By Amin Modad, [email protected], Contributing Writer
“Service to others is the rent you pay for your room here on earth”- Muhammed Ali
For too long we sit back and pretend that all is well, assume that crises will resolve themselves, or it is only the government’s responsibility to discuss and resolve national issues. This attitude has only created less accountability, super government institutions, and poor cooperation between the government, development partners, private sector, and civil society. If this must change, each and every Liberian must and can play a role in reviving the economy and stopping the downward spiral. It, however, begins with our approach and interests. It is no longer a secret, the Liberian economy is on the verge of collapse; we must not sit by complacently without collectively trying to find solutions. At this critical turning point, it is not about throwing blames and pointing fingers. It is about the collective good and working together in preventing a worse situation.
There are several reasons for the declining economy and the escalating foreign exchange rate. While few of the issues affecting our society and economy are exogenous, most of the critical ones are domestic. Regardless, the government could implement strategic actions to minimize the impact on the economy and society and drive sustainable growth. Pres. Weah was elected with the overwhelming mandate from the masses. Thus, the way forward begins with him, his vision and how he intends achieving them.
The fundamental basis for Liberia’s economic problems is what seems to be recurring trade deficits compounded by the volatility of the demand and prices of our traditional exports (rubber, iron ore, coffee, cocoa, etc). In recognition of the fact that this economic model that rests on importation and large concessionaires that export only raw products, with insignificant focus on value addition, has never worked, it’s high time that we became more creative in our strategy and more firm in our resolve to substitute imports with locally made products. Liberia has plausible opportunities of becoming a self-reliant middle-income country. No country has been able to develop without properly harnessing its comparative trading advantages; if Liberia will ever get better it would have to build the local export-related industries.
Knowing that our comparative advantage lies in our natural resources, the Government must begin to fund programs that support the emergence of vibrant SMEs/SMIs (especially industries that focus on expanding the value chains linked to Liberia’s natural resources). There are other hard and soft infrastructure constraints that need to be addressed in Liberia in order to develop our domestic capacity and regional trade integration efforts. For example, the structure must be put in place to ensure quality improvements and standards; this would include capacitating the already established Standards Lab and establishing the Standards Board that would ensure that Liberian products meet the sanitary and phytosanitary standards for local consumption and exports. These structures are also critical in ensuring that products entering our markets are fit for consumption and meet international standards. We continue to see our markets dumped with expired foodstuffs, contaminated meats, and low-grade substandard building materials amongst others. Much work and studies have been done in this regard that requires only commitments and implementation. This would be a big step in developing our competitiveness in order to effectively access larger markets where there are demands for our products, but standards are enforced.
Like the previous administration, the current has coined the poetic Pro-poor Development Agenda that appeals to the masses and evokes the sentiments of the marginalized and disenfranchised. However, our development agenda must transcend the idea of poverty reduction and focus also on the structural transformation needed to foster inclusive, decentralized, Liberian led growth, that would improve the living standards of the masses in a more sustainable way. The President seems to have a genuine intent to foster change and improve the lives of the ordinary people; but, he cannot do the work by himself, without a strategy, and without a measurable implementation plan.
Looking back on the state of the economy when Pres. Ellen Johnson-Sirleaf took over and the collective work that was done to get the country back on track, this administration must not underestimate its responsibilities and allow the economy to collapse under its watch. Let’s be candid, while it’s true that the economy began experiencing stress and semblances of deterioration since 2011, it is now that Liberia is experiencing the most profound sense of economic decline and directional crisis. The economy is at the worst state since the Ebola epidemic. The government must demonstrate a genuine interest and preparedness to openly discuss the underlying causes of decline as much as the institutional challenges and political prerequisites for turning the situation around and fostering sustainable development.
Unless these actions are taken with a pro-business and inclusionary disposition, the economy will decline faster and the society will disintegrate, thereby eroding all post-conflict the gains.
What are some of the prominent issues?
1. ABSENCE OF A ‘PEOPLE OWNED’ NATIONAL STRATEGY; STRESSED BUSINESS ENVIRONMENT & DECLINING INVESTORS CONFIDENCE; WEAKENING PRODUCTIVE SECTOR & DIMINISHING EXPORTS;
THE ABSENCE OF A ‘PEOPLE OWNED’ REALISTIC DEVELOPMENT STRATEGY supported by a STRATEGIC IMPLEMENTATION PLAN does not only heighten insecurity and lack of confidence, but inhibits the government’s capacity to efficiently govern, develop & implement policies, and manage the economy (including its own fiscal system).
