An Analysis of Government’s Pro-Poor Policy: How Can it Enhance Liberia’s Economic Development Agenda?

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Dr. Somah Paygai, former chair of the National Investment Commission (NIC).

By Dr. Q. Somah Paygai, Sr.

Development thinking has moved a long way from the theory that broad economic development is good for all, but few today would argue that the “trickle down” theory works in practice. Pro-active approaches addressing poverty may focus on one or more aspects of the phenomenon, depending on the context and the theory of change.  The analysis of  these pro-poor measures may be addressed at different levels, from social protection measures at policy and legislative to micro-interventions.

  • Addressing economic poverty: facilitating access to affordable credit (micro-credit, group banking, etc.) promoting income generation-generating opportunities (one specific approach being making markets work for the poor); supporting dignified employment (including equal pay for equal work); and the increasingly popular measure of cash transfers.
  • Building human capacity: promoting access to education for all-often entailing targeted scholarship for girls or other disadvantaged children; vocational skills training, and a wide variety of other long or short term training schemes, possibly targeted to particularly disadvantaged groups.
  • Addressing political aspects of poverty: informing disadvantaged people of their rights and providing access to legal support; facilitating collective action; and building public speaking and negotiation capacities.
  • Addressing socio – culture aspects of poverty ( this can require particularly carefully tailored interventions); facilitating the full and equal representation of different groups of people in community decision- making progress; working with both men and women to combat gender- based violence and mutilation; and supporting discriminating groups and individuals to claim their human rights.
  • Building protective capacities: these measures concern the ability of people to withstand domestic and external shocks such as a severe illness or accident of a family member, or the loss of possessions following a flood or war. Insecurity and vulnerability are crucial aspects of poverty and may be particularly relevant in humanitarian crises in which identifying the most vulnerable can be a matter of life or death.

New Policy Objectives

In Liberia’s economic policies and programs for the Pro-poor Policy during the year 2018 and beyond. Two broad themes resonate through ones mind :

  1. Creating the enabling environment and providing the required incentives to invigorate and encourage the private sector to invest in the transformation of the natural resources of the country into finished products that satisfy both domestic and international market demands with respect to quality, price and availability; and
  2. Adopting bold new strategies that will support the creation and expansion of domestic capital and a competitive indigenous business sector, capable of providing the managerial and technological know-how that will place the direction of the nation’s economy in the hands of the citizens.

A third emerging concern is to give special consideration and introduce efforts to promote gender equality in all economic, social and political programs.

Economic Principles

Three key principles are considered: the familiar “free market:, “export-led” economic growth strategy and “lead-corporate enterprises”.

Free Enterprise System

The view must be held that the operation of our economy by private sector remains the best way to achieve national economic and social advancement, promote and sustain democracy and assure perpetual peace and harmony. Liberia’s economic development philosophy must be based on free competition among private enterprises. Monopolies and exclusivity should not be encouraged. The role of government on the economy should be scaled back to primarily setting the rules, regulating business practices and providing the enabling environment for the private sector to function efficiently.

Export-Led Economic Strategy

A second principle is to pursue an export-led economic growth and development strategy. Our vast natural resource endowment provides the basis; the limited size of our domestic market gives wisdom, and our membership in regional and international economic blocks and trends in the global economy justify it.

Lead-Corporate Enterprises

The concept of lead enterprise should not be confused with monopoly rights and exclusively. It has to do with creating the conditions and making genuine strives to attract major investors who have the capital and/or the technology to invest in sectors that are strategic to achieving international competitiveness.

Critical Factors Of Success

Several factors may influence and impact the achievement of any new policy direction; but four are critical and will determine our success:

  • National Security

The security of the state and its citizenry remains fundamental for investment, especially large scale with the returns spread out over long periods of time. The government reconciliation program must be at the foundation of the internal peace and security we enjoy today. And   aggressive diplomatic and political drive are bound to improve and restore good neighborliness with our Mano River Member Countries and promote political stability and security in the entire West African region.

  • Fiscal Regime

Liberia needs comprehensive and fundamental changes in its tax system and structure to favor the processing of local raw materials into finished products for exports.  The global direction of the new structure of our taxes should be generally low tax on capital equipment and none on export of finished products.

  • Economic Management:

The structure and system of managing the economy must be overhauled to improve accountability, transparency and efficiency and make fiscal policies relevant and supportive of national economic and social development.  In fact, there is need to consider recommendations by the Governance Commission on rationalizing and continued restructuring particularly the Executive Branch of Government

  • Monetary Policy and Financial Services:

The entire world has become one big village where access to markets of different countries are enabled and expedited by improved technology in banking and financial services. We cannot     achieve any appreciable level of economic progress with an outdated financial system.

There is an urgent need to accelerate the pace of the monetary sector reform to liberalize and integrate our financial services into the international financial systems and capital market. To that end, the restructuring of the central monetary authority and using one currency.

  • Legal and Regulatory Framework

The judiciary needs to be strengthened both logistically and with additional people of strong integrity should be enforced to provide for systematic, fair and expeditious disposal of cases.

  • Fraud and Corruption

The issue of fraud in Government and economic sabotage must be addressed as an integral part of the overall reforms in order to restore confidence in Government.

Infasturcture Development

Current conditions and inadequacies in the country’s infrastructure renders most of the facilities unusable for economic and business activities. The development and maintenance of the road networks, public utilities and sea and sir ports have been the preserve of Government. Most of these services and facilities were developed as natural monopolies since market conditions could not allow for acceptable financial returns on investments made in them.

