Liberia’s post-war economic growth was sustained in 2012, led by the first full year of iron ore exports, construction, and strong performance in the service sector, but these positive trends are subject to fluctuations in commodity prices, FDI, and overseas development assistance.
President Sirleaf’s government passed its FY 2012/13 budget as part of an Open Budget Initiative, but it faces mounting pressure to increase employment, improve services, tackle corruption and address governance issues in the forestry, palm oil, and oil sectors.
The poverty rate has decreased from 64% to 56% between 2007 and 2010, but some 78% of the population remains engaged in vulnerable employment, and Liberia ranks close to the bottom of countries in the Human Development Index (174th out of 187).
Liberia’s post-war economic growth was sustained in 2012, with estimated real gross domestic product (GDP) growth of 8.9%, led by the first full year of post-conflict iron ore exports, buoyant construction, and strong performance in services. Real GDP is projected to expand by 7.7% in 2013 and 5.4% in 2014, supported by further iron ore expansion and concession-related foreign direct investment (FDI). Liberia’s economic outlook remains vulnerable to fluctuations in commodity prices, particularly for its key exports, rubber and iron ore. Potential declines in FDI and overseas development assistance, including the partial drawdown of the substantial UNMIL force, could also affect economic performance. Consumer price inflation moderated to 6.9% in 2012, thanks to lower international food and fuel prices, and is expected to further slow to 5.1% in 2013.
In December 2012, Liberia launched the Agenda for Transformation (AfT), its second poverty reduction strategy. The AfT intends to remove key infrastructure constraints in energy, roads, and ports, and to support youth and capacity building. The government has secured financing to rehabilitate the Mount Coffee Hydropower plant, which could come online at end of 2015 and would help address the country’s substantial energy shortage. The government prepared its FY 2012/13 budget in a three-year Medium Term Expenditure Framework (MTEF). However, despite substantial progress in public financial management (PFM) and transparency, substantial challenges remain, and pay reform will be necessary to improve public sector capacity.
Natural resources continue to play a leading role in Liberia’s economy. Iron ore, rubber, and timber dominate exports, and the oil and palm oil sectors offer much potential. The management of these resources has come under scrutiny in the past year. The abuse of Private Use Permits in the forestry sector has resulted in a quarter of Liberia’s land being contracted out to foreign companies with little oversight. Land access disputes have also slowed planting in the palm oil sector, and oil discoveries have been overshadowed by the need to reform the sector’s institutions. Investments in power and transportation should foster linkages between Liberia’s private sector and its natural resources sector, while increasing productivity and market access for the majority of households in rural areas that are engaged in small-scale agriculture. Infrastructure will take years to develop, however, and poor access to credit will continue to constrain growth. Concession agreements could create up to 100 000 local jobs over 10 years, but this will make limited impact on the 50 000 youth joining the labour force every year. Increased employment creation would help decrease the risk of instability.