People Owned is highlighted because considering our diversities and conflict history, an essential element of developing a national development strategy is ensuring the participation of all Liberians in its diagnostic process and the buy-in of all stakeholders. Growth, as a goal of an inclusive agenda, can truly impact the living standards of the people only if all segments of society, including the disenfranchised, participate in discussions influencing decision-making. When everything is as tense as it is currently, not having a plan whatsoever, sends jittery messages to partners, stakeholders, and the ordinary people. It is high time that the government developed, updated, or revised the national development agenda.
Bear in mind that even in consideration of the few mistakes made during the last administration (especially as it relates to the implementation of good policies it developed), the country would have been in a far far worse state than what this administration inherited if the previous administration did not start with a reasonable agenda and worked towards a more comprehensive development strategy. The administration started with the:
a. Governance and Economic Management Assistance Program (GEMAP) that was fully operational in mid-2006
b. The Government’s strategy was articulated in its first 150 days plan prepared in early 2006. This mapped out the initial actions for the recovery of Liberia after more than two decades of crisis, mismanagement, and economic collapse
c. The Interim Poverty Reduction Strategy (IPRS) was subsequently concluded in 2007 to cover an 18-month period. It was a major step towards a holistic approach to implementing long-term development agenda with an emphasis on achieving the Millennium Development Goals (MDGs)
d. In April 2008 the government finalized the Poverty Reduction Strategy (PRS), covering the period April 2008 to June 2011. This was also linked to the MDGs
e. Then finally came the Agenda for Transformation
These are mentioned to demonstrate that sustainable growth and economic stability doesn’t happen overnight; it is a continuous process and involves aggressive stakeholders cooperation.
Considering the urgency, the government could have started with a revision of the current agenda in efforts of reprioritizing and developing short-term interventions. This would allow time for the administration to get its bearings and formulate a more in-depth and contemporary development agenda; these two could be done in tandem.
The preconception that technocrats and policymakers can sit in the office and concoct a national development strategy without the active participation and contributions of stakeholder is not progressive and realistic; its essential that the development partners who we will hope to fund a bulk of the implementation, the private sector upon which the wheels of the economy turns, and the people operating in the various sectors are part of the process. It is not just about telling the people what the government intends to do, but the development process of such an essential policy tool, affords the government (and stakeholders) the platform to dialogue, diagnose the current socio-economic and political conditions, and prescribe a realistic and practical approach to governance and development. It also demonstrates that the government is proceeding with prudence and focus.
Both the macroeconomic framework and the sectoral development plans of the various economic or trade related agencies (such as the Ministries of Commerce, Finance & Development Planning, Agriculture, Land & Mines, and the FDA) must then be aligned and made compatible with the government’s long-term socio-economic development vision. Donors programs and support to the country must strategically be aligned with the national priorities. From experience , if the development priorities are not effectively mainstreamed into the national development strategy and donor programs, even the donors tend to fail in efficiently addressing those priorities. The process of developing the national development strategy requires experience, prudent fiscal management with a pro-business disposition, and efficient coordination.
2. GOVERNMENT’S CREDIBILITY, INVESTORS’ CONFIDENCE, & BUSINESS ENVIRONMENT.
The Liberia, with the support of the development partners and stakeholders (essentially, the tax payers and donors) have invested time, money, and energy to create a more friendly post-conflict business environment. Mistakes were made along the way; however, the gains made over the years were not serendipitous. It took hard work, dedication, and the buy-in of most Liberians and development partners. This administration must maintain the momentum and institutionalize business facilitation and confidence. Individuals are elected and appointed to serve the people by the people; when given these unique privileges, we must remain humble and mindful that we are obligated to reassure and appease the fears of those who put us there. This is the time for the Government to assume a strategic role by eliminating persistent barriers to growth and promoting private sector empowerment. Undue stress on the business community affects the survival of local enterprises regardless of size, discourages FDI, and heightens corruption especially when there are budgetary shortfalls and economic snags.
