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Sierra Leone: Losing Out

AfricaFocus Bulletin
January 6, 2015 (150106)
(Reposted from sources cited below)

Editor's Note

According to World Bank estimates in December, Sierra Leone is the country that has suffered the greatest economic losses from the impact of Ebola. Economic growth, estimated at a 11.3% annual rate in the first half of 2014, contracted at a 2.8% annual rate in the second half of the year, and was projected to drop another 2% in 2015. Such massive losses not only illustrate the profound impact of Ebola; they also raise questions about the nature of the growth that left the country so vulnerable to the epidemic.

It is now generally accepted that weak health systems left Sierra Leone, Liberia, and Guinea particularly vulnerable to Ebola, a vulnerability that was heightened by the lack of a timely international response. But the debate has barely begun about the many reasons for such systemic weaknesses. Weaknesses are cumulative and causes multiple, of course, including the destruction caused by wars, internal failures to prioritize health, and the policy advice of international agencies.

In recent weeks there has been a flurry of debate on the role of IMF policy advice, sparked particularly by a "comment" in the Lancet medical journal on December 22 ( At least of equal importance, however, is a structural issue that has received much less attention, namely tax revenues foregone due to deals with multinational companies to promote investment in mining. Such "tax expenditures," according to an NGO report released in early 2014, cost Sierra Leone hundreds of millions in potential revenue. In 2012, for example, tax expenditures primarily for six firms were equivalent to 59% of the entire government budget, and more than eight times greater than expenditures on health.

Increasing both national and international spending on basic health structures is essential not only to dealing with the current epidemic but also to prepare sustainable health systems to cope with future risks. But while there has been much discussion about the details of learning from Ebola, there still seems little recognition of the need for this fundamental shift in priorities.

This AfricaFocus Bulletin contains excerpts from two documents: the first the report from April 2014 by a coalition of non-governmental organizations on tax revenue losses in Sierra Leone, particularly in mining deals through 2012, and the second the article from the Lancet on the impact of IMF policies in weakening sustainable healthcare funding in Sierra Leone and the other two countries most affected by Ebola.

Other related resources on Sierra Leone economy:

"Big jump in revenues from Sierra Leone's extractives sector" 22 January 2014 EITI (Extractive Industries Transparency Initiative) Report shows that revenues are up by almost four times [in 2011] but remain a small part of the economy.

Sierra Leone Economic Outlook 2014

World Bank Report December 2014
"Ebola: Growth Shrinking, Economic Impact Worsening in Guinea, Liberia, and Sierra Leone"

Guardian article on Sierra Leone tax breaks report, April 15, 2014

Human Rights Watch, "Sierra Leone: Mining Boom Brings Rights Abuses," February 2014

And for even more on the IMF and Ebola debate, Washington Post, Jan 5, 2015 - roundup by Adia Benton and Kim Yi Dionne - "five readings for folks to consider the argument that the IMF -- and the international political economic context, more generally -- helped shape the landscape in which Ebola emerged in West Africa last year."

For previous AfricaFocus Bulletins on health issues, visit

For previous AfricaFocus Bulletins and other links on Sierra Leone, visit


Ebola Perspectives

[AfricaFocus is regularly monitoring and posting links on Ebola on social media. For additional links, see]

Recent particularly notable in-depth articles include two in the New York Times:

* "How Ebola Roared Back," Dec. 30, 2014 - extensive multi-page feature analysis of how Ebola spread in early 2014, with many missed opportunities to stop transmission. Important lesson validating need to have "zero bases" or risk rapid new epidemic transmission

* "Ebola Doctors Are Divided on IV Therapy in Africa," Jan. 2, 2015 - Important debate on best treatment strategy for #Ebola - IV hydration necessary or too risky under current conditions in treatment facilities? Fight against epidemic far from over & the answers for immediate action by health workers on the spot, given existing conditions, not obvious. But this debate also points to need to change fundamental assumptions and work towards equal standard of care, making the best possible care available everywhere it is needed.