Figure 1: Real GDP growth 2013 (West)
Table 1: Macroeconomic indicators
|Real GDP growth||8.2||8.9||7.7||5.4|
|Real GDP per capita growth||4.9||6.1||5.2||3|
|Budget balance % GDP||-2||-4.7||-6.4||-6.6|
|Current account % GDP||-34||-52.4||-65.6||-72|
Recent Developments & Prospects
Table 2: GDP by Sector (percentage of GDP)
|Agriculture, forestry & fishing||-||-|
|Agriculture, hunting, forestry, fishing||71.7||73.3|
|Electricity, gas and water||0.8||0.7|
|Electricity, water and sanitation||-||-|
|Finance, insurance and social solidarity||-||-|
|Finance, real estate and business services||1.1||1|
|General government services||-||-|
|Gross domestic product at basic prices / factor cost||100||100|
|Public Administration & Personal Services||-||-|
|Public Administration, Education, Health & Social Work, Community, Social & Personal Services||4||3.7|
|Public administration, education, health & social work, community, social & personal services||-||-|
|Transport, storage and communication||3.1||2.4|
|Transportation, communication & information||-||-|
|Wholesale and retail trade, hotels and restaurants||6||5.7|
|Wholesale, retail trade and real estate ownership||-||-|
Liberia’s post-war economic growth was sustained in 2012, led by the first full year of iron ore exports, construction, and a strong performance in the service sector. Real GDP is estimated to have grown by 8.9% in 2012, and is projected to expand by 7.7% in 2013 and 5.4% in 2014, supported by iron ore production and concession-related foreign direct investment (FDI). This outlook, however, remains vulnerable to commodity price fluctuations, particularly for iron ore and rubber, FDI, and overseas development assistance (ODA), including the partial withdrawal of the substantial United Nations Mission in Liberia force (UNMIL). Disputes regarding concession agreements, particularly in the forestry, palm oil, and oil sectors, also constitute substantial risks. Faster job creation will be necessary to ensure stability. Consumer price inflation moderated to 6.9% in 2012, reflecting lower international food and fuel prices. Inflation is expected to slow down to 5.1% in 2013.
Agriculture, fisheries, and forestry represented about 36% of GDP in 2012, which should retreat slightly in the coming years as iron-ore production increases. Rubber production declined by more than 30% in 2012, due to lower international prices and reduced output by a major producer. While round log production nearly doubled compared to 2011, sawn timber production fell about 25%. Timber production is expected to decline in 2013, due to the moratorium on the Private Use Permits (PUPs), which cover an estimated 40% of Liberia’s rainforest and 23% of its land area. The government is investigating fraud allegations in PUP contracts. If these issues are resolved, forestry activities could expand further once transportation links are improved and the Greenville port is fully operational. Palm oil concession investments have slowed due to disputes over land access, but the sector has a high potential for employment creation. The agriculture sector, while it is a large component of income and comprises about half of employment in Liberia, suffers from low productivity and largely comprises subsistence agriculture.
The industrial and manufacturing sector expanded substantially in 2012, thanks to the first full year of iron ore production from the Yekepa mine run by Arcelor Mittal. The sector accounted for about 21% of GDP in 2012, but only employed about 8% of the labour force. This share could increase since investments in iron ore production from global companies like China Union and BHP Billiton are expected to come online by 2015. Further expansion, however, could be hampered by lower iron ore prices. Oil exploration continues. One company, African Petroleum, is determining the commercial viability of discoveries made in February 2012. The awarding of additional offshore blocks has been suspended, however, while the petroleum policy is reviewed. Potential production would not commence for several years. Manufacturing — primarily of cement, beverages, woodwork, printing, and various consumer goods — will continue to have a limited impact on output and growth. The sector suffers from an insufficient and prohibitively expensive electricity supply, a shortage of skilled labour, the high cost of inputs, and a limited production capacity.
The services sector contributed around 43% of GDP in 2012. Main activities include trade and hotels, government services, real estate, transport and communication, and construction. The sector is supported by one of the highest levels of per capita overseas development assistance in the world. Services are expected to grow steadily in 2013, although the phased partial withdrawal of the United Nations Mission (UNMIL) through 2015 may reduce demand.
Considerable obstacles continue to impede Liberia’s economic growth. Electricity reaches less than 5% of the population, and its cost is among the highest in the world, at USD 54 cents per kWh, which renders manufacturing prohibitively expensive. The road network is in severe disrepair. Only about 45% of households have access to an all-season road within 5 km and much of the country’s interior is cut off from the capital during the rainy season. This reduces access to government services and to markets for agricultural production. Access to finance, particularly long term, is limited. Land rights remain problematic and unclear, and the judicial system is ineffective. Finally, both the public and private sectors suffer from severe capacity constraints.
