The year 2014 is one of the most challenging years ever for Liberia, particularly the country’s domestic private sector. It was in 2014 that Liberia encountered one of deadliest diseases in human history, the Ebola virus disease (EVD). The EVD has not only claimed the lives of nearly 4,000 people in Liberia, the virus has hurt the economy to the extent that its major functions of the economy have been forced to shut down. The resulting impact prompted the International Monetary Fund (IMF), the World Bank Group and the Government of Liberia to revise projected 2014 gross domestic product (GDP) growth figures downward, from 6.9 percent to a meager 1 percent. Both micro and macroeconomic indicators are gravely affected…..small medium enterprises (SMEs) mainly the manufacturing and hospitality sectors shut down for several months due to the EVD. The Business and Economy Desk of the Daily Observer brings highlights of some of the ups and downs of the private sector as we followed them during the course of 2014.
Finance, CBL Must Collaborate
-To Stabilize the Market
In January, 2014, the writing was clear on the walls that the economy was in trouble. This was prior to the outbreak of the EVD in Liberia. Turbulences caused by the global financial crisis coupled with slow growth rate of the economy and slowdown of global demand for raw materials from Liberia were concerns already facing the economy prior to the Ebola outbreak. As usual, growth was largely depended on the enclave mining sector. Amidst these challenges, there were reported lack of coordination between the Ministry of Finance—the fiscal arm of government and the Central Bank of Liberia (CBL)…the monetary arm of government. This lack of coordination prompted former Deputy Finance Minister for Debt Management Mr. Arthur Fombah to have, on January 7, 2014, called for a stronger collaboration between the Ministry of Finance and the Central Bank of Liberia (CBL) to stabilize the economy. Mr. Fumbah observed that stronger collaboration and coordination between the fiscal and monetary managers of the government would lead to a quicker resolution of some of the practical issues including financing of infrastructure projects by the government and tackling the soaring exchange rate between the U.S. and the Liberian dollars, which stood at about US$1.00 to L$85.
CBL Begins Developing Collateral Registry
The government of Liberia through the Central Bank of Liberia (CBL) began the development of a Secured Transactions/Collateral Registry program in the country early 2014.
The registry, which is purely an electronic program, was formally inaugurated in June, to register movable assets that debtors would want to put forth as collateral to lenders.
It was developed by the CBL with technical support from the International Finance Corporation (IFC) to enhance increase financial access to small medium enterprises (SMEs) that do not have the type of collateral required by banks to access loan.
Speaking at a one-day stakeholders meeting with economic journalists in Monrovia, the head of the Registry, Mrs. Euphemia Gbadee Teeta Swen Monmia, said the registry will be seated at the CBL and will allow users to access information online in real time. She declared that the CBL will set up computer facilities at key stations across the country to allow businesses and ordinary people to learn about the program and make decision.
Giving some details about the registry, the registrar noted that the secured transaction registry will create opportunity for debtors to use their movable assets such as cars, equipments and other household and agricultural materials as collaterals in order to access loans for their businesses.
“Some of the benefits of the registry are that it increases access to credit and reduces risk of credit, reduces cost of credit, promotes credit diversification and increases market competition,” Mrs. Monmia added.
Kuwaiti Loan to Boost Greenville Port
The Kuwait Fund for Arab Economic Development’s US$14 million loan to Liberia was to help boost the physical infrastructure of the seaport of Greenville, National Port Authority (NPA), Managing Director Matilda Parker observed. The loan agreement was consummated between the government of Liberia and the Kuwaiti Fund last year, but it required a legislative ratification before implementation in line with the Liberian constitution. According to the loan agreement, the repayment period is 22 years with a four-year grace period.
Providing some details of the agreement on SKY FM Phone-in Talk Show, Madam Parker declared that the interest rate on the loan was highly concessional at 1.5 percent interest rate and 0.5 percent service fees.
The NPA boss assured the public that the return on investment on the loan is 22 percent conservatively. She noted that the Kuwaiti loan is directly for the development of the port of Greenville, Sinoe County and the purchasing of tugboat for that port.
