(Ecofin Agency) – Rich in mineral resources, Sierra Leone is a producer of iron ore, diamonds, gold and mineral sands. The IMF indicates that the mining sector of this West African country generated 24.1% of national income in 2012. A share which has fallen significantly since then.
Sierra Leone’s mining revenues represented 8.1% of its public revenues in 2023, compared to 24.1% in 2012. This is revealed by an IMF report published in October 2024, attributing this significant decline to a combination of internal and external factors, including developments in the iron ore segment.
The document analyzes the evolution of the country’s mining revenues over the period 2010-2023. From 2010 to 2014, they exceeded 20% of annual public revenues on 3 occasions (2011, 2012 and 2013), remaining at 11.1% in 2010 and 17.3% in 2014. In 2015, this share fell to 9.7% and will only exceed 10% 3 times over the next 8 years.
As a percentage of GDP, the IMF indicates that 2 phases characterize the period analyzed, the “good” phase going from 2010 to 2014 for mining revenues which represented on average around 1.5% of GDP, with a standard deviation of around 0.3. They then halved to represent 0.7% of GDP on average over the period 2015-2023.
Ebola crisis and drop in iron ore prices
To explain the significant drop in mining revenues, the IMF puts forward in particular the impact of the health crisis created by Ebola disease in 2014, and which was the deadliest epidemic in the world since the discovery of the virus in 1976. According to a document of the government entitled “National Ebola Recovery Strategy for Sierra Leone, 2015-2017”, the epidemic has almost completely stopped artisanal gold and diamond mining activities, due to restrictions imposed on the movement of people.
On the other hand, she only had “ little direct effect on mining production in 2014, as major companies generally achieved planned production levels that year “. The other part of the IMF’s explanation nevertheless matches that of the Sierra Leonean authorities, in this case the impact of world iron ore prices on the local industry.
« The sudden fall in the price of iron ore led to the two iron ore companies being placed into administration at the end of 2014/beginning of 2015 […] Prices continued to fall to their lowest level in several years (end of March 2015), which does not bode well for this sub-sector. » indicates the government in its report.
Sierra Leone is indeed one of Africa’s main producers of iron ore, and this raw material was its main export product in 2014, with USD 742 million in revenue generated, according to the Transparency Initiative in the extractive industries. Between falling prices and falling production, export revenues have fallen significantly since then, and iron ore has become the 3rd in 2021e product exported by the country behind diamonds and rutile.
IMF levers to increase mining revenues
To stem this marked drop in mining revenues, the IMF is putting forward several reforms and avenues for improvement. For example, rigorous enforcement of the Extractive Industries Revenue Act (EIRA) of 2018 could better take advantage of commodity price changes and ensure more balanced taxation for new investments. To date, the impact of the EIRA remains limited, with no ongoing mining projects yet subject to the new rent tax introduced by this law.
The Bretton Woods institution also calls for strengthening the capacities of national agencies including the National Revenue Authority (NRA), with a view to improving the collection of royalties and the fight against abusive price transfer practices, which consist of multinationals to manipulate the prices of transactions between their subsidiaries in different countries. These practices allow them to artificially shift their profits to jurisdictions with lower tax rates, thereby reducing tax revenue for countries like Sierra Leone.
Finally, the report highlights the potential for diversifying revenue sources beyond current fees and taxes, while encouraging greater local value added. For this, the recent creation of a national mining development company could play a key role, provided that it is part of a strategy aligned with the country’s development objectives and that it demonstrates transparency.
Emiliano Tossou
Edited by: Feriol Bewa