Concerted efforts must be made to build investors confidence and restore public trust in the government; there is a strong correlation between the government’s integrity and the efficiency of investments made in the country. It is a fact that the effective implementation of public policies for sustainable growth depends in large on the behavioral responses from the public (especially domestic enterprises). There is growing anxiety amongst the people and foreign counterparts concerning the economy.
Our history (including the Ebola period) is replete with evidences that the resilience of the local business community and strength of the people prevented the total collapse of the economy and country. The government must begin to proactively engage the private sector ESPECIALLY Liberian entrepreneurs with substantial investments and potentials for creating jobs and impacting their communities. Through such engagements, the Government would better understand the actual issues affecting the economy and threats in order to effectively determine counter actions and harness real opportunities. This must be done without political prejudices and favor. Regardless of politics, creed, color, and ethnicity, it is to everyone’s interests that the administration in power succeeds, there is no crisis, and the lives of the people improve. From a simple logical business perspective, more Liberians need to be empowered with work, purchasing power, improved tastes & wants, and mental stability in order to patronize and support each other’s businesses and endeavors.
Experienced and successful politicians and policy makers may really not be experienced and successful business people. Business people must have confidence in the administration to continue investing and remain opened. Businesses must be reassured that the government sees them as partners. Sometimes, being in government especially in difficult times and when they’re pressured to deliver, individuals tend to lose touch with reality and become detached from what the masses are experiencing. The fact is, businesses (small to large) are becoming more despondent than ever. Many firms are shutting down or moving to neighboring countries because they cannot remain afloat and don’t see improvements on the horizon. There is also low ‘Business Starts’. Liberians need to be encouraged to start investing in the economy especially in critical and prioritized sectors such as agriculture, woodwork, value addition, tourism, and exports.
Global trends, such as shifts in demand for some of Liberia’s traditional exports, international politics, regional insecurity, and the reduction in tariffs globally over the last 30 years had some effects on Liberia’s terms of trade and the economy. Albeit, a lot of the vulnerability could be circumvented and are due to internal problems that continue to fuel public inefficiencies and corruption. Putting aside corruption and working towards an environment where trade facilitation is at its best, the country will be in a position to experience prosperity and inclusive growth. The government at this time, still needs budgetary support and partners engagements towards essential sectors and programs. However, the onus still rests with the government to provide that strategic framework for interventions from the partners based on the setting up of realistic short, medium, and long term development goals.
The administration must begin to set GOOD examples of governance, fiscal responsibility, accountability, prudence, and commitment to fight corruption so as to alleviate the growing despondency amongst the people.
3. GLOBAL TRENDS; SPIRALING TRADE WARS; LIBERIA’S MEMBERSHIP TO GLOBAL & REGIONAL TRADE AGREEMENTS
Is Government or any institution monitoring the ensuing global trade wars between the US and China. Is anyone looking at how these and the conflicts in the Middle East are affecting Global Trade? Since then, the trade wars have spiraled unprecedented between the US and Canada and the EU. Is anyone conducting an assessment to understand how these conflicts would affect Liberia especially in regard to the demand and prices of steel, rubber, and Liberia’s other traditional exports? Certainly, it must expected the Liberia will be susceptible to diverse economic shocks as the demand for its traditional exports are determined by external factors surrounding trade flows between these regions. Unfortunately for Liberia, for example, these trade wars directly affect the automobile industry that drive the demand of two of our major exports, iron ore and rubber.
Liberia will continue to experience heavy pressure on the exchange rate due to our trade imbalance, decline in remittances, repatriation of capital, decline in export earnings, and greater market demand for U.S. dollars to facilitate importation. In a more candid expression, we do not have the exports, reserves, and system to back our currency.
These trade wars undermine the principles of free trade and trade liberalization as enshrined in the rules of the World Trade Organization. Trade liberalization is effective and beneficial to all parties when it is based on reciprocity or the ability to competitively participate in the exchange of goods and services. In our case, we have no industries; our trade deficits over the last eight or so years averaged -78% of GDP. Our economy will be more vulnerable to global shocks, our foreign exchange reserves will take huge hits with capital flight, and our market will become a dumping ground UNLESS our Government takes the necessary actions NOW to implement the trade, SME, and industrial policies that were developed in tandem with our reintegration into the global trading system.
