone will not bring about the desired changes. To bring about such a change, the message of progress will somehow have to be brought to the 250,000 farm holders in Sierra Leone. Or, alternatively, large scale plantation development can be sponsored especially for perennial crops, thus omitting several stages of agricultural development and converting subsistence farmers into paid laborers. In Sierra Leone, a blend of both approaches would appear to be the best strategy. Reliance on the latter would just create additional enclaves, this time in agriculture, leaving again the majority of farmers on their present level of economic activity. Increased small holder production of an export crop like rice will contribute more than any kind of concentrated plantation activity to bring cash income to

the rural population and gradually incorporate them into the monetary aotor of the economy. Forgoing plantation development, on the other band, would exclude the opportunity to achieve a sizeable and relatively quick impact on exports. In addition, the demonstration of modern plantation management may have educational effects and eventually help to disseminate expertise in modern farming techniques.

58. This leaves the question of how to reach the mass of farmers and encourage them to increase production. Routinely, the answer would be to strengthen the extension service. Sierra Leone's establishment provides for 21 Agricultural Officers and 121 Agricultural Instructors of various grades. Out of these posts, 6 and 83 respectively are filled at present. There are, therefore, 42,000 farms per agricultural officer and 3,000 per instructor. Not much impact should be expected from an extension service as thinly spread as this. There are hopes to increase their number with graduates from the new agricultural college at Njala. But given the exper- ience with extension services in other countries, it is worth considering whether this would be the most effective approach to agricultural develop- ment. Lack of incentives as members of the civil service, unreliable supply of transport and implements due to logistic inefficiencies and the reliance on persuasion as sole leverage on the farmers may all contribute one way or another to unimpressive achievements of extension services. Traders operatin - 23 - in the villages who provide credit in kind from their stores and are pledged a share of the farmerrs crop in return operate quite successfully because they do provide the necessary marketing and credit even though, perhaps, on onerous terms. Perhaps they provide a suitable model for a corporate extension service, which would embrace credit, seed and fertilizer distri- bution, guaranteed prices and markets as well as storage and haulage of pro- duce out of the village. Such companies operate quite successfully in French-speaking African countries. Clearly they would have to concentrate on one crop and initially on selected areas. But with their integration of essenial functions, they are better able to gain the farmer's confi- dence I/than the present division of labor where mechanical plowing is done by one agency, extension service by another and marketing by private traders. Guaranteed purchasing prices, which exist for paddy, do not help when the farmers have no means to transport their crops to the few Government rice mills, two of which happen to be located in the capital.

59. The expansion of rice cultivation, for instance, requires con- siderable organization and management. Opportunities for expanding rice production do exist on the so-called grassland areas, including the annually deep-flooding plains of the South and the bolilands in the interior. How- ever, action is needed to determine what areas can best be developed in the light not only of ecological considerations, but also of socio-demographic factors and of transport problems. The most appropriate and economic methods of land preparation must be determined, and the supply of production requisites, extension advice,as well as the provision of marketing facilities, must be organized. Necessary research on some varieties and problems of crop husban- dry will probably also need to be insured. An integral approach to all these related problems can probably best be secured through an autonomous agency or corporation.

60. If this approach is plausible, effective management for such agencies or corporations must be found. Regardless of whether they are envisaged as private or public entities the-task of institution building is the same. Given Sierra Leone's level of development, indigenous managerial talent has as yet to emerge on a substantial scale. Against this background, the educational aspect of efficient organization and administration must weigh heavily and temporary assistance from outside should be seen in this light. Whether promotion of agricultural development is entrusted to such companies or an extension service does not make a fundamental difference as far as the managerial task is concerned. Either way institution building will be an essential element of Sierra Leones future development effort and assistance will be required in this field as well as in finance.

61. Another avenue to agricultural development is to encourage cooperatives. As it happens, considerable work has been done in Sierra Leone and as a result there are presently more than 900 cooperatives for .arious purposes. The bulk of them are "Thrift and Credit Societies" which

-. / The Aureol Tobacco Company offers a good example. It maintains a very successful extension service which guides farmers in growing tobacco for use in its factory. - 24 - qualify for credit from the Government (disbursed by commercial banks with Government guarantee)., Presently Leh0,000 are outstanding on such credits and there is ample evidence that the money was largely used for consumption. Again the problem is not so much to organize cooperatives but to use them effectively or rather help them to be effective. There appear to be many illusions about how effective cooperatives can be. Their basic idea ob- viously is to benefit from the economies of scale in marketing, production or purchasing. But to handle these functions on a large scale generates managerial problems. It appears to be an erroneous assumption that the relative ignorance of ten farmers when pooled in a cooperative will yield a modest measure of wisdom. Rather the advantage of cooperatives would be to create a body which can be more easily reached by whatever source of wisdom exists, be it an extension service, a commercial marketing organiza- tion, or a distributor of implements, fertilizers, seed, etc. It follows that the creation of cooperatives is not a solution of problems but rather a prerequisite. The problem of the most effective way of reaching farmers either individually or as a group still remains. The more frequently they are reached the more effective will be the guidance and enforcement of new techniques. Consequently the most effective way of utilizing cooperatives would be to assist in their staffing. Thus the managerial problems of bigger units could be solved professionally and the transition from subsis- tence or petty cash farming to producing units may be accelerated. But this approach will again encounter staffing problems.

62. With agricultural credit the situation is much the same. The problem is not how to get credit to the rural areas. The Ministry of Agri- culture has demonstrated that this can be done. In addition to credit for cooperatives, an agricultural loan and credit scheme was introduced in 1961 under which extension officers can recommend individual farmers for credit. Success of this scheme has yet to be demonstrated. The feasibility of indi- vidual credits is seldom carefully established. Favoritism may play a role and,in the absence of control over the proceeds of marketing,collection tends to be very difficult. As a result, agricultural credits are largely quasi- gifts. Clearly farmers are in need of advice on how to use credit productively. Unless the idea of credit is disseminated together with the money, little im- pact should be expected.

63. These are a few key areas in which a fresh approach is required to implement a development strategy which gives priority to agriculture. In sumnary, the preparation of projects which lead to plantation development will have to be pursued as forcefully as the build-up of institutions that will eventually reach the mass of farmers. Developments of other sectors should then be subordinated to this primary objective. In the first place, rural living has to be made more attractive. Rural water supply, preventive medical services and an education system with emphasis on primary and tech- nical, notably agricultural, education would work towards this end. Regarding ater supply, it should be possible to design simple and inexpensive systems to bring water from the nearest streams into the village and purify it. How- ever, these systems tend to be too expensive unless they are built with local labor and mostly local materials. Again extension work could be organized -o as to mobilize the villager to undertake the necessary effort under proper supervision. The investment would not be large and the impact of such systems - 25 on the health and living standards of the rural population would be enormous, In the case of health and education, budgetary constraints will limit expan- sions with induced recurrent expenditure. But it would appear that Sierra Leone's education system, in particular, offers scope for structural changes that would not necessarily increase expenses. There is a bias in favor of higher education in Sierra Leone which, though understandable from the view- point of an emerging nation, is inconsistent with the development strategy outlined above. In most general terms, such a strategy implies that the Central Government spends less money in the capital and more up-country. It also implies that the countryside should be made more accessible by improve- ments of the existing road system. The economies of road improvements at the present stage of Sierra Leone's development will be outlined below.

B. A Projection of Central Government Development Expenditure

64. Public sector investments over the 5-year period 1968/69-1972/73 are not only determined by what is desirable but also by what is feasible. In Sierra Leone both are not identical. Feasibility depends on the status of project and program preparation as well as on the capacity of various public sector bodies to implement investment decisions. This institutional capacity is extremely uneven in Sierra Leone. As it happens, project and program preparation in agriculture is in a comparatively early stage. An oil palm project may materialize in 1969/70, but considerably more and time- consuming work will be required to finalize rice, livestock and cocoa projects presently under consideration. Plans to enhance the effectiveness of the extension service or to create an agricultural development corporation with a wider range of functions are practically non-existent. Similarly, there are no concrete plans to improve agricultural credit or cooperatives. In contrast, a number of infrastructure projects are well advanced. Following the UNDP financed transport survey, alignment selection and preliminary engineering for four roads is completed and final engineering for two of them isin progress. Construction of these roads, requiring an investment of about Le 20 million can start during the next five years. Similar3y, a project to improve primary and secondary education is in an advanced stage of preparation. The Electricity Corporation is presently implementing, with external assistance, an expansion program for Freetown and the provinces, and should be able to make good use of a further loan by 1971/72. Similarly, the Guma Valley Water Company is negotiating for external finance to expand its facilities in the capital.

65. It follows that infrastructure investments will dominate the Government's investment program during the next five years. Only towards the end of the period agricultural investments will increase their share of development expenditure. This does not imply that Sierra Leone faces an inferior investment program. The proposed road construction program could sur stantially reduce transport cost as manifested in economic rates of return ranging between 19 and 23%, which points at good rivetmEnts by any standards. Other infrastructure projects are eoually justifiable. But the justification of such infr&stucture development rests on the Lssumrption that it will generate in';reased production. It is the reverse of a strategy which focuses first on the development of production and then on the roads necessary, entailing investments to carry additional output economically to market. In the past, - 26 -

investments in infrastructure have dominated development budgeti3. Lurirg the next five years, the Government's investment effort will have to focus not only on the sound implemlentation of projects that are well advanced in terms of engineering and supporting studies, chiefly in transportation, education, electricity and water supply, but also on direct efforts to stimulate agricultural production through an energetic campaign to identify and prepare projects in this field.

66. Table B summarizes the expenditures which, in the opinion of the mission, the Central Government may be able to carry out over the next five years. The table presents data taken from 1968-1969 development budget and a projection of feasible expenditures arrived at by considering a) projects suitable for external borrowing and known to be ready for implementation in the five year period 1968/69 - 1972/73; and b) other development expendi- tures which follow the pattern of earlier years. The aspects relating to the financing of the program are discussed below.

Table B Central Government Development Expenditures, 1968/69 (budget) and Projections to 1972/73 (In millions of Leones) 1968/69 1969/70 1970/71 1971/72 1972/73 v of 5 budg,et Year Total Transport 6.9 -F 3.2 5.5 7 .0 Civil Aviation 00.2 0.2 0.2 0.2 Inland Waterways - - - 0.1 0.1 Roads and Bridges Bo-Kenema 0.6 1.6 1,6 1.2 - Taiama-Bo 0.1 1,2 1.4 1.0 - Freetown-Waterloo 0.2 - - 0.6 1.7 Lunsar-Matotoka 0,2 0.2 1.5 2.0 2.0 Other 0.8 0.8 0.3 0.3 0.3 Railway 0.1 0.1 0.1 - - Port 4.2 1 2 - - - Road Transport (Vehicle)0.1 0.1 0.1 0.1 0.1 Agriculture 0.5 1.5 2.9 3.6 5.2 23.0 Forestry 0.1 0.1 0.1 0.1 0.1 Fisheries - - 0.1 0.3 Agriculture Gambia Oil Palm - 0.6 1.3 1.4 1.1 Rice Plantation - - - - 1.4 Cocoa SmallholderSchem - - 0.7 0.7 0.8 Other o.4 0"8 0.8 1.3 1.5 Electricity 0.1 - - - - Water Supply 0.7 019 0.7 O o.5 6,0 Freetown Water-Supply - 0.2 0.2 0.3 - Provincial Water- Supply 0.7 0.7 0.5 0.5 0.5 Postal & Telecomm. 0.2 0.4 0.4 0.4 0.4 3-1 Education 0.9 1.0 1.3 1.4 1.7 10.6 Improvement of Sec- ondary Education - - 1.,0 1.0 1.3 Other 0.9 1.0 0.3 0.4 0.4 Health 0.4 o.4 o.4 0.4 0.4 Other Dev.Expenditurer 0. '.9 0 9- Total 1W V, L3 i'Y - 27 -

lYansport: Eapenditure for civil aviation in 1968/69 prc-ides for the completion of Lungi Airport; exptnd7ItTFET20,000 annually there after should suffice as in earlier years to undertake necessary improvements of secondary airfields throughout the country. Only minor expenditures were necessary in the past for inland waterways. Proposals as shown in the Table would follow this trend. Expenditure for roads and bridges reflect the Government's intention to embarks with external assistance, on a road development program. Four new roads, for which survey work is being carried out in the current budget year, constitute the core of this pro- gram. Total construction costs are based on Italconsult's preliminary engineering. Construction of the Bo-Kenema and Taiama-Bo roads will com- mence in 1969-70, Lunsar-Matotoka in 1970/71 and Freetown-Waterloo in 1971/72. Delays with the latter may well occur however as the approach to Freetown involves complex decisions regarding the roads alignments in the cityrs outskirts. Proposed expenditures for other roads and bridges provide for necessary improvements throughout the country and follow the magnitudes of earlier years. Le 100,000, annually for the railway-has been assumed to cover the necessary maintenance investment until it is closed down. Heavy investment for the Port of Freetown as shown for 1968/69 and 1969/70 reflect the Government's commitment to a contractorfs credit. Con- struction of the port expansion is presently under way and is expected to be completed by the end of 1969. Investments in vehicles represent fleet renewals for the Government's Road Itansport department. 68. Agriculture: Expenditures earmarked for forestry and fisheries would repeat magnitudes earmarked in earlier years. An increase in develop- ment expenditure for fisheries toward the end of the five-year period will be required to implement recommendations of a survey presently carried out with FAO assistance. Development expenditure for agriculture proper will again be based on three projects which are presently being prepared. Orders of magnitude and phasing as suggested for the Gambia oil palm project follow the present status of investigation. Orders of magnitude for the rice and cocoa smallholder projects are as yet very preliminary. Other agricultural development expenditure again reflects an inescapable layer of investments as suggested by past trends. The increase provided for towards the end of the five-year period would accommodate one or two additional projects which are not yet under preparation, This increase would be consistent with a development strategy calling for emphasis on agriculture.

