UTILIZING A MODIFIED FDI FRAMEWORK FOR IMPLEMENTING CDM PROJECTS IN SIERRA LEONE

1. UTILIZING A MODIFIED FDI FRAMEWORK FOR IMPLEMENTING CDM PROJECTS IN SIERRA LEONE ANDREW K.KEILIEXECUTIVE DIRECTORCEMMATS GROUP LTD., SIERRA LEONE

2. BACKGROUND • The CDM should meet emission commitments and engender sustainable development in developing countries. • Cost considerations and institutional settings are important in attracting CDM investors • Existing channels handling Foreign Direct Investment (FDI) matters in developing countries could be made to handle CDM matters as FDI and CDM are interlinked • Africa has seen a pronounced decline in flow of FDI since 1990. Although Africa’s share of CDM will be small and implementation costs are likely to be high and often not competitive, FDI experience should offer useful lessons for implementing CDM projects.

3. OBJECTIVE OF PRESENTATION To analyse the FDI process and procedures for Sierra Leone and determine the extent to which the framework can be strengthened to meet CDM institutional needs especially those relating to the DNA

4. THE SIERRA LEONE ECONOMY Sierra Leone is recovering from a ten-year rebel war which has hampered economic growth. • qThe economy is based on the exploitation of natural resources, notably agricultural, marine and mineral resources. • q Public sector influence is pervasive in economic activity • qHigh debt servicing affects public investment • qThe GDP in 2002 was $829 million with a per capita GDP figure of $160

5. THE SIERRA LEONE ECONOMY- • qThe % contribution to the GDP by sector are: Agriculture (44.1), Industry (24.4) and services (27.1). The breakdown for the industrial sector by sub sector is: Mining and quarrying (13.6), Manufacturing and handicrafts (6.2), Electricity and water supply (1.8) and Construction (2.8). • qPrivate sector investment rose to 1.7 % of GDP in 2002 from 1.3% of GDP in 2001. Private investment is projected to rise to 4.7% of GDP in 2003

6. CONSTRAINTS TO ECONOMIC GROWTH The sparse coverage, unreliability and extremely high costs of services provided by state utilities and transportation problems constitute huge barriers to sustainable economic growth. Constraints to economic growth include: • qAccess to capital • qLegal impediments • qUnyielding bureaucracy • q     A financial system largely insensitive to the business community • qLack of support services (mainly infrastructure services) • qPoor macroeconomic environment • qAttitudinal problems (the foremost being corruption). There is however now a realization that these factors ought to be addressed. There is also a much greater awareness in government of factors influencing investment in a country.

7. FDI IN SIERRA LEONE FDI is a wide area and aspects of it are handled by various Ministries. FDI inflows to Sierra Leone were small at $4.9m and $4.0m respectively in 2000 and 2001. Corresponding figures for South Africa were $887.9 and $6052.7 and Ghana $114.9 and $89.3.

8. ROLE OF GOVERNMENT MINISTRIES AND AGENCIES IN INVESTMENT MATTERSAn examination of the functions of three key Ministries is relevant in assessing the link between FDI and CDM in Sierra Leone. qThe Ministry of Finance develops and manages macroeconomic, financial, monetary and fiscal policies. It handles privatization issues and granting, controlling and monitoring financial concessions given to various investorsqThe Ministry of Lands, country planning and the environment develops appropriate policies and programmes for Lands, Forestry, Town and Country Planning and the environment. It develops national environmental policy and maintains relations with international organizations dealing with environmental issues.

9. ROLE OF GOVERNMENT MINISTRIES AND AGENCIES IN INVESTMENT MATTERS • The Ministry of Trade and Industry develops policies and programmes to stimulate local and export trade and enhance investment and economic growth. Its mandate covers private sector development, National Bureau of Standards, promotion of new enterprises and investment and industrial development and research.qOther technical ministries are also involved in investment matters relating to their areas of expertise eg. the Ministries of Mineral Resources, Energy and Power, Marine Resources and Transport and Communications

10. TRADE AND INDUSTRY MINISTRY IN THE AVANT-GARDE FOR ATTRACTING INVESTMENTSInvestment matters had been within the purview of various ministries, who took the lead in investment matters in their own areas. The Trade and Industry Ministryis now in the avant-garde, liaising extensively with the various Ministries. The new Investment Code dwells heavily on the “one stop shop” concept and the Trade and Industry Ministry will play an even more central role in investment matters. The Ministry is being restructured to be able to effectively perform its myriad functions in trade, industry and investment matters. Its responsibility for the enhancement of investment, private sector development, industrial development and research makes it a key player in FDI matters

11. INVESTMENT DOCUMENTATION • Investment code Draft code covers the following: • ØPriority sectors for investment • ØQualifying enterprises for incentives • ØEstablishment and registration of enterprises • ØInvestment facilitating and advisor groups • ØGeneral and specific incentives • ØOther issues like repatriation of profits, research and training, foreign exchange regulations and settlement of disputes.

12. INVESTMENT DOCUMENTATION • SLEDIC publications • The main issues addressed in this publications are: • ØInvestment climate and priorities • ØGuarantees to investors • ØMarket access • ØMajor investment opportunities • Ø     Registration and Investment approval process • Ø      Major areas for interest and potential projects • Information bulletins from various Ministries • These include Tourism, Mineral Resources etc. • Chamber of Commerce • Miscellaneous documents and general information

13. ASSISTANCE TO INVESTORS • qAn investment Facilitating Committee (IFC) under the Ministry of Trade and Industry will assist investors in obtaining permits, licenses and certificates of clearance, serve as a general source of information to investors and help in identifying joint venture partners in Sierra Leone. • q       SLEDIC provides basic information on the investment climate in Sierra Leone, detailed information on investment rules and procedures, investment opportunities, financing and offers assistance in arranging visits.

14. ASSISTANCE TO INVESTORS • q   Various Acts and regulations deal with different types of investments that are available directly at the Government Bookshop or through SLEDIC • q       Local technical and financial consultancies are also available to provide specialist advice to investors. • q       Technical information can also be garnered directly from the line Ministries • Chamber of Commerce offers miscellaneous types of assistance

15. EVALUATION AND QUALIFICATION CRITERIA FOR INVESTMENT PROJECTS Presently, line Ministries may evaluate specific projects dealing with their Ministries using technical, financial and economic criteria. Major projects are ratified by the cabinet. The Trade and Industry Ministry intends to develop evaluation criteria for projects in concert with various line Ministries. Evaluation procedures can be discerned from the qualifying criteria for various projects outlined in the Investment Code or specific regulations relating to a particular industry. Criteria for qualification vary by the type of industry. Financial resources of the investor and qualifications and experience in the particular field are usually of paramount importance. There is now a requirement for most industries to carry out an EIA study.

16. PROCEDURE FOR ESTABLISHMENT AND REGISTRATION OF ENTERPRISES

17. The Managing Director of SLEDIC or his representative who shall be the Chairman The Commissioner of Income Tax or his representative The Administrator and Registrar-General or his representative The General Manager, National Tourist Board or his representative The General Manager, Ports Authority or his representative The Directror of Surveys and Lands or his representative The Comptroller of Customs and Excise or his representative The Director of Standards Bureau or his representative The Head of Trade Division of the Ministry of Trade and Industry or his representative The Director of Industries of his representative, and The Commissioner of Labour or his representative; Composition of Investment Facility Committee(IFC)

18. MONITORING • qGeneral monitoring during the operational phase of a project is often carried out by the allied line Ministry. • The Ministry of Trade and Industry is however endeavouring to build up its capacity to enable it monitor projects

19. SETTLEMENT OF DISPUTES Enterprises are guaranteed full protection and security. The matter of settlement of disputes could be handled in specific agreements. The procedures for settlement of disputes as outlined in the investment code are as follows: • qMutual negotiation so as to reach an amicable settlement. • qWhen mutual negotiations fail, arbitration could be by following procedures related to either: • The United Nations Commission on International Trade Law and the settlement of disputes of The WTO • The framework of any applicable bilateral or multilateral agreement on investment protection. • Any other national or international machinery for the settlement of investment disputes agreed to by the parties