The country faces further challenges due to its susceptibility to external factors. Liberia’s undiversified economy depends heavily on exports such as iron ore, rubber, and timber, which are reliant on fluctuating international prices and demand. The major staple food, rice, is imported, increasing vulnerability to external prices. Overseas development assistance, which provides substantial support, will be susceptible to austerity measures in advanced economies. The drawdown from 8 000 UN troops to 4 000 by 2015 may pose security risks. It will also require the government to divert expenditure to the security sector, and will reduce consumption of local services. The security situation in neighbouring states could also pose a risk. Internal stability will depend on the ability to generate jobs to offset the 78% of the labour force in vulnerable employment. The USD 16 billion worth of FDI commitments recorded since 2006 are expected to produce only 100 000 jobs over 10 years, although 50 000 youth join the labour force annually. Meanwhile, these concession agreements have, in some cases, led to resentment that the government is auctioning off land to foreign companies, with limited local consultation and little benefit to Liberians.
In December 2012, the government launched a strategy to address these challenges over the next five years, the Agenda for Transformation (AfT). This is its second poverty-reduction strategy, and the first step towards its Vision 2030 of turning Liberia into an inclusive middle-income country by 2030. The AfT will attempt to remove structural development obstacles through an estimated USD 3.2 billion programme, more than half of which is planned for roads and energy. It also includes programmes to improve social inclusion, particularly among the youth, and improve governance and public institutions. As a first major step, the government has secured financing to rehabilitate the Mount Coffee Hydropower Plant. The plant is expected to provide more than 64 MW of power to Monrovia, a substantial increase over the current 23 MW. Generation should start at the end of 2015.
Government budgets have more than doubled since 2008, as government service provision has expanded with the economy. Until last year, budgets were broadly balanced, with primary deficits below 2% of GDP. In FY 2011/12, however, overspending on operating activities resulted in an estimated 5.8% deficit, which was partially financed by the Central Bank. The primary balance deficit is projected between 5% and 6.6% of GDP through FY 2014/15, to be financed by concessional lending for capital projects.
Tax revenue has improved by 15-20% every year since 2008. The FY 2012/13 Budget of USD 672 million, approved by the Legislature in September, was a 30% increase over the previous year. It was prepared for the first time as a Medium Term Expenditure Framework (MTEF), covering the current year’s budget and estimates for the next two years, with expenditure aligned with the Agenda for Transformation. The new budget separated out recurrent and project spending, which allows for an increased focus reducing recurrent spending to allow for increased investment.
Recurrent spending was reduced over the previous year, from 27.0% of GDP in FY 2011/12 to a projected 25.6% in FY 2012/13 to allow for more investment in key infrastructure projects, including energy, roads, and ports. As a result, capital expenditure is expected to increase from 4.1% to 7.8% of GDP. Implementation of investment projects has been slowed by capacity constraints, a shallow private sector, and slow procurement processes, however, and some of this capital expenditure is likely to be pushed to the next fiscal year. Fiscal rules were proposed to maintain capital spending at or above 25% of budget and constrain wage costs to no more than 34%.
Expenditure is monitored by quarterly fiscal outturn reports, which include analysis of expenditure by economic and functional classifications, but the publication of the final quarterly outturn for FY 2011/12 has been delayed by more than 8 months. Reporting by state-owned enterprises (SOEs) is incomplete, and a consolidated annual report on SOE performance and potential fiscal risks has yet to be introduced. Significant donor funding is not included in the budget, although improvements were made with the FY 2012/13 budget. The establishment of a semi-autonomous Liberia Revenue Authority is expected in mid-2013, which should help reduce distortions in the tax and customs services and improve remuneration and capacity building.
