Wonderr K. Freeman, Attorney-at-Law
Members of a hitherto unknown group, the Patriotic Entrepreneurs of Liberia (PATEL), in February of 2017 made quite a name for themselves when they shut Monrovia down over three days. Overnight, the group became important enough to hold talks with the Government of Liberia (GOL).
Holding talks is a political issue, and it can be done rather swiftly, with big promises made, often without much forethought. But delivering on promises to meet the economic aspects of PATEL’s demand was always going to be the hard part. As I understand it, PATEL wants the GOL to lower the LRD/USD FX rate (currently at 110:1).
The group also wants a lowering of tariffs on imported good, an end to police harassment and exclusive retailing rights for Liberians, amongst other things. Apparently, the GOL was unable to meet the economic aspects of PATEL’s requests; thus, prompting an attempted second round of shutdown. Only this time around, a GOL clampdown and internal wrangling in PATEL camp watered down the whole show.
Eventually, the much-talked-about nationwide “shutdown” amounted to no more than a coffee break. The PATEL protest (2.0) fiasco demonstrates the true nature of economic problems. There are no magic wands and no quick fixes.
Sorry PATEL, economic problems still have to be solved the old fashion way – through hard work and perseverance, by consuming less and investing more. And in this respect, Liberia may still be a long way off. In this article, I shall attempt to show how some of our problems will take years to fix, if not decades!
What are some of the perennial economic woes that Liberia must solve the old fashion way? There are many, but let’s start with the exchange rate. The exchange rate problem is nothing new. Even if real prices are not increasing, if the Liberian dollar deteriorates against the US dollar, then of course persons with access to only the Liberian dollars are going to suffer. For example, let’s say a kilo of flour cost 1USD (and this price/kilo does not change).
But if the LRD/USD rate goes from 80:1 to 110:1, then those with access to only LRD will have to cough up the additional 30LRD for the same one kilo of flour. On the contrary, those with the US dollars will be just as good, after all the kilo of flour is still 1USD. So clearly there is a problem. Now, someone may ask “why can’t the GOL just bring the rate down by a radio announcement? Well, as regards the FX rate, there are always several things going on. I have been one of those calling for the total scrapping of the dual currency policy. Some say no, not so fast! Some say, Liberia, in comparison to its neighbors, has been better able to beat inflation with its dual currency policy.
But having a dual currency policy in a virtually cash-based economy is a huge risk. What is the guarantee that we are not catering to the FX demands of Guinea, Sierra Leone, and Cote d’Ivoire or even Nigeria? What is there to stop foreigners (unable to get foreign currency at home) from entering Liberia just to solve their FX problem and then disappearing from Liberia with loads of USD in their socks? Additionally, with a dual currency policy in place, any currency deterioration only suffers those with LRD. That is also unfair! If we were all using the LRD equally, then we would all equally suffer the consequences of currency deterioration. Much fairer outcome, howbeit undesirable! Yet so far, it’s the poorer segment of society that is suffering this constant and never-ending deterioration of the LRD.
However, bringing the rate down is no easy feat, even if one discounts the effects of our dual currency policy. For one thing, Liberia has had a trade deficit for many many years. It’s been so long, I bet one would have to go back to 1988 or earlier, before one gets to a time when Liberia ever had a trade surplus. For example in 2006, Liberia’s trade deficit was a whooping [negative] USD263m (CBL Annual Report 2006). If Liberia is not able to cover up this deficit by other means (like remittances from abroad and so forth) then it means that there is going to be a race for the US dollars, as importers outbid each other. In so doing, the value of the LRD will keep deteriorating. Now fast forward to 2015, Liberia’s trade deficit [instead of narrowing] got much worse, widening to [negative] USD1,977m.
With this happening at the same time Liberia is running an overall current account deficit (-USD1974), anybody who promises that (s)he can make the LRD/USD FX to come down is simply giving you “lyrics”. The LRD:USD FX rate is not coming down any time soon, as long as these economic fundamentals remain in the gutters. This is an economic reality that just cannot be sugar-coated. It has to be faced!
Problem number two with the Liberia economy is our negligible level of manufacturing. It’s somewhat tied to the trade deficit problem. In 2006, manufacturing contribution to the GDP was 13% (or USD55.5m). Now instead of getting better, in 2015, after nearly ten (10) years of stable government, manufacturing is still the weakest link in our Gross Domestic Product (GDP), contributing no more that 7% (or 64.5m USD). This is a living proof of where our economic situation is heading. Upgrading manufacturing and industrial capacity is booth an offensive and defensive economic strategy. Firstly, it reduces Liberia’s need for imports, thereby conserving foreign currency.
Secondly, it generates valuable foreign exchange – assuming the made-in-Liberia goods are competitive enough to sell abroad. But the big question is: how competitive are made-in-Liberia goods on the international market? So far just by looking at the composition of our exports, you know we are so far off. In 2006, for example, the top five components of our exports were essentially raw materials (rubber, logs, cocoa/coffee and iron ore) – not a single finished product was in the line-up. Fast forward to 2015, and you would assume that we’ve made some progress. But nope! What is the composition of our exports now? It’s the very same raw materials…iron ore, rubber, cocoa/coffee, diamond, gold, logs. Any country, be it Liberia or Utopia, is not going to get very far by selling only raw materials.
