Liberia’s “Open Door” Policy: the Winners and the Losers

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By Paul Columbus Collins

“Open Door” is originally associated with the Berlin Conference of 1885 in which the European colonizers of Africa agreed to make Congo free to all for trading purposes, thus eliminating preferential duties that could be levied by any specific European power.  Secretary of State John Hay (1899-1900) of the United States articulated the concept in his “Open Door Note” to secure international agreement to the U.S. policy of promoting equal opportunity for international trade and commerce in China, and respect for China’s administrative and territorial integrity. Technically, however, the term “Open Door Policy” was only applicable after Deng Xiaoping, paramount leader of the People’s Republic of China from 1978 until his retirement in 1989, opened China up to foreign businesses that wanted to invest in the country, thus setting into motion the economic transformation of modern China. Four special economic zones (SEZs) were created to modernize China’s industry, and these SEZs resulted into China being labeled the ‘World’s Factory’.

When the free slaves from the United States settled in modern day Liberia in 1822 and declared their independence as a sovereign nation in 1847, they numbered about 3000 men, women, and children, and resided in the coastal counties of Grand Cape Mount, Montserrado, Grand Bassa, Sinoe, and Maryland (Maryland joined Liberia in 1857).  The indigenous people who greatly outnumbered the free slaves  and were already here before the coming of the free slaves did not all welcome the newcomers, and were very hostile to the newcomers especially when their lands were annexed to Liberia while at the same time they were not considered citizens of Liberia.  In addition to the internal hostilities between the indigenes and the Americo-Liberians, the European merchants trading in ivory and other resources did not always respect the sovereignty of the new state and mostly refused to pay the import and export levies.  This led to Liberia partially closing their country to foreigners, and enacting the “Ports of Entry” Law of 1864, which restricted the trading activities of foreigners to six ports of entry in the five coastal counties.

When William V. S. Tubman became President of Liberia in 1944, he was the first outsider from the political elites of the original Liberia that excluded Maryland County. In order to consolidate his political power, President Tubman created a new political base of indigenous Liberians and changed the province status of the hinterland into full scale political subdivisions equaled to the five existing counties, thus creating Lofa, Nimba, Bong and Grand Gedeh Counties. The coastal and interior regions had been separated by lack of roads, disparities in education, means of communication and even by different laws. This reorganization was designed to remove distinctions between the coast and interior and to advance the goal of greater national integration of the indigenous peoples.

Although the legacy of the past still reflected differences in education, lifestyle and worldview between inhabitants of the coast and the interior, educational and political opportunities began to make inroads into the interior during the 1960s. These major internal political reforms brought representational parity between approximately 30,000 repatriates and one million indigenes, but the historic economic ascendancy of the repatriates and the absolute political power by the presidency still remained.

It is believed that Tubman thought the unification program would be meaningless, without economic development that benefited the mass of people, even though he was also anxious to preserve the standard of living of the Americo-Liberian elites. Foreign investment was seen, therefore, as a means by which higher incomes and improved social services, such as health care and education, could be made available without imposing austerities and heavy taxation upon the prosperous upper class.  As a measure of the success of the program, by the early 1960s there were 25 major foreign firms investing and operating in Liberia, compared with only one -the Firestone Plantations Company- when Tubman entered office.

Under the “Open Door” policy Liberia experienced phenomenal economic growth in double digits.  The foreign concessions brought employment opportunities to tens of thousands of Liberians and introduced them to the modern sector of the economy.  Foreign merchants, largely Lebanese, established a variety of retail and wholesale businesses in Liberia.  Liberia had the largest registered merchant fleet in the world as a result of a flag of convenience policy. Liberia had become Africa’s first and the world’s third exporter of iron ore.

Liberia however did not have skilled labour and institutions which could check upon or supervise the arriving multinationals.  There was also no integration of all foreign investment in one overall development policy. Liberia depended so heavily on the concession sector that it risked collapsing the national economy if it pursued an independent policy. The many labour intensive investments for other than rice production which the Liberian Government naievely accepted, drew on the available labour force in the subsistence sector. Even as the population grew, this caused a lower output of rice which made increasing imports of the country’s staple food a necessity.

A dual economy evolved which comprised of the concessions sector and the rest of the economy, and the two had little or no real connection.  For instance, the profits retained by Firestone-Liberia after taxes were paid to the Liberian Government in 1951, still amounted to three times the total income of the Liberian Treasury for the same year.  Revenues of the Liberian Mining Company surpassed the total revenues of the Liberian Government until 1960. The concessionaires extracted and exported unprocessed the natural resources of Liberia, generated incomes abroad, and did not repatriate those incomes to Liberia, except for the funding required to cover the minimal local operating cost in Liberia.  Thus, Liberia experienced economic growth without economic development.

Four factors are believed to have contributed to the Government sharing less in the profits of these concessionaires: (i) long tax holidays, (ii) long exemption periods of import and export duties, (iii) special tax tariffs for some investors and (iv) many and large tax deductable items in cases where investors were liable to taxes.

On the other hand, investors sometimes abused the lack of control by the Liberian State on their activities, resulting in tax evasion, illegal exploitation of natural resources of the country and the use of complicated structures which negatively affected the Liberian Treasury. The country could not cope with this adverse situation because of the absence of experienced administrators.