69. Electricity: Investments are undertaken by the Sierra Leone Electricity Corporation outside the Central Government's budget, with Govern- ment contribution ceasing after 1968/69.

70. Water Supply: Funds earmarked for the Rreetown water suply represent counterpart funds for an externally financed expansion project which the Guma Valley Water Company will implement without being able to contribute enough of its own funds. Expenditure for provincial water supply are higher in the first two years of the period because of comple- tion of a supplier-financed project. Le 500,000 annually in the three years thereafter should accommodate a modest expansion of rural water supply. - 28 -

71. Post and Telecommunications: Investments as shon in the Table would allow te expni- f-present facilities at a rate consistent with institutional capacities as demonstrated by outlays in previous years.

72. Educaticn: Improvement of secondary education and funds suggested therefor again reflect a project which is under preparation. The project may be ready for implementation in 1970/71, Other education expenditures assume that the Government will, as in the past, be able to attract external grants fra a. variety of charitable organizations. Together with development expendi- ture for health, they are the major counter entry for external grants shown on the financing side.

73. Other Development Expenditures: This item includes a variety of small but, in many instances, inescapable obligations of the Government, such as improvements to public buildings, military facilities, road maintenance equipment, broadcasting, etc. This item has been inflated in the past by in- vestments in public buildings financed by contractors. For the total develop- ment program to be consistent with the Government's financing ability, it will be necessary to keep this category to a minimum. Thus, magnitudes suggest- ed in the Table reflect a policy recormendation and not so much a repetition of earlier trends. Th. A summary of the suggested five-year development budget compared with the preceding five-year period, is shown in the table below.

Central Government Development Expenditure (In millions of Leones) 1963/64-1967/68 1968/69-1972/73 actual o budgeted & projected % Transport 20.7 12.9 27.4 L6.0 Agriculture 2.0 4.1 .3..7 23.0 Electricity 2,6 5.8 0.1 - Water Supply 6.3 13.0 3.6 6.0 Education 3.4 7.0 6.3 10.6 Health 1.1 2.3 2.0 3.h Post and Telecommunications 3.7 7.7 1.8 3.1 Other 8.3 17.2 4.7 7.9 Total 48.3 100.0 59.6 100.0

Agriculture would receive 23 ' of total expenditure. More significant than the percentage, however, is the rising trend which in the fiscal year mould assure the highest allocation for any sector. Moreover, when judging the adequacy of the allocation to agriculture, one should take into account that the development effort in agiculture cannot necessarily be measured in tenm of money spent. Agricultural development is equa2ly or even more a questier of providing incentives and organizing the services that would enable the - 29 - individual farmer to improve his productivity and market his output. The distribution of better seeds and fertilizers and a demonstration of their proper use is not necessarily costly and may have a bigger impact than a series of investment projects. Some of the approaches to agricultural development mentioned above may require additional staff and may not even affect the development budget. But if this staff is dedicated, efficient and experienced, Sierra Leone could indeed expect better use of her agri- cultural potential. Thus Sierra Leone's development prospects should not alone be measured by the size of her development budget. Measures to cope with organizational and institutional difficulties should be part of the development program. Moreover, since the agricultural sector is basically private, the Government's role will largely be that of a catalyst for private investment. Apart from a few large scale projects like plantations, the aim of public sector investments will be to support private agriculture rather than to compete with it. Thus development expenditure in agriculture should induce more than in other sectors a multiplier effect which would further add to their impact.

C. Financing Requirements

75. The resources to finance a development program such as the one presented above must come from surpluses that the Central Government may accumulate in its current operations, domestic bank and non-bank borrowing and external loans and grants. In projecting the financing of the program

Table C Financing of Central Government-Development Expenditures 1968/69 and Projections to 1972/73 (In millions of Leones) 1968/69 1969/70 1970/71 1971/72 1972/73 % of 5 budget ------projected ------Year Total Central Government Savings 11.1 12.0 12.5 12.8 13.0 + Transfers from Public Corporations 0.4 0.7 0.7 0.7 0.7 - Subsidies to Public Corporations 1.2 1.0 0.6 0.7 0.1 - Local Government Grants 0.9 0.8 0.7 0.6 0.5 - Debt Service On debt incurred before 6/30/68 8.5 7.9 7.0 5.2 5.3 On debt incurred after 6/30/68 - 0.3 0.7 0.8 1.3 Surplus (Deficit -) for Development 0.9 2.7 4.2 6.2 6.5 34.4 Development Expenditurelo.5 10..5 11.8 13.0 13.8 100.0 Overall Deficit 9.6 7.8 7.6 6.8 7.3 Financed by:9 Suppliers, Credits 4.o 1.5 - - - 9.2 Domestic borrowing 1.9 1. 1.0 - 7.4 Long-term loans 2.3 3. 55.3 5.5 6.0 37,2 Grants 1.1 1 1.0 1.0 PL480hart n '3 Coirkrpa3 2.5 - 30 - the mission estimated that over the five year period about 40ro of the exper- ditures will be covered by domestic resources - the bulk coming from central government savings, as shown in Table C, and. a small part from domestic bank borrowing. External resources may provide another 60 ofl the required financing - the bulk being in the form of long-term loans. In order to reconcile the availability of projects with the Government's ability to mobilize domestic resources, it has been assumed that external financing will cover on the average 70% of total project costs.

76. An increase in Government savings from Le 11.1 million as budgeted for 1968/69 to Le 13.0 million appears plausible in the light of trends since 1961/62. This rate of saving implies that the growth of current expenditures will have to be kept below that of current revenue. Success in this endeavor will depend on the future level of revenue which in turn will be largely determined by import levels. Assuming that imports, as in the past, will be closely correlated with exports, a rising trend of revenue should be forthcoming. With assistance frcm the IMF, tax arrangements with mining companies are being revised so as to produce a larger revenue; also the income tax department is being strengthened in order to improve tax collection. The balance of savings available to finance development is expected to grow faster than the current account surplus mainly due to a projected reduction in debt service obligations. Grants to local govern- ments have been assumed to decline gradually in line with a recent Govern- ment anouncement that such transfers would be reviewed critically. Local authorities will thus be forced to rely on their traditional sources of revenue and, if necessary, take measures to increase their yields.

77. This leaves public corporations as another important source of development finance. Reduced subsidies to some and higher or continued transfers from others can both contribute to this end. As shown in Table 24, there are good prospects for improvement of their finances. The key to improvements lies with the two biggest corporations, the SLPIB and the Rail- way. With regard to the others, developments as shown in the table assume present levels of management efficiency andin the case of the Rice and Road Transport Corporaticns some improvement. However, the financial position of any of these corporations can quickly worsen if management is allowed to deteriorate.

78. Assuming quantities and world market prices as projected below, the SLI4B should be able to generate annual surpluses during the next five years. As a rough order of magnitude, it has been assumed that the Board will be able to achieve an annual average surplus of Le 1.0 million during the five year period beginning 1968/69. This may be conservative since al- readyin the current fiscal year the Board expects a surplus of Le 1.3 million. Even if declining world market prices are offset by higher quan- tities, the surplus will depend on producer prices and, in order to reach the quantities targeted, somewhat higher prices may well be necessary. Furthermore, with the Government sharing in surpluses of the Board, the producer prices become largely a vehicle of taxing the agricultural sector,

79. There are at present three different claims on the Board's annual surplusee. By the end of June 1968, the Board still owed Le 2,6 - 31 - million to a commercial bank; it has been assumed that the Board will have to pay Le 0.5 million annually on this debt. The remainder of the BoardIs surplus would be available to rebuild its price stabilization fund and for transfers to the Government. In the course of 1967/68, the Board was able to retain a cash surplus of Le 0.4 million. It has been assumed that out of the net surplus after debt service Le 0.2 million annually will be trans- ferred to this fund which may be used for short-tein lending to the Govern- ment unless it is needed to support producer prices. Le 0.3 million annually would then be available for transfer to the Central Government. Also, the amount of le 0.2 million may be regarded as a cushion in case the Board's surplus dropped below Le 1.0 million. The SLPMB's original function of building up a price stabilization fund to screen farmers from fluctuating world market prices thus receives lower pricrity.

80. During the past five years, the Railway required average anual subsidies of Le 1.2 million. In the current fiscal year 1968/69, an amount of Le 1.1 million has been allocated. The closing of the railway would re- lease this amount.

81. By 1972/73 only the Road Transport Corporation may require a subsidy from the Central Government. The Rice Corporation may be phased out during the period if rice self-sufficiency is attnined. The will be transferred to the private sector pending the outcome of negotiations with interested parties. Apart from the SLPMB, contributions are expected to come from the Forest Industries Corporation, the Electricity Corporation, the Bank of Sierra Leone and the State Lottery. Depending on how the railway deficit can be reduced in the process of phasing it out, the public corporationsas a whole should be able to achieve financial inde- pendence. Their investments would then be financed either out of current surpluses or long-term external borrowing. The Electricity Corporation and the Guma Valley Water Company are tested candidates for the latter form of finance.

82.. It appears difficult to assess in quantitative terms if any private domestic savings can be mobilized for the development effort. How- ever, some allowance for this has been made in the Table in the light of the Government's intention to investigate the feasibility of a development bond scheme. Potential subscribers include foreign firms operathg in Sierra Leone, insurance companies which might hold a reasonable portion of their reserves in Sierra Leone and indigenous and. expatriate traders. Recent success with the capitalization of the National Development Bank may en- courage the Government to test further the extent to which domestic funds can be mobilized. Success with such plans will, of course, hinge upon responsible fiscal policies and, related to this, the avoidance of inflationar- pressures and the maintenance of a liberal foreign exchange regime.

83. The annual development budgets shown in Table B are grouped mainly around projects for which external finance is being considered. The 1970/71 development budget of Le 11.8 million may serve as an example. Out of Le 5.2 million investments in transport, Le 4.5 million may be undertakeit with external assistance; in agriculture Le 2.0 million out of Le 2.9 millio_ - 32 - consists of projects financed with long-term loans; expenditure for education and health (Le 1.4 million) would be supported by grants from a variety of charitable organizations. In the past, the Ministries of Health and Educa- tion have shown considerable initiative in soliciting such assistance and it has been assumed here that such assistance will be forthcoming over the next five years. This leaves a host of small expenditures (Le 3.9 million) the import component of which in the past hasbeenpartly financed with annual commodity loans of Le 1 million. It has been assumed that such financing will continue to be available in the future. The remainder of expenditures constitutes annual investments which are inescapable, but not suitable for external financing.

