By Charles B. Allen, Jr.
It has often been said that necessity is the mother of invention. A few weeks ago I had the opportunity to comment on Dr. James Kollie’s article, the Liberia’s Development Conundrum. Another opportunity has again been provided by Boima’s article, Life after Debt. In fact, three opportunities, if you include Jonathan Stewarts’ article titled Socioeconomic benefits of Value addition in Agriculture. All of these exposures highlight the realization by these authors that we have to move the developmental needle significantly if we are to make progress. My contribution in this article is intended to place all of the different analyses into their proper perspectives and context. If viewed only as separate pronouncements the uninitiated may be left with only a small taste of the propositions rather than a full picture.
Minister Kamara’s introduction outlined Liberia’s debt stock prior to the advent of the EJS administration. Significantly, it but did not point out that although a major portion was for projects which had been destroyed since the 1980 regime change, a significant component consisted of accruals on interest (penalty and other charges) which ballooned the total amount. These unpaid and overdue charges were chiefly as a result of the economic slowdown caused in fact by the capital flight which occurred after the change in regime. Later, with the advent of the civil crisis, and the subsequent destruction of the infrastructure, debt relief was the only option available to the international community (which includes Liberia).
It is reasonable to conclude that If the projects that were financed, (oil palm coffee, cocoa etc.) prior to the 1980 regime change had reached their logical conclusion, the value addition which presupposed their implementation would have by now allowed the nation to transition to another level of development. Per Jonathan Stewart’s value addition argument, which I support fully, agriculture production MUST be enhanced by beneficiation as only then will significant rewards flow into the economy. At this point I have no disagreement. This line of thinking should not however be used as an excuse to approve tax incentives for corporate takeovers as in the case of Sime Darby.
We are now at a point where, as we say in Liberia, it is DUCK OR NO DINNER. We have to add value to our agricultural produce such as RUBBER, RICE, COFFE, COCOA, PEPPER, etc. to create jobs and reap the additional economic effects that such movements along the value chain bring.
Minister Kamara indicated that in the years of EJS’s last term, Liberia’s public debt increased by 81%. It would be interesting to review what these were for and how are we presently ensuring our ability to repay in the future. Are the projects being operated in a manner to generate a return that will allow us to repay? As a result of public borrowing from the financial sector, are the finances of the government healthy enough to rescue the financial sector or are we heading for a local meltdown similar to Lebanon? When can the CBL publish its audited financial reports? We cannot afford to be in denial. Being in the luxury cabin of a sinking ship only means that you will also sink with the ship. So while I fully agree with Min. Kamara’s proposal that future debt be vetted adequately, I suggest that even the current debt be evaluated from a prudential perspective and adequate financial engineering policies applied to mitigate the challenges incurred by acquisition of these debts.
To achieve the progress required, I indicated in my commentary on Dr. Kollie’s analysis that, to achieve economic BALANCE requires that value addition and job creation is key. Our demographic (highly youthful population) and economic profile (at least 50% of population involved in agriculture) necessitates such a paradigm. It is necessary to highlight a caveat to this proposal. Value addition, while undertaken via large industrial processes, can also occur in small and medium enterprises. The significance of these enterprises in job creation and the growth of output is firmly established in the economic literature. A simple example will suffice: a thousand small enterprises, each having thirty employees, aggregate to thirty thousand employees. A large industrial factory may employ at its highest one thousand employees only.
In the absence of a coherent strategy for small and medium size based development, globalization and opening of domestic markets as part of international trade liberalization efforts have negatively affected our local industries. Along with a rehabilitation of the financial service sector, development of value addition in the agricultural sector and a coherent policy for growth of small and medium size manufacturing and service firms and AN EFFICIENT PUBLIC SECTOR, are the basic steps for us to move our development process from one of wishful thinking to one of POSITIVE CHANGE.
Dr. Kollie’s apparent frustration with the options available to policy makers stems from the fact that the policy space which is available is constrained by the level of debt which has crowded out the options for additional debt/deficit financing. May I suggest that we highlight the ELEPHANT in the ROOM: UNPRODUCTIVE STATE OWNED ENTERPRISES. These SACRED COWS with their job entrapment technique create hardly any value compared to the social cost they carry. As obtained in other countries, their sale would generate revenue for the state but, more importantly, provide a means of improvement in their performance, which will spur economic development. Most of us are old enough to remember when we used to form long queues at Telecom or use the Capitol building to make phone calls abroad. Privatization, if properly handled, can provide impetus for additional economic growth.
Policy makers need to see the forest and realize it is composed of trees. Liberia’s problems are not insurmountable, they however do require a focus on the basics. The devil is always in the details.