The Sierra Leone Conference on Development and Transformation which was held early this year identified the management of natural resources as the significant factor in the country’s drive to middle income status. As a natural resource rich - country, the rapid growth and economic expansion expected in the short run, could be wiped out by the dutch disease and other negative effects that usually accompany such growth. Having observed the deleterious consequences of a sudden flow of revenues into fragile economies and recognizing that the system of managing revenues in Sierra Leone is being improved but still contains anomalies and flaws, it is recommended that a fund be set up to protect a large percentage of the new revenue flows and ensure that the areas of priority identified by the Conference, which include Education, Infrastructure, Health and reducing inequality, be the object of expenditure from the new funds. Below are some of the justifications that support the recommendation.
The first is that the extraction of the minerals is equivalent to the depletion of the country’s wealth. The yields from the depletion in the form of royalties should not all be consumed but part of it should be invested for sustained generation of a stream of income to benefit future generations. In this way, wealth under the ground will be converted into assets above the ground that will generate revenues continuously over time. In this sense royalties paid for the extraction of the minerals should be considered to be compensations for the use of the country’s assets under the ground and the royalties should therefore be invested rather than consumed. However there are immediate consumption needs that cannot be ignored. One example is the reduction of inequality. Failure to address the current high level of inequality in Sierra Leone urgently, could lead to instability. Education and infrastructure on the other hand are high yielding investments that will continue to produce income streams over time. Hence, the proposal is to use the proceeds from natural resources extraction for setting up a Transformation and Development Fund. This fund could then be used to finance essential investments that would generate yields now and in the future.
The second justification for ring fencing some of the natural resource revenues derives from the observation of patterns of consumption in other resource rich countries in the past, especially in Africa. The Democratic Republic of Congo (DRC) and Angola are typical cases. The first is still struggling with stability and sustained growth, while the latter is growing with a production cost structure that survives only so long as the oil continues to flow. Both present the worst cases of how not to manage resource-based wealth. Sierra Leone must avoid that route if it is to succeed in its quest for middle income status in 25 years, with a sustainable and diversified economy. The Fund will provide special control measures to ensure investment into priority areas in line with society’s needs.
Thirdly, almost all natural resource-rich countries have set up similar funds – usually sovereign wealth funds that save revenues, invest off-shore, act as stabilization instruments etc. The successful ones usually exhibit sustained growth and stability for their economies.
Fourthly, the population wishes to see identifiable products from the exploitation of mineral resources. A sense of national pride to point to, a bridge, a dramatic change in literacy rates, and targeted cash grants to reduce inequalities as the product of the exploitation of their natural resources. This is extremely important as the country strives to solidify its sense of national identity and forge a unity around the pursuit of middle income status.
This proposed consultancy is an attempt to outline the rationale for such a fund, analyse the conditions under which the fund should operate, and provide a more technical evidence based report that will present the various options open to the country given the considerations outlined.
This TOR draws from the various reports and analyses including those of the Sierra Leone CDT (SLCDT), and the IMF Fiscal Affairs Department (FAD) missions on fiscal regimes for the extractive industries in Sierra Leone and the Public Financial Management (PFM) mission on reform priorities in the new fiscal environment. The scope is limited to the large mining projects and marine resources; it does not cover small scale artisanal mining, and forestry. Given the importance and sensitivities of some of the issues on natural resource management, further consultations must take place with the wider public and other institutions once the report is produced.
Recent IMF FAD missions have covered the critical issues on extractive industries fiscal regimes, including legal and Public Financial Management (PFM) reform priorities in the new fiscal environment and proffered succinct recommendations. Two key recommendations from the IMF work are consistent with the thrust of this TDF. These are:
Initiate consideration of an appropriate resource revenue management framework for Sierra Leone, to include a public consultation process; and
Consider segregation of resource revenue inflows, and injection into budget spending at a sustainable rate.
However while the IMF recommended a Natural Resource Fund, the conference was resolute in setting up a Fund for Transformation and Development. The difference between the two lies in the nature of the fund, the circumstances for its use, and how the fund will operate. The arguments for the position of the IMF are contained in Addendum 1 of this document.