86. In order to maximize the benefits from scarce resources, raised both domestically and externally, it will be important to adhere to high priority investments. In the past, Sierra Leone's public sector has under- taken too many investments of dubious economic merit. This applies both to the Central Government and to public corporations, particularly to the SLPMB with its past ill-conceived plantation program. If the element of quality of investment is kept in mind, it beccmes clear that the projected program of development expenditures should have an economic impact considerably greater than what a mere comparison with past expenditure levels would suggest.

D. Organizing for Development

85. In the past, there have been repeated efforts to formulate development plans for Sierra Leone. Considerable time and talentwere spent on drafts, but plans were never finalized or accepted as a manifestation of Government policy. It is a pertinent question, therefore, whether a new effort should be made. More specifically, the question would be whether Sierra Leone's development effort can best be improved at this stage by a new plan or whether a better impact can be achieved by deploying necessary staff elsewhere. The Ministry of Development, which is involved in coordina- tion of external aid and the preparation of annual development budgets, considers planning one of its functions, even though no efforts have been made so far to start a new plan.

86. The major function of a plan is to harmonize sectoral investment programs and supporting policies. Such harmonization, it seems, can at pre- sent be achieved without a plan. Moreover, sectoral plans and policies have to be devised first before they can be coordinated. The only sector which meets these requirements is transportation. Others, especially agriculture, health and education are lagging behind, partly because such planning was discouraged in the past by lack of development funds and reliance on the initiative of suppliers and contractors. Economic planning without sound foundations in the sectors will be doomed to irrelevance. Such foundations are a prerequisite to the implementation of a plan. There is ample experience ith plans which, though drafted with considerable intellectual input, were hardly a source of guidance for Governments because they were basically an enumeration of what should be done, rather than what can be done. The latter cannot be decided by the planning authority. This is the realm of the experv- in the ministries and, unless they have conoeived realistic programs for their - 33 - sectors, there is hardly scope for a major coordination effort.

87. It follows that scarce staff should be used at this stage to prepare sector plans. There lies the most inortant bottleneck of a long- term development effort. Sector plans consist of policies and programs, and programs, in turn, consist of projects. As denonstrated earlier, in- vestment programs are largely grouped around projects and the creation of project preparation units in the important spending ministries would be a first step. Again in transportation, responsibility for project prepara- tion is well defined but in agriculture competence is dispersed between various authorities which account in some part for the slow progress made so far with agricultural projects. Ministries which will be entrusted with the execution of projects should be in charge of their preparation as well. Improvements in the present organizational setup are urgently required. Discrepancies in efficiency between various public authorities must be remedied in order to avoid a pattern of development which is marked by strengths and weaknesses of institutions rather than by economic priorities. The need to organize project preparation units is further demonstrated by low level of committed but undisbursed external aid (c.f., Table 1). Apart from some suppliers' credits, only a German road loan and a British commodity loan are not yet fully disbursed. Sierra Leone will have to build up a pipeline of projects in order to bring about continuing net inflow of exterral finance.

E. Exports and the Balance of Payments

88. As indicated before, Sierra Leone's exports have been depressed in recent years due to special factors. Pecovery from the low levels pre- vailing in 1965, 1966 and 1967 is already occurring and a projection of total exports for 1973 suggests level of Le 60.6 million, or approximately one-third more than in 1967 and about 20% above the more representative average level of 1961/65.

Sierra Leone's Exports, 1961/1965, 1966, 1967 and Projection for 1973 (In millions of Leones) 1973 1961/65 1966 1967 (Projected)

Diamonds 31.1 31.3 29.7 28.0 Other Minerals 10.5 10.4 10.9 21.6 Major Agricultural Products a/ 7.5 10.4 2.9 9.0 Other exports / 1.5 1.3 2.0 2.0 Total 50.6 53.h 45.5 60.6

a/ Palm kernels, coffee and cocoa. b/ Palm kernel oil, piassava, ginger and miscellaneous commodities. - 34 -

89. It is important to note that depressed agricultural exports in 1967 were not the result of reduced production. Commercial oil palm growing in Sierra Leone is negligible and palm kernels are a by-product of the sub- sistence sector. Bunches are collected from wild oil palms when needed and the fruit is used in the local diet as one of the main sources of protein. Zernels are put aside and sold to earn some petty cash if attractive prices are offered and if an effort is made to collect them in the villages.=klf not, they are discarded. Smuggling presumably is only worthwhile if the produce is already close to the borders, even though the incentive will vary with the price differential in neighboring countries. Lower exports in 1967 resulted from inability on the part of the SLPMB to offer sufficiently attrac- tive prices and to a slow down in its purchase operations. The coffee and cocoa crops were harvested as usual but not sold to the Board for the same reason, but stocked or smuggled abroad.

90. Palm kernel exports will largely be determined by future producer prices which, in turn, depend on world market prices. But even with attrac- tive prices there will be a ceiling on kernel availability depending on the dietary pattern and its long-term changes. This presupposes that the hazardous conditions of harvesting from high growing oil palms and their low yields will continue to discourage commercial fruit collection. For this reason, it would be unrealistic to assume a return to much higher quantities parti- cularly since world market prices are expected to drop over the next five years, thus limiting the Board?s ability to offer price incentives. In short, Sierra Leone's prospects for palm-kernels exports must be considered a static one until plantation developments presently under consideration yield results - something thatin any case would not influence exports for at least five years. For the purpose of projecting exports over the next five years average annual exports of 50,000 tons have been assumed for palm kernels. Following the expected price trend for palm oil, kernel prices may gradually decrease by 20%, from the 1967 level. This would yield export revenue of about Le 4.0 million by 1973. 91. Coffee prices are expected to remain stable -Zand e sanion of physical exports is limited by Sierra Leone's present quota. .I Cocoa has become increasingly attractive to farmers in the countryss small forest zone. Extension work for this crop has been comparatively successful but in

11 In the early 1950's, the SLPMTB erected 9 Pioneer Oil Mills throughout the country of which 8, after some replacements, are still working. They purchase fruit, sell extracted palm oil locally and deliver kernels for export. They never made a real impact. In 1961, a good year for the mills, they contributed 1/% of palm kernel exports. The board realized early that the low yids of wild oil palms do not allow one to operate the mills econo- mically. They have been subsidized ever since they were opened.

__/ The unit value for 1967, as derived from trade statistics (Table 17), is of doubtful validity and does not reflect the trend of world market prices. -!/ Under the 1968 Coffee Agreement, Sierra Leone has an "export entitlemenit" for 1968/69 of 82,000 bags (4,843 long tons, which may increase annually by 10r (simple rate of growth) until 100,000 bags (5,900 long tons) are re; tcd. Ts could occur in 1971/72. Then Sierr L,eone rould qualify a -d qjr1 ta a bo subject to annual & i a i of K9rt 2,1% -35 - the absence of an energetic expansion program no spectacular developments should be expected. A gradual increase from the present 4-4,500 tons to 6,000 tons in 1973 would continue the trend of the past fifteen years. With cocoa prices expected to remain firm, exports may reach Le 2.3 million by 1973. Other minor products like benniseed, ginger and kola should hold their own. The market for piassava has been. shrinking recently and, due to inadequate retting methods introduced by the SLPMB, piassava from Sierra Leone has deteriorated in quality and can now be exported only with difficulty.

9 . A summary of projected agricultural exports is shown below: 1961/65 1966 1967 1973 avera e actual projected

Palm Kernels Quantity (1,000 tons) 54.6 55.0 11.0 50.0 Value (million Leones) 5.0 5.1 1.1 4.0 Coffee Quantity 4.2 9.4 1.0 6.0 Value 1.4 3.9 0.3 3.0 Cocoa Quantity 3.4 4.5 4.0 6.0 Value 1.1 1.4 1.5 2.3 Other Value /a 0.3 0.5 0.7 1.0

Total 7.8 10.9 3.6 10.0

% of total exports (excluding re-exports) 15.4 20.4 7.9 16.5

/a Piassava, ginger, kola.

These projections may be conservative. First, the price for palm kernels may develop in a slightly more favorable fashion; second, if Sierra Leone can produce more coffee than she is presently entitled to export, she will be able to sell to non-quota import markets and eventually negotiate for a higher quota when the 100,000 bag limit is reached. Third, no allowance has been made for the possibility of rice exports. Even though rice self- sufficiency is considered feasible within the next five years, rice exports in appreciable quantities have not been judged likely. In summary, Sierra Leone's agricultural exports as a whole do not offer prospects for growth over the next five years.

9 . In contrast, mining exports as a whole may increase, chiefly due to rutile production. Also, iron ore and bauxite mining should expand durir. the next five years; the declining trend in alluvial diamond production is, bowever, expected to continue. Altogether mining exports may increase from - 36 - level of about Le 41 million to Le 50 million by 1973. Production of alluvial diamonds, which in recent yea:s have accounted for about one-half of total diamond exports, is likely to suffer due to exhaustion of the more accessible deposits3 the best fields have been worked over, but diggers for some time to come will continue to search for diamonds because lower yields are still preferable to available alternative employment opportuni- ties. Informed sources expect an annual reduction in physical output of about 5%. In contrast, the output of corporate diamond mining is likely to remain stable. Kimberlite shafts are being explored in the SLST lease. World market prices have been kept on an upward trend in order to offset rising production costs. This trend is expected to continue. On balance, it seems realistic to anticipate a stagnation of revenue from overall diamond exports. Prices of iron ore and bauxite ore are expected to re- main firm 1/ and with production targets mentioned earlier, higher exports should materialize. The f.o.b. price for rutile is quoted by the mining company at $80 per ton. It is also said that recent technical improvements with processing of ilmenite, which is a very common titanium compound, may expose the compnay to sharper competition. The mission has, therefore, assumed a price of $70 by 1973.

Summary of 1ining Exports

1961-65 1966 1967 1973 average actual projected

Diamonds Ouantity (million carats) 1.6 1.3 1.2 0.9 Value (million Leones) 31.1 31.3 29.7 28.0 Iron Ore nuantity (1,000 tons) 2.3 2.2 2.1 3.0 Value (million Leones) 10.1 9.6 9.0 13.2 Bauxite Quantity (1,000 tons) 107.0 240.0 329.0 400.0 Value (million Leones) 0.35 0.77 1.05 1.3 Rutile nuantity (1,000 tons) - - 0.19 1.5 Value (million Leones) - - 0.88 7.4

Total (value) 41.6 41.7 40.7 49.9

% of total exports 82.2 78.1 89.5 82.0

94. Altogether, it is possible that exports, excluding re-exports, during the period 1968-1973 will rise at an average annual rate of around 3% to a level of about Le 61 million. This projection assumes a "base" figure of Le 50 million, which seems not unreasonable considering that actual exports of Le 45.5 million in 1967 were abnormally low. Re-exports are expected to remain at a level of Le 5-6 million.

1/ In terms of sterling and Leone prices after devaluation. - 37 -

95. The evolution of imports is difficult to predict. It will depen d on the volume of private and public investment and on Government fiscal and monetary policy. Major private and public investments will largely depend on the inflow of private and public capital; and to the extent that such c;apital inflows do not materialize, imports will be significantly lower. Imports could, of course, quickly exceed the capacity to fund them if the Government engaged in significant inflationary financing. Continuation of the Governmentts prudent fiscal policy is necessary to prevent this contin- gency.

96. The amount of debt service which Sierra Leone can carry must be judged primarily in the light of present and projected export earnings and public savings. In 1967, debt service amounted to 146.% of exports or 11.6% of foreign exchange earnings from goods and services. This is very high considering the level of foreign exchange reserves and the other claims on export earnings. At the end of M-larch 1968, net foreign exchange assets of Le 11.29 million were equivalent to only about two months' imports. Such a reserve seems excessively small for a country which must maintain an open economy and which suffers fluctuations in its export earnings that are matched only after a time lag by corresponding movementsin imports. Account should also be taken of the fact that by no means all of the country's foreign exchange earnings are available to satisfy its requirements for imports of goods and services. The foreign enterprises and expatriates in Sierra Leone transfer considerable amounts abroad in the form of factor income payments, depreciation reserves and debt amortization charges. Table 19, for instance, shows that in the yeaml965 and 1966 net investment income payments averaged Le 6.6 million and private capital outflow around Le 2 million. These two items alone represented somewhat over 14% of average export earnings during these two years.

97. In terms of public savings, debt service is also high. In 1966,/67 and 1967/68 the Central Government had to meet debt service payments (including service on internal debt) in an amount averaging Le 7.1 million. This slightly exceeded gross savings, thus leaving no Government resources available for financing development (see Table 22).