++++++++++++++++++++++end editor's note+++++++++++++++++

Losing Out: Sierra Leone's massive revenue losses from tax incentives

April 2014

Available from Tax Justice Network Africa and partner organizations (see below for listing of acknowledgements) / direct URL:


This report is the first attempt in Sierra Leone to analyse the government's 'tax expenditure' -- i.e., the amount of revenues lost by the government's granting of tax incentives and exemptions. It shows that these revenue losses are extremely large. This means that the government is spending far less than it could on the country's urgent development priorities, such as health, education and agriculture.

Taxes raised from companies and individuals fund key public services needed to promote the welfare of the population and reduce poverty. But tax incentives granted by the government are a major reason for Sierra Leone's low tax revenues. The UN estimates that Least Developed Countries need to raise at least 20 per cent of their GDP through taxes to meet the Millennium Development Goals by 2015. Yet Sierra Leone is way off this target, currently raising only around 10.9 per cent of GDP in taxes. The major tax incentives provided by the government include exemptions on customs duties and payments of the Goods and Services Tax, along with reductions in the rate of income tax payable by corporations, which are being granted supposedly to attract foreign investment.

A transparent tax system supports good governance and the accountability of policy-makers towards the public. But the granting of special tax incentives in opaque deals, at the discretion of individual ministers, without public scrutiny, undermines good governance and can increase the risk of corruption. It is not suggested that any of the companies mentioned in this report have been involved in any illegitimate activity. Tax incentives are granted in many countries simply to promote political patronage, not socioeconomic goals. In Sierra Leone, parliament and the public lack information about the tax incentives granted and are usually not aware of the details until after they have been agreed, and sometimes not even then. It is currently impossible for elected parliamentarians, the media and civil society to scrutinise and debate these deals properly to ensure that the country optimally benefits.

Revenue losses

Current tax incentives are resulting in massive revenue losses for Sierra Leone. Using figures obtained from the National Revenue Authority, we estimate that the government lost revenues from customs duty and Goods and Services Tax exemptions alone worth Le (Sierra Leonean Leone) 966.6bn (US$224m) in 2012, amounting to an enormous 8.3 per cent of GDP. In 2011, losses were even higher -- 13.7 per cent of GDP. The annual average loss over the three years 2010-12 was Le 840.1bn (US$199m).

There has been a massive rise in revenue losses since 2009 -- the result of tax incentives granted to the mining sector in relation to the major investments that took place during 2010-2012. However, the government is set to lose further revenues by providing significant corporate income tax incentives to mining companies. We estimate that the government will lose revenues of US$131m in the three years from 2014-16 alone from corporate income tax incentives granted to five mining companies -- an average of US$43.7m a year. Nearly all of these losses are the result of the agreements with African Minerals and London Mining.

If tax expenditure continues in its present trend, it is likely that Sierra Leone will lose more than US$240m a year from tax incentives in the coming years.

Development foregone

Tax expenditures could instead be spent on improving education and health services, investing in agriculture -- the backbone of the economy -- and in providing social protection to vulnerable groups. It will be impossible for the government to implement its poverty reduction strategy, the Agenda for Prosperity, without a large increase in revenue. Yet, in 2011, the government spent more on tax incentives than on its development priorities, and in 2012 spent nearly as much on tax incentives as on its development priorities. In 2012, tax expenditure amounted to an astonishing 59 per cent of the entire government budget. Put another way, government tax expenditure in 2012 amounted to more than eight times the health budget and seven times the education budget. Problems with tax incentives

Proponents of tax incentives often argue that they are needed to attract foreign investment but evidence from elsewhere in Africa suggests that in most cases they are not. A report by the African Department of the International Monetary Fund, focusing on tax incentives in East Africa, notes that 'investment incentives -- particularly tax incentives -- are not an important factor in attracting foreign investment'. The countries that have been most successful in attracting foreign investors have not offered large tax or other incentives; more important factors in attracting foreign investment are good quality infrastructure, low administrative costs of setting up and running businesses, political stability and predictable macro-economic policy.