“This loan could not have come at a better time,” the NPA boss added as she praised the government of Liberia for contracting the credit from the Fund, which as she put it, “will help improve the economy of the southeastern region.”
The NPA Managing Director declared that part of the money will be used to build a container park, fishing ram and other infrastructure for the port to enhance increase shipping activities.
She noted that as part of the agreement, the government of Liberia through the NPA had completed the design and dredging of the port of Greenville.
GOL May Lose Revenues
The government of Liberia’s (GOL) revenue intake from cross-border trade with neighboring Guinea dwindled in the second quarter, the Daily Observer’s business Desk observed.
The looming revenue loss, according to our Business and Economy Correspondent, was directly linked to the reported slowdown of cross-border trade between Liberia and Guinea, as a result of the outbreak of the Ebola virus in neighboring Guinea.
A resident of the border town of Ganta, Nimba County, told our business desk that the number of trucks from Guinea had reduced. According to this woman, who lives right at the Ganta-Guinea border point, there are a limited number of trucks coming in from Guinea.
Though the Liberian government had not ordered its border closed with Guinea at the time, this woman anonymously told our reporter that a slowdown is also on the Liberian side of the border, as exporters have slowed their activities in the town.
Messy Economy: Who’s to Blame?
There is confusion and noise in the country over the challenging state of the economy particularly as the Liberian dollar continued to depreciate against the United States dollar. Amid this confusion and noise, fingers were being pointed at the Ministry of Finance and the Central Bank of Liberia (CBL) for doing little or nothing to arrest the situation on the foreign exchange market. The rate at that time of 2014, stood at L$88.5 to US$1. Critics of the Ministry of Finance accused it of failing to finance critical government projects and failing to provide fiscal backing for the monetary side of the economy. The CBL was charged of pursuing bad monetary policy by allegedly infusing more money into the economy. The two institutions have denied these allegations and chided their accusers to provide evidence.
As the economy underwent this hysterical period, the government had repeatedly said that it does not have control over the exchange rate. Many people described the government’s pronouncement as a blatant demonstration of a lack of commitment or will to ensuring macroeconomic stability.
But economic and financial experts believe that stability in the money market requires a greater responsibility from the private sector than just the government alone. They argued that as a free enterprise or market economy, the government does not produce or sell. Others are, however, of the view that the private sector needs stronger and committed government protection in order to take its place in the economy; a situation, they say, remains a promise from the government.
Comparatively, it is the private sector that is creating more demand for the US dollar than the government.
In the face of this debate, a financial expert had anonymously warned that unless the economy can shift towards manufacturing to raise the needed foreign exchange to pay for its balance of payments (BoP), the foreign exchange market will get worse.
The unfolding situation pointed to the fact that an attempt by the government to set the rate, as some people would want, would lead to the creation of a ‘black market’ by unscrupulous individuals.
Budget Stalemate Looms
The Business Desk of the Daily Observer also learnt with dismay in 2014, of an unprecedented plan by some members of the National Legislature, particularly the House of Representatives, to hold the draft 2014/15 fiscal budget hostage and delay its passage into law until the Liberian Senate can agree to their demand to inject US$73 million district development fund in the budget.
The Senate and the House of Representatives were strongly divided over the US$73 million bill introduced by House Speaker Jenekai Alex Tyler, which they [members of the House of Representatives] overwhelmingly endorsed.
Fear was mounting among government officials, mainly civil servants, over the unlikely possibility of the smooth passage of the 2014/15 draft budget as key members of both houses continued to fiercely attack and oppose each other.
Some civil servants expressed fear what could delay in the payment of their salary if the debate dragged on. The Public Financial Management Law allows the Executive Branch to expend 1/12th of the total budget envelop of the last budget if the lawmakers delay.
But many people feel that the 1/12th may have been insufficient to settle most of the issues the government wanted to tackle during that period. Two senior members of the two houses anonymously told our business desk that their respective houses are bent on holding their grounds; thus creating further fear that the road to enacting the proposed 2014/15 fiscal budget into law was rocky.