98. The extent to which Sierra Leone can contract additional debt in the future will thus primarily depend on (1) the extent to which service on the existing debt will decline, (2) the evolution of export earnings and public savings, and (3) the terms of borrowing.

99. Service on existing debt will continue to rise through 1969 and then drop markedly. This presupposes that the Government will continue to repurchase one public bond issue in equal annual installments in 1969 and not as shown in Table 2 on the legal due date in 1970. Budgetary provisions to this effect have been made since 1967/68. The hum in 1970 will then be avoided but debt service in 1968 and 1969 will be correspondingly higher. It will reach Le 9 million in 1969 and absorb 15.9i of exports,and 13.1cf of exports and services. Thereafter, it would decline to Le 5.4 rillion or 6.9% of current account earnings by 1973. - 38 -

100. This development will create same margin for servicing new debt, Also, higher public savings will inrease the availability of domestic re- sources for debt service. But since foreign exchange earnings will rise more slowly, the latter are likely to be the limiting factor. If the debt service ratio were not permitted to exceed the projected 1969 level, Sierra Leone would have additional debt servicing capacity of Le 5 million by 1973. Considering, however, that the debt service ratio forecast for 1969 is very high, particularly in relation to export earnings alone, it would be more prudent to keep debt service burden within the limit of 11% of earnings that prevailed in 1966/67. Under this ceiling, additional debt service of Le 3 million may be feasible by 1973. However, if Sierra Leone is to build up reserves from the presently low level in order to sustain the prerequisites for an open economy, this margin would drop further. 101. Sierra Leone's debt service position will, of course, also hinge on continued abstention from suppliers' and contractors' credits. Improve- ments envisaged after 1969 are largely due to the fact that no further medium- term finance was contracted after 1966. Instead, the Government had increasing access to long-term funds with terms of 20-25 years including grace periods and interest rates ranging from 3 to 6 1/2%. It would appear that Sierra Leone can afford to cover some of her future external borrowing on such terms. But in view of her heavy dependence on external assistance, and in order to avoid a rapid build-up of new debt after 1973, which would result from annual borrowing of Le 6.7 million as suggested above, Sierra. Leone should aim at obtaining some external aid on terms more favorable than those obtained thus far. STATISTICAL APPENDIX

External Debt

Table 1: External Public Debt Outstanding as of June 30, 1968

Table 2: Estimated Future Service Payments on External Public Debt Outstanding Including Undisbursed as of June 30, 1968

Population, Employment and Income

Table 3: Urban and Rural Population and Size Categories of Urban Places, 1963

Table 4: Population and Employment by Major Economic Activities, 1963

Table 5: Major Components of GNP and National Income, 196 3/64-1965/66

Table 6: Percentage Distribution of Households by Location and Income Class, Western Province

Table 7: Number of Persons Engaged and Output Per Worker, 1963-64

Table 8: Employment in Establishments with Six or More Workers, End of Period Data (In Thousands of Persons)

The Agricultural Sector

Table 9: Land Use, 1965/66

Table 10: Structure of the Agricultural Sector Table 11: Percentage of Landholders Reporting Specified Number of Crops Produced and Sold by Size of Holding, 1963 Table 12: Proportion of Landholders Producing Given Crops, Selling Some and Quantity Sold and Value of Sales, by Crops (1965-66) Table 13: Tools and Implements Used for Cultivating Land by Size of Holding, 1965/66 Table 14: Paddy Rice and Groundnuts: Acreage Planted, Yield, Production 1965/66 Manufacturing

Table 15: Industrial Enterprises in Existence or in Various Stages of Planning and Construction as of October 20, 1967 Trade and the Balance of Payments

Table 16: Total of Imports, Exports and Custom Revenue Collected - 1953 to 1967

Table 17: Domestic Exports by Value, Volume and Unit Price 190-1967, Major Commodities

Table 18: Imports by Commodity Sections, 1958-1967

Table 19: Balance of Payments, 1963-1967 and 1968 (first quarter)

Public Finance and Public Irestment

Table 20: Central Government Current Revenue

Table 21: Central Government Development Expenditure

Table 22: Financing of Central Government Development Expenditures

Table 23: Summary of Central Government Finance

Table 24: Consolidated Finances of Public Corporations

Money and Prices

Table 25: Monetary Survey, 1961-1968 (first quarter)

Table 26: Consumer Price Index (1961 = 100) Table 1: EXTERNAL PUBLIC DEBT QUTSTANDING AS OF JUNE 30, 1968 /

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars)

Debt outstanding Item June 30, 1968 Including undisbursed

TOTAL EXTERNAL PUBLIC DEBT 59j 0l.

Privately-held debt 29,900 Publicly-issued bonds _22 79975 Suppliers / 19 234 France Germany 53 Israel 564 55 1,420 United Kingdom 1,514 Financial Institutions - United Kingdom 2Y690

Loans from international orgpnizations - IBRD 60

Loans from governments 25,509 Germany ,6RT United Kingdom 16,92c 1,900

1 Debt with an original or extended maturity of one year or more. Net of accumulated sinking funds of $3,329,000. 3/ Ecluding oil refinery - see Annex 3.

Source: IBRD Table 2: ESTIMATED.FUTURE SERVICE PAYMENTS ON EXTERNAL BUBLIC D3 'T- STANDING INCLUDING UNDISBURSED AS OF JUNE 30, 1968

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars)

DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- YEAR UNDISBTURSED ZATION INTEREST TOTIA

TOTAL EXTERNAL PUBLIC DEBT

1968 56,61 1/ 5,655 1,855 7,511 1959 53,369 5,292 2,485 7,7 1970 L7,989 11,794 2,126 19,920 1971 36,10L 3,753 1,779 5, 1972 32,289 3,670 1,684 5, 1973 28,555 4,104 1,573 5,677 1974 24,416 3,574 1,341 4,911 1975 20,843 2,762 1, 144 3, Q06 1976 18,080 2,571 923 3,9 1977 15,510 2,016 668 2,685 1978 134,93 1,699 581 2,280 1979 11,79h 1,738 502 2,210 1980 10,056 1,784 421 2,205 1981 8,273 1,611 337 1,9;i8 1982 6,662 1,567 264 1,831

Note: Includes service on all debt listed in Table 1 prepared October 28,, 1968, except for the equivalent of $2,00,000 (loan from the inited Kingdom Government) for which repavrent terms are not available.

Snurce: IBRD

/ Amounts outstandin are as of June 30, 1968- payments are fcr- entire year. Tabt 3 Urban and Rural Population and Size Categories of Urban Places, 1963.

Population Size Total No. of % of Urban Urban Places Population Towns Population

1,000 - 1,999 117,099 101 22.3

2,000 - 3,999 92,662 34 17.7

4,00, - 5,999 58,686 12 11.3

6,000 - 7,999 39,186 6 7.5

800- 9,999 - --

10 ,00 - 11,999 11,706 1 2.3

1200C - 13,999 50,825 4 9.7

- 9,999 - ·

20,000 - 26,999 26,613 1 5.2 S127,917 1 24.0

Total Upulation:24,694 160 100.0

puopuiation4,of

urlSettlements

1,655,661

R ntral tatistics Office. Table Po ulation and Emplo ent by Ma or Economic Activites, 1963. (in 1-.nnnl Professionals, Technical and Total Clerical. Sales Other

Total Population 2,180.0

Working Population, 10 years of age and over 908.1 20.4 47.2 840.5

Agriculture, forestry,hunting and fishing 702.1 0.9 0.2 701.0

Mining and quarrying 47.6 0.9 416.7

Manufacturing 41.2 0.6 0.1 40.5

Construction 16.2 1.2 * 15.0

Electricity, gas and water 22 0.3 0.1 1.8

Commerce 53.1 1.9 46.7 4.5

Transport, storage and communications 16.2 1.6 * 14.6

Services 28.6 13.7 0.1 15.4

Activities not adequately described 0.9 0.9

SOURCE: Central Statistics Office

* Less than 100. Table 5: MAJOR COMPONENTS OF GNP AND NATIONAL INCOME, 1963/64-1965/66 (Le million)

Distribution 1963-64 1964-65 1965-66 1965-66

Private Consumption expenditure 173.0 204.0 208.1 82.5 General Government Consumption expenditure 18.5 19.8 19.8 7.9 Gross domestic fixed capital formation 24.6 31.8 38.9 15.4 Exports of goods and services 66.2 74.1 74.4 29.5 Imports of goods and services (-) - 67.2 - 80.3 - 84.7 - 33.6 Factor income transferred abroad (-) - 5.5 - 6.5 - 8.6 - 3.4 Changes in Stocks and Statistical Discrepancy 1.1 - 4.2 4.3 1.7

Expenditure on Gross National Product 210.7 238.7 252.2 100.0

Less: Indirect Taxes 16.6 20.5 22.4 Plus: Subsidies 1.6 1.5 2.0 Plus: Factor Income Transferred Abroad 5.5 6.5 8.6

Gross Domestic Product at Factor Cost 201.2 226.2 240.4 100.0

Of which, originating in: Agriculture, forestry and fishing 69.5 74.1 75.2 31.3 (of which subsistence activities) (85.5) (8.2) (49.5) Mining and quarrying 36.6 42.0 46.2 19.2 Manufacturing and handicraft 12.0 13.6 15.1 6.3 Construction 7.1 7.7 8.7 3.6 Electricity, gas, water, sanitary services 1.1 1.5 2.0 0.8 Transport, storage and communication 14.5 17.4 18.6 7.7 Wholeaale and retail trade 28.7 34.3 36.1 15.0 Banking, insurance and real estate 1.2 1.6 2.2 0.9 Ownership of dwellings 11.7 14.1 15.2 6.3 (of which in self-subsistence sector) (2.0) (2.2) (2.3) Public Administration and Defence 11.6 12.1 12.5 5.2 Services 7.1 7.8 8.6 3.6

Main Components of Private CQnsuiption Expenditure

Total Consumption Expenditure 173.0 208.0 208.1 100.0

Of which: Food 8?.l 89.9 92.3 88.4 Beverages, Tobacco and Kolanuts 12.3 11.1 15.3 7.4 Clothing and other personal effects 23.2 35.0 34.2 16.A Rent, rates and water charges 12.5 15.1 16.3 7.8 Fuel & light 5.3 5.7 5.3 2.5 Furniture and household equipment 10.0 11.L 11.6 5.8 Other 26.6 32.8 33.1 16.0

1/ If this figure is adjusted to exclude factor income from abroad and provision for fixed year capital consumption, we obtain an estimate of the 1national income" - which in this would be Le. 218.2 million.

SOURCE: Jentral Statistics Office. Table 6 Percentage Distribution of Households by Location and Income Class Western Province

Total Western Urban Rural Income Class Province Freetown Areas Areas (leones per month) %

No income reported 3.0 1.2 6.4 7.8 Under Le. 10 5.2 3.7 4.7 22.4 Le. 10 - 20 16.4 12.6 21.3 37.1

20 - 30 . 20.0 20.1 20.7 14.6 30 - 4o 15.8 17.7 12.4 8.3 40 - 50 12.4 14.0 10.3 4.4 50 - 60 6.5 7.6 5.1 1.0 60 - 70 6.7 7.7 4.9 2.4 70 - 80 2.7 2.7 3.6 2.0 80 - 90 2.6 3.0 2.2 2.0 90 - 100 1.2 1.4 1.0 2.0 100 - 150 4.3 5.0 3.4 2.0 150 - 200 1.2 1.4 1.2 2.0 200 and over 2.0 1.9 2.8 2.0 All households 100.0 100.0 100.0 100.0

Less than Le. 20 24.6 17.5 32.4 67.3 Less than Le. 40 60.4 55.3 65.5 90.2 Less than Le. 60 79.3 76.9 80.9 95.6

Median Income Le. 33.4o Le. 37.0 Le. 28.50 Le.15.35 Average Income 42.50 45.50 41.60 18.20

Household Size -- Persons 4.4 4.3 4.7 4.7

Income Per Person Le. 9.75 Le. 10.70 Le. 8.95 Le. 3.90

Income reported in the Survey was current money earnings and did not include the value of goods and services self-produced or received free, or the value of assets.

SOURCE: Central Statistics Office. Table 7: NUMBER OF PERSONS ENQAGED AND OUTPUT PER WORKER, 1963-64 (in 1,000)

Number of Persons G. D. P. Output Output per persons attached to (Mill. Le.) per worker Capita engaged sector (Le.) (Le.)

