Sierra Leone | Extractive Industries

Sierra Leone has a long history of mining as its major economic activity. For years it was referred to as the "Land of Iron and Diamonds." The country is endowed with vast and varied mineral resources, including diamonds, gold, rutile, ilmenite, zircon, iron ore, bauxite and petroleum, but it has not managed to exploit their potential, due partly to the 11-year civil war that ended in 2002. Before the war, the mining sector contributed 70 percent of foreign exchange earnings, 20 percent of the nation's GDP and 15 percent of fiscal revenues.

The sector has seen a significant overall recovery since the end of the war in terms of both operations and output. Mining accounted for almost 60 percent of export revenues in 2010, including $132 million in diamonds, $33 million for rutile and $31 million for bauxite. These figures represent an increase in mineral sector value after setbacks in 2008 that included operation disruptions at the major diamond mine and, separately, at the major rutile mine.

The mining sector provides employment and livelihood to over 135,000 workers, the overwhelming majority of whom are engaged in artisanal, small-scale mining operations. Artisanal mining constitutes an estimated 84 percent of total diamond exports from Sierra Leone.1

Sierra Leone does not currently produce any petroleum, but there are offshore prospects. On 6 September, 2009, Anadarko Petroleum Corporation announced an offshore deepwater discovery at the Venus exploration well. This is the first deepwater test in the Sierra Leone-Liberian Basin. The evaluation of the well to determine the quantity of oil and its commercial viability is ongoing. Anadarko operates the Venus well, with a 40 percent working interest. Co-owners in the discovery include Woodside, with a 25 percent working interest; Repsol, at 25 percent working interest; and Tullow, with 10 percent working interest.

Legal Framework

A new Mines and Minerals Act was passed by the parliament and signed into law at the end of 2009, replacing the Mines and Minerals Decree of 1994. Among other changes, the new act raised royalty rates for precious stones and minerals. Diamonds now carry a 6.5 percent royalty (15 percent in the case of "special" stones valued at over $500,000), up from five percent, and precious metals such as gold have a five percent royalty, up from four. All royalties are to be assessed based on market value.

The petroleum sector is regulated by the Petroleum Exploration and Production Act of 2001. Under this Act, Sierra Leone developed a model petroleum agreement which provides a 10 percent royalty, a 37.5 percent income tax rate and annual rental between $30 and $100 per sq. km. After the Venus discovery the government initiated a process of reviewing the Petroleum Act and building the capacity of relevant institutions in readiness for the emerging oil and gas sector. The government submitted a revised Petroleum Exploration and Production Bill to parliament in July 2011 that included several clauses seeking to improve transparency, including a requirement that oil contracts be awarded only through competitive auctions, that contracts be published and that payments be disclosed in accordance with the terms and procedures of EITI. The bill was approved by a process that lacked the opportunity for debate, which has resulted in disputes between civil society groups and the government over questions of due process and public consultation.

The law also requires dedicated reporting, disclosure and dissemination of information related to revenues and payments by both mineral rights holders and the government, which provides the legal basis to make implementation of the EITI compulsory. The law goes some distance to make this an obligation of the license holder, and makes contravention a prosecutable offense.

The Diamond Area Community Development Fund

The government of Sierra Leone established the Diamond Area Community Development Fund (DACDF) in 2001 to support development in mining areas. The fund is managed by the Ministry of Mineral Resources and receives 0.75 percent of the three percent diamond export tax. There is increased agitation in civil society and mining communities for raising this amount to 1.5 percent. The money is disbursed twice yearly (in June and December) to each chiefdom through its development committee, which is headed by the paramount chief and includes representatives of both local government and the community.
The amount allocated to each chiefdom is based on the number of mining licences in that chiefdom. The district councils receive 15 or 20 percent of the funds and town councils receive five percent, depending on whether the chiefdom is part of a town council. In 2007, diamond mining companies paid $885,561 into the DACDF and the number of chiefdoms benefiting from the fund was around 50. Due to sector fluctuations, however, the fund’s value was estimated in one report to have shrunk to about $530,000 by 2008. As of 2010, about 70 chiefdoms were receiving DACDF funds.

Since its inception the DACDF has contributed to improvements in local infrastructure for schools, clinics and roads. It also urges communities to discourage smuggling and illegal mining activities. However, studies conducted by NACE members reveal that the DACDF has been fraught with problems linked to poor governance at the local and community levels. The reported challenges include corruption, cronyism, lack of transparency and accountability, and lack of monitoring by the Ministry of Mineral Resources (Sierra Leone at the crossroads: Seizing the chance to benefit from mining, NACE, 2008).

The 2009 law introduces additional requirements for large-scale license-holders (and selected small-scale operators) to enter into a Community Development Agreement with affected communities prior to the start of mine development. The law also requires the establishment of a minimum expenditure requirement of 0.1 percent of annual gross revenue to be allocated by mineral rights holders to community initiatives.

Stronger monitoring and accountability mechanisms are sorely needed at the government and community levels in order to ensure that the DACDF operates for the genuine benefit of the mining communities.

  1. 1. Industry figures and national economic indicators from IMF, EIU, Bank of Sierra Leone and the Ministries of Mineral Resources and Statistics, Sierra Leone.