Monrovia — Viewed from consumer perspective - high market prices, rising unemployment or underemployment, rising crime rates presumably due to poverty, and corruption in high places - ordinary Liberians are convinced that the nation's economic is plummeting faster than it had been for decades. However, while Finance Minister Amara Konneh agreed that these outward signs represent an economy struggling to find its bearings and a people desperate for relief, he has no doubt that policy goals and legislative affirmations now in place have undergirded and made the fundamentals of the economy [to] still remain solid. The Analyst, reports.
Finance Minister Amara Konneh says while it cannot be gainsaid that the Liberian economy is on the upward mobility, the economy is likely to suffer setbacks, or remain stagnant, unless the Liberian government and people take remedial actions to give it the necessary thrust in addition to policies and programs already in place.
The finance boss made the observation when, upon the invitation of Information Minister Lewis Brown, he addressed the press in Monrovia.
The address focused on the state of the economy in the wake of the passage of the National Budget, the creation of the Ministry of Finance and Development Planning (MFDP), the creation of the Liberia Revenue Authority (LRA) by separate acts of the National Legislature, and the immediate dividends of the legislative actions.
It also discussed the current budget, the state of power supply to the nation, the unemployment question, the runaway inflation question, private sector challenges, the overall economic future of Liberia beyond the legislative achievements, and the public policies arising, or likely to be derived, from them.
“Given the high potential to collect revenue from mining and other extractive industries and the need to mobilize resources for the AfT [Agenda for Transformation], it is critical to introduce now a sound fiscal framework for natural resources management and to direct resources toward high-yield public investment projects,” Minister Konneh emphasized.
But he said the introduction of a sound fiscal framework for natural resources management needed to be buttressed by the cooperation of the Liberian people - ordinary and public sector employees - who he said, must ensure the viability of the private sector and work to hold in check public wastage, graft, theft, and even vain political sidetracking.
He however praised the National Legislature for the passage, in recent weeks, of a number of legislations, which he said would impact positively Liberia's development and growth in line with the Agenda for Transformation (AfT).
Legislative feats and waiting dividends
The finance boss specifically hailed the passage of the million 2013/2014 National Budget on September 12, 2013 after a long haul.
“The approved budget which is approximately US $582 million articulates clearly the policy priorities and direction of the Government investing in key infrastructure and social programs intended to expand the economy for growth, development, and job creation,” Minister Konneh said.
He said the budget would stimulate growth through increased consumer spending and the execution of public investment projects that include power restoration, upgrading, and expansion and the repair or construction of roads, bridges, and ports. Besides increasing spending and underwriting public investment projects, the finance boss said the current budget would indirectly spur employment in the public and private sectors.
Minister Konneh also hailed the merger of the Ministry of Finance and Planning and Economic Affairs into the Ministry of Finance and Development Planning and the granting of semi-autonomous status to the Bureau of Internal Revenue and naming it the Liberia Revenue Authority or LRA.
“The passage of these laws will go a long way to bring the much needed collaborations to the operations of government by eliminating current duplications and gaps in the functions of both the Ministries of Finance and the Ministry of Planning and Economic Affairs, thereby resulting in better allocation of human and financial resources and better service delivery,” he said.
Minister Konneh noted further, “The new Ministry of Finance and Development Planning will streamline the national planning and finance functions and foster increased aid coordination within the government and between our development partners, as all of our aid coordination functions will now be undertaken in a centralized unit.”
The changes, he emphasized, would better increase donor confidence and contribute to greater and more sustainable support to the nation's recovery efforts, he foreboded.
“Through the semi-autonomous LRA, our revenue department would be separate from the Ministry of Finance and Development Planning and would focus more on the efficient collection of revenues, working closely with the Ministry. The rollout of these legislations would be sequenced in a smooth and orderly transition, paying keen attention to the sensitive issues of staffing and other assets,” he said.
Though yet to be sequenced in a smooth and orderly transition, paying keen attention to the sensitive issues of staffing and other assets, the minister said the legislations have already begun to impact, positively, the execution of the public investment projects.
