The Liberian Economy: The Path From Loot To Development

By Geepu-Nah Tiepoh

In the previous issue, I offered a descriptive analysis of the dismal state of the Liberian economy, as caused by corrupt management policies in the 1980s and compounded by a civil conflict in which "warlords" plundered the natural resources of the land. In this sequel, I will provide a brief perspective on some possible strategies for post-war economic recovery and development in Liberia. Given the space constraint, the analysis will be devoid of detailed specifications but will provide a broad view on the debate about Liberia's economic future. In separate issues, I hope to discuss the themes mentioned here in greater depth.

To begin with, it would be counterproductive for Liberia's new economic policy makers to institute strategies that promote only growth recovery without including the broader and longer- term objectives of socio-economic development. This is because throughout Liberia's economic history whenever a narrow growth path was chosen, the means for achieving it have always been the repression of the labor forces and the exclusion of the majority of Liberians from participating in the benefits of growth. The formulation of post-war recovery strategies should therefore incorporate development objectives. This means putting in place strategies that will promote greater economic and social participation of Liberians and increase the potential for structural changes in the economy.

Like other African economies, the key productive sectors of the Liberian economy continue to be dominated by private foreign companies engaged in the production and export of primary commodities. While such an economic structure has sometimes allowed growth in the past, for example in the 1950s and 60s, it has never significantly benefitted the majority of Liberians (Clower et al.,1966; Tipoteh, 1978). The dominant approach has been to generate growth at the cost of development. It is important to note, however, that growth can be achieved concurrently with development. The key is to design appropriate economic strategies that effectively involve people in economic processes.

Post-war economic recovery requires the revival and improvement of the key productive sectors of the economy (mining, agricultural, forestry, and other important sectors). During the civil conflict, development in these sectors came to a halt as the warring factions controlled them and looted their resources.

Now that the conflict is over, the task of attracting appropriate investments to revitalize the productive structures and stimulate economic activities in these sectors becomes crucial to economic recovery and development. Immediate revitalization strategies should focus on strengthening productive capacity in the mining and agricultural export sectors and in food production. Existing investments in Liberia's traditional export items (iron ore, gold, rubber, timber, and other agricultural products) should be revived and new investments be sought to expand exports production. As will be discussed later on, the type and effectiveness of the strategies to be used in attracting export-sector investments will depend largely on the macroeconomic policy framework of the new government.

In addition to export sectors revitalization, immediate efforts should be made to stimulate food production. Short-term food production strategies should focus on seeking and supplying basic farming, hunting, and fishing tools and inputs to rural farmers to expand production. During the wars, the peasants lost most of their agricultural implements. Assistance in this direction could be sought from various international development agencies, such as the non-governmental organizations (NGOs). Recovery strategies should also include measures aimed at promoting employment in the urban sector. Strategies should focus on government's support for self- employment, urban community development activities, and small and medium-sized business development. Government support can come in the form of technical assistance in business and project planning, and promoting effective savings and credit allocation systems.

Revitalizing capacity in the mining and agricultural export sectors and in food production is only a short-run and partial recovery measure. More has to be done in order to effect full economic recovery and place the economy on a path of sustainable growth and development. In the long-run, greater attention should be paid to agricultural development.

Given the volatility of Liberia's traditional export sectors (iron ore, rubber, and other natural resources), there is a need for a shift to a broad-based agricultural policy. The key objectives of such a policy should be to diversify agricultural production, with a focus on food production and processing; to encourage agricultural modernization involving subsistence farmers; increase rural employment and farmers' incomes; and to improve rural economic and social infrastructure.

In broad terms, the strategies for achieving these objectives should involve the development of rural producers' co-operatives, local agribusinesses, and small-scale individual family farms. They should also include acquisition and utilization of basic agricultural technologies; the use of unified agricultural research and extension programs to diffuse such technologies; effective rural savings and credit allocation programs; and sustainable agricultural pricing and marketing systems. Notably, all of these areas of strategy have their own pros and cons, the analysis of which is beyond the scope of this article.

The central point, however, is that with a diversified and modernized agricultural sector, Liberia may be able to produce its own food and have other agricultural items for local consumption and/ or exports. Such an achievement would help to take the pressures off the limited foreign exchange often obtained from the natural resource sectors.