Table 3: Public Finances (percentage of GDP)
|Total revenue and grants||22.6||25.7||27.1||27.4||28.2||28.9|
|Total expenditure and net lending (a)||23||25.7||29||32||34.5||35.5|
|Wages and salaries||8.9||9.8||10.5||11.1||10.9||10.8|
Liberia’s economy is highly dollarised, with the US dollar (USD) making up some 75% of the money supply, which limits the scope of monetary policy for the Central Bank of Liberia (CBL). As such, the CBL’s policy stance is to control inflation by maintaining broad exchange rate stability, which it affects through weekly foreign exchange auctions. The exchange rate against the USD has traded in a relatively narrow band since 2010, between LBD 70 and 76 (Liberian dollars) per USD.
After increasing for several years, foreign exchange reserves showed limited improvement in 2012. They have been drawn down for the construction of a new CBL building and foreign exchange interventions. Reserves stood at USD 335.4 million at the end of 2012, around 2.7 months of imports, an increase of USD 12.2 million over 2011.
Weekly foreign exchange auctions are currently the CBL’s sole instrument to influence Liberian dollar (LBD) liquidity. The central bank also plans to introduce Liberian dollar treasury bills in 2013, which will reduce liquidity, encourage savings, and promote the use of the local currency. There are plans to promote the use of the Liberian dollar, for example by requiring that civil servant salaries and tax payments be denominated in local currency.
Consumer price inflation largely reflects international food and fuel prices and is also affected by domestic transportation constraints. Headline inflation decreased from an annual average of 8.3% in 2011 to 6.9% in December 2012. Inflation is expected to moderate to around 5.1% in 2013.
Average lending rates were level in 2012, at 13.8%. Over that period, the average rates on personal loans increased from 11.0% to 13.4%, while the average mortgage rate decreased from 14.0% to 12.0%. Average rates on time deposits decreased from 3.7% to 2.6%. The CBL has launched various initiatives totalling more than USD 20 million through commercial banks to increase access to finance at below-market rates, especially for the medium to longer terms. These programmes target Liberian-owned SMEs, agriculture, mortgages, and microfinance. While these initiatives may help improve access to finance in the short term, they could lead to market distortions, expose the CBL to a potential loss of reserves, and compromise the CBL’s role as a neutral arbiter. The CBL’s moral suasion to maintain low lending rates could also be counterproductive by limiting commercial banks’ ability to lend for longer terms and increasing the concentration of the sector.
Economic Cooperation, Regional Integration & Trade
Despite increasing exports, Liberia runs a large structural current account deficit. Iron ore exports increased from USD 22 million in 2011 to USD 117 million in 2012 — 26% of total exports — as Arcelor Mittal carried out its first full year of operations. However, rubber remained the lead export, accounting for 32% of the total. Round logs (11%) and gold (6%) also made significant contributions. Yet imports related to the activity of the UN Mission in Liberia (UNMIL), the large donor presence, and FDI will continue to outweigh exports. These imports contribute to a large current-account deficit, estimated at 52% of GDP in 2012, and projected to widen to 66% in 2013. A large portion of transfers to Liberia is due to UNMIL, whose funding was USD 450 million in 2012. In addition, remittances have increased over time, to around USD 35 million per month. FDI was estimated at USD 279 million in 2012, and is expected to increase to USD 328 million in 2013, thanks to investments in mining, oil exploration, as well as rubber and palm oil concessions. Liberia receives some of the highest levels of donor funding in the world, at an estimated USD 355 per capita in 2010. Liberia maintains strong trade ties with the United States and Europe (for the export of natural resources, particularly rubber) and Asian countries including Thailand, Vietnam, and Pakistan for rice imports.
The government maintains its ambition to join the World Trade Organization (WTO), and completed the first working group meeting in early 2012, although accession will take several years. The Economic Community of West African States (ECOWAS) — including Liberia — has agreed to a series of Common External Tariffs (CET) for traded items, and the bound rates agreed with the WTO would have to reflect this agreement.
