All businesspeople know that the inability to access real-time information is a major obstacle to running a business in this age of 24/7 communication. And people trying to develop a business in Sierra Leone know this better than most.

Sierra Leone, which has just begun to recover from a long civil war, has one of the world’s lowest telephone density rates – one landline for every 250 people, according to the World Telecommunication Union. Add to that poor-quality telephony service and an unusually low number of internet users (estimated at 8000 in a 2002 survey) and the picture that emerges is that of a country that is cut off from the global information society, ready to be propelled into the modern age.


This fact was not lost on one enterprising foreign investor. Small, privately held Israeli telecoms company Sierra-Com Ltd was quick to recognise the potential in Sierra Leone’s untapped market for information and communication technology (ICT).

Encouraging growth

The time was just right. Having held its first democratic elections in 2002, Sierra Leone was finally making some progress towards the kind of market reforms that encourage business and economic growth. Real GDP grew by an estimated 9.3% and 7.4% in 2003 and 2004, respectively. The country was on the brink of sustained growth.

Sierra-Com invested $3m in local subsidiary PCS Holdings Sierra Leone Ltd (IPTEL), in partnership with Sierra Leone-based Firstcom, to establish a world-class network with technologically advanced telecoms equipment imported from Israel. High-speed broadband wireless internet and voice over internet protocol (IP) communications finally arrived in Sierra Leone. This was no mean feat for a country that has tottered on the brink of disaster for decades – and no small achievement for a company of Sierra-Com’s size.

IPTEL began commercial operations in Sierra Leone with three communication hubs in the Freetown area. Today, the company’s main customers are local businesses and multinational firms, but the high-quality internet service is also attracting big businesses such as financial institutions, which require high-speed service to transmit vast amounts of data.

New customers are signing up every day. The company’s reasonable pricing helps. Its monthly service charges are much lower than rates in neighbouring countries.

Better infrastructure

The arrival of Sierra-Com, via IPTEL, is changing the face of Sierra Leone’s ICT infrastructure. Previously, the only internet access was either via a slow dial-up or a narrowband service that was prone to stoppages due to electricity shortages.

Sierra-Com’s decision to go into one of the most challenging places in the world to do business was not an easy one. Concerns about the country’s unregulated environment and the lack of a clear regulatory structure led Sierra-Com to consider political risk insurance.

Luckily, the World Bank’s Multilateral Investment Guarantee Agency (MIGA) has a special interest in post-conflict countries such as Sierra Leone. It could mitigate Sierra-Com’s concerns by providing guarantees against risks of currency transfer restriction, expropriation, and war and civil disturbance through its Small Investment Programme (SIP). However, it was the first time that MIGA had insured a project in Sierra Leone.

MIGA’s SIP package, which is tailored to encourage investors to put money into small and medium-sized enterprises (SMEs) in the developing world, suited Sierra-Com. The quick and simple underwriting process and efficient processing of the application were critical factors for an investor that was keen to make the most of its comparative advantage.

While it is true that investing abroad can mean big profits to a small business, opportunities in uncharted territories are not without challenges. Small investors are less able than their larger counterparts to absorb losses – so the smaller the investor, the lower the appetite for risk.

Another problem is that projects that need relatively smaller investments in developing countries often find it more difficult to access financing because sponsors are nervous about their perceived credit risk, and do not want to compound the problem by taking on non-commercial risk. Like other businesses, small investors in small projects overseas are increasingly recognising the importance of political risk mitigation products and services.

More seek cover

More and more small investors are seeking out coverage through MIGA. Since its establishment in 2005, seven projects have received political risk coverage through the SIP, a total book value of $18.2m. Two of those are based in Africa, two in Asia, two in the Latin American region and one in the Middle East.

MIGA is one of several providers of political risk insurance catering to the demands of the different risk preferences and unique needs of smaller investors. The package is attractive to a wide range of investors, not just the smaller ones, and does not restrict in terms of the size of the investing company.

However, smaller investors (those with less than 375 employees) get an extra benefit from it because MIGA waives the application fee for companies that have less than $50m in assets or $100m in annual sales.

Other providers that offer specialised products for smaller investors include the US Overseas Private Investment Corporation (OPIC) and the UK’s Export Credits Guarantee Department (ECGD). OPIC offers political risk insurance protection to US companies receiving loans through the corporation’s small business centre, whereas ECGD provides cover for equity in or loans to a foreign enterprise for amounts as small as £20,000.

Such initiatives improve access to financing for SMEs in developing countries, and give peace of mind to the increasingly important small investors for their investments abroad.

These foreign investors, many of whom are at the forefront of technological advances, are eager to apply their state-of-the-art technologies to projects overseas in exchange for greater market expansion and diversification. Sierra-Com’s investment in Sierra Leone is a good case in point. By seizing the opportunity to generate an acceptable return by investing in a developing country’s infrastructure and hedging its non-commercial risk, Sierra-Com has helped the country to take important new steps towards modernising and expanding its economy, so all parties concerned benefit.

Hal Bosher is an investment officer at MIGA.