43133 Public Disclosure Authorized SIERRA LEONE Adding Value through Trade for Poverty Reduction Public Disclosure Authorized Diagnostic Trade Integration Study Public Disclosure Authorized Public Disclosure Authorized November, 2006 i SIERRA LEONE DIAGNOSTIC TRADE INTEGRATION STUDY TABLE OF CONTENTS PREFACE ....................................................................................................................................III EXECUTIVE SUMMARY AND ACTION MATRIX .............................................................IV 1. INTRODUCTION AND SOCIO-ECONOMIC BACKGROUND .............................. 1 Introduction ................................................................................................................................. 1 Socio-Economic Background...................................................................................................... 2 Recent Efforts at Macroeconomic Reform.................................................................................. 3 Results to Date............................................................................................................................. 3 Macroeconomic Constraints on Investment, Trade, and Growth.............................................. 11 2. TRADE & POVERTY IN SIERRA LEONE............................................................... 15 Introduction ............................................................................................................................... 15 Poverty in Sierra Leone............................................................................................................. 15 Impact of Trade on the Poor...................................................................................................... 17 Direct Effects and Multipliers ................................................................................................... 19 Indirect Effects .......................................................................................................................... 25 Impact of Trade on Risk and Uncertainty Faced by the Poor ................................................... 26 Conclusion................................................................................................................................. 27 3. AGRICULTURE, AGRO-INDUSTRY AND FORESTRY........................................ 29 Introduction ............................................................................................................................... 29 agricultural production, Processing, and marketing .................................................................. 29 Potential for expanded production and exports ......................................................................... 37 Choices to Promote Trade, Growth, and Poverty Reduction .................................................... 45 Constraints inhibiting achievement of potential........................................................................ 46 Priority actions .......................................................................................................................... 49 4. FISHERIES..................................................................................................................... 55 Current Situation ....................................................................................................................... 55 Potential for Improvement and Its Constraints.......................................................................... 57 Short-term Actions .................................................................................................................... 61 5. MINING .......................................................................................................................... 63 ii Introduction ............................................................................................................................... 63 Industrial large-scale mining ..................................................................................................... 64 Artisanal mining........................................................................................................................ 65 Competition for resources ......................................................................................................... 66 A Case for transparency ............................................................................................................ 68 Potential for value-added........................................................................................................... 69 6. TOURISM ....................................................................................................................... 70 Tourism and Development ........................................................................................................ 70 The Potential in Sierra Leone.................................................................................................... 71 Options ...................................................................................................................................... 73 Challenges ................................................................................................................................. 74 Priorities for Moving Forward................................................................................................... 74 Implementation.......................................................................................................................... 77 7. CUSTOMS AND TRADE FACILITATION ............................................................... 78 Current Situation ....................................................................................................................... 78 Priorities .................................................................................................................................... 79 Other key issues......................................................................................................................... 80 8. INFRASTRUCTURE AND PUBLIC SERVICES ...................................................... 87 Transport ................................................................................................................................... 87 Electrical Power ........................................................................................................................ 93 Telecommunications ................................................................................................................. 95 9. FINANCIAL SERVICES............................................................................................... 97 Brief Review of Existing Situation............................................................................................ 97 Financial Constraints to Expanded Trade and Growth............................................................ 100 Options for Overcoming Financial Constraints....................................................................... 101 Vision for the Future ............................................................................................................... 105 10. TRADE POLICY AND INSTITUTIONS .................................................................. 106 Introduction ............................................................................................................................. 106 Capacity to Define, Negotiate and Implement Trade Policy Objectives................................. 106 Sierra Leone and Multilateral Trade Negotiations .................................................................. 108 Market Access Issues: Exports to the EU and the US............................................................. 110 Regional Integration through ECOWAS................................................................................. 112 Export Promotion and Development in Sierra Leone. ............................................................ 113 Developing Standards Management Capacity to Support Export Diversification .................. 115 iii List of Tables Table 1-1: Sierra Leone – Selected Social Indicators...................................................................... 2 Table 1-2: Key Economic Indicators for Selected Years (1994, 2000-04)...................................... 4 Table 1-3: Value of Exports, 1994-2005 (thousand US dollars) ..................................................... 6 Table 1-4: Value of Imports, 1994-2005 ......................................................................................... 7 Table 1-5: Sierra Leone Fiscal Performance, 2001-04 .................................................................... 9 Table 1-6: Money Supply, Inflation, and Interest Rates, 2001-04................................................. 10 Table 1-7: Average Interest Rates: June 2004 to December 2005................................................. 10 Table 1-8: Average Monthly Exchange Rates May 2004 – December 2005 ................................ 11 Table 1-9: Balance of Payments of Sierra Leone (billion SLL) .................................................... 13 Table 2-1: Food Poverty & Total Poverty by District ................................................................... 16 Table 2-2: Direct Income and Employment Effects of Increased Agricultural Exports................ 21 Table 2-3: Growth in Tourism Employment and Income to 2015................................................