Table 4: Current Account (percentage of GDP)
|Exports of goods (f.o.b.)||18||13.2||16.6||24.7||26.7||28.1||28.5|
|Imports of goods (f.o.b.)||46.4||49.7||52.2||65.4||76.2||81.6||80.5|
|Current account balance||-24.7||-29.2||-32.7||-34||-52.4||-65.6||-72|
Liberia’s debt outlook has been positive since reaching the Heavily Indebted Poor Countries (HIPC) Initiative completion point in June 2010, which unlocked USD 4.7 billion of debt relief. Preliminary estimates of public external debt are 10.0% of GDP at the end of FY 2011/12, a significant drop from 137.3% in FY 2009/10, but an increase over the previous year’s 8.0%. Central government domestic debt was estimated at 17.6% of GDP at the end of FY 2011/12, although this included borrowing USD 20 million (1.2% of GDP) from the Central Bank at the end of the fiscal year.
The government plans to borrow to invest in capital projects with high economic returns as part of its Agenda for Transformation. In January 2013, it signed a EUR 50 million loan agreement with the European Investment Bank to partly finance the rehabilitation of the Mount Coffee Hydropower Plant. While several loan agreements have been signed in the past year with multilaterals, including the World Bank and African Development Bank (AfDB), the projects are still awaiting ratification by the Legislature and have not become operational. In 2011/12 the government took out a USD 7.5 million bridge loan from the CBL. The government is still reconciling the final accounts for FY 2011/12.
Government debt operates under a series of rules, set out both in the Public Financial Management (PFM) Act and as part of the IMF Extended Credit Facility (ECF) Programme. These include maintaining annual borrowing below 4% of GDP on an NPV basis and keeping the debt stock under 60% of GDP. While most future borrowing is expected to be concessional, the government may also seek non-concessional debt for specific projects, with IMF agreement, if unable to secure sufficient concessional funding. The HIPC debt restructuring negotiations have concluded with all but one sovereign lender (Taiwan).
The government plans to introduce Treasury Bills denominated in the Liberian dollar in early 2013 for cash management purposes. The introduction has been delayed while other cash management concerns are addressed.
Figure 2: Stock of total external debt and debt service 2013
Economic & Political Governance
Private-sector development outside of enclave sectors continues to be severely constrained by poor infrastructure. The dilapidated road network is largely impassable in the rainy season, especially outside of Monrovia, and port facilities are inadequate. Electricity costs are among the highest in the world at over USD 54 cents per kWh, and less than 5% of the population is connected to the grid. Labour is poorly skilled, as the conflict created a “lost generation” who could neither access education nor develop vocational skills, and pushed many of the most qualified workers to emigrate.
The World Bank report Doing Business 2013 ranked Liberia 149th of 185 countries for the overall ease of doing business, an improvement of five places from 2012. Starting a business has become easier, as reflected in the 38th ranking in 2013, following the introduction of a “one-stop shop” for business registration. The government still imposes a number of restrictions on business ownership, however, including de jure restrictions on foreign involvement in certain business areas. Liberia’s ranking on taxes has improved from 98th in 2012 to 45th in 2013. This is partly due to lower tax rates, which, combined with the expansion of tax allowances for both commercial and personal income tax, contributed to the effective commercial tax rate falling from 43.7% to 27.4%. Access to finance, particularly longer term, continues to be a challenge, as highlighted by the 104th ranking (see monetary policy and financial sector sections).
Reforms in investment incentives and the commercial code, and the establishment of a commercial court in 2011, should support private sector development. Yet the judiciary suffers from serious shortcomings in terms of capacity, infrastructure, and the ability to enforce decisions. Challenges in the legal environment are reflected by poor scores in areas dealing with the protection of investors (150th), resolving insolvency (159th) and enforcing contracts (163rd). Liberia ranks poorly, at 178th, in property registration. Unclear land rights remain problematic, with ownership records destroyed during the war. Land concession agreements have been problematic for some large investors in the palm oil sector, where planting has slowed due to local disputes.
