The New Dawn (Monrovia)

26 March 2013

Liberia's Middle Income Momentum - Ten Economic Commandments

opinion

Liberia has attracted about U.S.$16 to 18 billion in foreign investment. A conversation with Liberian Minister of Finance Amara Konneh. ( Resource: Liberia: Government Ready to Work With Investors

Amidst diverse structural constraints, middle income is now the renewed focus of third world countries. This economic phenomenon is characterized by country whose ratio of GDP to its population falls within the income threshold of at least 1026 USD annually (World Bank, 2012). Such a threshold is only meaningful depending on the pervasive impacts of income distribution amongst the poor.

It therefore suggests that high concentration of the GDP around small segment of the population supports the argument that significant proportion of economic growth tends to increase the incomes of the poor less than those of the non-poor. Thus, the multiplier effects of several reform policies have not effectively captured the low income population, even though it is presumed that adopted policies would transmit the desirable trickle down effects of income growth. This is not often true, especially in countries where institutions are still weak in terms of system, programs and policies to yield quality deliverables. This is the motivation of advancing the economic commandments to inform policy.

Liberia's ambition for middle income is a positive step whose expected outcomes are not impossible to achieve. But its achievability requires overall sacrificial commitment, nationalism, transparency and unbiased implementation of defined policies. Building on the work of Kimenyi, 2007, Ten Commandment of pro-Poor Growth in "Poverty in Focus", I therefore advance the following cautionary "think-tank" economic commandments for stakeholders of Liberia to consider as it ventures to achieve middle income. These commandments are centered on common logic. They could however be extended or reinforced to ultimately capture other associate elements relevant for achieving middle income. The economic commandments are:

1...Create middle income mentality and culture: The actions, behaviors and livelihood of most Liberians, especially the poor, do not often support strong mentality towards the transition to middle income. In addition to limited opportunity and access to quality services, complacency, as a result of very little progress or achievement(s), is a fundamental drawback. Consequently, the poor are accustomed to living in sub-standard ways, because the cultural mindset to access or use quality social services (housing, schooling, medical, etc) has not been imbued in them. Following the examples of few African countries (Kenya, Ghana, Botswana, Cote d'Ivoire Senegal, etc), promotion of ideological transformation through the provision of quality services in Liberia would serve as an important milestone for elevating the psyche of the poor towards the desire for sustained middle income livelihood. Adopting a common culture of minimizing endemic resource extravagance has enormous payoff effects. A middle income culture could reinforce peaceful mentality.

2...Ensure infinite stability: Poverty, discrimination and sectionalism are systemic drivers of political instability in most developing countries. The political risk rating of Liberia shows huge leap from 126 (2006) to 107 (2011) out of 140 countries (World Bank, 2011). However, perennial inequality and poverty have been underpinned by mismanagement, misapplication and misutilization of the national resources and institutions. Nevertheless, corruption perception index for Liberia showed impressive movement from 137 (2010) to 75 (2012) out of 183 countries (TI, 2012), but further movement is needed to boost confidence. Reform for middle income should be grounded on improved governance (trust, legitimacy and confidence) with emphasis on competence, transparency and accountability. This requires broad institutional reforms that increase the voices and ability of the low income through progressive diffusion of socioeconomic opportunities. Therefore, prioritizing people centered institutions and policies driven by an unbiased implementation of defined rules and narratives that seek socioeconomic development could accelerate the path to sustainable middle income in Liberia.

3...Support quality knowledge production and encourage competence: Empirical evidence suggests that research and quality knowledge have tremendous long term effects on the overall quality of output, hence high growth in income. A culture of excellence, tapping on talents, should be the "driving" ingredient for propelling middle income through the use of first class mentality for improved service delivery. Exploring this option requires massive investment in our tertiary (University of Liberia, Cuttington University College, African Methodist Episcopal University, United Methodist University etc) and technical/vocational institutions to upgrade the quality of instructional and research outputs. Most Asian countries (South Korea, Hong Kong, Taiwan, Singapore, Malaysia etc), not endowed with natural resources, are classic success story of progress through human capital model. These could ensure the production of globally competitive human capital to enhance productivity (see Vision 2030: Pre-conditioning Perspective by Dukuly).

4...Augment capability of the poor: Breaking the vicious circle of poverty through social safety programs remains a challenge in many developing countries, including Liberia. The poor have the capability to work and earn living, but limited opportunities serves as barrier. A sound middle income projects and policies should directly target activities that the impoverished Liberians are involved in, since the markets of the poor are generally not well integrated. In addition to ongoing projects of improving the roads, especially those in rural areas, policy should also consider formalizing the informal sectors and supporting merchandise agricultural venture through flexible financial program. A flexible access to finance would increase marginal returns of capital and enable poverty clients to efficiently utilize their capability. These are vital for upgrading the income of the poor, ensuring wealth creation and growth in sectors as well as areas where the poor live and work.

