Originally Published in January 2017

By Wonderr Koryenen Freeman, Attorney-at-Law, Monrovia, Liberia

As the Liberian dollar (LRD) exchange rate inches to 90:1 against the US Dollar, and prices quoted in Liberian dollars continue to rise, tempers are flaring as to what is wrong and who is not doing his job. Unfortunately however, as the leaders and the public seek answers on the state of the economy, the usual “gurus “called upon, include the ministry of finance (MOF) and the CBL. But this approach is a double-edge sword. The MOF and the CBL are most likely to tell you all the good news and none of the bad news – like how Liberia is among the fastest growing economies in Africa and about how the government budget has leaped from USD98m to USD672m in only 7 years [MOF Budget Framework Paper 2013/14]. But on the streets and in our town and villages, the people are becoming experts in unemployment and poverty – and this feedback is reverberating on talkshows and other media outlets. The GOL standard reaction to this disgruntlement is to brand those expressing discontent as the “noisy minority”. Amidst the hullabaloo, the question of what’s wrong with the Liberian economy still must be answered. So in order to get some answers, here is an unsolicited pro bono outsider perspective on the structural issues facing the Liberian economy.

How the World Sees Us

Liberia has been peaceful for the better part of ten years, and as a natural consequence, it has experienced some significant progress in all spheres of life – including the economy. Having said that, however, from an outsider’s perspective, Liberia is still seen as one of the poorest countries in the world. You don’t have to take my word for it. Just look at some of the indexes of international organizations. Firstly, the UNDP human development index, which tracks many facets of what a “decent life”put Liberia at 174 out of 187 (in 2012). Note that countries at the bottom of the index are deemed to have the lowest levels of human development. Another objective index is from the International Monetary Fund (IMF), the internationally renowned organization for economic analysis. The IMF GDP per capita ranking put Liberia 178^th out of 182 countries (2012) – sitting at the 5^th place amongst the world poorest nations. UN Conference on Trade and Development (UNCTAD) also tracks very poor countries – known worldwide as LCDs (least developed countries). The countries listed by UNCTAD as LDCs are noted for three things: (1) low per capita GDP (of US$992 or less) (2) low levels of health, education and literacy etc. (3) vulnerable economy (low industrial output and heavy dependence on primary products). Liberia, along with at least 33 other African countries, has been on that list since the UN began tracking in 1960. In Africa, only Botswana and Cape Verde have graduated from the list – in 1994 and 2007 respectively.

• Points to remember: GDP growth notwithstanding, poverty, unemployment, and undevelopment are still rife in Liberia and it not only ordinary Liberians who see it, it’s seen the exact same way by many international organizations. To get out of poverty, Liberia needs to embark on a comprehensive economic policy overhaul.

Fiscal Policy Overhaul

I congratulate the honourable Minister of Finance, Amara Konneh, on his recent award – for managing the fiscal policy of Liberia. His focus on infrastructure development, as well as his “symbolic” cutbacks in recurrent expenditures, is laudable. But the problem of fiscal policy in Liberia is beyond “managing”. Liberia fiscal policy (especially it spending priorities) needs an overhaul and that’s why neither Amara nor Ngafuah [or any other person for that matter] will get Liberia out of the woods until and unless this fiscal policy overhaul takes place. The Executive Mansion and the Capitol Building have a tough decision to make as to what size of government Liberia can afford. No country eliminates poverty by spending the bulk of its income on salaries, vehicles, fuel and foreign travels. Recurrent expenditure constitutes at least 80% of GOL expenditure budget (2013/2014) and this is bad news for development. The GOL must be rightsized and even though this is not a popular thing to do, it is now the only way out. Just think of all the millions of dollars going down the drain on all those many commissions, agencies and bureaus created since 2005. What has Liberia gain from them? Do we really need a Law Reform Commission, when we have the National Legislature? Do we really need and National Security Agency, Drug Enforcement Agency, and National Bureau of investigation when we have the Liberia National Police? Do we really need and Internal Audit Secretariat when we have the General Auditing Commission? Can Liberia afford US$10 – $20,000 in salaries and benefits for officials, while at the same time permitting officials to purchase US$80,000 cars? As can be seen from the questions raised, these questions are beyond any minister of finance – even a minister hired from heaven! It is a question for the Executive, the Legislature and the people of Liberia. One thing is clear: the more of our income we spent on salaries, vehicles, fuels and foreign travels, the less money we have to spend on electricity, roads, healthcare and education. A fiscal policy fixated on recurrent expenditure is a losing strategy, no matter who is president or minister of finance.