Government officials in Sierra Leone, interviewed for this research, thought that the tax incentives for the extractive sector were excessive and resulted in a huge loss of revenue. They argued that government should provide an improved enabling environment for foreign investment, such as good infrastructure, rather than providing incentives.

Government policy

There are three major problems with government policy on tax incentives. First, too many tax incentives are granted to individual companies at the discretion of a very small number of ministers and officials. Such a system can lead to an increased risk of corruption and the possibility that deals will be offered to companies that are outside or go beyond national legislation. In fact, Sierra Leone's constitution requires tax waivers to be approved by parliament.

Secondly, related to this, transparency is extremely poor. Many of the tax incentives are negotiated behind closed doors between government and companies, with no effective parliamentary or media scrutiny. The government does not publish any figures on total tax expenditure. Thirdly, the government has produced no solid economic rationale for offering widespread tax incentives in Sierra Leone. Assumptions are casually made about the effectiveness of tax incentives, but no convincing case has been presented.

In our interviews, officials from the National Revenue Authority expressed frustration at the current fiscal regimes, saying that there was insufficient consultation between the agencies granting the tax incentives (the Ministry of Mines and Mineral Resources, in the case of mining) and those responsible for generating revenue, such as the National Revenue Authority. A deeper underlying problem is that tax revenue collections in Sierra Leone have often been politicised. Tax incentives are often seen as tools for delivering political patronage -- providing benefits to key segments of society to maintain political influence.

It is unclear if the government is committed to increasing or reducing tax incentives. For example, the Budget Speech for 2011, delivered in November 2010, outlined a 'comprehensive range of tax incentives' for investors while at the same time announcing a new Revenue Management Bill that would aim to reduce them.

Implementing the draft Revenue Management Bill is crucial in that it would require the government to publish a statement of its tax expenditure, detailing all tax exemptions, the beneficiaries and the revenue foregone. The Bill was meant to be effective from 2011, but progress towards enacting it has been very slow. Moreover, the government's latest Letter of Intent to the International Monetary Fund, of September 2012, which outlines continuing tax reforms, says nothing about reducing tax expenditure. Similarly, the 2013 Budget Speech committed the government to 'review the import duty exemptions regime' but said nothing about generally reducing tax expenditure.


We recommend that the government should:

  • enact the Revenue Management Bill into law as soon as possible and ensure that the Bill commits the government to produce an annual public statement on its tax expenditure, the beneficiaries and revenue losses
  • ensure that the Revenue Management Bill includes an additional clause that mandates the Ministry of Finance and the National Revenue Authority to provide parliament with a costbenefit analysis of all tax incentives granted
  • review all existing tax incentives granted with the purpose of reducing them, and ensure that parliament is able to play an oversight role in this
  • abolish discretionary tax incentives (ie, those given to individual companies or organisations). Any tax incentives granted must be in accordance with national legislation, and the same for all companies/organisations in that sector. This means that all current mining agreements must be reviewed and revised where necessary, to bring them into line with legislation
  • ensure that fiscal regimes in specific sectors, especially mining and agriculture, are subject to proper parliamentary debate and approval and subject to cost/benefit analyses
  • ensure that audits are undertaken to guarantee company compliance with fiscal regimes and sectoral tax incentives
  • work with other governments in the Economic Community Of West African States (ECOWAS) to ensure that there is no regional race to the bottom' in lowering tax rates and increasing tax incentives to corporations.

We recommend that parliament should:

  • press for the above measures, and especially ensure that the Revenue Management Bill is discussed and passed before the start of the next financial year
  • build the capacity of the Finance and Public Account Committee so that it can play its oversight role regarding tax expenditures effectively.

We recommend that civil society organisations should

  • press the government and parliament to promote the above measures, and emphasise the importance of accountability and transparency on tax expenditures in their work.