Agriculture, forestry, hunting and fishing 701.0 1,683 69.5 99 41-

Mining and quarrying 47.6 114 36.6 769 320

Manufacturing and handicrafts 41.2 99 12.0 291 121

Construction 16.2 39 7.1 438 183

Electricity and water supply 2.2 5 1.1 500 208

Transport, storage and communications 16.2 39 14.5 895 373

Wholesale and retail trade 53.1 128 29.9 563 235

Public administration and defence 11.7 28 11.6 991 413

Services 18.8 45 7.1 378 158

Ownership of dwellings -- 11.7 - -

All industries 908.0 201.2 222

Total population 2 180 93

1/ Assuming that family size is the same in i II sectors.

2OUR ,:ntral Statistics Office. Table 8 Employment in Establishnents VLth Six or More Workers nd of Period Data (In Thousands of Persons)

1961 1962 1963 196 1965 1966 1967 (Dec.) (Dec.) (Dec.) (Dec.) (Dec.) (Dec.) (Mar.) (June) (Sept.) (Dec.) All Industries 51.6 53.6 58.1 61.7 67.7 67.4 67.3 66.8 63.9 63.6 Agriculture, Forestry and Fishing 2.5 2.4 3.6 4.9 5.8 5.3 46.5 4.4 3.6 3.6 Mining and Quarrying 6.2 7.5 8.3 6.6 7.0 7.6 7.6 7.6 7.6 7.8 Manufacturing 3.7 3.3 4.5 5.2 6.9 6.2 6.7 6.8 6.7 6.6 Construction 11.4 10.4 11.5 11.9 13.1 10.9 10.1 9.5 9.2 8.9 Electricity and Water Services 140 1.2 1.5 1.6 1.7 1.8 1.9 Commerce 1.9 1.9 1.9 46.5 46.5 4.3 5.0 5.3 5.9 6.7 6.6 6.7 6.6 Transport, Storage and Comunication88.6 8.6 Railway Transport (3.9) (3.6) ( 3.6) ( 3.) ( 3.3) ( 4.2) (4.2) ( 4.2) Water Transport (3.9) (3.9) Other Transport ( 3.2) ( 2.) ( 2.5) ( 1.7) ( 2.1) ( 2.0) ( 2.0) ( 2.0) Services ( 2.1) ( 2.1) 13.6 17.3 17.5 18.5 19.6 19.7 19.9 19.8 19.6 19.6 Government ( 8.3) (10.2) (10.2) (10.9) (11.3) (11.7) (11.9) (11.7) (11.5) (11.4) Educaticn ( 1.9) 3.3 3.4 4.0 4.6 4.7 4.6 4.7 Medical ari Health 2.4) 4.7 4.7 ( 2.6 2.7 2.8 2.7 2.6 2.6 2.5 2.6 2.6 Other ( 1.0) 1.2 1.2 0.9 1.0 0.9 0.8 0.9 0.8 0.9

Source: Ministry of Lands, uines and Labor Table 9

Land Use - 1965/66

Acres $ of (000) Total

TOTAL AREA OF COUNTRY 17,873.0 100.0

Under crops 51,003.7.6

by individual farmers 981.0 5.5 by institutional farmers and larger farmers 22.7 0.1

Forest Reserves ang1 protected forest 752.5 4.2

Residual 1/

1/ Consists of land lying idle to rejuvenate; pasture landJ land in urban areas, roads, airports, buildings in village, inland water and wate land.

SOURCE: Central Statistics Office. Table 10: STRUCTURE OF THE AGRICULTURAL SECTOR

Total P-pulation, Mid 1965 2,367.0

Farm Population 1,532.0

Farm Population - ten years and over 1,179.0 - mainly engaged in agriculture (i.e., agriculture is primary or secondary occupation and excluding hunting and fishing) 753.0 1/

Number of Landholders 2/ 250.7 100.0%

by Chieftancy 33.4 13.2 by Family 196.3 78.4 by Payment of Fees 15.5 6.2 Other Arrangements 5.6 2.2

Size of Holdings - Number of holders cultivating 250.7 100.0%

Under 1 acre 32.7 13.1 1 acre and under 5 acres 131.4 52.4 5 acres and under 10 acres h8.6 19.3 10 acres and under 15 acres 9.0 3.6 15 acres and over 3.3 1.3 Acreage not reported 25.8 10.3

Percentage of Holdings Consisting of 100.0% 3/

1 field 45.7 2 - 3 fields 45.7 4 - fields 7.4 6 fields and over 1.2

1/ This figure is somewhat higher than Census results, but difference believed due to differences in definitions used to classify people by occupation. 2/ Except in the Western Area, land in Sierra Leone is not individually owned. 7/ Total number of fields can be estimated to be approximately 500,000.

SXURCE: Central Statistics Office. Table 11 Percentage oi Landholders Reporting Specified Number of Crops Produced and Sold by Size of Holding, 1963

Percentage of Holders Growing Holders Selling Total % of Total % of Sellers Selling Specified Number of Crops Number of 1 2-5 6-10 Over 11 Total Total Number of Holders Crop Crops C3ops Crops Growin- Number Holders 1 Crop 2-5 Crops 6-9 Crops Over 10 Crops

Sierra Leone - All Holdings 250,700 5.3 17.0 21.6 49.2 100.0 151 800 60.6 31.3 52.8 9.6 4.5

Holding Under 1 Acre 32,700 8.0 20.2 25.1 39.1 100.0 15,900 48.6 34.6 52.2 9.4 3.8 1 Acre and Under 5 Acres 131,400 5.1 17.1 21.0 52.3 100.0 81.,0 6T16 33.8 52.3 9.1 h.8 5 Acres and Under 10 Acres 48,600 5.1 13.8 21.4 56.8 100.0 32,400 66.7 31.5 54.0 9.9 4.6 10 Acres and Under 15 Acres 9,0co 4.4 12.1 20.0 60.0 100.0 6,600 73.3 25.8 54.6 12.1 7.5 15 Acres and Over 3,300 3.0 12.2 18.2 63.7 100.0 2,100 63.6 14.3 57.1 23.8 4.7 Acreage Not Reported 25,700 5.1 24.5 26.8 37.8 100.0 13,800 53.7 37.7 52.2 7.2 2.9

1/ Includes a small proportion of holders who did not report number of crops sown.

SOURCE: Central Statistics Office. Table 12 Proportion of Landholders Producing Given Crops, Selling Some and Quantity Sold and Value of Sales, by Crops. (1965-66)

Sales Proportion of all holders Quantity Value Product Selling Producing (000 lbs.) (000 Le)

Rice 18 86 31,932 1,581.7 Cassava 6 62 10,663 124.8 Groundnuts 10 34 9,824 317.3 Palm Kernels 20 26 8,241 471.4 Cocoa 18 33 6,060 596.7 Coffee 10 21 6,105 703.0 Kola Nuts 12 4O 3,898 254.1 Maize 4 46 1,833 35.4 Bananas 7.6 n/a 1,552.1 50.9 Benniseed 5.2 1,008.4 39.8 Black-eyed beans 0.4 115.9 3.6 Broad beans 1.4 762.9 11.0 Cassava leaves 1.7 454.0 11.5 Chillies 1.2 211.6 78.6 Coconuts (x) 3.0 930.9 14.2 Cocoyam 1.8 904.1 23.6 Cotton 0.2 22.7 2.9 Cucumber 0.3 13h.7 3.3 Egg Plant 2.8 82.7 11.2 Egusie 1.0 122.2 6.5 Fundi 0.7 519.6 6.4 Ginger 1.3 670.6 68.1 Grapefruit (xx) 0.3 103.6 5.2 Green beans 0.2 81.6 2.7 Guinea Corn 1.0 476.3 11.3 Jakatoe 2.5 271.0 10.3 Mangoes (xx) 0.6 224.8 3.7 Millet 0.4 207.1 4.6 Nut Oil (xxx) 0.8 13.6 4.6 Native Spinach 2.2 110.7 13.1 Ckra 4.0 360.9 26.1 Onions 0.5 50.7 5.9 Oranges (xx) 9.0 1,10L.3 144.6 Paw Paw (x) 0.7 82.2 1.9 Palm Oil (xxx) 13.6 678.5 489.5 Palm Fibre 0.1 17.1 1.7 Pepper 6.1 914.9 80.4 Piassava 1.2 1,509.6 54.0 Pineapples (x) 3.1 182.4 14.9 Pigeon pease 0.6 369.0 3.7 Plaintain 2.9 697.1 23.07 Potato leaves 1.8 224.8 9.2 Pumpkin 1.9 232.1 9.8 Raffia 0.5 71.6 13.3 Rubber (xxxx) - 3.0 10.8 Soya beans 0.6 86.1 4.1 Sweet limes 0.2 10.2 1.7 Sweet Potatoes 2.2 1,025.7 27.8 Tangerines (lemon) (xx) 0.4 39.8 2.5 Tobacco 1.1 1)2.1 15.3 Tomatoes 3.8 450.5 22.9 Yams 1.8 629.4 14.6

TOTAL 5,449.2

(x) Thousand Units (xx) Thousand Dozen (xxx) Thousand Gallons (xxxx) Tons

Source: Central Statistics Office Table 13

TOOLS AND IMPLEMENTS USED FOR CULTIVATING LAND BY SIZE OF HOLDING, 1965/66.

Total Percent of Holders Reporting Use of All Holders Hoe Cutlass Falling Ax Pick Plough Harrow Knives Other

1.1 95.6 1.8 All Holdings 250,700 97.1 90.6 68.1 4.0 1.4 0.8 3.0 Holdings under 1 acre 32,700 95.7 97.9 66.5 2.7 2.2 93.3 2.0 1 and under 5 131,400 97.0 95.4 67.8 4.7 1.4 1.4 96.4 99.4 69.0 4.7 0.9 0.7 97.3 0.8 5 " " 10 48,600 100.0 1.1 0.4 0.9 95.6, 1.1 10 " " 15 9,000 96.7 96.7 82.2 90.9 93.9 60.6 9.1 1.2 2.5 100.0 1.2 15 " over 3,300 2.0 0.6 91.1 1.2 Average not reported 25,800 94.6 91.5 66.0 1.2

SOURCE: Central Statistics Office. Table 14: PADDY RICE AND GROUNDNUTS: ACREAGE PIANTED, YIELD, PRODUCTION 1965/66

Total 'ield Total Acres per acre Production (000) (Ibs.) (TS.000)1/

Upland Paddy Rice 591.0 1008 265.4

Swampland Paddy Rice 152.2 1891 128.2

TOTAL RICE 743.2 1189 393.9

Groundnuts (unshelled) 49.7 979 21.0

1 Refers to paddy(husk) rice and unshelled groundnuts.

SOURCE: Central Statistics Office. Table 1: INDUSTRIAL ENTERPRISES IN EXISTENCE OR IN VARIOUS STAGES

OF PLANNING AND CONSTRUCTION AS OF OCTOBER 20, 1967

A. Industries studied, approved (under the Development C. (Contid.) Act 1960) and established h. Edible Oils. 1. Cigarettes, Leaf Tobacco, Smoking Tobacco and 5. Animal Feed Mill. Shag. 6. Instant Coffee. 2. Oxygen, Carbon dioxide and Acetylene. 7. Steel Hot Rolling Mill. 3. Paints - Entulsion glass and distemper. 8. Chipboard Factory (by Forest Industries Corporation) 4. Frozen Fish and Fish Cannery. 5. Beer. D. Industries studied and approved and now in the process 6. Distilled Spirits. of submission to the Cabinet under the Developmnt Act 7. Umbrellas. 8. Nails. 1. Plastic Household Articles. 9. Cement. 2. Tomato Paste and Puree. 10. Plastic Shoes and Sandals. 3. Salt. 11. Knitted Fabrics. h. Corrugated Iron Sheets. 12. Underwear and Outer Garments. 13. Diamond Cutting and Polishing. E. Industries under active stud for establishment under 14. Metal Beds and Springs. the DevelMpment Act 19 15. Metal Doors and Windows. a6 Tyres..e,wi, 1. Car Batteries and U.2 Cell Batteries. 17. Footwear of all kinds except of Plastic. F. I 18. Galvanised Buckets (Maal Trunks and Enamelware --- iuEd to be produced later) 1. Textile Mill. 19. Matcbes. 2. Sugar Mill. 20. Flour, Nheat Offals. G. Industries established without development status B. Industries studiied aproved anv under construction Ttn e Dvl1h opmet T--Z.~~~~~~~~~ 1. Palm Kernel Oil Mill (by the Sierra Leone Produce Marketing Board). 1. Confectionery ad Biscuixits Production date 2. Sawn Timber and Wooden Furniture (by the Forest 1/12/68. Industries Corporation) 2. Mineral Oil Refinery - Production date 1/11/68, 3. Cosmetics Perfumes and Pomade. 4. Wafers and Cones. C. Industries studied ap roved (under the Development 5. Spring Interior Mattress. S10 and not under construction 6. Aluminium Pots. 7. Candles. 1. Articles made of Carboard and Paper. 8. Metal Doors and Windows. 2. Margarine 9. Tiles - Terrazo Concrete for Floors. 3. Toilet and Common Soap.. 10. Mineral Waters. 11. Fibre Suitcases SOURCE: Ministry of Trade and Industry 12. Bus Body Building 13. Underiround Petrol Tanks. 14. Ice Cream. Table 16: TOTAL OF IMPORTS, EXPORTS AND CUSTOM REVENUE COLLECTED - 1953 to 1967 (Le million)