IMF also identifies 8 design principles for the Fund, many of which are identical to the underlying thrust of the Conference proposal. These are reproduced here with some modifications as considered appropriate by the Pillar Group:
A government account for receipt of a proportion of all revenues (i.e., the 75 percent/25 percent rule proposed in the Sierra Leone Development Conference) accruing to the Government of Sierra Leone from its ownership of mineral and marine resources, operating as a financing fund—the Transformation Development Fund (TDF/the Fund). Here the traditional smaller natural resource revenues will flow into the budget as usual and only the “new mega revenues” from the extractive industries to flow into the TDF. The precise ratios and the criteria to determine what will go to the TDF and the rest will have to be agreed upon bearing in mind the objectives of the Fund and the needs of the budget. Various scenarios for replenishing the Fund are possible ranging from, and licenses only to the addition of corporate taxes, or even calculating all revenues and keeping a lower percentage for the TDF. Further detailed work on this would be carried out at the technical level by the proposed consultancy.
The purpose of the Fund would change over time. While stabilization would be a key concern; specific projects in infrastructure, education, health and mitigation of income inequality will be very essential in the early stages.
A process, or mechanism, for drawing on the fund which will enable it to finance fiscally responsible levels of budget expenditure over the long term. The critical element here will be political will and discipline. Here getting the buy-in of the people through (for instance, the citizen’s budget and other means) sensitization combined with transparency to reassure and also to limit abuse or misuse that were so frequently the case in other countries. There is justification for a special oversight mechanism for these funds. Further work will have to be done elaborating in details how this will operate.
Institutional arrangements—through a TDF advisory committee, managed by the Bank of Sierra Leone (BSL), which will incorporate oversight mechanisms that are credible within Sierra Leone, but which also help to build the capacity of existing institutions. It was noted that the scope of reserve management at the central bank is bound to change with the entrance of the TDF.
Legal authority and protection for the objectives of the fund, including its major institutional arrangements for custody and management. The idea is to consider the possibility of covering the institutional arrangement of the TDF in the proposed Extractive Industries Revenue Act (EIRA) or at least mainstream into existing legal framework. The investment of fund resources to be exercised according to written and approved guidelines.
Which emphasize a conservative, low risk, approach to the placement and management of funds. It was noted that while the Bank of Sierra Leone has demonstrated expertise through past management of the country’s reserves, special technical assistance would be needed for this and donors should consider the possibility of future technical assistance along this line.
Implementation of guidelines governing the operations of the fund to be assigned to a carefully, and competitively, selected group of professionally competent persons, drawing on appropriate experience, advice and quality information. The TDF advisory committee has to take this into consideration when selecting it members and designing their operational documents.
- Maximum transparency of fund operations to Parliament and the public through frequent, highly accessible and easily understood reporting. The key issue here is how to ensure transparency of the TDF.
In line with the outlined situation analysis and considering that many countries in the world whose economies are heavily dependent on natural resources have set up similar funds but adjusted them to suit their peculiarities, and noting also that some of the experiences have been successful while others have failed, a team of independent expert or a single expert with extensive experience in the setting up and formulating the operation modalities of such a fund is therefore required to evaluate the Sierra Leone situation and recommend two or three options for consideration by the Government.
Managing Natural Resources: Hoping for a Blessing rather than a Curse:
The ongoing process in Sierra Leone for the preparation of the third generation Poverty Reduction Strategy Paper (PRSP), the Agenda for Prosperity, covering the period 2013-2017, provides a unique opportunity to promote effective management of natural resources. Pillar 2 of the PRSP is on “Managing Natural Resources: Hoping for a Blessing rather than a Curse”.
The other pillars and the cross-cutting chapter in the PRSP are:
- Pillar 1: Economic diversification to promote inclusive growth;
- Pillar 2: Managing mineral resources: hoping for a blessing rather than a curse;
- Pillar 3: Accelerating MDGs for human development;
- Pillar 4: International competitiveness;
- Pillar 5: Employment and labor strategy;
- Pillar 6: Social protection;
- Pillar 7: Governance and public sector reforms; and
- Pillar 8:Cross cutting issues including: Gender, Environment and Climate Change, Financing, Monitoring and Evaluation and the Results Framework, and poverty profile.
In responding to the recommendation of the Pillar Working Group on “Managing Natural Resources: Hoping for a Blessing rather than a Curse”, the UNDP SL would like to provide support in the form of the consultant to carry out an independent and careful evaluation of the options available to Sierra Leone in the establishment of a wealth/transformation development fund.
The deliverables arising from the assignment will include:-
- An inception report on preliminary findings within one week of commencement of the consultancy;
- A progress report within two weeks of commencement of the consultancy; and
A final report containing two or three options for the establishment of a Transformation and Development Fund for Sierra Leone, including an appropriate time frame and a description of the institutional framework within which it would operate
Key Expected Results:
The consultant is expected to draw on experience and inspiration from best practices in the establishment of a wealth/transformation development fund, and take account of the specific Sierra Leonean context so as to meet the country’s aspiration of Natural Resources being a Blessing rather than a Curse this time around. The objective of the assignment is therefore to provide expertise and technical assistance in the formulation of the Fund and its modalities of operations.