President Tubman died in 1971, and was succeeded by his Vice President, William R. Tolbert Jr.  Under Tolbert’s leadership, the Government began to reorient the economic system from liberal capitalism towards state-led, planned economic systems, focusing on food self-sufficiency and industrialization. To gain support for this policy, Tolbert established relations with socialist-oriented countries such as the USSR and the People’s Republic of China. More than 30 state-owned enterprises were established, and the Government began to set restrictions on the use of US military facilities in Liberia.  Concession agreements with foreign companies were renegotiated, creating serious tensions—particularly with Firestone.  Tolbert hosted the OAU meeting in 1979 in which the Monrovia Declaration was formulated, that led to the Lagos Plan of Action for the Economic Development of Africa, 1980–2000, which states that “the exploitation of Africa continued to be carried out through neo-colonialist external forces which seek to influence the economic policies and directions of the African States.”

Tolbert was killed and succeeded by President Samuel Doe in 1980, on the backdrop of radical political activism by the Movement for Justice in Africa (MOJA) of Togbah Nah Tipoteh (created on University of Liberia campus in 1973) and the Progressive Alliance of Liberia (PAL) of Gabriel Baccus Matthews (created in the US among Liberian students in 1974).  These self-acclaimed “Progressives” antagonized for instant change to end the rule of the Americo-Liberians, but offered no viable policies or long term strategies to support their ideological antagonisms.  Hence, when Doe overthrew Tolbert and thus became the first indigene to assume state power, there were no clearly articulated and coordinated policies to define the socio-economic direction of the country. Instead, rampant corruption, tribalism, repressive rule and incompetence characterized Doe’s rule, which eventually degenerated into civil chaos for almost two decades, following which Ellen Johnson Sirleaf emerged as President in 2006.

Under Ellen investment became once again centered on the natural resource sector and it arrived on a massive scale. Between 2005 and 2011, the government’s Inter-ministerial Concessions Committee signed $16 billion of so-called concessions (about 557 agreements), foreign investment agreements originally named for the tax breaks that investors negotiated with governments. As part of its strategy, the Sirleaf administration made it a priority to attract top-name international firms. They succeeded—Liberia’s major iron ore bodies were concessioned out to BHP Billiton, Arcelor Mittal, Severstal (a major Russian mining and steel company), and China Union (a Chinese investment vehicle). Smaller investments occurred in gold and diamond mining. Most of these concessions imposed additional responsibilities on the companies above and beyond what was required by law, for instance by mandating them to reconstruct infrastructure or contribute to social funds.

The investments have what the IMF characterizes as “enclave” characteristics: most of their expenditures and profits go to outside entities, with the main benefit for Liberia being government revenue collection, which is negatively affected by fall in world market prices of commodity exports. Of course, those were the same characteristics of foreign investments during Tubman’s “Open Door” era that had bloated the political patronage system until it burst. According to Dunn and Tarr (1988), “the “Open Door” Policy as a development tool failed ultimately because it neither created nor contemplated the creation of domestic entrepreneurs”.

President George Weah has succeeded Ellen Johnson Sirleaf in 2018, promising in his inauguration address that Liberians will no longer be spectators in their own country.  One of his first actions is to commission a review of all concession agreements. Initial comments from the concessions review team mentioned violations of laws during the award process of concessions, and exorbitant privileges enjoyed by concessionaires.  Concomitantly, President Weah has begun engaging the Liberian entrepreneurs with the view of removing hindrances that have been blamed for the poor performance of Liberians in their economy.  In a meeting with Liberian SME trade unionists, members described conditions that have effectively closed the doors to Liberians, while foreigners including concessionaires enjoyed exorbitant privileges under the Government’s “Open Door” Policy.

The President and his team are propounding a Liberianization policy and a “pro-poor” agenda.  Details of this “pro-poor” agenda are gradually evolving, but already the President has begun taking steps to make Liberian businesses prime beneficiaries of the “Open Door” policy, while foreign businesses are already being criticized for the exorbitant privileges they have enjoyed since the Tubman era.  Key among the actions being taken by the President in order to give Liberian businesses access to the “Open Door” is the issuance of IPDs (import permit declaration) for key products which now allow Liberian businesses to import products that they could not previously import.  Liberian businesses are also being given access to warehouses that were previously exclusively available to their foreign counterparts.  Additionally, the Government has announced that initial funding has been placed with commercial banks to give Liberians access to funding.  Two other hurdles remain though: unfair taxes and import levies that disincentivize Liberian businesses, and the exorbitant privileges enjoyed by foreign entrepreneurs.

Additionally, in order for Liberians to benefit from the “Open Door” policy in the concessions sector, so that we no longer have a dual economy, but a single, integrated economy, Liberians need revenue (not profit) sharing concession agreements and at least 50/50 ownership stake in each concession, where local communities will also be part owners along with the Government and the foreigners.  Value creation and local production to finished products (industrialization) must also replace the practice of mere exportation of raw materials from the country at manipulated prices.

The “Open Door” Policy was introduced as an economic management tool to achieve political objectives, which has created a dual economy, with foreign businesses benefiting while Liberians have been kept out. Foreign concessionaires and merchants enjoy “exorbitant privileges” while Liberians have been restricted in accessing this “Open Door”. From Tubman to Sirleaf, the policy has seen Liberia listed among the ten poorest countries of the world with the lowest human development index, while foreign businesses and foreigners have prospered. Weah has begun a variation to this policy that Liberianizes it, giving hope that indeed change has come that is pro-poor.  Will Liberians become winners if they enjoy the same benefits as the foreigners, or is it time to restrict the foreigners so that Liberians are given an impetus to catch up with the foreigners?  “This is our time!”

The author holds an MSc in International Business Economics and a PhD with emphasis in Economics.  He is also a Liberian Certified Public Accountant, a Fellow of the Association of Chartered Certified Accountants (ACCA) of the UK, a Certified Internal Auditor of the USA, and a July 2018 candidate for the Master of Law (LLM) degree in International Commercial Law.  He can be reached at [email protected] and +231(0) 886641187/776641184.

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