opinionBy Richard V. Tolbert
New York — Based on my own experience and the experiences of many other international businessmen who have done business in Developing Countries, there are a number of factors that have been identified as critical to attracting and keeping foreign direct investment in Emerging Markets. Here are what I refer to as the "Dirty Dozen" preconditions or barriers which might be most applicable to the current Liberian situation:
Market size and per capita purchasing power is critical to many investment decisions, especially where economies of scale cannot be met to justify the minimal size of investment. Despite Liberia's tiny 3 million population, it is a part of the much larger 200 million plus ECOWAS Free Trade Zone.
Political stability and overall country risk rating are essential especially to major international companies who have to justify their investment decisions to public shareholders.
Procedures for establishing, operating and even closing a business, such as visitors' visas, work permits, business certification, import permits, export permits, building permits, tax clearances, labor certifications, health requirements, environmental policies, land tenure, monopolies and local ownership requirements. It can take three times as long to start a business in some Developing Countries as it does in a Developed Country.
Quality of Infrastructure especially roads, railways, airports, seaports, utilities, power, water, sanitation, postal services, telecoms for phone, faxes and email, health facilities, and basic services such as municipal garbage disposal.
Labor cost, labor relations, unionization, work habits, labor productivity and availability of basic trained and educated labor. (Based on first-hand experience managing hundreds of skilled and semi-skilled Liberian workers, I can attest that Liberian labor is eager and productive if treated with respect and well managed.)
The level of crime and physical safety in a country is probably the most critical factor irrespective of potential financial return for reputable business people. Businessmen are accustomed to taking financial and other risks daily with their money - but not with their lives. Although many recent travelers to Liberia report that security is not as bad as some foreign 'travel advisories' would indicate, in matters of security perception is often as important as reality.
Transparency or corruption, both petty and major, is not only a hidden cost but also a continuous hassle to doing business in many Developing Countries. This 'hassle' factor can be one of the major 'turn-offs' to doing business for most foreign businessmen.
Local tax rates, tax policies and special tax incentives such as duty free imports of raw materials and capital goods, tax holidays for start-up businesses, free repatriation of profits and dividends and non-taxation of non-local source income.
Access to raw materials, suppliers, natural resources, land, pre-fabricated buildings, pre-installed utilities and industrial free zones.
Foreign Exchange risks, exchange controls, devaluation and local inflation can have a dramatic a impact on actual return on investment.
A sound financial and banking sector is essential not only for making and receiving payments locally and abroad but also because with heightened fears today of global money laundering and terrorist funding a sound financial system is critical to a country’s reputational risk. And most legitimate companies simply will not do business in “blacklisted countries.
Rule of Law.
The enforceability of contracts, rule of law and an impartial judiciary that can protect investors from frivolous lawsuits are essential to the sustainability of normal business relations.
Obviously, some of these factors in the near term are out of the control of a country like Liberia emerging from over a decade of devastating civil war. However, looking on the positive side, there are 3 crucial areas which I believe should be the most immediate focus of Government: Security, Infrastructure and Transparency.
In this regard, here are some practical steps which can be taken immediately to turn some of these barriers into stepping-stones:
1.To address security, appoint a highly professional security advisor to accompany every foreign investor who requests one from the moment they step off the plane to the moment they step back on a plane to leave. The investor can be charged a fee for this service, which he should not mind paying if he knows he is not going to be 'hassled' throughout the rest of his stay. This fee could go towards a special incentive pay for customs, security and government personnel dealing with foreign investors.
2. Appoint a Special investment Advisor from the National Investment Bureau (or Office of the Chairman if the potential investor is big enough) to run behind all the regulatory approvals and paperwork for foreign investors , from visas to work permits, business certifications etc. Reduce the amount of procedures required to do business and centralize as many of the approvals as possible in a “one-stop” bureau.
3. Focus Government’s limited resources on fixing the basic infrastructure of roads, lights, water, sanitation, telecoms , postal services and airports. Quality of life in doing business abroad is as important to most foreign investors as potential return on investment. (Check out the swimming pools at most hotels in Ghana). $300,000 spent on fixing the lights on Broad Street will do much more to attract foreign investors than $300,000 spent on lobbying in Washington or ads in the New York Times. ("If we build it, they will come . . .")
