Liberia's GDP Paradox: Looking Beyond the “Fastest Growing Economy" Public Relations

Liberia's GDP Paradox: Looking Beyond the “Fastest Growing Economy" Public Relations
Charles Taylor's Economy Recorded the Highest Growth

The Perspective
Atlanta, Georgia
May 2, 2013

The Liberia Institute of Public Integrity (LIPI) welcomes statements by the World Bank (WB) Chief Economist for Africa, Shanta Davaranja, and the International Monetary Fund (IMF) head of the visiting team to Liberia, Mrs. Catherine McAuliffe, that Liberia’s economy is amongst the fastest growing economies (at 7% or higher) in the world , and that “Liberia’s economic growth is on an upward trajectory and economic prospects over the medium term remain favorable respectively.” These disclosures, though not new to Liberia, are heartening and commendable, for they indicate Liberia’s potential for growth, considering the country’s natural resources and the revenue generated from these resources. LIPI believes that a growing economy, when equitably utilized, is vital and crucial for national development and improvement in the living standards of all Liberians.

However, LIPI is concerned about the undue political publicity and propaganda the Government of Liberia, through the Ministry of Finance, is according these economic observations without due regards to the harsh socioeconomic conditions facing Liberians today. Liberia remains a low-income country with a significantly high poverty rate , a comparatively low life expectancy rate , and a high illiteracy rate . The most fundamental question the Liberian Government needs to be concerned about should be: Are Liberians well off and getting better? LIPI agrees with the World Bank and the IMF that there is “plenty food” in the barn and storehouse of Liberia. But is the Liberian Government distributing the “plenty food” among all Liberians fairly and equitably; or is one Liberian or a privileged group of Liberians taking the lion shares of the “plenty food”?

Growth of an economy is not a magic wand or gateway to progress; it is only an expression that you have the potential in terms of resources to make progress. Without commitment to fight greed and corruption and a clear national policy to distribute the wealth equitably, benefits of economic growth become the property of few people in power. We must learn from the words of ex-French President, Nicolas Sarkozy, who commented on GDP and warned, "nothing is more destructive than the gap between people's perceptions of their own day-to-day economic well-being and what politicians and statisticians are telling them about the economy"  

Additionally, several leading world figures have agreed that economic growth, measured through a country’s GDP, may be a healthy determinant, but it is certainly not sufficient to measure a country’s progress. This view was supported by former United States Attorney General, Robert F. Kennedy when he said, "GDP does not allow for the health of our children, the quality of their education, or the joy of their play” . David Cameron, the British Prime Minister, acknowledged the inherent weakness of GDP, when he said, "it's time we admitted that there's more to life than money, and it's time we focused not just on GDP but on GWB - general wellbeing."

Nobel Prize-winning economist, Joseph Stiglitz, recognized this weakness and rejected the exclusive use of GDP when he said, "no one would look just at a firm's revenues to assess how well it was doing. Far more relevant is the balance sheet, which shows assets and liability. That is also true for a country." Even the World Bank former President, Robert McNamara said in 1973 that “progress measured by a single measuring rod, the GNP, has contributed significantly to exacerbate the inequalities of income distribution." . This is why United Nations Secretary General, Ban Ki-moon demand that "we need to move beyond gross domestic product as our main measure of progress, and fashion a sustainable development index that puts people first"

With minimal tangible progress to pinpoint in terms of genuine policy execution to improve the human condition in Liberia, Liberian leaders tend to take the gross domestic product report and run with it at face value, without considering cautionary statements from economic professionals. For instance, in January 2012, during her State of the Nation Address, President Ellen Johnson Sirleaf declared, "we expect the final GDP growth for 2011 to be at least 7 percent, helped in no small part by the restart of iron-ore exportation. A higher level, about 9 percent, is expected in 2012. In the midst of a looming global recession, this is no small achievement."

Liberia's Finance Minister, Amara Konneh, is quoted in the Heritage Newspaper as saying, "by and large, the fundamentals of the economy are solid and we are poised to register positive growth in GDP of around 7.5%. While growth in gross domestic product alone is not sufficient to ensure strong and equitable development, it is encouraging; it shows that the overall health of the economy is good.” This uncritical and superficial acceptance, coupled with glorification of economic data without indication to correct the imbalances, clearly suggests that our leaders have either refused to learn from history or are ignoring the lessons of history.