The financial sector remains well capitalised and liquid, but non-performing loans (NPLs) and low profitability continue to be a challenge. The private sector faces high operational costs, banks have a limited capacity to assess credit risk, no collateral registry exists, property rights are weak, and there are few legal means to enforce debt repayment. Nonetheless, lending expanded by 18.9% from December 2011 to November 2012. The largest share of loans (42%) went to the trade, hotel, and restaurant sector, followed by 33% to the “other” sector, which includes mainly individuals and service-related institutions. Loans are largely short term or overdrafts and private sector lending and demand deposits are highly concentrated in two of the nine banks.
Average lending rates were 13.8% in November 2012. The CBL uses moral suasion to maintain lower rates and also has several targeted facilities with commercial banks that lend at below-market rates to targeted groups. These policies could limit the profitability and competitiveness of smaller banks and the supply of longer-term financing, as well as posing balance sheet risks to the CBL. With no domestic fixed-income securities market providing low-risk investment, average time deposit rates are low at 2.6% in November 2012. NPLs have accounted for about 20% of total loans in recent years, and stood at 22.2% in October 2012. Non-interest income is high, contributing 55% of total revenue. Banks’ profit pressures are reflected in the poor return on assets (0.12%) and on equity (0.9%) as of October 2012. Profits remain low due to high NPLs and significant uninvested liquidity at banks. The capital adequacy ratio (CAR) stood at 20.9% in October 2012, well above the required minimum of 10%. Similarly, the liquidity ratio was at 43.6% in October, substantially higher than the required 15%.
The CBL is working to recapitalise banks that have inadequate capital. It also plans to submit a new Insurance Act to the Legislature in 2013. The introduction of a collateral registry at the CBL is expected in 2013 and the credit registry should be expanded. The new Commercial Code has eased collateral requirements by broadening the assets that can be used, including future assets.
Public Sector Management, Institutions & Reform
The government undertook a Public Expenditure and Financial Accountability (PEFA) Assessment in 2012. The exercise highlighted progress in 12 of 30 indicators since 2007, particularly in revenue administration, arrears, debt management, procurement, and accounts reconciliation. Yet 16 indicators were rated “D” or “D+”. The Civil Service Management (CSM) module should be introduced once the government has finished removing ghost names and duplicate entries from the payroll, although previous exercises faced difficulties and were incomplete. The share of Liberia’s wage bill in GDP and budget is amongst the highest in Africa, as the government plays a key role in employment. The government introduced rules in the FY 2012/13 budget to limit the share of personnel costs to no more than 34% of the budget. Pay reform will be necessary to improve public sector capacity. The government plans to introduce a Treasury Single Account (TSA) in 2013 to help with cash management.
Audit capacity has strengthened considerably. The number and scope of GAC audits has improved, although there has still not been an audit of government financial statements. The new Internal Audit Secretariat has grown in importance and relevance, but is not backed by substantive legislation or a fully constituted Governance Board. This constrains the general effectiveness of the unit, as well as the implementation of its recommendations.
The majority of State Owned Enterprises (SOEs) have not been complying with reporting requirements of the Public Financial Management (PFM) Act. To increase compliance, the government plans to introduce an office in the Ministry of Finance to monitor submission of SOE financial reports. A Project Management Office (PMO) should also be introduced in 2013 in the Ministry of Finance to oversee the implementation of the government’s priority investment projects.
Liberia’s improved PFM systems have contributed to its ranking of 75th of 186 countries on Transparency International's 2012 Corruption Perceptions index, a marked improvement over its 150th place in 2007, although significant challenges remain.
Natural Resource Management & Environment
The government has outlined plans to develop a comprehensive natural resource management policy, and it was the first in Africa and second worldwide to meet the requirements of the Extractive Industries Transparency Initiative (EITI). The expansion of hydropower will help reduce both the costs of power generation and its environmental impact. Nonetheless, Liberia lacks strong oversight to protect the environment and suffers from weak co-operation between different agencies on land-use issues.
