Recent Developments & Prospects
Economic Cooperation, Regional Integration & Trade
Economic & Political Governance
Public Sector Management, Institutions & Reform
Natural Resource Management & Environment
Thematic analysis: Structural transformation and natural resources
Authors: Patrick Hettinger, Janice James
- Celebrating the tenth anniversary of the end of its civil war in August 2013, Liberia has maintained stability and supported economic growth but the country’s youthful population is still waiting for the creation of more skilled jobs.
- Economic growth continued in 2013 at a rate of 8.1% led by iron ore exports, construction and services while investments are being made in energy and transportation to enable more broad-based growth.
- Public sector reforms continued in 2013 although implementation faces severe capacity challenges that will have to be overcome before Liberia can fully leverage natural resource revenues to address its critical poverty.
Liberia’s economy grew at 8.1% in 2013, led by increasing iron ore exports, construction and a robust services sector. Real GDP is projected to expand by 6.8% in 2014 and 8.2% in 2015. Increasing iron ore production and concession-related foreign direct investment (FDI) will continue to support this growth. However, growth in concession sectors, particularly forestry and palm oil, continues to face governance challenges that are slowing expansion and employment. Progress with public investment in energy and transportation infrastructure will be necessary to enable growth outside of the extractive sectors. The Mount Coffee Hydropower Plant and other major energy and road rehabilitation projects under preparation will significantly reduce the cost of doing business when they are completed in 2015 and 2016.
The government continues to make progress in public sector reform and improving institutions, but this is slowed by capacity constraints. Improving budget execution and public investment will rely on containing current expenditure, largely the wage bill, while also improving cash management and preparing realistic revenue forecasts. Timely approval of the budget by the legislature as well as improved inter-agency co-ordination will also be necessary. The phased draw down of UN forces also calls for increased spending in the security sector. The government has established units to improve project management and oversight of state-owned enterprises and concessions, while the creation of the Liberia Revenue Authority in 2014 will help improve tax administration. Nonetheless, governance constraints in managing the natural resources sector continue, holding back progress and creating tensions with the local population that would like to see increased benefits from growth. Improvements are needed in the education sector to develop a workforce for the future. Mid-term legislature elections are scheduled for October 2014, which will likely increase political discourse concerning government effectiveness and increased employment growth.
Liberia has benefited from over USD 16 billion in FDI commitments since the end of the war in iron ore, forestry, rubber and palm oil. The government is promoting increased local business linkages with these global value chains in order to increase the capacity and value added of the local private sector while also increasing employment and the skills base. However, the capacity of the local private sector currently limits participation, while it is also bound by severe infrastructure constraints. Investment to address infrastructure bottlenecks is moving forward. The business environment, which is being supported by increased dialogue with stakeholders and improved information sharing, will also need further enhancement.
Table 1: Macroeconomic indicators
|Real GDP growth||8.3||8.1||6.8||8.2|
|Real GDP per capita growth||5.6||5.6||4.4||5.8|
|Budget balance % GDP||-2.3||-2.6||-4.6||-5.3|
|Current account balance % GDP||-33.9||-48||-49.1||-37.1|
Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.