For instance, he said, the ratification legislations have now created the possibility of the release of the US $65 million credit recently concluded with the European Union.
Slated to be boosted by the ratification of the Legislature, he disclosed, are the US $150 million World Bank grant to help Liberia connect 700 villages to the West Africa Power Pool (WAPP FA &WAPP CLSG Treaty) - interconnecting Cote d'Ivoire, Liberia, Sierra Leone, and Guinea (CLSG) Power Systems - and the US $30 million Liberia Accelerated Electricity Expansion Project (LACEEP). The LACEEP, which is also sponsored by the World Bank, will build T & D lines from Paynesville to Kakata, providing electric power to an estimated 50,000 homes, and underwriting the construction of a fuel unloading facility at the Monrovia Freeport.
Projects also benefiting instantly from the ratifications are the US $50 million World Bank sponsored Liberia Road Asset Management Project (LIBRAMP) Additional Financing project, which will recondition the Redlight-Ganta-Guinea Border Highway and provide relief to approximately 60 percent of the Liberian people who live along what he called “main economic corridors” of Liberia. Added to this, he said, is the US $64 million pavement project of the 50 km Harper to Karloken Highway, which is the first half of the Harper to Ganta Highway project.
Other benefiting projects include the $15 million IFAD sponsored smallholder tree-crop revitalization support program; the US $55 million smallholder agriculture productivity enhancement commercialization project that will benefit 110,000 households in 12 counties, and the US $15 million World Bank sponsored Liberia health systems strengthening program.
The Cotonou Agreement will allow the government of Liberia to access approximately $360 million in financing from the EU under the 11th EDF, which will go to support energy, education, and state building. The Arcelor Mittal Phase II program will create environment for expansion of the operations of mining concessions, and the Aureus Mining is poised to become Liberia's first commercial gold project with production expected in 2014, according to the minister.
“The New Liberty Gold Mine project is expected to produce 120,000 ounces per year over an eight year span at $120 million annually. The project, which involves the resettlement of some communities, will build modern structures for the affected inhabitants and provide job opportunities for Liberians,” the minister said.
The twelfth beneficiary of the recent legislative feats, he said, is the forestry bid premium. “The act to repeal annual bid premium and replace it by stumpage fees will streamline the collection of revenues from the forestry sector and help increase transparency,” the ministry explained.
He noted further that the enactment of the Act to Amend the Forestry Reform Law to Allow for Reconstituting the FDA Board would allow other non-governmental actors to play more leadership roles in the management of Liberia's forest resources thereby preventing such abuses as experienced with the private use permits (PUPs).
While these developments raise hope in the viability of the nation's economy, the finance boss said, they would not be smooth sailing, for a number of reasons that relate to internal capacity and external uncertainty.
“Despite the rapid growth, the Agenda for Transformation (AfT) recognizes that the main drawback from this growth is the limited number of jobs created as the expansion of the economy has been driven mainly by the so-called enclave sectors - the extractive sector. These are the same drivers before the civil war with very narrow spillovers over the rest of the economy,” he said.
He said the limited number of jobs created despite the expansion of the economy existed in the face of the encouraging statistics that projects 8.1 percent growth in real GDP in 2013 over 7.5 percent in 2012.
“This outlook remains vulnerable to commodity price fluctuations, particularly for iron ore and rubber, FDI, and overseas development assistance (ODA), including the partial withdrawal of the substantial United Nations Mission in Liberia force (UNMIL). Disputes regarding concession agreements, particularly in the forestry, palm oil, and oil sectors, also constitute substantial risks. Faster job creation will be necessary to ensure stability. Average Consumer price inflation stood at 8.5% in 2012, reflecting higher international food and fuel prices.
Inflation is expected to slow down to 7.7 percent in 2013 and decline further to 6 percent,” he emphasized.
This may be sufficient to discourage Liberians who expect economic miracle amidst widespread poverty and unemployment, but the minister said that is not the only obstacle that confronts the nation's recovery agenda.