First problem is that prices for unprocessed materials are always much lower than prices for the processed or finished products. Second problem, prices for raw materials fluctuate way too much. Imagine you are the minister of the budget and you plan your country’s budget on the expectation that your main export, unprocessed iron ore, is going to bring in USD100m at the price of USD100/ton.
By the time you get to implement the budget, the world market price for iron ore has slumped to USD50/ton. Your USD100m expectation has just dropped to USD50m. Now everybody in the country is crying. This is Liberia right there! The problem would have probably been different if the good in question were steel. Finished products are often highly unlikely to fluctuate like that. What’s the chance that a BMW or iPhone price is going to drop by 50% over a 1-2 year period? Next to never! But, rubber?, cocoa? Probably any day!
Okay, got it! We need to make goods in Liberia. Then why can’t the GOL just make it easy for people to manufacture goods in Liberia. Great idea! But just opening up your markets – as in Liberia joining the World Trade Organization (WTO) or ECOWAS or MRU is not going to cut it. Making it easier to register business is still not enough.
To get goods to be manufactured in your country, you have to convince the businessman/investor that it is going to be cheaper to do so. How much does our electricity cost? And how stable is it? We could say the same for water and road network? Take electricity for example, in India and in China, electricity cost 8 cents per Kwh.
It’s 10 cents and 12 cents per Kwh in South Africa and USA respectively. In Liberia, (NEWFLASH: March 1, 2017-LEC website), LEC announces a reduction in tariffs from 49 cents to 39cents per Kwh (even that you can only get it if you live between Dualla to Redlight. Really? So, holding other variables constant, where will it be cheaper to manufacture? You bet in India, China, South Africa, USA. Now you see why waterside is flooded with Chinese and Indian goods. Manufacture in Liberia? Are you kidding me? It’s the same reason why services are also so expensive in Liberia.
Added to that, there is no pipe-borne water, as soon as you leave Paynesville. What is going to bring manufacturing to Liberia? Compounding this problem is also the lack of paved roads. It could be that some investor could assume that (s)he could make up on the cost of electricity via lower labor costs, but said person is likely to come up against the transportation dilemma – the lack of enough paved roads, which enables one to manufacture at one place and transport to another or to ship overseas. So voila! Our joining the WTO, ECOWAS, AU, MRU or any other “U” will not solve this problem.
Neither will our favorite policy of always begging China, India, Russia, EU or USA for help. All one gets from begging is leftovers and a lowering of one’s self-esteem… nothing else. Solving our economic problems just has to be done the old fashion way – by hard work and perseverance, by consuming less and investing more. Anybody who promises you that (s)he has a shortcut to this problem is simply giving you “lyrics”.
Okay. Got the point! So why the GOL can’t just make sure we have cheap electricity, water and paved roads, railways etc.? After all, we always hear that GOL budget is increasing and is in the hundreds of millions. In fact in FY2016/2017, the GOL budget was at least USD600m. Great idea! But note that out of this USD600 million (FY2016/2017), only about USD80m is put into public sector investment projects (ie the same infrastructure development I’m talking about).
The rest of the budget is spent on consumption. It’s a matter of trade-off (and Liberians generally prefer to eat their “cake”). To get more investment in public sector infrastructure we have to reduce our liking for “cakes”…. How many ministries, agencies, and commissions are we willing to forgo or to right size, in order to fund the Knuckles dreamed Cape Palmas to Cape Mount railway?
When are we going to cut to size those gargantuan salaries, gas slips allotments, frivolous foreign travels, fake workshops, and empty big-show cars, so that our kids can learn science, technology, engineering and mathematics (STEM) in world class facilities? When are we going to stop the GOL from renting from private individuals and other unnecessary and frivolous expenditures, so that pipe-borne water can reach, Tappita, Zwedru and Fisebu? Sorry PATEL, our economic problems simply cannot and will not be resolved next week. Nor is it going to be solved next month or next year.
It has to be done the old fashion way, by hard work and perseverance, by consuming less, and investing more. By growing more of what we eat and by turning our raw materials into finished products before we sell them. By giving our kids world class education and by investing in roads, airports and railway networks.
Of course, fixing our economy also mean getting serious about the fight against corruption and illicit financial flows. Liberia is already a poor country; yet too often some of our very brothers and sisters, who have been entrusted with government post, treat GOL money as their personal ATM. Too often, these people are known.
We know them by IAA reports, GAC reports, LACC reports, newspaper reports, NGO reports. By instead of putting corrupt people in jail and confiscating their assets (in Liberia we do the very opposite; we are recycling them!). There is no easy way out. Fixing the Liberian economy requires a fresh thinking on what ought to be the role of the GOL – should it be to provide a conducive environment for business to thrive and for those businesses to create jobs or should it be just about whose time it is to eat?