Another sector of potential benefits to the economy is energy. The government should identify alternative energy sources and promote efficiency in the use of existing energy sources. In 1980 a proposal was made for the Doe government to begin exploration for petroleum and to identify wood gasification energy sources in the economy (Tipoteh, 1980). It was advised that hydro-electric facilities be expanded to improve economies of scale in electricity. The 1980 Plan also called for improvement in management efficiency in the operations of LEC, LPRC, LPMC, and other public corporations. The objective was and still remains to improve domestic capacity in energy production so as to lessen the burdens of high and fluctuating oil prices on the economy.

As noted earlier, the strategies for promoting investments in Liberia's export sectors (mining and agricultural) will be much influenced by the type of macroeconomic policy framework in which the Taylor government decides to operate. If Liberia's external creditors, especially the IMF and World Bank, to whom the country owes most of its $3.5 billion external debt, do not show special consideration and sensitivity towards the nation's fragile economic situation, then the government will be under extreme pressure to implement a typical IMF/World Bank macroeconomic and structural adjustment program.

The investment and trade policy implications of such adjustment programs are well-known. They require, among other things, the removal of trade restrictions on foreign investors and the provision of investment incentives by the host government. If Taylor agrees to pursue immediate adjustment, then the government's investment strategies will just be limited to its ability to extract enough concessions from potential investors over such issues as performance requirements, profit repatriation, income tax exemptions, and export tax and import tariff reductions.

However, under the pressures of adjustment, and in face of the post-war vulnerability of the economy, the government's bargaining power may be weak relative to that of potential investors, and the latter are likely to exploit such vulnerabilities. As a result, investors would be awarded too much lucrative concessions. This may result in less fiscal revenues for the government from the export sectors. And even if the government could extract good fiscal revenues from these sectors, it might still be unable to obtain enough concessions in other areas such as domestic factors employment, windfall sharing, and the transfer of technology. While the government might be able to promote limited growth under such investment conditions, long-term economic development would be negatively affected.

Note that I am not arguing against the need for adjustment in the Liberian economy. With the country's external debt being so high, there is a need for serious policy reforms to bring about both internal and external balances and structural improvements in the economy. My concern is with the nature of adjustment programs being required by the IMF and World Bank.

In a 1992 study by the Save the Children Fund, David Woodward found that one of the problems and conflicts within the IMF/World Bank adjustment approach (and there are many) is the excessive pace at which indebted countries are required to adjust.

Basically, an indebted government is required by the IMF to cut public spending and restrict private domestic consumption so that the country can have enough foreign exchange to pay its debts. The World Bank's version of adjustment calls for trade liberalization. In so doing, however, the local population and households often suffer acute economic pains. Although these institutions allow additional new loans, under the program, to help the country "soften" the pain of adjustment, the volume of additional loans that creditors are willing to give to an indebted country is limited. Consequently, the adjusting country must adjust very fast by absorbing all the socio-economic pains in the process.

No one disputes the importance of investments for the post-war Liberian economy. However, it would be to the benefit of the country if Liberia's new policy makers care not only about the volume of capital inflows but also the nature and conditions of such flows. Serious efforts have to be made to attract productive investments on beneficial terms.

Although international private capital has declined for most of sub-Saharan Africa since 1982, it seems that Liberia may not have too much difficulty in attracting private foreign investors. Remember that the current president, Taylor, had built strong foreign commercial ties during the war (Reno, 1996), however unscrupulous these were. This year, for example, Amalia Gold Mining, a South African company with bases in London, won an agreement to develop Liberia's mineral resources. The difficulties, however, will be in attracting good investments, especially in light of the country's debt problems and post-war economic vulnerabilities.

Nevertheless, in case the government chooses to embark on economic recovery with development, it must first put in place a sustainable macroeconomic policy, whereby Liberia's debts are paid but not at the cost of its people's survival. This requires that the government make some skillful debt negotiation efforts; practice prudent fiscal management; and promote domestic savings and investment alternatives.

Geepu-Nah Tiepoh is a Development Economist and Consultant,

ACLAD DEVELOPMENT, Canada