“Considerable obstacles continue to impede Liberia's economic growth.
Electricity reaches less than 5% of the population, and its cost is among the highest in the world, at USD 54 cents per kWh, which renders manufacturing prohibitively expensive. The road network, neglected for more than 20 years, is being rebuild and will take time to complete.
Only about 45% of households have access to an all-season road within 5 km and much of the country's interior is cut off from the capital during the rainy season.
“This reduces access to government services and to markets for agricultural production. This is precisely why the Government has identified electricity and roads as priorities. Access to finance, particularly long term, is limited. Land rights remain problematic and unclear, and the judicial system needs further improvement. Liberia's problems are many but we are working small, small to fix them.
“The country faces further challenges due to its susceptibility to external factors. Liberia's undiversified economy depends heavily on exports such as iron ore, rubber, and timber, which are reliant on fluctuating international prices and demand. The major staple food, rice, is imported, increasing vulnerability to external prices. Overseas development assistance, which provides substantial support, will be susceptible to austerity measures in advanced economies. The USD 16 billion worth of FDI commitments recorded since 2006 are expected to produce only 100,000 jobs over 10 years, although 50,000 youth join the labor force annually,” he said.
Added to these challenges, he said, the nation's currency, the dollar, was doing poorly against the US dollars despite the introduction the Treasury bill by the Central Bank of Liberia.
The parity between the two currencies continues to fluctuate between LD 78 and 80 to one US dollar, he observed.
“The depreciation of the LD is being driven mainly by the structural imbalance between the supply of and demand for the US dollar in the market due to high and growing trade deficit with practically everything that is consumed in the Liberian economy being imported while exports receipts have somewhat stagnated. Another reason for the depreciation is the injection of more Liberian dollars in the economy in the last six months,” he said.
Amber of hope
However, he said, there was still an amber of hope for the nation and its struggling people, thanks to the farsightedness of the Sirleaf Administration.
“In December 2012, the government launched a strategy to address these challenges over the next five years, the Agenda for Transformation (AfT). This is its second poverty-reduction strategy, and the first step towards its Vision 2030 of turning Liberia into an inclusive middle-income country by 2030. The AfT will attempt to remove structural development obstacles through an estimated USD 3.2 billion program, more than half of which is planned for roads and energy. It also includes programs to improve social inclusion, particularly among the youth, and improve governance and public institutions,” he said.
But he said there are actions the government must take and take now.
“Scaling-up public investment in FY2014 will require the government to strengthen its efforts to create much needed fiscal space and address the issues that constraint implementation. Containing current spending is particularly important to allocate resources to PSIP. Additionally, stronger efforts are required to secure and approve external financing at concessional terms. So far, execution of the PSIP remains below that envisaged in the budget and in the AfT,” he said. PSIP is public sector investment plan.
For instance, he proposed, the government could step up required efforts to start with the rehabilitation of the hydropower plant, a strategic project that will contribute to growth boosting.
“Strengthening the project selection process and getting the projects' procurement plans ready before the start of the fiscal year are critical to achieving the government's objectives,” he emphasized.
The minister said the government would not have much difficulties obtaining and containing recurrent spending in order to allocate resources to public sector investment plans because the nation's tax revenue, which has improved between 15-20 percent over the last five fiscal years since 2008, is likely to continue to improve over the next few years.
He based the future revenue expansion on new budget formulation trends that he said favor the separation of recurrent from project spending and the reduction the former.
“Recurrent spending was reduced over the previous year, from 27.0% of GDP in FY 2011/12 to a projected 25.6% in FY 2012/13 to allow for more investment in key infrastructure projects, including energy, roads, and ports. As a result, capital expenditure is expected to increase from 4.1% to 7.8% of GDP. Implementation of investment projects has been slowed by capacity constraints and slow procurement processes. We instituted fiscal rules to maintain capital spending at or above 25% of budget and constrain wage costs to no more than 34%,” he explained.
Regarding the runaway exchange rate, he said his ministry and the Central Bank were working together to contain the rogue rate.
As a way of reducing the strains put on taxpayer, he said, his ministry has encouraged taxpayers to pay most of their taxes in Liberian dollars. He did not say how the “most” translates into percentage, dollars, and cents; but he said the ministry would publish the details later.
“We are aware that these fiscal policies alone will not necessarily halt or reverse the current depreciation of the LDs but together with the appropriate policy actions of CBL we believe they will help stabilize the exchange rate between the LD and the US dollar in the medium to long term,” he said.
The government, he said, will buttress these recovery measures with assistance available to Liberia as the result of reaching the Heavily Indebted Poor Countries (HIPC) Initiative completion point in June 2010.
“The government plans to borrow to invest in capital projects with high economic returns as part of its Agenda for Transformation. In January 2013, it signed a EUR 50-million loan agreement with the European Investment Bank to partly finance the rehabilitation of the Mount Coffee Hydropower Plant. While several loan agreements have been signed in the past year with multilaterals, including the World Bank and African Development Bank (AfDB), the projects were still awaiting ratification by the Legislature and have not become operational,” he revealed.
He said the role of the state-owned enterprises, or SOEs, in keeping the economy afloat was essential and that therefore his ministry has worked with them to develop policy prescriptions.
“The government has approved over $165 million dollars for investment activities to jumpstart infrastructure and improvement in the provision of basic services, he said, revealing that the utility sub-sector will spend over 130 million to expand the availability of electricity and water and to help reduce tariffs on electricity and water,” he said.
The National Ports Authority (NPA) will invest about US $29 million on the expansion and completion of the fuel unloading facilitate at the Freeport of Monrovia, the completion of Berth #1 for Greenville, and wreck removals for both Greenville and Buchanan ports.
In addition, the Liberia Petroleum Refining Corporation ( LPRC) will expend over US $18 million on expansion of the storage facilitates to help drive down the cost of frequent order, provide steady supply of petroleum product and price stability of petroleum product on the local market, Ministry Konneh said.
As the government modernized its ports of entry, he said, it will engage the non-mining part of the nation's private sector, which he said is constrained by poor infrastructure and being hampered by dilapidated road network that is largely impassable in the rainy season.
The aim of the government's efforts, he said, is to expand electricity and cut the cost - now US $0.50 per kilowatt-hour, which he said, is the highest in the ECOWAS subregion.
He said the efforts were geared towards improving the private sector, but that they were not the only efforts in which the government was engaged. Liberia, he said, has improved its standing on World Bank's Doing Business rating as the resulting of the introduction of the “one-stop-shop” for business registration that included tax reduction.
“Liberia's ranking on taxes has improved from 98th in 2012 to 45th in 2013. This is partly due to lower tax rates, which, combined with the expansion of tax allowances for both commercial and personal income tax, contributed to the effective commercial tax rate falling from 43.7% to 27.4%,” he said, doleful that access to finance, particularly longer term, continues to be a challenge, as highlighted by the nation's 104th ranking.
“Reforms in investment incentives and the commercial code, and the establishment of a commercial court in 2011, should support private sector development,” the finance boss said, also unhappy that the judiciary, which he said has shown steady improvement, was still challenged by shortcomings in terms of capacity, infrastructure, and the ability to enforce decisions.
“Challenges in the legal environment are reflected by poor scores in areas dealing with the protection of investors (150th), resolving insolvency (159th) and enforcing contracts (163rd). Liberia ranks poorly, at 178th, in property registration. Unclear land rights remain problematic, with ownership records destroyed during the war. Land concession agreements have been problematic for some large investors in the palm oil sector, where planting has slowed due to local disputes. By targeting these bottlenecks, we aim for double digit growth,” he said.
Meanwhile Minister Konneh said the Sirleaf Administration would continue to tackle the high cost of electricity, which he said does not allow for product processing or the development of a manufacturing sector.
“This is what we are trying very hard to fix behind the leadership of the President Ellen Johnson Sirleaf. I am confident and have every hope that we will get there,” he said.