20. CONFIDENTIALITY The section in the Investment Code on official secrecy reads thus: Any person who, in the course of his official duties in the administration of this Act, has possession of or control over any document or information obtained under this Act and who transfers or communicates such document or information or any part of it to any other person to whom he or she is not authorized to transfer or communicate it by any enactment or by the Committee, commits an offence and is liable on conviction to a fine not exceeding Le3,000,000 (US$1200) or to imprisonment for a term not exceeding two years or both such fine and imprisonment”

21. PROMOTION OF FDI • qVarious Ministries may make sales pitches abroad on an ad hoc basis to attract FDI to areas in their Ministries. • q    The Investment Advisory Council is responsible for making and approving recommendations for increasing Sierra Leone’s effectiveness, promoting the country’s image etc. • q    The Trade and Industry Ministry also sends Trade Attaches to various Diplomatic Missions. • SLEDIC arranges trade fairs and trade missions, the development and promotion of Sierra Leone’s exports and serves as a forum for dialogue

22. ENVIRONMENTAL REGULATIONS Environmental Protection Act (National Environmental Protection Act, 2000) passed • qAll medium scale and large scale companies should prepare EIAs and obtain an environmental license before starting operations. • qA National Environmental Protection Boardreviews national and sectoral environmental policies, EIAs, advises the Minister and undertakes special studies and research for environmental protection. • q TheDirector of the Environment is responsible for the promotion of goals and strategies, monitoring, setting of standards, education and training, coordination of national policies and the provision of environmental data and information.

23. PROJECTS REQUIRING ENVIRONMENTAL IMPACT ASSESSMENT LICENSES Projects whose activities involve or include the following:- • qSubstantial changes in renewable resource use • qSubstantial changes in farming and fisheries • qExploitation of hydraulic resources • q Infrastructure (e.g. roads, airports, railways) • qIndustrial activities (e.g petro-chemical plants) • qExtractive industries (e.g. mining, oil and gas) • qWaste management and disposal • qHousing construction and development schemes • qEntertainment places, motor garages, welding shops • Importation of second hand vehicles

24. PROCEDURES FOR APPROVING EIAs The procedures are illustrated in Fig.2. EIAs are approved by the Environmental Board. Screening and scoping stages precede the carrying out of EIAs. Most major industries are required to carry out EIAs.

25. THE EIA PROCESS

26. SPECIFIC ASPECTS TO BE TAKEN INTO CONSIDERATION IN APPROVING PROJECTS The Environmental Act states that an EIA shall contain a true statement and description of – • q       The location of the project and its surroundings • q       The principle, concept and purpose of the project • q      Direct or indirect effects of the project on the environment • q      The social, economic and cultural effects that the project is likely to have on people and society • q   Communities, interest parties and ministries consulted • q   Any actions or measures which may avoid, prevent, change, mitigate or remedy the likely effect on people and society • q       Any alternatives to the proposed project • q       Natural resources in the locality to be used in the project • q       The plans for decommissioning of the project • q     Any other information necessary for review of project impact

27. ENVIRONMENTAL MONITORING Monitoring is done by the Director of the Environment. EIAs address independent monitoring. Companies may nominate independent groups to periodically monitor aspects of environmental management plans. The Director of the Environment may: • q Request project information or documentation • q  Enter, inspect and search project premises,vessels, vehicles or facilities • q       Perform tests and take samples of any substances relating to possible offences • q Seize documents, items, toxic or hazardous substances that are in breach of provisions in the Act. • Arrest suspects who could have committed an offence