Liberia has operating concessions in iron ore, rubber plantations, logging, and palm oil. Palm oil activities have faced disputes over land rights, following criticism from local advocacy groups claiming they did not have free, clear and informed consent on the operations before they began. Abuse of Private Use Permits (PUPs) — logging permits granted by private landowners — in the forestry sector has led the government to suspend their use, pending further investigation, and to dismiss the head and Board of the Forestry Development Association. Commercial logging companies were caught circumventing sustainability regulations by using the PUPs to access some 40% of Liberia’s rainforest and 23% of its national territory, often using forged land titles and signatures.
The government’s Social Development Funds (SDFs), designed to ensure that affected local communities benefit from natural resource revenue, have struggled since their inception to foster consensus among various local interests on how to spend the funds. The government plans to overhaul the process in 2013, following the suspension of payments from the funds while audits are conducted.
The proportion of population with access to improved water sources has increased steadily from 61% in 2005 to 75% in 2009. Liberia is likely to reach the Millennium Development Goal (MDG) 7 target of 77.5% in 2015. The share of people with improved access to sanitation, on the other hand, has improved slowly from 27% in 2005 to 44% in 2009, and the MDG 7 target of 69.5% is unlikely to be met. Coastal areas are being damaged by rising sea levels. The 2012 Ibrahim Index of African Governance ranked Liberia 11th out of 53 countries on environmental policies, a marked improvement from 37 in 2006 and 22 in 2008. It ranked 33rd in environmental sustainability.
President Ellen Johnson Sirleaf was re-elected for a second six-year term of office in November 2011. The opposition boycotted the second round amidst some violence, however, and her Unity Party holds a minority in the Legislature. The President established a Peace and Reconciliation Commission after the elections, with the 2011 co-Nobel Laureate, Leymah Gbowee, as its head. But Ms Gbowee resigned in October 2012, criticising the President for nepotism and for not putting sufficient emphasis on tackling growing inequality. George Weah, the popular ex-footballer and the opposition’s Vice Presidential candidate in 2011, was appointed to head the Commission in December 2012.
Charles Taylor was convicted of war crimes by the Special Court for Sierra Leone at the Hague in April 2012, and was sentenced in May to 50 years in prison.
In December 2012, the government held a conference to adopt its Vision 2030, whose objective is for Liberia to become an inclusive, middle-income country by 2030. It also launched the Agenda for Transformation, its 2012-17 development plan, and the Truth and Reconciliation Roadmap. The administration faces increasing pressure to deliver on its rhetoric to increase employment, tackle perceptions of corruption, and increase government services.
The United Nations (UN) peacekeeping force of more than 8 000 soldiers and police plans to halve its personnel between end-2012 and 2015. This will test the capacity of Liberia’s police force and army, and also require the government to ramp up security spending. In October 2012, the Governments of Liberia and Côte d’Ivoire agreed to work together to promote peace and security along their common borders. After the 2011 election conflict in Côte d’Ivoire, more than 200 000 refugees fled to Liberia, and more than 60 000 remain as of January 2013.
Thematic analysis: Structural transformation and natural resources
Natural resources have played a critical role in the Liberian economy, both before and after the conflict. In 1980, GDP per capita reached USD 1 765, nearing middle income status, with growth led by commodity exports from concessions, largely ore and rubber, and contributions from timber and palm oil. However, little of this led to development benefits for the general population. Since the end of hostilities in 2003, the retail and services sectors have boomed, largely due to a sizeable donor presence, and the concessions sector is also gradually resuming its activity. Otherwise, much of the rest of the economy, including manufacturing, has seen little growth. The Liberian economy has moved partially towards its pre-war state, with the economy of Monrovia tied very closely to government activities, and the rest of the economy dominated by enclave, largely capital-intensive industries and low-productivity agriculture.