5...Strengthen the functions of markets: The vulnerable employment rate in Liberia is 78% (Labor Force Survey, 2010). A good instrument of middle income policies entails increased utilization of the marketable assets the poor have in abundance. That is unskilled labor. Any appropriate reform policies should enforce the prohibition of foreigners from setting up petty trade and either directly or indirectly raise the wages or employment rates of unskilled workers. This calls for making the new minimum wage policy functional to protect vulnerable workers. Aside from the foregoing, it is imperative to guide and direct the low artisan miners, car washers and motorbike riders (pehm-pehm) that sizeable number of the youth perceive as empowerment to escape poverty. Such ventures are not sustainable to drive Liberia to any viable middle income in the long run. In the short run, they have immense benefits, but the social consequence induces high family dependency due to early marriage by most of those in these ventures. It therefore seems that in the long run these principals or their direct beneficiaries are likely to revert to poverty thereby promoting the vicious circle of poverty. It is imperative to design exit strategy programs to help them utilize incomes from such ventures to transit into viable ones.

6...Support strong market linkage: Low income is usually a direct output of stumpy productivity. Low income often starts with very low or no skills at all, so that any small change in capital stock for the poor that raises productivity can translate into rising income. This indicates that weak market linkages and integration enhance boom in some sectors, but not in others. With macroeconomic policies operating more directly in formal market, middle income is never achieved unless the impact of those markets is transmitted to other markets. This would reduce market segmentation to achieve wider range of income distribution. Middle income policies should therefore include targeted public expenditure to raise productivity in health, agricultural and skills training that give vulnerable workers the tools to exploit diverse economic opportunities. It should also continue directing at least minimum percentage of contract of most large scale projects of government to Liberian businesses.

7...Ring fence public expenditures to capture groups operating outside markets: In Liberia, many groups or regions (i.e Sinoe, Maryland, Rivergee, Grand Kru, Gbarpolu etc) seem to operate outside the market. Some of these also include SMEs, crop farming, animal husbandry, fishing, low artisan mining etc. Middle income strategies require that the vulnerable workers are inclusively protected from perennial social economic constraints (hunger, unemployment, etc). It is necessary to upgrade the operations of these groups to greater levels. Therefore, policies should strive to bring low income earners into the realm of market (Kimenyi, 2007).

8...Counteract shocks: The dynamic in economic activities, especially as it relates to price of food and fuel, could pose severe drawbacks to efforts of achieving middle income. For instance, most low income countries are susceptible to risk due to perennial rising oil and food prices often occasioned by shocks (low oil production, drought, flood, disease, poor climate, etc). These shocks often suppressed the drive to middle income. Sustained political stability, early warning system and appropriate safety nests are vital for preventing/addressing these problems.

9...Support accumulation of tradable assets: Asset accumulation is a basic element for any sustainable middle income growth. Liberia's drive to become middle income could be illusive without an inclusive strategy that empowers the "vulnerable" to own assets. In addition to concern about land ownership, there are also many other forms of assets that low-income earners need to acquire. Government should therefore identify and strive to remove barriers that make it hard for the poor to accumulate income generating assets (Kimenyi, 2007).

10...Overcome development contagion: Development is often contagious and induced by economic progress of countries in the same proximity. This suggests that the closer one country is to developed region or region rapidly undergoing transformation, the rapidly increasing possibility for such country to achieve meaningful development. China and its surrounding Asian neighbors are classic example where proximity to China significantly explains rapid development of its neighbors. Liberia's current position may not favor its ambition to become middle income country because of the widespread level of underdevelopment associated with its neighbors (including itself) in the region. Unless the region integrate and link their individual efforts towards a collective middle income path, any gains by Liberia's could likely be reversed. However, the incentive for Liberia to get out of the underdeveloped web requires perseverance as well as mustering the nationalistic courage by efficiently allocating resources to high growth sectors that enhance poverty reduction.

Conclusion: It is inferred, using common logic that middle-income ambition should be accompanied by pro-poor activities, programs and systems that yield sustained economic prosperity, without losing focus on how adopted policies and programs can help in producing middle income mentality, ensuring peaceful environment and increasing opportunities to get the "vulnerable" out of the low income trap. The framework should therefore be designed to integrate, link and stimulate inclusive growth and development in the poverty enclave sectors where the poor earn their living.

Musa Dukuly lectures economic at the University of Liberia (UL). He holds PhD in economics with emphasis in Econometrics and Development Finance from the Universities of Nairobi (Kenya) and Dar Es Saleem (Tanzania).

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