• Points to remember: the Liberia fiscal policy must be overhauled, eliminating unnecessary and superfluous government agencies and other wasteful expenditure so as to free up the millions of dollars needed for electricity, paved road network, agriculture, technical education, healthcare, water among other vital infrastructure projects. It’s a tough choice, but its either fiscal policy overhaul or perpetual poverty for the masses!

Monetary Policy Misdirection

The Central Bank of Liberia (CBL) has done a brilliant job in convincing the Liberia public that its mission is poverty eradication. In order to hammer home this point, the CBL Governor has been crisscrossing the country doling out money to marketing associations and “preaching prosperity”. Not surprisingly, wherever the Governor goes, there is singing dancing and waving of tree branches for Liberia’s latest “messiah”. But with the LRD:USD exchange rate hitting 85:1 and almost certain to reach 100:1, the days of jubilation for the Governor “anti-poverty” campaign may be over sooner rather than later.

Even though the CBL under the leadership of Dr. Jones would want all to believe that the CBL’s mission is poverty eradication, the plain truth, there is absolutely no mention of “poverty” or “poverty eradication” anywhere in the CBL Act of 1999 – and this is not a mistake. The CBL job according to the Act (Part I art 3) is viz:          The principal objective of the Central Bank shall be to achieve and maintain price stability in the Liberian economy.  To this end, it shall devise and pursue policies designed to: 

1. preserve the purchasing power of the national currency;
2. promote internal and external equilibrium in the national economy;
3. encourage and mobilization of domestic and foreign savings and their efficient allocation for productive economic activities; …

Judging by the ever-rising prices and the persistent devaluation of the LRD, it’s pretty clear that the CBL is falling short. The CBL would do well to scale-down its “anti-poverty” campaign and instead focus on incentivising access to finance for labor-intensive industries, agro-processing industries, export-oriented industries and the possible establishment of a financial market in Liberia. Liberia’s economy would be much better off if its monetary policy were focused on promoting employment, industrialization and export. Doing so would go a long way in reducing the billion dollar current account deficit [currently sitting at US$1.6 billion (CBL 2012 annual report)]. The CBL makes much ado about its foreign exchange auction as a “successful” monetary policy instrument, but, what the CBL fails to admit is that, when you have a current account deficit of US$1.6 billion and a trade account deficit of US$650million, offering about US$80 million per annum in FX auction is simply scratching the surface of the problem. The CBL must also address the high level of currency outside the banking system as well as the age-old dual currency policy dilemma, which policy the CBL has insisted it would neither address or open up for debate.

• Points to remember: the CBL is doing grave harm to the Liberian economy by focusing on microfinance. The CBL should instead be focusing more on positioning the banking system to cater to the financing needs of labor-intensive industries, agro-processing industries, local manufacturers and export-oriented industries. It must also address the issue of the dual currency policy and the absence of a financial market in Liberia. Redirecting the CBL’s focus is the surest way to “maintain price-level stability and the purchasing power of the Liberia dollar” – which is in fact the CBL’s statutory mandate. The CBL must immediately put an end to its obsession with microfinance, which, as we all know, is political motivated.

Industrial Policy Vacuum

No country ever achieved sustainable economic development without a clear cut policy on industrialization. A comprehensive policy on industrialization has at least four (4) distinct benefits. The first is that it displaces the need for imports and by so doing reduces the need for foreign currency, while boosting the value of the local currency. The next benefit of industrialization is that it boosts exports and by so doing helps a country raise valuable hard currency. The third benefits of industrialization is that it facilitates the conversion of raw materials into finished products which can garner a country much better prices than sale of  the raw materials. The fourth benefit of industrialization is that it creates jobs (lots of it) by promoting a value-chain from suppliers to manufacturers to consumers.

But industrialization doesn’t necessarily come into being via the operation of the “invisible hand”. It is very often planned, coordinated and actively encouraged by the government. For example, Liberia has started to produce iron ore, what is the GOL plan to insure steel rods are produced in Liberia? Isn’t it common sense that the price of steel is much higher than iron ore and, as such, the production of steel, for example, will increase the level for employment and provide much more in tax revenue for the government than the sale of iron ore? What about rubber? Liberia has been producing rubber for decades, when are we going to produce tyres and other such products from our rubber? Same applies to many other raw materials and other agriculture produce – are we ever going to develop policies that encourage local manufacturing?