Liberia has significant mineral wealth, with iron ore reserves estimated between 2 to 5 billion metric tonnes. The first post-war iron ore production was exported in late 2011. Three more mines are expected to come online by 2015, at which point, the sector should contribute up to 20% of GDP and employ about 10 000 people. Rubber was still the largest export earner in 2012, led by a Firestone Rubber plantation that has been in operation for almost 90 years. Moreover, Liberia has the largest rainforest in West Africa, which supports significant logging. The government has also leased several offshore oil blocks, and a number of exploratory wells have found deposits that could be commercially viable. Smaller-scale operations in diamonds and gold could employ 30 000 to 45 000 workers. Agriculture includes food crops such as rice and cassava, as well as cash crops such as cocoa and coffee. Palm-oil investments with high employment potential will also gradually come online.
Several constraints limit Liberia’s ability to take full advantage of its natural resources to enable structural change. Foremost amongst these is a substantial infrastructure deficit. Severely deficient roads, ports, and rails deprive Liberia of the ability to fully exploit its resources. While iron ore concessions have built or rehabilitated rail lines to facilitate their exports, less capital-intensive industries with higher employment potential, such as smallholder agriculture, timber, and rubber, need appropriate infrastructure. Feeder and primary roads are essential for smallholders to access markets, trade across borders, and for value chains to develop. Drying, storage and processing infrastructure is also necessary. Timber exports will benefit from the Greenville port once it is fully operational. Finally, the high price of power, which costs over USD 54 cents per kWh — more than three times the African average — does not allow for product processing or the development of a manufacturing sector.
Some key institutional frameworks are already in place. They include a Minerals Management Law (2000) and a Public Procurement and Concessions Act (2006) that regulates the bidding process for concessions. Led by the National Investment Commission (NIC), concession contract negotiations have improved over time and now include stronger provisions for infrastructure development and local employment. Tax regimes, however, still need to be harmonised and made more progressive. Institutional and audit capacity also needs to be strengthened to ensure compliance with regulatory and fiscal regimes.
The Liberia Extractive Industry Transparency Initiative (LEITI) was established in May 2008 to promote proper use of revenues from mining and forestry. LEITI published its third report in December 2011 and contracts are available online. The newly established National Bureau of Concessions is intended to monitor concessionaires’ compliance with their fiscal and non-fiscal obligations and to encourage the development of linkages with the local economy. Part of this measure will focus on improving social development funds (SDFs), which are managed by local communities to fund development projects in affected areas but have suffered from mismanagement.
Several high-profile incidents in the past year have highlighted persistent institutional weaknesses. Planting by major international palm oil concessionaires has been delayed by local disputes over access to the land they were granted. Investigations revealed that local communities were often unaware of the concession agreements until that had already been signed with the government. In the forestry sector, widespread abuse of Private Use Permits (PUPs) came to light in late 2012: some 25% of Liberia’s land has been contracted for logging, often with falsified deeds, without the knowledge of local communities, and sidestepping environmental regulations that were intended to ensure sustainable management. A moratorium was placed on the use of PUPs, and the head and Board of the Forestry Development Authority were suspended. In the oil sector, a watchdog has claimed that the National Oil Corporation of Liberia is corrupt and needs reform, particularly as it holds conflicting roles as a policy developer, regulator, and commercial operator. New concession agreements are on hold pending a new oil policy.
The government has launched its Agenda for Transformation (AfT), which plans to address road, port, and energy constraints, as well as improve youth employment and education. It has aligned its FY 2012/13 budget with AfT priorities, but will face substantial funding gaps to finance its desired infrastructure investments. Concessionaire investment plans will have to be fully leveraged to close the infrastructure gap. Mining companies are investing some USD 8 billion in Liberia, USD 5 billion of which are for power and transport infrastructure. Concession agreements promote third-party access for surplus power, roads, port, and rail facilities. Improved co-ordination will be critical to better leverage these resources.