2.Charles Taylor's Economic Miracle: Recorded the Highest Economic Growth in Liberia's History

Liberia economic growth report is not new. At different periods in more than half a century ago, Liberia has experienced the so-called "fastest" economic growth. Liberia was once regarded as the "fastest growing economy in the world”. Liberia's economic growth has been so enviable to the point that economists described Liberia as "growth without development", clearly pointing to Liberia as a good example of a country with enormous growth rate without much improvement in the socioeconomic conditions of the majority of Liberians.

For example, in the early 1960s, a group of Northwestern University development economists led by Dr. Robert W. Clower described Liberia as being among the high achievers in economic growth performance, ranked second to Japan in income and growth registering 12%. Using 1954 as a base year, the 1960 growth index for Liberia’s real gross national product, the aggregate monetary value of goods and services produced in a year, was 175, while that of Japan was 180, meaning that Liberia was even richer than the United States and individual European countries in terms of GDP. But the hard truth is that Liberians hardly experienced improved living standards from the reported growth. Liberia remains the largest "growing village" in the world today, a "growing village" whose capital city Monrovia is described as the darkest.

In 1997, during the rule of Charles Taylor, Liberia’s GDP was 106.28%, the highest in the history of Liberia (see the table below on page 8). Yet, many Liberians were suffering and poor. In 2009, the Economy Watch put Liberia among the top 12 fastest growing economies in the world, with Ghana topping the list at 20.2% and Liberia at 9%. Some economists have even argued that given these examples regarding Liberia's economic performance and underdevelopment, whether in fact gross domestic product (GDP) should be used as a metric to measure the economic performance of countries like Liberia. Use of GDP is only useful as a measure of economic aggregates without which policymakers are likely to infer from unorganized economic data. Therefore, distinction must be kept in mind between quantity and quality.

In February 2008, President Nicolas Sarkozy of France commissioned Nobel Prize–winning economists Joseph Stiglitz and Amartya Sen, along with the distinguished French economist Jean Paul Fitoussi, to study whether GDP — the most widely used measure of economic activity — is a reliable indicator of economic and social progress. In the Mismeasuring Our Lives: Why GDP Doesn’t Add Up, Stiglitz, Sen, and Fitoussi note that GDP does not measure the well-being of societies, and overlooks economic inequality, with the result that most people can be worse off even though average income is increasing.

In spite of this ground breaking study, in recent times, there has been an increasing trend toward recognizing African countries as “fastest growing economies” in the face of crippling poverty, while more developed and industrialized countries are least-mentioned. This trend led the Economy Watch to maintain that “once again, developed countries do not feature in the Top 12. Almost half of the top 12 comes from Africa. Ghana has swept from 4.5% last year to an astonishing 20.146% for 2011. One third of the Top 12 are from the Far East; two from the Middle East and one from Central Asia. In 2010 there was only one G20 nation in the Top 12. This time India also makes the grade. This is the beginning of a larger trend.”

On October 4, 2012, the World Bank Vice-President for Africa, Makhtar Diop stated, "a third of African countries will grow at or above 6 percent with some of the fastest growing ones buoyed by new mineral exports and by factors such as the return to peace in Côte d’Ivoire, as well as strong growth in countries such as Ethiopia. An important indicator of how Africa is on the move is that investor interest in the region remains strong, with $31 billion in foreign direct investment flows expected this year, despite difficult global conditions.”

But in the same article, Shantayanan Devarajan, the World Bank’s Chief Economist for Africa, and lead author of Africa’s Pulse cautioned that "resource-rich African countries have to make the conscious choice to invest in better health, education, and jobs, and less poverty for their people." She argued further that, "what we have to realize is that resource income or resource revenues are not necessarily the fastest way to reduce poverty for the very simple reason that growth in resource-rich countries occurs in the extractive sector, but the poor earn their income from agriculture. Seventy percent of the poor are actually working in agriculture." LIPI agrees with the WB official on this point.

On April 15, 2013, Punam Chuhan-Pole, World Bank's lead economist for the African region, who is the co-author of Africa's Pulse, indicated that “The report finds that Africa has been growing at a sustained, robust pace in 2012 and the region grew by 4.7 percent, which is double the rate of growth of the global economy. And this growth is impressive because it is in spite of the tepid and weak recovery that the global economy was experiencing in 2012."

