Sierra Leone: Mining and Ebola
Ebola in Sierra Leone: Mining Industry will Recover
This work has been produced by the following members:
Jakob MacDonnell – Democracy Lab Researcher
The outbreak of the Ebola virus has devastated the economy of Sierra Leone, a country had the second highest level of GDP growth in 2013. Before the outbreak, Sierra Leone enjoyed a period of political stability, evidenced by the fact that a UN peacekeeping mission was withdrawn from the country in March of 2014. In addition, the West African region is home to vast mineral reserves and those in Sierra Leone are largely untapped. The two largest iron ore mining companies in the country, London Mining and African Minerals, have invested hundreds of millions of dollars into two iron ore mines located in Marampa and Tonkolili, respectively. West Africa represented a huge investment opportunity from the point of view of the global mining community and mining related activities accounted for about one-third of the country’s GDP.
In late 2014, the continual decline of iron ore prices, combined with the rapid outbreak of Ebola, shattered investor confidence in Sierra Leone’s mining industry. As a result of the virus, trade and shipping in the region ground to a halt as borders were closed and other countries became wary of accepting cargo from ships that originated from West African ports. Iron ore production slowed as workers were sent home with pay or transferred out of the country. London Mining eventually sold its Marampa mine to African Minerals, which provides a real-world example of exactly how devastating the economic situation was. After the collapse of the iron ore industry, the diamond mining industry in Sierra Leone began to feel similar economic limitations as a result of the spread of Ebola in the region. Recent World Bank estimates put the total economic impact of Ebola in Sierra Leone around $120 million, or 2.5% of GDP.
Eradicating Ebola should be the first step towards restoring investor confidence in the mining industry of Sierra Leone. As international aid is used to strengthen health care, the government should be transparent and honest with providing updates on the disease and the economy. As trust is rebuilt and the effects of the disease are diminished, we are left with two scenarios for the future of Sierra Leone.
In the first scenario, the virus is successfully eradicated and the population is not displaced or reduced to a significant extend. The Ebola outbreak has resulted in lost production for the agricultural sector, as workers have left crops rotting in the fields. However, in the mining sector, production is delayed, not lost. This means that the mining industry of Sierra Leone will be in a position to recover more quickly than the agricultural industry. Continued investment in the mining sector will yield dividends well into the future as Sierra Leone’s economy recovers and expands.
The second scenario represents a significantly worse situation. In the event that Ebola is not fully stopped or if the population of Sierra Leone is displaced or reduced to a significant extent, then mining operations will continue to slow and might possibly stop altogether. The price of iron ore would have to rise to a level that makes operating in devastated Sierra Leone profitable again, as it will be significantly more expensive to hire workers and transport product out of the country. In this case, it would be wise for foreign investors to hold off on future investment until stability has been restored.
