Current Economic Situation in Sierra Leone
Sierra Leone is situated in West Africa, sharing borders with Liberia and Guinea. The Republic of Sierra Leone, as it is officially called, is divided into three provinces (northern, southern, and eastern) and a western province that includes the nation’s capital, Freetown.
Source: stock.adobe.com
The country’s economy is considered 'repressed’ according to the 2024 Index of Economic Freedom due to its poor rating. It ranks 41st out of 47 countries in the Sub-Saharan African region and the 163rd in the world. Its economic freedom score has decreased by 5.6 points from last year and currently stands at 44.6 in 2024.
The economy of Sierra Leone is highly driven by the industrial sector (mining in particular), while agriculture and the service sectors are in smaller proportions. This is due to the government’s negligence of these other sectors because of the revenue generated by the mining sector.
Sierra Leone is well known for its large diamond deposits as well as rutile—a titanium ore used as paint pigment and welding rod coatings. However, there has been some notable growth in these other sectors too. Over the past five years, Sierra Leone has recorded an average growth rate of 2.7 percent, according to the ECOWAS Bank for Investment and Development (EBID).
Source: BIDC
This growth is projected to reach 3.6 percent in 2024, which is supported by investments in mining operations and a reduction in production costs. The average inflation is also projected to reach 23.1 percent, the fiscal balance to narrow down to negative 2.9 percent, and a debt-to-GDP ratio of 84.9 percent in 2024.
The African Development Bank (AFDB) in its African Economic Outlook (AEO) projects that this growth will continue even till 2025, as it expects a 5.2% increment. Inflation, however, is expected to decline.
Source: afdb.org
Crypto Law in Sierra Leone
There are no regulations for cryptocurrencies in Sierra Leone. The Bank of Sierra Leone (BSL) does not issue licenses to crypto companies.
Source: sharda.ac.in
In 2019, the Bank of Sierra Leone (BSL) banned two crypto companies from operating because they were not issued licenses.
An excerpt from a press release dated 10th April 2019 by BSL pertaining to one of the banned companies, “My Residual Income Global -SL Limited”, popularly known as “My Coin,” reads:
“…that the bank [BSL] has not licensed or permitted any business(es) or financial institution(s) to take deposits from the public for the purpose of investment or trading in crypto-assets (for example bitcoin).”
In 2021, the Manager of “My Coin”, Mr. Patrick Jobeth was arrested, and a legion of his customers stormed the Bo Police station (where he was held) to lay their grievances. BSL had to issue another press statement reiterating its former stance. It went on to state that:
“The Bank of Sierra Leone wishes to be known that it has not licensed “My Residual Income Global –SL Limited” to carry out financial services in Sierra Leone. Their Business activities are in contravention of section 7(6) of the Banking Act 2019 which states that:
A person who transacts Banking business without a valid license under this Act commits an offense and is liable on conviction to imprisonment for a term not exceeding 10 years or to a fine which is equivalent to twice the amount of deposit collected in contravention of this act or both and Section 3(1) of the other financial services act 2001 which states that: ‘subject to section 8, no person shall carry on any financial activity unless that person holds a valid license issued by the Central Bank.”
The apex bank tagged the activities of ‘My Coin’ illegal according to Section 44(1) of the Bank of Sierra Leone Act 2019, Section 7(6) of the Banking Act 2019, and Section 3(1) of the Other Financial Services Act 2001.
Furthermore, the public was reminded to consult the BSL for names of financial institutions that are licensed to engage in any financial transaction in the country.
Current State of Crypto Adoption in Sierra Leone
The crypto revenue generated in Sierra Leone for 2024 is US $142,200, according to Statista. This value is projected to have a negative annual growth rate of 3.38% in 2025, resulting in US $137,400.
Source: Statista
The average Sierra Leonean contributes about US $2.1 annually to the crypto market as of 2024, with a user penetration rate of 0.77%. This rate is expected to increase to 0.76% by 2025, with the cryptocurrency market projected to reach US $69,250.
Factors Driving Adoption
Despite the unregulated nature of cryptocurrencies in Sierra Leone, the data proves there is a growing interest in this emerging technology by individuals and businesses.