Specific objectives of the assignment include:
Work under the guidance of the Pillar Working Group on “Managing Natural Resources: Hoping for a Blessing rather than a Curse” and in close consultation with relevant stakeholders including:
- Review of available options for the management of revenues earned from exploitation of natural resources and identify two or three viable options for Sierra Leone; and
- Provide detailed explanation of the institutional framework necessary for the effective operationalization of the recommended options including an appropriate time frame.
- The proposed scope of work and methodological steps will be firmed up upon recruitment of the expert and in consultation with Government of Sierra Leone (GoSL). This is a short term consultancy based on desk review of the evidence as well as provisions for consultation and sensitization of the key stakeholders.
- Tentatively, therefore, the consultant will:-
- The core team or technical team which is coordinating the process for the preparation of the Agenda for Prosperity 2013-2017
- Relevant Government Ministries, Departments and Agencies (MDAs) especially the Ministry of Finance and EconomicDevelopment (MoFED), Bank of Sierra Leone, National Revenue Authority (NRA);
- Development partners such as the IMF, the World Bank and the African Development Bank; and
- Relevant non-state actors drawn from the private sector and civil society organizations.
- Review all available analytical and policy studies both within and without the Sierra Leonean contexts as well as policy documents of GoSL to form a firm basis for making evidence-based, and hence objective and prioritized, two or three recommendations on the establishment of a transformation and development fund for Sierra Leone.
The contract will commence upon completion of the selection process and upon signing of the contract. The contract with the selected consultant(s) will last for a period of one month (30 working days) upon signing of contract.
Knowledge Management and Learning:
- Shares knowledge and experience and contributes capacity building of relevant staff;
- Ability to provide top quality policy advice services; and
- In-depth practical knowledge of inter-disciplinary development issues.
Development and Operational Effectiveness:
- Ability to lead strategic planning, results-based management and reporting;
- Ability to lead formulation and implementation of strategies;
- Excellent knowledge of programming framework; and
- Excellent IT skills including hands on knowledge of econometrics analysis computer packages.
Management and Leadership:
- Focuses on impact and result for the employer and responds positively to critical feedback
- Encourages risk-taking in the pursuit of creativity and innovation;
- Leads teams effectively and shows conflict resolution skills;
- Consistently approaches work with energy and a positive, constructive attitude;
- Demonstrates strong oral and written communication skills; and
- Builds strong relationships with employer and external actors.
The other critical success indicators include:
- Promoting ethics and integrity, creating organizational precedents;
- Building support and political acumen ;
- Building staff competence, creating an environment of creativity and innovation;
- Building and promoting effective teams;
- ·Creating and promoting enabling environment for open communication;
- Creating an emotionally intelligent organization;
- Leveraging conflict in the interests of UNDP & setting standards ;
- Sharing knowledge across the organization and building a culture of knowledge sharing and learning ; and
- Fair and transparent decision making; calculated risk-taking.
Payment will be made upon performance of satisfactory work by the consultant as follows.
- 20 % upon signing of contract;
- 30 % upon submission of an acceptable draft to the Chief of Staff, State House; and
- 50% upon submission of a revised final draft report
Evaluation Criteria and weighting:
The consultant will be evaluated using a combination of technical and financial criteria. The maximum score will be 100% of which the technical criterion will account for 70% and the financial criterion 30%. The technical evaluation will be based on:
- Background and minimum educational qualification as stated above; 10%
- Practical previous experience relevant to this TOR; 30%
- Substantial professional knowledge and experience in public finance management, inclucive sustainable human and economic development, and more specifically on wealth fund establishment and management; 50%
- English language proficiency; 10%
Qualified and interested individuals are hereby invited to submit their applications which should conatin the following:
- Detailed curriculum vitae and copies of relevant testimonials and a concise statement of the methodology which will form the basis of the applicant’s preparation of an evidenced based draft report for the consultancy.
- Statement of methodology should strictly discuss best practices for establishment of wealth funds/Transformation development funds in terms of required institutional arrangements including the management, policy rules and the operational modalities.
- Statement of timelines for the deliverables taking into account the consultancy period of 30 working days.
- Financial proposal for the accomplishment of the consultant’s tasks.
- Completed P11 form