The World Bank's chief economist for Africa, Shanta Devarajan further cautioned, "while the broad picture emerging from the data is that Africa's economies have been expanding robustly and that poverty is coming down, the aggregate hides a great deal of diversity in performance, even among Africa's faster growers." As reported in the Economy Watch, "in the same report, the World Bank cautioned that poverty reduction in Africa was being held back by income inequality and a dependence on mining and mineral exports in many countries.” Goldman Sachs economist, Jim O’Neill, said, Africa was “one part of the world that has got a very high growth rate that is accelerating. But to harness the boom, African leaders must improve technology, education and the rule of law, including reducing corruption." LIPI thinks the Liberian Government should learn from these reports and take the fight against corruption and poverty very seriously.

What does ‘Liberia is amongst the fastest growing economies’ really mean? It simply means there is an increase in Liberia real gross domestic product (GDP). It means that the value of the national output (including revenues, goods and services) and the national expenditure has increased. The GDP per capita is obtained by dividing the country’s gross domestic product, adjusted by inflation, by the total population. This tells how much each person gets when the wealth of the country is divided equally at any given time. This also means that if the wealth of the country is divided equally, each Liberian would benefit : 1962 ($608.16); 1973 ($785.55); 1984 ($577.91); 1995 ($58.46) and 2013 ($273.44). This means, a typical Liberia was nearly twice as better off in 1962, 1973, and 1984 than in 2013.

5. Liberia's Historical GDP Growth At Glance: Charles Taylor Wins the GDP Myth

Economic data, published by Trading Economics, showed that " the gross domestic product (GDP) in Liberia expanded 8.80 percent in 2012 from the previous year. The Central Bank of Liberia reports GDP Annual Growth Rate in Liberia. Historically, from 1961 until 2012, Liberia GDP Annual Growth Rate averaged 2.79 percent reaching an all-time high of 106.28 percent in December of 1997 and a record low of -51.03 percent in December of 1990." LIPI has reproduced Liberia’s GDP data from Trading Economics for reference. See the various tables:

Tubman presented to President William R. Tolbert an economy that had an average growth rate of 4.9% in the preceding 10 years prior to the death of President Tubman, peaking in 1966 at 7.7%. The growth rate in 1966 was recorded as the highest rate in the world. Inasmuch as Tubman left for President Tolbert such an impressive gross domestic product growth, he also left an undeveloped country characterized by massive level of corruption, nepotism and patronage.

Tolbert presented to President Samuel K. Doe a growing economy, an economy that registered an average growth rate of %2.56 percent under the regime of Tolbert. Except for 1973 and 1975, Tolbert maintained positive gross domestic product growth rates. By 1979, the last full year of Tolbert regime, although the economy was on the decline, it was positive 3.26% at year-end, down from 4.82% the previous year. As was the case of Tubman, Tolbert handed over to President Doe an economy characterized by underdevelopment caused by "rampant" corruption, nepotism and patronage.

President Samuel Doe made a serious mess of the economy, showing a negative average growth rate of 4.40%. From the first year in office until the eve of the civil war in 1989, President Samuel Doe tanked the economy, reaching an astronomical decline in gross domestic product of negative 26.70%. President But the irony is in spite of his negative economic growth, Samuel Doe was regarded as a development-oriented President who contributed significantly to the infrastructure development of Liberia, including the construction of public roads and highways, and public buildings than any of the Liberian presidents whose economy was considered “fastest growing."

Doe did not just leave an economy characterized by "rampant" corruption, nepotism, tribalism, and patronage, he left behind an economy that had completely imploded and sunk.

Between President Samuel Doe and President Charles Taylor, Liberia had several intervening political arrangements including an interim government and a rotating council. At December 31, 1990, Liberia recorded the worst economic performance, reaching negative growth of 51.03%. By December 31, 1996, the economy has recovered and grew at 12.12%. Essentially, President Taylor also inherited a growing economy.

President Taylor regime registered the largest growth rate in the history of Liberia, growing at 106.28% in December 1997. From 1997 when Taylor assumed power to December 2002, which was his last full year in office, Taylor's economy grew on average of 39.76%, beating all Liberian Presidents. But as was the case with all previous governments, Taylor left for Bryant an economy that was characterized by "rampant" corruption, nepotism and patronage.

Chairman Charles Gyude Bryant inherited an economy that was in a complete free fall. By 2003, the war escalated and all economic activities seemed to have not only come to a complete stop, but also were in a precipitous decline, reaching negative 31.30%. In a matter of two years, Chairman Bryant turned the economic situation around, producing an average GDP growth of 3.95%.

As history has shown, Chairman Bryant left for Ellen Johnson Sirleaf an economy that was characterized by "rampant" corruption and extreme political patronage, much of the patronage being imposed by warring factions' distribution of government institutions through the Comprehensive Peace Agreement in Accra.