This interest spawns across various decentralized finance (DeFi) platforms, and the potential crypto has for financial liberation, a hedge against inflation and political instability.
Source: Pikbest.com
DeFi Applications
Most especially, the advancements in blockchain technology have contributed to this growth. In 2018, the government of Sierra Leone partnered with Kiva and the United Nations agencies to implement a national digital identification system using distributed ledger technology (DLT).
Kiva, a San Francisco-based company, created what it called the Kiva Protocol based on blockchain technology, which can be used to create online identities for Sierra Leoneans. This system is meant to help those who find it difficult to secure loans by providing their credit history.
It is worthy of note that Sierra Leone is the first country to implement the online credit system designed by Kiva, despite its presence in a vast number of countries.
BSL declared that one-third of the Sierra Leonean population lies outside the formal banking sector. This leaves the majority of the population in the hands of community banks and money lenders. These alternatives do not share customers’ credit history and tend to charge extortionate interest rates.
This brought about the need for a decentralized system, which the Kiva Protocol provides. All you need is the mobile app, connect it with your thumbprint (already collected and stored during voters’ card registration), get your digital wallet, and voila! It automatically starts storing your credit history, which cannot be tampered with.
In the words of the President of Sierra Leone, Julius Maada Bio, during the launch of the online credit system:
"This visionary step here today guarantees that Sierra Leoneans are not excluded from ... the global digital economy," Bio said at the launch.
Young and Unemployed Population
Sierra Leone has a young population with 74.5 percent under 35 years. This demographic is faced with limited economic opportunities. Unemployment tops the list, with about 70 percent of the youths unemployed. This is one of the highest in the West African region.
This youthful population is exploring cryptocurrencies to reap the profits from investments and trading opportunities, in a quest to change the narrative.
Migration and Cross-border Transactions
A large number of these young populations are also migrating to urban areas in search of better livelihood and opportunities. This exposes them to digital literacy and of course, cryptocurrencies.
In addition to this, the increasing use of cryptocurrencies for cross-border transactions due to their low cost is also contributing to market growth. However, the market is also likely to experience volatility and corrections, as is typical with any emerging and rapidly evolving market.
Challenges Facing Crypto Adoption in Sierra Leone
Aside from the volatility issue of cryptocurrencies, which is of course a global issue, other setbacks to this emerging technology in Sierra Leone are:
Source: Forbes.com
- Lack of Digital Infrastructure: Like most African Nations, Sierra Leone lacks a robust digital infrastructure to easily harness the full potential of cryptocurrencies.
These setbacks range from limited government capacity to a lack of robust technical policies, a growing digital skills divide, and numerous incompatible and outdated systems.
- Internet and Connectivity: Limited internet connection has also contributed to the slow digital revolution, which poses a threat to an increase in the adoption of cryptocurrencies.
In this article dated November 16, 2024, the writer explores how poor internet connection is affecting so many sectors. The education sector is not left out, as students who are supposed to be one of the most ‘digitized’ demographic that should be exploring cryptocurrencies are hindered by this challenge.
- Regulation Issues: The unavailability of a legal framework governing the crypto space leaves current and potential customers vulnerable and in doubt. These regulations are also needed to protect customers and ensure an easier blend of the traditional banking sector with their crypto-based counterparts.
The Potential for Cryptocurrency in Sierra Leone
Recall that the BSL in 2018 said one-third of the population is utilizing the formal banking sector. Cryptocurrencies could fill in this gap and provide a means to financial inclusion, especially for people in rural areas.
The traditional means of transferring money internationally comes at higher charges. Cryptocurrencies, on the other hand, come at a cheaper rate and through a more secure and transparent channel.
Cryptocurrencies have the potential to fight tax defaults in Sierra Leone. The National Revenue Authority (NRA) has been complaining of tax indebtedness as a major challenge to revenue collection.
With online identities already in place under the Kiva protocol, it would be easier to monitor and track tax defaulters if cryptocurrencies get regulated and fully incorporated into the financial system.
Conclusion
Sierra Leone is no stranger to cryptocurrency, as it has witnessed first-hand the benefits of its transparency and security through its blockchain-based credit digital system.
However, robust and clear regulation, better digital sensitizations, and internet connections are needed to harness the full potential of crypto and thus increase its adoption.