 The Liberia Industrial Freezone (LIFZA), created in the 70s, lies in ruin today – eight years after the conflict ended with no intention on the part of the GOL to revitalize it. How about revitalizing LIFZA and in fact declaring additional freezones around the country? Manufacturing activities have significant job-creation potential. But with manufacturing activities constituting only about 7% of Liberia’s GDP (CBL Annual report 2012), it’s only a deliberate government policy that can increase manufacturing contribution from the low of 7% to at least 25%, thereby leading to creation of value chains that provides thousands of jobs and millions of dollars in tax revenue.

• Points to remember: The GOL must develop deliberate policies to promote manufacturing and value-added industries especially in the sector for which we have the raw materials. The GOL must engender policies that will attract investment in labor-intensive industries and export-oriented industries. This is absolutely essential if the Country is to overcome unemployment, improve price-level stability and boost the value of the Liberian dollar.

Indigenization Policy Reinvigoration

One of the integral parts of a booming economy is the level of indigenous participation in the economic life of a nation. In Liberia, we have had the Liberianization policy. But the scope is quite narrow – encompassing 26 businesses at the lowest level of the economy. We cannot fault our predecessors for thinking small, but it’s high time to rework the Liberianization policy to provide for Liberian participation in high-end businesses and exclusivity in low-end businesses – possibly encapsulating the entire retail industry. Every country has some kind of well-thought-of policy to engender indigenous participation in its economy. Liberia has to step up its “game”. It’s high time the Liberia’s leaders institute policies geared towards accelerating the participation of Liberians in the economy.

• Points to remember: The current Liberianization Policy with its focus on reserving “ice-making” and “shoe-repairing” for Liberians is grossly inadequate to empower Liberians participate meaningfully in their own economy. This Policy must be revamped and reinvigorated to ensure a much greater and more meaning participation of Liberians in their own economy.

Institutionalizing a “Buy-Liberian” Policy

In 1920 the US Congress passed the Merchant Marine Act (also called the Jones Act). This Act required that US Flagged vessels “must be built in the US, owned by US citizens” and “staffed by US citizens. Imaging such a law! Today we called such a law protectionist, but there is an important principle there. Unless Americans build their own ships, own the ships and run the ships, the US shipping industry [not a traditional maritime nation] risked being dominated by foreign nations. So voila, the US government responded with the Jones Act, which lasted for decades before its repeal on the advance of free trade ideology. So, today even though America faces stiff competition for Europe, Asia and South America, the core principle of “BUY AMERICAN” runs deep in American culture and policy and is part of the reason they are the greatest nation on the planet.

Liberians, on the other hand take an unfortunate pleasure, in consuming products from other countries rather that consume similar products produce in Liberia. We have local beer, but we rather drink “Heineken” or “Savanna Dry”. We have good local designers and tailors but we rather wear used clothes from America. We have beautiful and durable local wood and furniture, but we rather buy imported furniture. We have competent local contractors, but we rather hire “foreigners.” After consuming foreign products and services, we complain about unemployment and poverty. Of course there is going to be unemployment and poverty, when Liberians themselves choose foreigners for contracts, while at the same time freely choosing to consume foreign goods and services. This is one instance in which the blame does not fall only on the GOL, but on each and every Liberian. The day we start valuing Liberian-made products and services is the day we shall turn the corner on prosperity in Liberia. It’s that simple!

• Points to remember: Overcoming unemployment and poverty is not only the job of the Executive or the Legislature. It is the duty of every Liberian to cherish products made or sold by Liberians and purchase them all the time, every time. It’s the duty of the GOL to legislate a BUY-LIBERIAN policy. It is the duty of all Liberian businesses, organizations and institutions to religiously implement such a policy. This is one of the surest ways of revitalizing the Liberian economy.

Concluding comments

There is no quick fix to the problem facing the Liberia economy. A legislative inquest of the Executive of the GOL (i.e., the MOF and the CBL) will not produce anything new. Changing the minister of finance will not change anything! The economy is not going to pick up steam anytime soon, until and unless we overhaul our fiscal policy, redirect our monetary policy,  institute an industrial policy, revamp the Liberianization policy and institutionalize [in words and deeds] a BUY-LIBERIAN policy. The responsibility to implement these reform measures cut across all levels of the society and all branches of the Liberia government. Some of these measures require making tough choices, but then again, isn’t that what economic policy-making is all about?

About the Author: Atty. Wonderr K. Freeman is a Liberian lawyer and a socio-economic commentator. His is a graduate of the, UL College of Business & Public Administration, the Louis Arthur Grimes School of Law (UL) and the Cuttington University Graduate School. He currently resides in Pretoria South Africa, where he is pursuing a Masters of Law (LLM) in International Trade and Investment Law at the University of Pretoria, Faculty of Law.