Sierra Leone - looking at resources in a new light
In the last few years serious money has been flowing into Sierra Leone, and that's overwhelmingly due to one factor - mining.
Posted: Friday , 05 Oct 2012
LONDON (Critical Resource) -
Resource firms need to think big, and small, in Sierra Leone
Rarely is the connection between natural wealth and national tragedy as intense as in Sierra Leone. Like the tired talk of Congo's ‘dark heart', Sierra Leone and its ‘blood diamonds' are closely intertwined in the international imagination.
But the Sierra Leone of 2012 has done much to try and shake that stereotype. A powerful cocktail of indomitable Sierra Leonean spirit, coupled with a decade of donor aid and international assistance has seen the country make a startling recovery from one of Africa's most brutal civil wars.
Now the government and people of Sierra Leone are beginning to see their abundant natural resources in a new light - as are many international mining and oil firms. Opportunities for resource firms are plentiful, but so is the challenge facing them and the government in making sure Sierra Leone's natural wealth is a spur for development, not renewed conflict. Companies will need to think big, and small, to play their part in meeting that challenge.
The great leap forward
Next stop, China
After the destruction of a decade-long civil war, Sierra Leone remains in a poor state. Sitting close to the bottom of the UN's Human Development Index, investment in basic infrastructure - especially roads - is badly needed. UN statistics estimate more than 70% of the population is in acute poverty, and swathes of the country are without access to clean drinking water.
But in the last few years serious money has been flowing into Sierra Leone, and that's overwhelmingly due to one factor - mining. Two UK-listed mining companies are leading the charge. Despite a recent fall in commodity prices, African Minerals and London Mining have both begun exporting iron ore from their Tonkolili and Marampa mines respectively. Both have in differing degrees been challenged by stakeholders and been subject to controversy, but their very existence is an encouraging symbol of progress.
Iron ore is just the start. Foreign investment in gold, diamond and rutile mining is already in place, and the government is now seeking to attract investment in the country's offshore oil industry, with Repsol, Tullow and others funding exploration drilling. The impact of this investment has already been transformative. Revenue flowing to the government from the resource industry is forecasted to cause a colossal 34% growth in GDP for 2012 - the second highest rate of growth in the world.
Behind the impressive statistics, this investment is something you can touch and see. Taking the back roads out of Freetown, lurching through rain-filled craters, you pass team after team of workers busily carving new roads through the rich, red earth. Foremen in conical doulis stand out amongst the crowds - the Chinese too are here, their presence raising the predictable emotions of hope and suspicion in equal measure. And roads are just the start. The mining boom has seen huge investment in new railways and port infrastructure to help speed the shipments of minerals out to international markets.
Only the brave
But with international miners like Rio Tinto, BHP Billiton and Vale active in neighbouring Guinea and Liberia, the absence of the big mining players in Sierra Leone may be telling. Fears of corruption have played a role in keeping the majors out. Sierra Leone ranks 134th out of 183 on Transparency International's Corruption Perceptions Index, and small scale corruption is a matter of daily life.
In an attempt to encourage the bigger players, the government has made efforts to tackle corruption in the extractive sector specifically. Candidate status for the Extractive Industries Transparency Initiative (EITI) has been granted, and a new online minerals database was launched in January 2012. Supported by the UNDP and World Bank, it is designed to make publicly available all information on payments made by resource firms to the government. However some have questioned both the government's ability, and willingness, to implement the scheme properly.
Corruption aside, an immediate challenge facing resource companies will be steering clear of the tense political battle expected this November. Voters will go to the polls to elect a president for the third time since the war's end, and many in the industry are holding their breath.
In Sierra Leone, political allegiance is often strongly linked to ethnicity. Voters for the two largest political parties are drawn from the country's two biggest ethnic groups. Suspicions run deep that those who win political office only seek to serve - and enrich - their own.
The opposition candidate's warning that he may revisit mineral contracts if elected to ensure a ‘fair deal' for the country should worry those already invested in the country. There are also fears the election could be marred by violence (a recent import of heavy weapons for the police has foreign diplomats particularly worried).
Challenges, big and small
Looking beyond the elections, resource firms will continue to face other challenges operating in Sierra Leone. Whoever triumphs in November, the ‘winner takes all' mentality of Sierra Leone's ethnically charged politics could make ensuring the whole country benefits from the resource boom more difficult. One of the significant drivers of the civil war was resentment over the inequitable distribution of the country's natural wealth.
Unless the proceeds of this round of resource extraction are handled more equitably, a return to conflict is a possibility - and resource firms could find themselves in the firing line. Keeping an eye on the big picture by supporting government efforts to manage revenues and tackle corruption at the national level should therefore benefit resource firms in the longer term.
But at the same time, companies - particularly miners - need to keep an eye on the very localised consequences of their investments. These ‘side-effects' have the potential to create local discontent, which can quickly rebound on operations. In Makeni, the nearest major town to the Tonkolili and Marampa mines, many of these are already clear to see.
Makeni has seen its population swell dramatically in the last few years. Many have come from the countryside to seek work in the mines, or to find any jobs they can in a town feeding off the boom. Even in the heavy humidity of monsoon season there's an excited energy to the place. But alongside the bustle of those embracing new economic opportunities are the creeping ills of overcrowding, rapid social change, price inflation and frustrated expectations.
Walking the streets after midnight with the social workers of ‘Street Child of Sierra Leone' (SCoSL), a painful reminder of one of these very localised problems emerges. A young boy, Dauda, who informs us he is 8 years old, blinks in the torch-light as he peers out from underneath a market-stall. His family, he relates timidly, moved from the country to Makeni in search of work. But like for so many others, the reality did not match expectations. Faced with little work and rising prices, Dauda's parents could no longer afford his school fees, and soon afterwards his food. So now he, like too many of Makeni's children, makes his own way living, working and sleeping on the streets.
Roles and responsibilities
Sierra Leone's latest resource boom is a deserved one. The surge in government revenues, if managed properly, could be put to immediate use addressing chronic underinvestment in education, healthcare and infrastructure in this traumatised nation. It's a challenge in which the government, civil society, international organisations and resource companies all have a part to play.
For companies, calculating how best to play their particular role in meeting this challenge can appear daunting. To build a strong social license, companies would be best advised to be seen delivering meaningful, sustainable improvements alongside responsible operations. At the same time they must remember (and remind stakeholders) that they are private companies, not a substitute government - an essential distinction in an environment where expectations are so high.
In Sierra Leone, natural resources have a controversial past. Getting it right this time will be a difficult task for companies and the government alike, but few countries merit a second chance at success more than Sierra Leone.
*Alex Bescoby, Critical Resource associate (recently returned from Sierra Leone) Critical Resource is an advisory firm specializing in political risk and sustainability issues around natural resource investments. The above article has also been published on the Critical Resource website - www.c-resource.com