IMPORTS EXPORTS TRADE CUSTOM DUTIES Commercial Government Total Produce of Re-export Total Import Export Total Sierra Leone BALANCE

1950 - - 13.5 - - 13.9 +0.4 - - -

1953 18.9 3.3 22.2 23.4 0.5 23.9 +1.7 3.8 1.8 5.6

1954 21.9 3.8 25.8 21.9 0.8 22.7 -3.1 5.5 1.6 7.1

1955 28.9 5.b 3L.2 19.9 0.6 20.L -13.8 7.3 1.2' 8.5

1956 38.1 8.0 46.2 214.3 2.1 26.4 -19.8 9.5 1.2 10.7 1957 48.8 7.7 56.5 30.0 6.7 36.7 -19.8 10.5 1.2 11.7

1958 39.6 8.2, 47.8 33.1 6.1 39.2 -8.6 10.6 1.5 12.1

1959 39.4 7.6 47.0 32.8 6.1 38.9 -8.1 10.1 1.4 11.5

1960 6.6 6.1 52.7 51.9 7.1 59.3 +6.6 10.8 1.4 12.2

1961 57.0 8.0 65.1 50.3 8.6 58.7 -6.4 11.1 1.5 12.6

1962 56.5 L.h 60.9 33.3 7.7 41.0 -19.8 11.5 0.9 12.4

1963 53.0 6.8 59.7 50.9 7.1 57.9 -1.8 12. 1.2 13.6

196b 66.5 4.5 71.0 60.9 7.1 68.0 -2.9 15.5 1.6 17.1

1965 71.8 5..6 77.1 57.7 5.7 63.2 -13.7 16.9 2.0 18.9

1966 - - 71.7 53.b 5.7 59.1 -12.6 19.7 2.4 22.1

1967 - - 65.0 45.5 5.1 50.6 -14.4 18.1 2.3 20.

Source: Sierra Leone - Trade Reports. Table 17: DOMESTIC EXPORTS BY VALUE, VOLUME AND UNIT PRICE 1950-1967 MAJOR COMMODITIES (Le 1,000) 1950 1959 1960 1961 1962 1963 196L 165 1966 1967

Diamonds (alluvial)

Value - 7,906 2L,230 23,082 14,218 13,480 23,725 36,959-1/ 17,332 29,742_1/ Volume (carat '000) - 553 1,308 1,A13 1,158 6b9 824 1,525 726 1,160 Price (per carat) - 14.30 18.52 16.34 12.21 20.70 28.79 24.24 23.87 25.64

Diamonds (other)

Value 3,112 5,712 8,716 8,856 - 18,848 16,098 - 13,960 - Volume (carat '000) 638 652 747 633 - 1,069 826 - 59h - Price (per carat) 4.88 8.76 11.67 13.99 - 17.31 19.49 - 23.50 -

Iron Ore

Value 2,552 8,192 8,234 9,3h6 10,234 9,874 10,354 10,896 9,625 9,025 Volume (tons '000) 1,143 1,503 1,540 1,626 1,983 1,954 1,980 2,296 2,183 2,118 Price (per ton) 2.23 5.45 5.35 5.75 5.16 5.05 5.23 4.74 4.40 h.26

Palm Kernels

Value 4,556 6,352 5,83L 4,876 h,904 4,907 4,870 5,681 5,103 1,098 Volume (tons '000) 71-3 57.5 54.5 57.8 61.0 52.8 52.2 49.27 55.0 11.0 Price (per ton) 63.89 110.46 107.04 84.35 80.39 92.93 93.29 115.30 92.8 99.8

Palm Kernel Oil

Value ------753 Volume (tons '000) ------4.0 Price (per ton) ------171.1

Cocoa

Value 234 1,40 1,392 928 1,502 L,196 1,136 902.81 1,1435 1,456 Volume (tons '000) 1.6 2.6 3.3 2.8 1.7 3.3 3.1 2.93 4.)46 4.0 Price (per ton) 116.25 540.00 421.81 331.42 319.57 361.81 366.45 308.13 321.7 36b.0

Coffee

Value 78 1,970 1,398 1,192 618 1,305 2,529 1,347 3,921 308 Volume (tons '000) 0.3 4.9 5.1 5.0 2.4 3.9 6.0 3.83 9.1 1.0 Price (per ton) 260.00 h02.0L 27h.11 238.40 257.50 33h.61 421.50 351.60 417.12 308.0 Table 17 (Continued)

1950 1959 1960 1961 1962 1963 196 1965 1966 1967

Piassava

Value 510 70 5L6 570 690 5h0 7114 137 168 391 Volume (tons '000) 5.0 5.1 5.8 5.7 5.2 5.6 7.0 b.45 1.57 2.7 Price (per ton) 102.00 92.13 94.13 100.0 94.23 96.42 102.00 98.20 107.0 144.8 Ginger

Value 1,128 206 146 162 292 178 320 321 171 172 Volume (tons '000) 2.3 1.5 0.6 0.6 0.4 0.6 0.7 0.82 0.46 0.9 Price (per ton) 690.13 137.33 243.33 270.00 730.00 296.66 457.1 391.0 371.7 191.1

Bauxite

Value - - - - - 64 407 579 775 1,054 Volume (tons '000) - - - - - 20 128 173 240 324 Price (per ton) - - - - - 3.20 3.18 3.35 3.23 3.20 Rutile

Value ------882 Volume (tons '000) ------19.00 Price (per ton) ------46.4

Subtotal 12,170 32,212 50,096 49,012 32,258 50,h20 60,155 57,132 52,490 44,128 Other Exports 1 152 588 _1328 _1320 1,042 561 728 l15 897 123140 Total Domestic Exports 6 32,800 11,854 50 332 33,300 50,881 6083 57,538 53,387 456

L/ Total diamonds (i.e. alluvial and other) Source: Annual Trade Reportl Quarterly Statistical Bulletins; Bank of Sierra Leone Table 18: IMPORTS BY COMMODITY SECTIONS, 1958-1967 (Le million)

1958 1959 1960 1961 1962 1963 1964 1965 1966 1967

Food 7.3 9.8 8.8 7.L 10.5 10.0 9.8 11.3 13.8 12.6

Beverages and Tobacco 4.2 3.4 3.3 3.2 3.3 2.7 2.5 2.6 2.5 1.9 Crude Materials 0.5 0. 0.5 0.7 0.6 0.6 0.5 1.0 1.0 0.9 Mineral Fuels 5.7 5.8 6.4 8.8 7.1 7.b 7.3 6.8 5.7 4.8

Animal and Vegetable Oils 0.2 0.2 0,3 0.4 0.4 0.5 0.5 1.3 0.6 1.3 Chemicals 2.1 2.1 2.3 3.h 2.8 -3.2 3.8 3.9 3.8 3.5

Manufactured Goods 13.9 13.0 16.3 19.0 17.3 15.6 20.3 19.6 19.2 17.8 Machinery and Transport Equipment 8.1 6.6 7.7 1h.8 11.6 12.6 18.5 22.7 16.6 14.8 Miscellaneous Manufactured Goode 5.0 4.8 6.3 6.6 6.4 6.2 6.8 7.2 7.0 6.4

Miscellaneous Transactions 0.9 1.0 0.9 0.8 0.9 0.9 1.1 1.0 1.5 1.0 Total 47.8 7.0 52.7 65.1 60.9 59.7 71.0 77.6 71.7 65.0

Source: Central Statistics Office Table BALANCE OF PAYMENTS, 1963-1967 AND 1968 (first quarter) (Le million)

End of Year Marcl 1963 1964 1965 1966 1967 1968 (Prelim.)

A. Current Account -12.3 -15.8 -2L.5 -15.1

Exports, f.o.b. 57.9 68.0 63.2 59.1 50.6 Imports, c.i.f. -59.7 -71.0 -77.0 -71.7 -65.0

Trade balance - unadjusted -1.8 -3.0 -13.8 -12.6 -1L.L Adjustments (for coverage and to bring imports to f.o.b. value) +0.7 +2.6 +6.3 +6.3 Trade balance - adjusted -1.1 -0.h -7.5 -6.3

Freight, insurance, transport and travel (net) -1.3 -3.3 -3.L -2.3 Investment income (net) -5.5 -6.5 -8.5 -4.8 Other services -4.6 -5.6 -5.3 -6.1 ) Transfer payments (net) 0.2 -0.1 0.3 4.3 ) 2.0

B. Capital Account 9.4 18.0 21.8 9.1

Private long-term capital receipts 10.5 13.7 19.2 9.8 ) Private long-term capital outflows -L.6 -2.9 -0.8 -3.1 ) 6.7 Government capital receipts 8.5 11.6 11.5 7.5 ) Government capital outflows -5.0 -4.L -8.1 -5.1 )

C. Errors and Omissions +0.5 -2.6 -5.1 +3.5

D. Changes in Official Reserves (A+B+C) -2.b -0. -7.8 -2.5 -2.0 +0.

Net IMF position - - - -0.h -2.1 -2. Central Bank - +12.9 +1.1 -0.8 +0.1 +2. West African Currency Board +0.2 -10.9 +0.5 -0.2 - Commercial Banks -5.0 +0.5 -0.1 -0.2 +0.8 +0.i Government +2.2 -2.7 -3.1 -0.6 -0.5 -0. Other Official Institutions +0.1 -0.2 -6.2 -0.3 -0.2 +0.

Source: Bank of Sierra Leone Table 20 CENTRAL GOVERNMENT CURRENT REVENUE (Le 1,000)

1961/62 1962/63 1963/ 6 4 1964/65 1965/66 1966/67 1967/68 1968/69 (16 months) (12 months)Y 1 Revised Actual Budget Estimate Budget

I. Indirect Taxes 12,736 12,600 16,67 18,907 26,813 21,60 24,386 27,255 23,376 25,210 Import Duties 1,77 11,;79 T 37 -7-7 22,421 17,937 21,dOD 18 i34 19,750 Export Duties 1,668 999 1,664 2,163. 2,381 1,906 2,766 2,500 2,640 Excise Duties 102 222 531 )3 8 2,011 1,608 2,700 2,636 2,820

II. Direct Taxes 6,017 5,699 10,396 7,213 6,742 6,393 8,007 10,000 10,669 11,650 Companies 4,917 70 _77 U=~~ ,50 ~t 9,550 Personal 1,100 1,096 1,618 1,931 3,646 2,917 1,600 1,560 1,991 2,100

III. Other Revenue 5,009 6,066 3,331 5,130 6,835 5,567 5,768 3,14 2,872 3,720 Miscellaneous Duties 67 7 7 -0 7E92 100 7 100 Licenses and Duties 312 379 595 668 773 618 604 601 1,960 1,990 Fees and Receipts 1,366 2,030 1,49h 1,931 3,017 2,414 1,551 1,310 Reimbursements 85 679 429 150 234 187 152 110 210 Royalties 193 179 184 247 343 275 270 298 310 Interest and Loan Repayments 300 293 286 299 666 533 93 98 812 100 Special Receipts 1,646 1,202 - - 700 660 1,319 103 550 Miscellaneous 60 250 391 761 262 210 377 82 6o Land Sales - - - - 256 20 164 1 - Receipts from Local Investment Funds - - - - 478 382 266 41 4OO

IV. Post and Telecommuni- cations 612 600 89 1,023 1,112 890 842 1,319 1,000 1,100

Current Revenue 23,373 23,866 30,079 31,273 51,501 33,200 37,993 51,718 37,906 51,680

V. Receipts of Government Departments 2,082 2,421 2,622 2,075 Electricity Department 1,12 1,265 1,46 486 Rice Department 150 133 56 221 Forest Industries Department 627 646 481 476 Port and Marine - 125 250 608 Road Transportation (Bus Service) 223 232 286 283 VI. Share of Currency Board Profits 1,653 1,660 1,701 1,700 700 660

Current Receipts 27,098 27,956 35,302 35,057 52,201 33,760 37,993 41,719 37,906 51,680

Based on monthly averages.

