A Rejoinder to Boima Kamara’s ‘Life after Debt’

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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.

1 COMMENT

  1. Hi Mr. Charles B. Allen, Jr.,

    Are private-capitalists not the owners of Liberia’s major economic activities such as education, real estate, food importation, gasoline importation, transportation, etc.?

    Also, do you support the idea for the Liberian Electricity Corporation to pay dividends to the International Finance Company (IFC) and at the same time pay interest expense to the International Development Association (IDA), two subsidiaries of the World Bank (I.e., Liberia’s economic adviser)?

    What have Liberia gained from the partial privatization of the National Port Authority, if any?

    You indicated that “Privatization, if properly handled, can provide impetus for additional economic growth.” Private-capitalists own many of the high schools and colleges. Also, they own the residential, commercial and industrial buildings. Further they import food, gasoline, etc., and own transportation. Certainly, these private capitalists are profitable because they implement some form of greedy principles that firms on Wall Street are applying. Here are a few examples of the methods they used in paying lower taxes to the government of Liberia:
    1) Price gouging,
    2) The deduction of high interest expense based on questionable loans;
    3) The deduction of high management fees,
    4) The deduction of huge amortization expense of inter-company-created goodwill,
    5) etc.?

    Is there price gouging in Liberia? Let us look at the real estate market, which is in the hands of Monrovia-landlord tycoons. The price of 1.4 lots of land located in Mamba Point, Monrovia is going for USD $175,000, meaning a buyer would have to pay USD $500,000 for one acre of land.

    So, Sir, what are the economic activities that are driving the price of real estate in Monrovia? Has Liberia created security for residents, workers and/or tourists to walk the streets of Monrovia after 5:00 PM? Did Liberia build libraries, restaurants, (not cook shops), theaters, parks, etc.? Is the country maintaining or renovating public assets such as roads, bridges drainage system, etc.?

    Are government agencies such as National Port Authority, Central Bank of Liberia, etc., publishing Audited Financial Statements? Or is the government developing programs within Counties such as Lofa County, Grand Geddeh County, River Cess County or Gbarpolu County that would support profit-making activities of branches of commercial banks?

    The 2015 Survey by UNDP indicated technicians interviewed 14 registered businesses in Grand Geddeh County; 13 registered businesses in Cape Mount County; 1 registered business in Gbarpolu County, 1 registered business in River Cess County, etc. Has Liberia increased the number of businesses within these Counties? Well, in fact, by 2019, branches of commercial banks have closed in Lofa county and Grand Geddeh County. As of December 31, 2019, there was no commercial bank in four Counties out of the fifteen Counties.

    Are the current privatized utility companies (Lone Star and Orange) publishing their financial activities to support the views that they are operating efficiently, and are not generating excessive profits at the expense of consumers? Entities, which provide utility to services to the general public, should be accountable to the public.

    I have reviewed the consolidated financial statements of Orange International, but I have not found local financial statement of Orange or Lone star (i.e., the two cell phone companies).

    Sir, I think our country has not established the necessary regulatory foundations (law and principles of operations) and professional foundations (principles of accounting, principles of medicine, principles of engineering, principles of legal practice, etc.) to assume that the practitioners to ably monitor, evaluate and provide appropriate improvements.

    Until, the different licensed institutions are professionally structured and organized to work for society, and not just to generate excessive profits for shareholders, government should begin to play a major role in major economic activities. currently, private-capitalists control our real estate industry, rice importation, education sector, our diamonds, gold, telephone, water, money-lending, etc., but their ownership and operations have not created the environment conducive for the economy of Liberia to become vibrant and prosperous for a majority of the population.

    Developed countries, including the United States of America participated in major economic activities (utility, transportation, etc.), and some countries such as Germany, Japan, France, Italy, South Korea, etc. are still participating.

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