As improved technology and new ideas allow the participation of private investors, Government needs to adopt appropriate strategies to encourage private investment in infrastructure development.

In addition to privatization to varying degrees of some of the state-owned enterprises, Government should consider allowing private firms to construct alternative roads and bridges charge “users fees”. Private power sources in strategic economic zones could also be explored.

Investment Promotion Strategies

The two principal strategies for investment promotion have been concession and varying degrees of fiscal exemptions. The tax framework within which they have been administered rendered them ineffective and susceptible to various kinds of abuse.

Concession:

Concession remains a relevant vehicle for enabling large investments, which may be non- Liberian owned in some cases, to access and develop land and natural resources. The ceding of rights whether taxes, land and/or natural resources to any entity will continue to need the approval of the National Legislature.

Ratification by the Legislature is also perceived by investors as protecting them and their investments against arbitrary actions by government. Concession will continue to be of interest to investors making huge capital outlays with the returns spread over a long future.

Our forest and wide life, the minerals, vast waters and fertile lands constitute the real sources of wealth in Liberia. The development of these resources are critical to meeting our national aspirations for improved standard of living. Participation in the development, exploitation and disposal of these strategic resources must be based on proven capacity to enhance their value, fulfill acceptable ecological, environment and conservation standards and requirements.

Government should refrain from equity participation in concession as a means of getting compensated for the resources and lands ceded. Royalty, carrying interest, land rental and taxes should be the principal source of Government’s share in concessions.

The taxes that are waived to foreign concessions should be converted into shares (in such concession) to be sold be Government to Liberian citizens or transferred to the local authority of the relevant area for raising revenues for the area’s development.

Incentives

The investment incentive regime needs a fundamental redirection from general tax exemption and reduction, which create distortions in the market, to specifically targeted factors and technologies that promote the processing of local materials: such as allowing early recovery of investment through accelerated depreciation for duration commensurate with degree of processing and the extent of local value-added (proportion of local resources utilized).

The extent of incentives granted should be determined by the level of local value added and location of the enterprise. Incentives should be granted for only capital equipment, construction materials and complementary raw materials; and for a period not to exceed two years.

The Author

Dr. Paygai is the author of the Book, “Developing Institution: A guide for Sub-Sahara Africa”, Vice President for Administration at the African Methodist Episcopal University (AMEU).

He was Chairman of the National Investment Commission of the Republic of Liberia (1998-2003). He served as member of the Economic Management Advisory Team for the Republic of Liberia,   Associate Professor at the University of Liberia, College of Business and Public Administration, Vice Presidential Candidate during the 2005 Presidential and General Elections in the Republic of Liberia.  Member of the Board of Directors (2002-2003) at the Liberia Telecommunications Corporation, Republic of Liberia,  member of the Liberia Government Official Delegation to the Organization of African Unity (OAU) Transformation to the African Union (AU) in the Durban, South Africa (June 28, – July 10, 2002).  Grand Commander for the Star of Africa from the Government of Liberia in 2003, in recognition of Meritorious Service to the republic of Liberia.

Authors

2 COMMENTS

  1. What Liberia needs is social democracy(or at least this mindset) , a moderate form of socialism embeded in democracy. This should not be confused with “Stalinistic Socialism”. State resources should be solidaristically regulated in a manner that serves the interest of the general population in areas such as health care, child walfare,elderly care, education ,etc,etc. The democracy should be highly representative and participatory, thereby reducing inequality and oppression which in fact led to this so called “pro poor” or underprivilleged agenda.

    Government should invest more in a sustainable and quality education system , as it will be virtually impossible to improve the lives of one’s citizens/residents without education. The government should revisit all agreements with foreign investers and multinational companies so as make sure that such agreements benefits the states (the people within it’s territorial limits). Government should invest more in hydroelectric , solar and wind energy as Liberia have an oversufficient quantity of renewable energy sources. No country will be industrialized/developed without adequate access to energy.

    It is also within the confines of improving the economy for the government actively support agriculture . A vast majority of Liberians in the “country side” live on “hand to mouth” farming. The issue here is that this is not sustainable in the long run. What the government should do is to promote farming projects with that enable the farmers to sell their produce/crops both locally and internationally. Kenya exports a lot of crops to countries worldwide. Why not Liberia?

    Salaries of government officials (includes representatives) should be reduced drastically to reflect the current situation of the country. This money could then be placed in various sustainable development projects or global pension funds/schemes. For example a Liberian working for a private firm and paying taxes like civil servants never receive state pension, but civil servants do. What is the logic here ?? That only those working for government are entitled to pension benefits?? So why does the government collect taxes from Liberians working in private companies ? This is very unfair, this should be adressed! Every Liberian of pension age should receive pension,period!

    Finally , Liberia could for example come up with a scheme that every liberian has a right to buy x numbers of shares in any national or multinational company operating in Liberia or abroad.

    The list goes on and on.

    AND PLEASE ABANDON THIS EXPRESSION: “PRO POOR”, LIBERIANS ARE NOT POOR, JUST UNDERPRIVILLEGED DUE TO MOSTLY DELIBERATE MISMANAGEMENT AND OR/ LACK OF SKILLS FOR GOOD GOVERNANCE! THE TERM SOUNDS COUNTERINTUITIVE TO VERY OBJECTIVE IT IS MEANT FOR.

  2. *Finally , Liberia could for example come up with a scheme that every liberian has a right to buy x numbers of shares in any national or multinational company operating in Liberia or abroad in which the state has a share.

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