Sierra Leone has come a long way since the end of its civil war in early 2002. It has re-established security and democratic governance, implemented a decentralisation programme and launched its third poverty reduction strategy (the Agenda for Prosperity). The country has recorded impressive real GDP growth rates during 2007-11: an average of 5.3 per cent. The economy's growth rate of 15.2 per cent in 2012 was faster than that of any other country in sub-Saharan Africa for that year.

Yet despite this growth, insufficient resources are flowing to Sierra Leone's people, around 53 per cent of whom live below the national poverty line (which rises to 66 per cent in rural areas). In particular, the country is struggling to raise enough revenues to fund its development needs. For this task, tax revenues are fundamental. Taxes collected from companies and individuals fund the key public services, such as education and health, needed to promote the welfare of the population and to reduce poverty. Taxation can also be used to redistribute wealth -- by taxing the rich more than the poor -- which is important in a country like Sierra Leone where inequality is high.

The tax incentives being granted by the government are one of the major reasons for Sierra Leone's low tax revenues. Not all tax incentives are bad, and indeed some can help the poor and/or organisations promoting development. But too many tax incentives are, in our view, currently being granted to companies. The major incentives include waivers on customs duties and payments of the Goods and Services Tax, along with reductions in the rate of income tax payable by corporations, which are being granted supposedly to attract foreign investment. Yet a critical issue is to balance the need to attract such investment with the need to raise sufficient revenues to reduce poverty. This report shows that Sierra Leone is currently not getting this balance right, and that the government is being far too generous to foreign investors at the expense of developing the nation. Mining companies, in particular, have been granted excessively large tax incentives.

A transparent tax system supports good governance and the accountability of policy-makers towards the public. But the granting of special tax incentives in opaque deals, at the discretion of individual ministers, without public scrutiny, undermines good governance and can increase the risk of corruption. It is not suggested that any of the companies mentioned in this report have been involved in any illegitimate activity. Tax incentives are granted in many countries simply to promote political patronage, not socioeconomic goals. In Sierra Leone, parliament and the public lack information about the tax incentives granted and are usually not aware of the details until after they have been agreed, and sometimes not even then. It is currently impossible for elected parliamentarians, the media and civil society to scrutinise and debate these deals properly to ensure that the country optimally benefits.



This report is based on research undertaken between November 2012 and September 2013 by the Budget Advocacy Network (BAN) and the National Advocacy Coalition on Extractives (NACE), with support from Tax Justice Network-Africa (TJN-A), Christian Aid, IBIS, and ActionAid.

The report has been written and researched by Mark Curtis (

The members of BAN are: Transparency International Sierra Leone, Campaign for Good Governance, Network Movement for Justice and Development, Western Area Budget Education Network, ActionAid International Sierra Leone, Search for Common Ground, and Christian Aid.

The members of NACE are: Christian Aid, Network Movement for Justice and Development, Talking Drum Studios [Search for Common Grounds], ActionAid Sierra Leone, National Forum for Human Rights, Anti-Corruption Commission, Sierra Leone Indigenous Miners Movement -- United Miners Union, Green Scenery, Ministry of Local Government & Community Development, Ministry of Mineral Resources, Campaign For Good Governance, Transparency International Sierra Leone, Young Women's Christian Association, Centre for the Coordination of Youth Activities, Initiative for Community Development, Centre for Sustainable Healthy Environment and Animal Welfare, Centre for the Coordination of Youth Activities.

The International Monetary Fund and the Ebola Outbreak


*Alexander Kentikelenis, Lawrence King, Martin McKee, David Stuckler

The Lancet, December 22, 2014 / direct URL:

In recent months, the International Monetary Fund (IMF) has announced US$430 million of funding to fight Ebola in Sierra Leone, Guinea, and Liberia.

By making these funds available, the IMF aims to become part of the solution to the crisis, even if this involves a departure from its usual approach. As IMF Director Christine Lagarde said at a meeting on the outbreak, "It is good to increase the fiscal deficit when it's a matter of curing the people, of taking the precautions to actually try to contain the disease. The IMF doesn't say that very often."