We now live in an increasingly competitive world. There are not much that Liberia has to offer that other neighboring countries don’t have. WE MUST MAKE LIBERIA AN ATTRACTIVE DESTINATION FOR INVESTMENT. The administration must understand that Liberia is competing with other Least Developed Countries (LDCs) for scarce FDIs and foreign capital as well as access to global markets. Other countries in the region are ahead of us in offering incentive and inducements to attract investors and encourage domestic entrepreneurship including lower cost of doing business (cheaper power & other utilities, access to water, roads, more friendly and advanced business environment, etc), improved social services (better healthcare & educational systems, etc), more vibrant financial services institutions, etc.
Due to the economic crisis we find ourselves in, there are ongoing debates as to whether memberships to multilateral trade protocols such as those under the World Trade Organization and ECOWAS are beneficial to Liberia. Looking at our current situation and without understanding the historical context of these organizations, agreements, and our engagements over the years, it easy to see that Liberia is at a very disadvantaged position. The ECOWAS Common External Tariff (CET) agreement is already negatively affecting local production, our reserves, and the exchange rates.
Africa also recently signed the African Continental Free Trade Agreement (AfCFTA) in Kigali. Generally, the AfCFTA was a bold initiative to boost Africa’s economic growth and self reliance. Similar to the above mentioned protocols, the vision is that by harnessing each others’s strengths and resources we can grow from within. Coming out of civil crises, Liberia has definitely made strides in reintegrating into the global community. While we’ve made these major leaps with the WTO, AfCFTA, AGOA, CET, and etc, truly, Liberia is not yet strategically positioned to reap the benefits as much as most of the countries we are bound to interact with. HOWEVER, facts must be placed where they are necessary. In the course of engaging these multilateral organizations, they provided incredible capacity building support that helped Liberia develop three key policies and several sectoral strategies; namely the Trade, Industrial, and SME policies.
We find ourselves in this conundrum because we simply did not go beyond the development of these policies and implemented activities to circumvent the adverse effect. These include encouraging Liberian entrepreneurship in agriculture & food production, light manufacturing & value addition, and export diversification (encouraging Liberians to venture into non-tradition products that had global demands and prices stability). IT IS NOT LATE; these threats definitely provide immense investment opportunities for Liberia and Liberians!
IT IS CRITICAL that while Liberia looks to reevaluate our memberships to these accords and organizations, we need to assess the political and economic implications of pulling out as well as other alternatives we could rather take. Opting out might indicate policy inconsistency from Liberia since we clearly agreed to and expressed our desire to take advantage of potential benefits of being fully integrated into ECOWAS. It could also have a splintering effect on the integration efforts in the sub-region. If subregional harmonized investment & trade policies and incentives are far more competitive, separating might also isolate Liberia and limit our access to scarce FDIs that might be rather attracted to these other ECOWAS Countries. We may also be further ostracized from trading or dealing with other key bodies and countries that are politically and economically bound to ECOWAS or the AU.
There are alternatives; contrary to uninformed opinions, if a country can negotiate effectively and demonstrate how critical key policies and initiatives are to its economic survival (even with regards providing support to local industries), the WTO and most of these protocols allow countries transitional periods and support trough bilateral arrangements to address these constraints; these however come with firm commitments on reforms and compliance.
Looking at our balance of payments and current trade flows, Liberia needs to increase exports and maintain capital in the country. The export of raw or unprocessed resources by large concessionaires without some value addition components will never optimally improve our net foreign assets since these companies by virtue of their models, expatriate profits and capital. Whereas, domestically owned SMEs or concessions that add value to our resources for exports will most likely bring back and retain in country more of its earning.