Source: Financial Statements and Annual Estimates. Table 21: CENTRAL GOVERNMENT DEVELOPMENT EXPENDITURE (Le million)

1961/62 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69

Actual (12 months) _ Budget Transport 1.6 2.0 1.8 2.8 3.9 1.6 5.2 6.9 Post and Telecommunication .6 .1 .6 .7 .8 .7 .t .2 Agriculture .3 .2 .3 .3 .7 .3 .4 .5 Electricity .6 .5 1.1 .8 .4 .3 .2 .1 Wat er Supply .6 .2 .3 .4 .7 1.3 .7 .7 Education 1.4 .9 .6 .7 .4 .6 1.1 .9 Health .2 .1 .1 .1 .1 .1 .7 .4 Other Development Expenditure. -3Z 1.6 1.3 1.9 2.7 1.7 1.3 .9 . .8

Total 6.9 5.3 6.7 8.5 8.7 9.2 9.5 10.5

- Debt Service on Suppli rs' Credit included above .8 1.5 2.0 2.2 2.2 2.2 - -

+ Disbursements of Supplier C-dtIncluded above 44 1.5 2.9 2.8 1.5 h.t 5.6 - -

Adjusted Total 7.6 6.7 7.5 7.8 10.9 12.6 9.5 10.5

Adjusted Total by Sectors

Transport 2.2 2.6 2.3 2.1 4.6 6.6 5.1 6.9 Post and Telecommunication .6 .6 1.3 1.0 .7 .3 .4 .2 Agriculture .3 .2 .3 .3 .7 .3 .4 .5 Electricity .6 .5 1.1 .8 .4 .3 .2 .1 Water Supply .6 .2 .3 .4 2.0 2.9 .7 .7 Education 1.4 .9 .6 .7 .4 .6 1.1 .9 Health .2 .1 .1 .1 .1 .1 .7 .4 Other Development Expenditure 1.7 1.6 1.5 2.4 2.0 1.5 .9 .8

Total 7.6 6.7 7.5 7.8 10.9 12.6 9.5 10.5

_/As recorded by the Accountant General (1961/62-1966/67) and shown in the Budget (1967/68-1968/69). / Mission estimates. 3/Mainly public buildings including military and police, installations and equipment for Public Works Department.

Source: Financial Statements and Annual Estimates Table 92 : FINANCING OF CENTRAL GOVERNMENT DEVELOPMENT EXPENDITURES (Le million) 1971/72 1972/73 1961/62 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 budget projected -- actual estimated - 35.0 33.8 38.0 37.9 41.7 - - - Current Revenue 27.1 27.9 34.3 ------0.4 0.3 0.4 0.4 - Transfers from Public Corporations_1/ - - - - - 28.5 31.1 29.7 31.6 31.5 32.3 - Current Expenditure 24.8 25.5 + Subsidies to Public - - - - 0.3 1.1 1.2 1.8 2.4-Y 1.3 1.2 Corporations_/ 0.2 - - - 0.8 0.8 0.8 1.1 1.0 0.9 - + Local Government Grants-2/ 0.6 0.7 6.3 9.6 8.3 11.1 12.0 12.5 12.8 13.0 Central Government Savings 3.1 3.4 7.7 5.9 Transfers from Public + 0.3 0.4 0.4 0.7 0.7 0.7 0.7 Corporations - - - - 0.4 1.8 2.4 1.3 1.2 1.0 0.6 0.7 0.1 Subsidies to Public Corporations 0.2 0.3 1.1 1.2 - 1.1 1.0 0.9 0.8 0.7 0.6 0.5 - Local Government Grants 0.6 0.7 0.8 0.8 0.8 Debt Service - 6.5 7.8 8.5 7.9 7.0- LIV 5.2-4 5.3 On debt incurred before 6/30/68 2.0 2.8 3.9 4.5 4.9 - - - 0.3 0.7 0.8 1.3 On debt incurred after 6/30/68 - - - - - 6.5 -0.8 -0.1 -1.4 0.9 2.7 4.2 6.2 Surplus (Deficit -) for Development 0.3 -0.4 1=9 -0.6 10.9 12.6 9.0 10.5 11.0 11.8 13.0 13.8 Development Expenditure 7.6 6.7 7.5 7.8 12.7 10.4 9.6 B.3 7.6 6.8 7.3 Overall Deficit 7.3 7.1 5.6 8.4 11.7

by: - - Financed 1.5 4.4 5.6 2.5 4.0 1.5 - Supplierst Credits 1.5 2.9 2.8 3.2 3.7 5.8 7.1 6.8 7.3 Loans and Grants 2.9 2.8 5.0 2.4 2.8 2.2 External 4.5 4.5 4.9 4.7 1.9 1.0 0.5 - - Other Sources 2.9 1.4 2.2

corporations Differs from transfers as shown in Table 24 because some payments by public 1/ As shown in Table 20(Receipts from Local Investment Funds.). are shown below the line as financing items. 2/ Included in current expenditure as shown in Table 23. Incides Le 1 mcillion Government loan to SLPHB shown under domestic borrowing in Table 24. 21 Net of IMF repurchases.

Source: Tables 13 and 16 and IBRD projections. Table 23: SUMMARY OF CENTRAL GOVERNMENT FINANCE (Le million) 1965/66 1967/68 1968/69 1961/62 1962/63 1963/64 1964/65 15 months 12 months 1966/67 budget revised budget actual estimate

Current Receipts 27.1 27.9 3h.3 35.0 42.2 33.8 38.0 b1.7 37.9 b1.7 Current Expenditures 2h.8 25.5 28.5 31.1 37.1 29.7 31.6.L/ 32.7 31.5 32.3

Current Surplus 2.3 2.4 5.8 3.9 5.1 4.1 6.h 9.0 6.L 9.h

Debt Service 2.0 2.8 3.9 4.5 6.1 4.9 6.5 7.9 7.8 8.5 on suppliers' credits 7 2.0 2.2 2.7 2.2 22 other debt service 1.2 1.3 1.9 2.3 3.4 2.7 .3-2Z 5.3 5.7 Surplus (+), Deficit (-) available for development +0.3 -0.h +1.9 -0.6 -1.0 -0.8 -0.1 +1.1 -1.+.

Development Expenditures 7.6 6.7 7.5 7.8 13.6 10.9 12.6 9.5 9.0 10.5 Overall Deficit 7.3 7.1 5.6 8.4 1h.6 11.7 12.7 8.4 10.4 %.6

Financed by: Suppliers' dredits 1.5 2.9 2.8 1.5 5.5 4.4 5.6 2.5 2.5 .0 Foreign grants and long-term loans 2.9 2.8 5.0 2.h 3.5 2.2 3.2 3.2 3.7 Domestic grants and non- bank borrowing 1.0 0.5 0.2 1.0 3.6 - 0.5 2.3-Y 0. Bank borrowing 2.h 1.h - 3.5 2.9 2.6 0.8 - 1.0 IMF drawing - - - - 3.8 1.h 1.0 - Other sources and discrepancy31 -1.h -0.5 -2.4 - -0.9 -1.5 - 51. -

1Includes a loan of Le 1 million to SLPMB which was partly repaid in 1967/68. _f Adjusted upward from Le 2.0 million as recorded by the Accountant General assuming clerical omissions. 3( The consistently positive discrepancy in the. period 1961/62-1966/67 may be due to overestimated disbursements of foreign grants and long-term .loans especially in 1963/6h. ( Consisting of Le 0.9 million sale of Treasury bills; Le 0.2 million special diamond levy; Le 0.5 million transfer from Rice Corporation; Le 0.6 million loan repayment from SLPMB. 5 Presumably arrears on current payments or debt service.

Source: Financial Reports and Estimates, Bank of Sierra Leone, IMF and Mission estimates Table 24 : CONSOLIDATED FINANCES OF PUBLIC CORPORATIONC2w 1 (Le million) 1961/62 1962/63 1963/64 1964/65 1966/66 1966/67 1967/68 1968/69. 1969/70 1970/71 1971/72 1972/73 actual projected

Net Operating Surplus (- Deficit) -0.6 0.4 0.2 -.3 1.0 0.6 2.5 1.5 1.7 2.3 2.4 2.9

+ Depreciation - 0.1 -.2 0.3 0.9 0.8 0.6 0.7 0.9 1.0 1.1 1.1

Gross Savings of Public Corporations -0.6 0.5 0.4 0.6 1.9 1.4 3.1 2.2 2.6 3.3 3.5 1.0

Debt Service - - - 0.1 0.4 1.2 4.5 / 1.0 1.0 1.1 1.2 1.2

Transfers to Central Government - - - 0.1 0.5 0.3 1.4 0.7 0.7 0.7 0.7 0.7

Surplus (- Deficit) for Development -0.6 +0.5 +0.4 +0.4 +1.0 -0.1 -2.8 +0.5 +0.9 +1.5 +1.6 +2.1

Gross Investment 0.1 1.7 2.9 4.3 5.6 8.8 4.8 3.2 4.7 2.4 3.0 2.9

Over-all Deficit 0.7 1.2 2.5 3.9 4.6 8.9 7.6 2.8 3.8 0.9 1.4 0.8

Financed by Domestic Borrowing - - - - - 2.7-2/ 3.8 - 0.1 - - - External Borrowing - 1.1 i.L 1.9 0.3 2.5 3.5 1.9 2.9 1.0 1.1 0o9 Cash Balances (+ increase, - decrease) -0.5 +0.9 +0.2 -0.5 -2.5 -1.1 +1.0_ / +0.3 +0.2 +0.7 +0.4 +0.2 Subsidies from Government 0.2 0.3 1.1 1.2 1.8 1.9 1.3 1.2 1.0 0.6 0.7 0.1 Other Sources - 0.2 0.2 0.3 - 1.2 3/ - - - - -

1/The table includes - as from their vesting day the following corporations: Sierra Leone Produce Marketing Board, Railway, Sierra Leone Electricity Corporation, Guma Valley Water Company, Rice Corporation, Sierra Leone Ports' Authority, Sierra Leone Road Transport Corporation, Forest Industries Corporation, Sierra Loone State Lottery, Bank of Sierra Leone, Oil Refinery.

_/Includes Le 1 million loan from Government.

3/Mainly arrears of SLPMB to Licensed Buying Agents.

4/Includes payments of SLPM3 as follows: Le 1.1 million clearance of arrears; Le 1.8 million settlement of old Bank debt against new borrowing of Le 3.4 million - shown below the line, Le 0.8 million repayments of new Bank debt later in the year.