4. Conduct a massive domestic P-R campaign to educate the Liberian public and government employees in particular at all levels about the importance and sensitivity of foreign investors to national development. Let people know that the $5 'dash' someone is demanding from a visitor could be the last straw that drives away a multimillion dollar investment that could have employed, fed, clothed and trained hundreds of their compatriots i.e. portray hassling foreign investors as selfish and unpatriotic.
5.Target limited investment promotion dollars at specific foreign industries, markets and companies that can best benefit from synergies with Liberia’s particular competitive advantages e.g citrus, horticulture, agriculture and rubber related industries. Utilize the internet as much as possible to access the global market place at minimal cost and do as much of the pre-feasibility work as possible to identify specific investment projects along with their investment needs.
6. Tap into the large pool of 300,000-400,000 Liberians with a deep seated vested interest in seeing their own country recover who are scattered in businesses large and small all over the world. This should be the Government’s first line of offense in attracting foreign investors, both for the contacts they have as well as for their capital, know-how and access to foreign markets. And treat every potential Liberian investor as well as foreign investors. The Government could start by organizing a 'Unity and Investment Week' in Liberia for expatriate Liberians.
7. Government should encourage the attraction of labor-intensive outsourcing industries such as basic manufacturing, light industries ,data processing and information technology. Obviously a basically educated skilled workforce and reliable telecommunications are two essential prerequisites for these services, but we can begin establishing the groundwork now by appealing for equipment and assistance in high-tech training from some of the wealthy high-tech companies around the world who may see a benefit as well as humanitarian rewards long-term in having Liberians trained on their products and services. Some of our West African neighbors are already benefiting from the creation of hundreds of jobs and millions in foreign exchange earnings from the information technology revolution.
8. Agriculture should be given high priority for it's ability to be a source of large scale employment, it's export cash generation and for the benefits of imports-substitution it can provide for many basic staples . . . (did someone say rice?). One way of jump-starting Liberia's agriculture sector might be to attract some of Zimbabwe's highly skilled displaced farmers by offering special inducements such as unused free land on long-term agriculture leases. This is already being done in some of our West African countries.
9. The Liberian Government could ask the US and other Developed Countries to grant special holidays on profits earned in Liberia to their corporations for the next 5 years to go along with the tax holidays Liberia is granting these companies on profit earned in Liberia.
10. Liberians need to study legislation such as AGOA that is impacting foreign trade with the US to see how we can take advantage of any anomalies – for example, I understand that Gulf shrimpers have pressured the U.S. government to ban Vietnamese shrimp from entering the U.S. Why can’t a Liberian company team up with Vietnamese shrimpers to fish for shrimp in Liberian waters and export their catch to the U.S.?
11. Government at this stage should be extremely flexible and realistic in it's dealing with potential foreign investors. We are a small, poor, and politically fragile market with few unique resources which are not replaceable elsewhere. And the competition to attract foreign investment among LDCs in intense. This doesn't mean we have to 'sell our birthright for a mess of pottage', but we should be strategically smart and realize that sometimes it is better to get the investor to put some 'sunk costs' into the ground before putting the squeeze on for tougher terms. This is a lesson we should have learned from the 1970’s when Liberia scared away a potential billion dollar Japanese investment in the Wologisi iron ore mountains by negotiating too hard up-front.
12. Finally, some of our greatest untapped strategic assets that can be used to attract business are our cultural and historical ties to the U.S., English speaking population, strategic location as a coastal gateway to West Africa, freely convertible dollar based currency and a population that has historically been extremely welcoming to foreigners.
If Liberians can unite and get serious, we can rebuild a great country.
Richard V. Tolbert, a Liberian who serves on the board of AllAfrica Global Media, is currently senior vice president of a a major New York international private banking firm. A version of these remarks were delivered at a forum on private sector in Liberia on September 21 sponsored by the Leon H. Sullivan Foundation.
Read other speeches delivered at the Leon H. Sullivan Foundation Forum On Liberia: