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Viewing cable 08FREETOWN401, SIZE DOESN'T MATTER: SIERRA LEONE INDUSTRIES FACE

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Reference ID Created Released Classification Origin
08FREETOWN401 2008-08-13 12:52 2011-08-25 00:00 UNCLASSIFIED Embassy Freetown
VZCZCXRO9530
RR RUEHMA RUEHPA
DE RUEHFN #0401/01 2261252
ZNR UUUUU ZZH
R 131252Z AUG 08
FM AMEMBASSY FREETOWN
TO RUEHC/SECSTATE WASHDC 2113
INFO RUEHZK/ECOWAS COLLECTIVE
UNCLAS SECTION 01 OF 02 FREETOWN 000401 
 
SIPDIS 
 
DEPARTMENT FOR AF/W 
 
E.O. 12958: N/A 
TAGS: EIND ECON EFIN SL
SUBJECT: SIZE DOESN'T MATTER: SIERRA LEONE INDUSTRIES FACE 
SAME CHALLENGES 
 
1. SUMMARY: On August 8, CDA, Poloff, and Economic Assistant 
visited a textiles factory and a brewery. Though the 
companies differ considerably in terms of size, capital 
investment, and ownership, managers pointed to the same 
challenges impeding growth and profitability. A subsequent 
meeting with the Central Bank Governor helped identify 
several areas in which the government could be more effective 
in assisting local industry. END SUMMARY. 
 
------------------------- 
OVERVIEW: SAYENU AND SLBL 
------------------------- 
 
2. On August 8, CDA, Poloff, and Economic Assistant visited 
Sayenu Industries and Sierra Leone Brewing Ltd. (SLBL). 
Sayenu is the sole textile manufacturer in Sierra Leone, 
assembling such items as uniforms, bedding, and hospital 
scrubs using imported cloth. Sayenu can currently employ up 
to 200 people on a contract-basis for shift work, and has a 
handful of factory managers on salary. The company is owned 
and operated by Mariama Sesay and family, who are still 
struggling to rebuild their operation following the losses 
incurred during the war. 
 
3. Operating since 1961, SLBL makes Star Beer, Guiness, and 
Maltina, and imports Heineken for the domestic market. In a 
recent debt-for-equity arrangement, SLBL is now 83% owned by 
Heineken (they held only 42.49% in FY2007), with Guiness 
(8-9%) and Paterson Zochonis (3-4%) also owning shares. The 
remaining shares are locally-held. Currently employing 120 
staff and operating round-the-clock, SLBL produces 95,000 
hectoliters per year, falling below their full capacity of 
120,000 hectoliters. Considerable capital investment in 
automated systems in recent years plunged the company deeply 
in debt. The company has posted net losses for the past 3 
years, SLBL lost Le 7 billion ($2,376,919) in FY2007 due to 
debt servicing. 
 
------------------------------- 
CHALLENGES TO PROFIT AND GROWTH 
------------------------------- 
 
4. Sayenu and SLBL identified Sierra Leone's overall weak 
economy as a principle challenge. Neither have tapped into 
export markets, despite past attempts, and struggle to make 
ends meet during economic downturns.  Mrs. Sesay receives 
contracts from the Government of Sierra Leone (GoSL), 
schools, and private companies, but does not have enough 
business to operate year-round. SLBL managers expressed 
concern regarding the overall lack of discretionary income in 
the country. Beyond this obvious challenge, Sayenu and SLBL 
pointed to the lack of financial capital, transportation 
difficulties, and the expense of raw materials and resources, 
acquired locally or imported, as threats to the health of 
their businesses. 
 
----------------- 
FINANCIAL CAPITAL 
----------------- 
 
5. The lack of financial capital as a huge impediment to 
growth for both companies. Human capital is readily available 
to Sayenu, with at least half of their contract staff having 
more than 10 years experience, but the company has limited 
access to needed investment capital to either expand the 
factory, resume pre-war exports to Liberia and the Gambia, or 
re-open a factory-run training school destroyed by rebels who 
occupied the facility.  While SLBL has support from its 
European owners, managers still faced exorbitant interest 
rates ranging from 25-29% that impeded further modernization 
and growth. Debt servicing even at a much lower rate (8-9%) 
from Heineken is an obstacle to SLBL's expansion. 
 
6. In a subsequent meeting with Central Bank Governor Samura 
Kamara on August 8, CDA raised the issue of debilitatingly 
high interest rates. Kamara noted that the Bank is not active 
in setting exchange or interest rates. When asked why the 
interest rates are so high, he pointed to the creditors' 
captive market in Sierra Leone. With little internal and 
external competition, banks can afford to keep the rate high. 
Further, they hold 60% of government debt, giving them 
"cartel"-like powers. The government's own policy of not 
insuring deposits but having a high reserve requirement 
likely also contributes. Interestingly, the Governor cited 
high operating costs, particularly electricity, as an element 
that forced banks to set higher interest rates for consumers. 
He believes that the GoSL focus on providing regular 
electricity will thus have positive direct and indirect 
impacts on manufacturers. 
 
 
FREETOWN 00000401  002 OF 002 
 
 
------------- 
RAW MATERIALS 
------------- 
 
7. Sayenu and SLBL are import-dependent for raw materials. 
Sayenu purchases cloth from China, India, the UK, and the 
U.S., which can be very expensive depending on exchange rates 
and other factors. SLBL receives its raw materials from 
Heineken. Because the size of the shipments sent from Europe 
are small relative to shipments for other ports, managers 
stated that stops in Freetown are infrequent. This forces 
SLBL to purchase large amounts of inputs and stock far in 
advance, and buying on speculation contributes to the debt 
SLBL carries. The huge excise duties that must be paid on 
materials brought through the ports are also a cash-flow 
hardship. Despite these negatives, for SLBL import-dependency 
has also sparked innovation. To decrease the need for 
imported barley, for example, SLBL increased the quantity of 
locally-grown sorghum in their formulation. This supports 
Sierra Leone's agricultural sector and decreases SLBL's 
expenses. Sierra Leonean farmers will produce sufficient 
sorghum to meet SLBL demand next year. 
 
--------- 
RESOURCES 
--------- 
 
8. Both Sayenu and SLBL indicated resource deficiency as a 
strain on their businesses. While Freetown's electricity is 
provided by the National Power Authority (NPA), outages 
continue on a regular basis. SLBL, for example, only receives 
25% of the electricity it needs from NPA. Running generators, 
particularly with the high cost of fuel, is extremely 
expensive. Lack of water in the city is also a significant 
and expensive problem. 
 
------- 
COMMENT 
------- 
 
9. For an economy already weakened by the war, rocketing 
commodities prices means continued vulnerability and limited 
opportunities for growth. Sayenu and SLBL, despite their 
differences in size, market-share, and financial backing, 
share similar frustrations in grappling with Sierra Leone's 
economic realities. In the face of these challenges, however, 
managers for both companies displayed enthusiasm and 
commitment to meeting their long-term objectives of 
profitability and expansion. Heineken's considerable 
investment in SLBL is also a sign that investors expect a 
positive turnaround for Sierra Leone's economy. While the 
importance of private investment in a country like Sierra 
Leone cannot be understated, the GoSL has a role to play in 
supporting local industries. Though the provision of 
electricity has a beneficial effect within the manufacturing 
sector, more immediate goals for the government to produce 
tangible results could include reducing tariffs on raw 
materials and encouraging banks to made credit more 
affordable. END COMMENT. 
FEDZER