28. PENALTIES FOR NON COMPLIANCE WITH ENVIRONMENTAL PROVISIONS Section 37 of the Environmental Protection Act, 2000 states thus: “Where any offence has been committed by a company or by a member of a partnership, firm or business, every Director, Manager, Secretary or other officer of that company directly connected with the project or any other member of the partnership or other person connected with the management of such firm or business shall be liable for such offence unless he proves to the satisfaction of the court that a)    he used all due diligence to secure compliance with the Act; and b)   such offence was committed without his knowledge, consent or connivance. Contravening provisions of the Act relating to toxic or hazardous wastes and banned chemicals and substances makes the defaulter liable on conviction to a fine of up to exceeding two million leones (US$800) or to a term of imprisonment of up to two years or both

29. USING THE FDI FRAMEWORK FOR CDM • In many ways, eligible projects under the CDM compare well with priority projects for investments in Sierra Leone. The Project cycle for the CDM includes the following: • qProject design and formulation • qNational approval • qValidation/registration • qProject financing • qMonitoring • qVerification/certification and issuance of CERs

30. USING THE FDI FRAMEWORK FOR CDM The first 5 stages in CDM project cycle are similar to FDI’s • qThe National Approval is similar to the approval given within the ambit of the Investment Facilitating Committee • qThe structure of information required for the project design document of the CDM is the same as that required for FDI • q For validation and registration a designated operational entity will review the project design document. These would typically be private companies. A validation exercise by outside experts could also accompany many FDI related projects. • qMonitoring, verification and certification functions are carried out as required by EIAs or by specific requirements of particular industries. • qAs with FDI projects, the technical review of projects can often involve the ministries and bureaus of the relevant sector • q      The legal framework required for FDI would also apply to CDM

31. LEGAL FRAMEWORK • qBusiness related legislation has not kept pace with developments in the business sector. • q       The judicial process is largely slow and self-defeating. The judiciary lacks the ability and resources to enforce the law judiciously • q     Though not comprehensive there are various laws and regulations that relate to investing in Sierra Leone. Domestic laws include environmental assessment and planning laws, laws in relation to foreign investment, tax and financing laws, foreign investment laws, contractual laws and employment laws.

32. LEGAL FRAMEWORK •  There are various regulations relating to foreign ownership, exchange controls, inward investments, currency accounts, repatriation of capital and earnings • q  There are various Acts dealing with investment issues. Specific industries also have Acts regulating their operations. • q  The government is aware of the need for appropriate legal institutions with accompanying legislation to protect investments and enforce contracts. The Law Reform Commission and the Privatisation Commission will look into such issues.

33. CONCLUSION ON DNA • qPlacing the DNA Authority under the ambit of SLEDIC within the Ministry of Trade and Industry will be a good idea • q   SLEDIC will spearhead the “one stop shop” concept its Investment Facilitating Unit will be the first port of call of investors. • q Its link with the Ministry of Trade and Industry whilst having some degree of autonomy and flexibility makes it ideally suited to perform tasks required by the DNA. • q      It is feasible to recruit a mixed public and private sector experience within SLEDIC. • q      The Trade and Industry sections of the Ministry will provide support as will the technical arms of other Ministries. • q      SLEDIC however needs to be revamped equipped and staffed to perform the DNA functions • q    Monitoring functions can be handled by the Standards Bureau, line Ministries and the environment by the Environmental Directorate as applicable

34. GENERAL CONCLUDING STATEMENT ON SIERRA LEONE The DNA can certainly be placed within the ambit of SLEDIC. There will however be need to address many of the factors militating against investing in Sierra Leone. Problems with access to capital, legal impediments, unyielding bureaucracy, the seeming insensitivity of the financial system to the business community, poor infrastructure and poor macroeconomic environment would need to be seriously addressed. The various good governance programmes, the renewed commitment to accountability in the public service, implementing the various donor programmes for infrastructure and attempts to revamp the legal system will all help in making Sierra Leone attractive for doing business and for implementation of CDM projects

35. THANK YOU!ANDREW K.KEILIEXECUTIVE DIRECTORCEMMATS GROUP LTD.DELCO HOUSE12 LIGHTFOOT BOSTON STREETFREETOWNSIERRA LEONETEL: 232 22 228702FAX: 232 22 229848akeili@sierratel.sl