Yet, could it be that the IMF had contributed to the circumstances that enabled the crisis to arise in the first place? A major reason why the outbreak spread so rapidly was the weakness of health systems in the region. There were many reasons for this, including the legacy of conflict and state failure. Since 1990, the IMF has provided support to Guinea, Liberia, and Sierra Leone, for 21, 7, and 19 years, respectively, and at the time that Ebola emerged, all three countries were under IMF programmes. However, IMF lending comes with strings attached—so-called "conditionalities"—that require recipient governments to adopt policies that have been criticised for prioritising short-term economic objectives over investment in health and education. Indeed, it is not even clear that they have strengthened economic performance.

Here we review the policies advocated by the IMF before the outbreak, and examine their effect on the three health systems. The information was extracted from the IMF archives of lending agreements covering the years 1990-2014.

First, economic reform programmes by the IMF have required reductions in government spending, prioritisation of debt service, and bolstering of foreign exchange reserves. Such policies have often been extremely strict, absorbing funds that could be directed to meeting pressing health challenges. Although the IMF has responded to concerns about its programmes by incorporating "poverty-reduction expenditures" to boost health spending, these conditions were often not met (table). Thus, in 2013, just before the outbreak, whereas all three countries achieved the IMF's macroeconomic policy prescriptions, they failed to meet targets for social spending. Writing to the IMF, Guinean authorities noted that "unfortunately, because of the reduction in spending, including on domestic investment, it was not possible to respect the indicative targets for spending in priority sectors".

Similarly, the Sierra Leonean government reported that priority spending targets (including on health) were missed due to low domestically financed investment.

Second, to keep government spending low, the IMF often requires caps on the public-sector wage bill—and thus funds to hire or adequately remunerate doctors, nurses, and other health-care professionals. Such limits are "often set without consideration of the impact on expenditures in priority areas", and have been linked to emigration of health personnel. In Sierra Leone, for example, IMF-mandated policies explicitly sought the reduction of public sector employment. Between 1995 and 1996, the IMF required the retrenchment of 28% of government employees, and limits on wage spending continued into the 2000s. By 2004, the country spent about 1.2% of GDP less on civil service wages than the sub-Saharan African mean. At the same time, figures supplied to WHO reported a reduction of community health workers from 0.11 per 1000 population in 2004 to 0.02 in 2008. In 2010, as the country launched its Free Health Care Initiative, IMF staff "stressed the need to carefully assess the fiscal implications" and favoured "a more gradual approach to the [associated] salary increase in the health sector".

Third, the IMF has long advocated decentralisation of health-care systems. The idea is to make care more responsive to local needs. Yet, in practice, this approach can make it difficult to mobilise coordinated, central responses to disease outbreaks. In Guinea, from the early 2000s, the IMF promoted fiscal and administrative decentralisation. Following IMF advice, the country transferred budgetary responsibilities from the central government to the prefecture level. Only 5 years later, an IMF mission to the country reported "governance problems" that included "insufficient and ineffective decentralization". At the same time, IMF staff noted that the quality of health-service delivery had deteriorated.

All these effects are cumulative, contributing to the lack of preparedness of health systems to cope with infectious disease outbreaks and other emergencies. The IMF's widely proclaimed concern about social issues has had little effect on health systems in lowincome countries. Although Lagarde's comment on prioritising public health instead of fiscal discipline is welcome, similar comments have been made by her predecessors. Will the result be different this time?

The Ebola outbreak has tested many global institutions and lessons will have to be learned. Many of these lessons relate to the detection and control of the outbreak, but it would be unfortunate if underlying causes were overlooked. In a timely intervention, The Lancet's Commission on Investing in Health called for increases in public health spending and attention to hiring and training health workers. The experience of Ebola adds a degree of urgency to the implementation of its recommendations.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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