If there are key points to be made in this section, they will be:
a. THE GOVERNMENT MUST CURTAIL THE IMPORTATION OF ANY PRODUCT THE IS MANUFACTURED LOCALLY AND PRODUCERS CAN DEMONSTRATE THE ABILITY TO SUPPLY THE MARKET
b. GOVERNMENT MUST STRATEGICALLY FOCUS ON AGRICULTURE & AGRO-PROCESSING IN EFFORTS OF ENSURING SELF-SUFFICIENCY AND IMPORT SUBSTITUTION. SPECIAL FUNDING MECHANISMS (INCLUDING CRANTS) AND INCENTIVES MUST BE ESTABLISHED TO ENCOURAGE LIBERIAN ENTREPRENEURS IN THESE VENTURES
4. CBL CONTROL OF THE EXCHANGE MARKET; HOARDING OF CURRENCIES.
The Liberian economy maintains a dual currency arrangement (the Liberian Dollar and the US Dollar) and the monetary policy centers on stabilizing the exchange rate and averting inflation. However, due to the fact that the US Dollar is the currency of choice for trade, it’s demand and dominance affect the Central bank’s ability to implement more complex policies, when inflows has been comparatively lower than whats taken out.
The foreign exchange market is overtly controlled and manipulated by the foreign exchangers. The CBL has still not been able to tilt this control partly because the economy is so imbalanced and dominated by importers who by virtue of their make up, easily repatriate profits and capital. It is clear that the foreign exchange system has become more of a cartel that is capable of manipulating the supply and demand of currencies on the market. This ties into their ability to influence the rates for increased profitability and to support importation.
The decision to print more Liberian banknotes in 2016 was not strategic and viable especially around the elections period. There are speculations that this also caused the excessive LD on the market. Let us keep in mind that Liberia is a dollarized nation; since we cannot print US Dollars as we can easily do the Liberian Dollar , doing so again without a strategy to improve exports (hence, inflow of the new US Dollars) and domestic production (for import substitution; hence retaining US Dollars) will not provide longterm solution, but may rather distort the market, heighten inflation, and further undermine the Liberian Dollar. It is essential that the government provide the incentives for the evolution and survival of Liberian entrepreneurs and a potent Liberian middle class. Liberians must be given the incentives and encouragement to invest in six critical areas:
a. Agriculture & food production
b. Value addition centered around our comparative advantages, resources, and domestic needs
c. Hospitality and real estate
d. Engineering, construction, and critical professional services (such as carpentry & woodworks, industrial welding, IT, electronics, etc)
e. Trade
f. Education & skills training
The CBL MUST strategically take control and set rules and guidelines for engaging in foreign exchange. In a more ideal situation, only Liberians must engage in foreign exchange. Formal Liberian firms must be encouraged to evolve and capacitated to do so WITHOUT attempting to mete undue pressure on the business community and institutionalize scrutiny of legitimate businesses. The government must shut down many of the existing bureaus in order to streamline and regulate the market. Stringent rules must govern the process and sabotages must be prosecuted.
A more sensitive area is regulating the repatriation of funds. One of the incentives that make Liberia an attractive investment destination has been our lax foreign exchange controls. This is a double edge sword; while this needs to be better regulated and rules must be established to protect the economy, we must be careful not to overdo it or constrain business transactions.
The CBL must seek low cost funding opportunities for Liberian businesses to remain afloat and to venture into priority sectors. The CBL must work with the commercial banks to refinance and restructure facilities that are constrained due to the economic decline. Specialized financing or sectoral banks must be created to encourage Liberian participation in key sectors. These could include an Agricultural Bank and an Industrial Bank.
Another alternative that would provide more security and stability and serve as an attraction to investors, would be moving back to a single currency economy in favor of the US dollars. Here again, the government needs to properly assess the pros and cons and engage the public. There might be fiscal and institutional requirements that Liberia would have to meet in order to pursue such route.
It is also apparent that local fraudsters are conniving with other nationals who are infiltrating the economy and flooding the market with counterfeit Liberian Dollars. This explains the inability of the CBL to account for the volume of LD in circulation. Security must be heightened.
CONCLUSION
These are only few of the many issues that are affecting the economy and escalating foreign exchange rate. Stakeholders directly engaged in the various sectors are more informed and capable of providing realistic information on the state of these sectors. The best approach at this time is to organize an intense stakeholders forum to properly diagnose the economic conditions, conduct an impact assessment to understand which sectors are most vulnerable or worst affected, and identify realistic actions to move the country forward. There are many experienced and successful Liberians with vested interest in the country (not looking for jobs), who are willing to invest their time and resources towards supporting the government efforts and ensuring that the country progresses for all.