President Sirleaf inherited an economy that was also amongst the "fastest growing" economies in Africa, with a growth rate of 5.30%. Except for President Samuel Doe who tanked the economy he inherited, Sirleaf has continued the growth started by Chairman Bryant. Including the projected 7.20% growth in 2013, the average growth rate under Sirleaf is 7.16%, only second to Charles Taylor's economy.

But if history and current performance are measures of future performance, then President Sirleaf is likely to leave behind a growing economy characterized by the historical problems of corruption, nepotism and political patronage. The institutionalization of corruption and the culture of impunity remain a cause for concern. The International Crisis Group underscored this concern in its 2006 Report on Liberia when it said, “the culture of corruption and impunity ... [has] helped spark and nurture the conflict [in Liberia].... If impunity continues to rule, attempts to improve [the economy], security sector ... and infrastructure reconstruction will fail.” LIPI is deeply concerned about the future of Liberia vis-à-vis its sustainable socioeconomic development, peace, and stability.

Another area of concern has to do with whether the next government will continue the economic growth under President Sirleaf, assuming that the country will remain on the current growth trajectory. Will the next government adopt a national plan of action and institute genuine programs to end corruption, nepotism and patronage politics? This is a question LIPI considers very seriously, because corruption, nepotism, and patronage politics are aggravating factors that have inflicted great harm on the Liberian nation and stunted Liberia’s socioeconomic development over the years.

Liberia is blessed but has major challenges that could undermine and destroy the peace, security and development of its future. On the one hand, Liberia’s blessing is in its rich natural resource potential – gold, diamond, timber, rubber, iron ore and oil. On the other hand, Liberia’s major challenge is to either choose to do business as usual and remain an underdeveloped country with high possibility of relapse to conflict, or undertake immediate reversal and course correction, and rise up as a shining example of prosperity and development in Africa. As President, Ellen Johnson Sirleaf is in a good position to set Liberia on the path to prosperity and sustainable development.

A product of the international community, Sirleaf enjoys the confidence of the world and benefits from global opinion. She has reportedly attracted foreign direct investment worth close to $20 billion for a country of 4.129 million people. Ultimately, President Sirleaf has a choice and a decision to make: either to continue on the current path of corruption, nepotism, patronage and impunity and be remembered among the world’s most corrupt leaders such as, for example, Teodoro Obiang Nguema Mbasogo of Equitorial Guinea and his son Teodor Obiang Nguema Mbasogo, Mobuto Sese Seko of Zaire, and Omar Bongo of Gabon; or change course and use Liberia’s wealth for the development of Liberia and be counted among heroes like John Jerry Rawlings of Ghana, Jorge Carlos de Almeida Fonseca of Cape Verde, Jakaya Kiwete of Tazania and Paul Kagame of Rwanda.

What Liberia needs is an honest appraisal of its national problems and genuine pro-development policies in addressing its seemingly intractable crises. History and international best practices could serve as a guide. In 1970, in order to measure economic development in terms of quality of life, United Nations Research Institute on Social Development (UNRISD) launched a study. In its place some economists have advocated using 'Physical Quantity of Life Index (PQLI),' a measurement of life expectancy, infant mortality, and literacy rate. This was followed by United Nations Development Program (UNDP) annual Human Development Reports, such as the Human Poverty Index and Human Development Index etc.

The fact of the matter is that there is a general agreement that gross domestic product alone is not a sufficient indicator of economic performance of a developing and under-developed country, much less a post-war fragile state like Liberia. LIPI agrees that while GDP is a good indicator of economic performance, it is not readily applicable to Liberia, a nation whose GDP growth has been praised in so many times in history but whose population remains at the bottom of the social development curve. In 2012, Forbes Magazine ranked Liberia as the second poorest country and third saddest place on earth.

Unarguably, the high GDP growth rates and underdevelopment in Liberia do present an economic paradox. The explanation for this paradox lies squarely in the continued poor governance structure that has existed in Liberia since 1847. Liberia’s paradox is evident by the sociopolitical and economic environment in Liberia, where corruption, nepotism, patronage and impunity have been promoted and nurtured by each succeeding administration.

LIPI believes that there is a need for an immediate reversal and/or a course correction, and therefore calls on the current administration to take more seriously good governance practices to leave behind a growing economy that is less corrupt, less nepotistic and less patronage. Liberians need "Growth with Development," not "Growth without Development."

Charles Taylor could boost of producing the highest GDP growth, forgetting to indicate that he too left a corrupt state!