_/Includes cash surplus (Le 0.5 million) and accumulation of stocks (Le 0.4 million) of SLPMB. Source: Records of Public Corporations and mission estimates. Table 25: MONETARY SURVEY, 1961-1968 (first quarter) (le million)

End of period 1961 1962 1963 1964 1965 1966 1967 1968 1st qtr

Foreign assets (net) 1W _&.5 2 9-29 h.83 7.31 8.75 7.48 8.29 11.29

Bank of Sierra Ieone 9.93 10.41 10.63 12.66 14.23 13.16 13.25 15.68 Commercial banks -0.41 -0.82 -5.80 -5.35 -5.48 -5.68 -4.96 -4.39

Domestic credit 11.02 14.38 19.48 18.39 19.A 23.29 22 21.96

To Government (net) 4.00 4.40 5.50 2.79 4.24 7.65 7.13 6.36 of which: Bank of Sierra Leone (4.00) (4.40) (5.50) (3.19) (4.28) (6.46) (4.89) (4.77) Commercial banks ( -- ) ( --_( --) (-0.40) (-0.04) (1.19) (2.24) (1.-3) To private sector 7.02 9.98 13.98 15.34 15.20 15.58 14-.5 14.9 To public corporations ------0.26 0.15 0.06 1.21 IW21

Other assets_net 2.86 1.67 1.39 2.55 1.14 0.06 0.61 1.20

Money 19.41 20.98 20.22 21.32 21.62 21.89 22.39 25.16 Currency in circulation 12MT 13.5f 12.92 1740 UT T19 147V 1_237 1 Demand deposits 6.77 7.90 7.30 7.89 7.48 7.41 8.02 8.53

Quasi-money 3.99 4.66 5.48 6.93 7.86 8.94 9.10 5429

Post Office savings deposits 3.30 3.28 3.20 3.18 3.10 2.81 2.60 2.60 Nonbanking foreign assets 16.36 13.16 15.54 12.49 3.39 2.14 -3.00 -2.73 Government 8.37 47.51 7.0 T-7.' 1.22 _.71 0.08 0.01 Other official institutions 7.03 7.39 7.53 7.18 1.21 0.96 0.74 1.08 IMF position (net) 0.96 0.96 0.96 0.96 0.96 0.57 -3.82 -3.82

1/Represents net foreign assets of the banking system only. Other non-banking foreign assets are shown below the line.

Source: IMF and Bank of Sierra Leone Table 26: CONSUMER PRICE INDEX (1961 100)

Freetown Food Period All Items and Clothing Housing Miscellaneous

1961 100.0 100.0 100.0 100.0 100.0 1962 99.1 95.6 97.1 106.1 105.2 1963 ,99.9 89.8 94.9 124.2 106.2 196h ll.bi 98.5 94.8 151.1 109.5 1965 116.5 102.3 95.2 161.8 113.1 1966 121.1 10L.8 98.0 175.5 115.5 1967 127.7 109.5 10h.3 185.5 120.3 March 1968 129.1 108.0 106.2 195.1 120.0

Mining Areas

1961 100.0 100.0 100.0 100.0 100.0 1962 103.5 103.1 97.5 104.3 109.0 1963 103.9 102.9 98.4 108.6 106.7 196b 109.h 110.0 117.6 93.6 105.9 1965 109.7 108.6 120.1 97.8 110.7 1966 111.7 111.2 119.8 96.9 112.8 1967 118.8 122.0 121.8 96.6 117.5

Source: Labor Department AiWEX

Some Notes on Sierra Leone's Experience with Medium-term Suppliers' and Contractors' Credits

1. Between 1960 and 1966, the Government of Sierra Leone has con- tracted a total of $41.2 million worth of contracts with foreign suppliers and construction companies for a variety of projects. Credits for 10 pro- jects listed at the end of this Annex provide, on the average, a maturity of eight years and an interest rate of 6 1/Lf. In addition, there are a number of smaller contracts signed by public corporations (e.g., SLPMB, Rice and Road Transport Corporation) as well as the Cement Works for the supply of equipment. The latter were basically variations on letter of credits for conmercial imports. Here comments will be made only on the terms of private financing of public sector projects where equipment imports form an important, though in many cases not a dominant, part of the contract. The following are brief characteristics of the projects listed in the attached table:

2. The contract for the House of Representatives, which was signed in October 1960, set a price ceiling and requested the contractor to provide engineering and design satisfactory to the Government. After final plans were agreed upon in December 1963, the cost of the project had more than doubled. The building was completed in 1964 by a foreign contractor.

3. The telecommunications contract provided Sierra Leone with a direct dialing system between major cities and an improved exchange for Freetown. It is one of the two contracts which did not cover 100% of the cost. The Government was ccnmitted to construct buildings (costing 17% of the contract price) to accommodate the equipment. The project was completed in 1967 and has markedly improved the telephone service in the country.

h. Two roads were constructed with medium-term contractor financing between 1961 nd- 196. One road (Mile 47 - Lunsar, 29 miles, US$ 2.8 million) forms part of a heavily travelled corridor into Freetown. The other (Nyandehun-Pendenbu, 20 miles plus two bridges, US$ 1.7 million) is located in the Southeast, connecting poor laterite roads on both ends, and carries only insignificant traffic. It is alleged that the selection of the road was based on political considerations.

5. The Cape Sierra Leone Hotel (75 bedrooms, US$ 2 million) was constructed near Freetown, adjacent to one of the best beaches in Sierra Leone, as a tourist facility. Completed in 1967, it is still unused, but the Government is making efforts to attract a package tour organization. It is offering the hotel free of charge to anyone who can operate and fill it with tourists during the dry season. Though the hotel will never earn its construction cost, it is hoped that it will eventually open up Sierra Lecne's magnificent beaches to European tourists. A few organizations have held preliminary discussions with the Government.

6. The Provincial Water Supply scheme is providing 26 small towns with purified water usually distributed through a few stand pipes along the main road. The Government is to construct access roads and houses. In the - 2 -

course of the 1967/68 budget exercise the Government tried to reduce its commitment, but since all the equipment had arrived and promissory notes had been issued it was decided to complete the project. As of 1968, nego- tiations were underway for additional financing. Operation and maintenance of the scheme will fall on the Government. The contract does not provide 2or such organizational arrangements nor has it been decided yet if and how water rates will be levied in order to reduce the current expenses of the scheme.

7. The extension of the Queen Elizabeth II quay is the most expen- sive project undertaken with contractor's finance. in 1964, a contract was signed to extend the presently overcrowded two berths quay by additional four berths (2,400 feet). The contract envisaged a project costing abcut $9.7 million but provided for amendments should the cost turn out to be higher once the contractor had carried out surveys and engineering. The first amendment,signed in September 1965, raised the cost estimate to $13.4 million. Two further amendments providing for additional works costing $.8 million were signed in 1967, and the contractor has served notice that under a cost-escalation clause additional claims are likely to arise. The project is scheduled for completion by the end of 1970. As of 1968, the Government is attempting to renegotiate the terms of payment of the contract.

8. In 1965, the Government agreed to set up a public corporation to construct and operate, with supplier's financing and managerial assis- tance, an oil refinery with a capacity of 8-10,000 barrels per day, which would cover Sierra Leone's domestic and bunker demand. The company is supposed to make enough surplus to service the debt, but this, it is alleged, will almost certainly require higher prices for products in Sierra Leone. As of 1968, the Government was negotiating with distributors operating in Sierra Leone who have offered to take over assets and liabilities of the contract and to operate the refinery. Negotiations are complicated by the discussions of price ceilings and Government's efforts to protect its revenue hitherto obtained from import duties on petroleum products.

9. Freetown's new international airport was completed in 1967 with a blend of contractor's and long-term bilateral financing. Since its opening, Sierra Lecne has been served by an increasing number of airlines.

10. After the airport contract, signed in June 1966, the Government concluded a standby arrangement with the IMF in which it undertook not to enter into additional external debt with terms of less than twelve years. The military regime as well as the new civilian Government which took office in April 1968 reconfirmed this commitment and in doing so expressed criticism of some of these projects. In general, there appears to be a tendency to look upon suppliers' and contractors' credits as an inferior type of devel- opment finance not only because of the terms of the credits but also because of the kind of projects thus financed and the circumstances sometimes aurrounding the conclusion of credit agreements. In the case of Sierra Leone, this opinion may be tested against some general observations following from experience with the projects mentioned above. - 3 -

11. Suppliers' and contractors' credits place a minimum burden on the institutional capacity of the borrower because the lander normally takes upon himself to prepare and execute the project with negligible recourse to counterpart staff. Also, this allows the contractor to offer speedy imple- mentaticn of the project. However, lenders tend to show little concern about the merit of the project or about the ultimate fate of the project once their contribution is concluded. Under these conditions, the borrower often does not anticipate the problems with which he is eventually forced to cope. The Cape Sierra Leone Hotel and the provincial water scheme illus- trate these difficulties. As a result, benefits from such projects are sometimes slow to emerge and certainly bear little relationship to the obli- gations which must be met. In short, the lack of participation in project selection, preparation and execution leaves the Government rather ill-pre- pared for the task of handling the project after its completion.

12. Since initiative for project selection is mostly with the supplier and contractor, size and type of projects have a tendency to suit their interest more than that of the Government and, when the latter does not have a well conceived investment strategy, there is little control of priorities. Moreover, the Government may be tempted to accept projects for the sake of "doing something for development" with the result that the invest- ment effort is poorly coordinated and incoherent. This has clearly been the case in Sierra Lecne. The size of the port extension and the provincial water supply scheme, the Nyandehun-Pendenbu road and the oil refinery point in this direction.

13. In Sierra Leone these contracts had a tendency to increase over time. With the exception of the teleccumunications project, contracts signed between 1961 and 1963 were comparatively modest in amount. Beginning with the quay contract, signed in 1964, projects became more ambitious with a corresponding deterioration of Government finances. Also, as demonstrated by the oil refinery, the Government became less selective in dealing with offers by foreign contractors. The Government found it more convenient to proceed with suppliers' and contractors' finance than to undergo the scrutiny of bilateral and international lenders, but at the same time making poor in- vestments and incurring too much short and medium-tern debt.

13. Suppliers and contractors usually offer 1005 financing which, on the face of it, enhances the attractiveness of such financing. However, in terms of financial flows, the advantages are less obvious. Firstly, lenders usually require a down payment. Secondly, there are seldom grace periods. Thirdly, the due date of promissory notes is customarily determined in advance, and only their signing is contingent on the progress of work. For the projects shown as completed in the annexed table, 58% of the credit was repaid on the average before the completion of the project. There is thus an incentive to protract execution of the contract and though the contracts nsually stipulate a date for completion, delays have been customaryin Sierra Leone and have taken place without entailing penalties or other financial disadvantages for the contractors and financiers. Moreover, cost overruns have been frequent and since they have occurTed when the projects were well underway, the Government has had little choice but to sign additional pro- nissory notes for the difference. In the case of the quay extension and the House of Representatives, the Government even committed itself before reliable cost estimates based on completion of survey work and final engi- neering were available.

* 15. The mission did not investigate the allegation that suppliers' and contractors' credits tend to be more expensive than contracts awarded after competititve bidding because this would have required the collaboration of engineers who were not available to the mission. Such an independent assessment of the prices charged by suppliers and contractors would certainly improve the judgment on net advantages or disadvantages of this type of financing to Sierra Leone. SUPPLIERS' AND CONTRACTORS' CREDITS

US $ 2 Currency of' equivalent Contract CompIdti on Last PrOj ect Contract Amount (1,000_ date of Project Repa-yment

House of Representati70 b Sterling 802,138 2,246 10/60 1964 1967

Telecommunications Guilder 17,682,800 4,885 6/61 197 1969

3 Administrative Buildings / Leone 1,261,780 1,766 8/61 1965 1965

Nyandehun-Pendbmbu Road E Sterling 590,o48 1,653 12/61 1964 1967

Mile 47 - Lunsar Road & Sterling 1,000 000 2,800 5/62 1964 1968

Cape Sierra Leone Hotel US Dollars 1,960,000 1,960 12/63 1967 1970

Provincial Water Supply French Francs 26,680,400 5:404 1/64 not yet under completed negotiation

Port of Freetown Expansion French Francs 66,101,682 13,389 6/64 planned 1978 -i.,/190 I

Oil Refinery US Dollars 5,6O,000 5,h60 3/6 planned 1975 1969

Lungi Airport 2 b Sterling 1,400,000 3,920 6/66 1967 1972

1/ Ministerial building, post office and airport building.

At the exchange rate on contract date.

In additionj lonp-term finance of T 1 million was provided towards this project. - --- - . M ALI PE OT GUINEA - A?, , 4

SIERRA [VORY ý1 TiNIGERIA

o. <½ LEONE COAST / GHANA

ATLANTrCOCA

bl R

~AKENI,0

MAO URAKA LUNSAR MATOTOKA SEFATV

FREETOWNO-

WATERLOALAU

SURFACE ROAD A -0) RUTILE

0------UNSURFACED ROADS

T~ RALR ADS G~ A6 IMONDS GAA

CETET/

CATTLE

GINGER

° _ .0 3 . ]0[ FOREST Mllrs SAVANNAH

OCTOBER 1968 IBRDI- 2387