Pro-Poor or Nouveau Riche?

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By Stephen Johnson, MBA

While Liberia might have experienced growth over the last decade, the country has been swamped by huge economic challenges especially since the twin shock (Iron ore and rubber prices reduction) coupled with the post Ebola epidemic. In this article, we strive to explore the challenges for achieving sustainable pro-poor growth and poverty reduction in Liberia against the backdrop of an increasing disillusion with Liberia’s performance in these regards in recent years. A review of our economy, though indicative of past successes, still highlights an excessive belief that macroeconomic stabilization and investment in human development more or less automatically would translate into pro- poor growth –something that has diverted attention from the need to think through the challenges of achieving sustained pro-poor growth. In order for us to break such a trend, we must strive not to only present the many trends of stagnation in poverty reduction but to redirect our focus to the following:

  • Diversifying of our economy through the development of the manufacturing and service oriented sectors
  • Increasing our focus on the issue of population growth.
  • Developing a rapid and long-term sustainable program that focuses on the intensification of the agrarian sector of our country.

Liberia’s economic development and poverty reduction efforts since the end of the civil carnage has in many ways been noteworthy. Though not significantly, we have witnessed some improvements regarding economic sustainability with resources being channeled to capital investments across major parts of the country (i.e. the growth corridor, the Mount Coffee hydro, referral hospitals and communal roads among others). Despite these, Liberia is still in a very early development stage both in terms of demography and the economy. With the many attractions in the urban areas, the demographic transition seems to be tilted towards urbanized areas thereby leaving fertile rural land rich for agricultural activities in a state of abandonment. Our modern non-farm sector is in it state of infancy while urbanization remains very low. Moreover, even with what seems to be a liberalization of trade and commerce, Liberia has a fairly closed economy when measured against actual trade flows. Export makes up 23.5% (2015) of our GDP (USD 2.3 billion/World Bank / Exports as % of GDP) while our economy remains heavily reliant on imports (USD 1.3 billion, 2016 estimate CIA World Factbook). Import commodities include: fuels, chemicals, machinery, transportation equipment, manufactured goods; foodstuffs etc. covering imports from Singapore 28.7%, China 16%, South Korea 15.3%, Japan 10.3%, Philippines 6.6% (CIA World Factbook, 2015).

Real GDP growth

2006 2007 2008 2009 2010 2011 2012
8.2% 12.7% 6% 5.1% 6.1% 7.4% 8.3%
2013 2014 2015* 2016* 2017*    
8.7% 0.7% 0% 2% 4%    

*Estimate (IMF World Economic outlook, 2016).

Urban population as % of total population

1960 1980 2000 2016
19% 35% 44% 50%

*Estimate (World Bank Urban Population).

In spite of our country-specific feature (seaport), which gives us a natural advantage when compared to Uganda for example, which is land-locked and has to endure huge tariff through high transport costs on both exports and imports, our international competitiveness is weak. Liberia ranks 131 out of 138 countries on the Global Competitiveness Index (GCI) according to World Economic Forum Global Competitiveness ranking. Additionally, Liberia still struggles with the issue of a dual currency regime (US$ and L$) while the only monetary tool intervention available by the Central Bank is to periodically auction US$ with the hope of stabilizing the economy-something which is not a long term sustainable strategy.

To date, what seems to be an impressive economic development and poverty reduction efforts, which involves the establishment of anti-graft institutions, the introduction of the Poverty Reduction Strategy (PRS) and the Agenda for Transformation (AfT), has to date been based on discrete events; favorable circumstances (International goodwill), reforms across government and periodic events (sudden fall in the exchange rates). While these appear to have yielded some form of one-face bonuses, these cannot be expected to drive our long-term future growth even though they are essential preconditions. Of late, our most outstanding discrete events have been the peaceful transfer of power dividend we enjoy after almost 74 years and a significant increase in foreign aid. The rubber and iron ore boom in the last few years contributed significantly to a marked but was short-lived boost due to the fall in demand from China and other steel importing nations.

Total population

1990 2000 2010* 2016* 2021*
N/A 3.065 million 3.778 million 4.399 million 4.944 million

*Estimate (IMF World Economic outlook, 2016)

While peace and stability have a particularly large positive impact on economic growth, a very low economic activity and coupled with the additional cost of doing business due to huge energy cost, it has affected greatly our macroeconomic stability. Even with all of the reforms that have been reaped, growth has slowed down due to decline in international markets and economic instability. Lest we forget, these trends are expected to continue at such a declining rate of growth even up to present and beyond (See World Bank and IMF report on declining Iron ore and Rubber prices).

Unless our rate on investments increases, high rates of sustained economic growth will be difficult to achieve. We must increase our investments on capital projects (roads, bridges etc.), the manufacturing, service oriented and agrarian sectors and the provision of cheap and affordable energy supply. While the importance of exports for growth is undeniable, sustainable growth also needs to be built on increasing and stable domestic demand, and a development and deepening of domestic production linkages (effective supply chain). To secure sustainable high rates of economic growth in the years to come, Liberia needs a viable private sector that increases the productive capacity in the economy continuously through competitive pressure, and responds with higher investments rates. To achieve this, it will require an environment centered on peace and tranquility, a liberalized economy and macroeconomic stability, which are pre-conditions and serves as an engine for a more productive real economy.

Moreover, the extent to which economic growth has to be pro-poor has also been determined by the specific interventions made by government and the relevant stakeholders as well as external factors. Favorable iron ore and rubber prices favorably affected the poverty-base during the boom. Many small farm startups began with higher dividend to farmers. Of late, what we have witnessed is a somewhat reduction in poverty despite our unfavorable changes in terms-of-trade which has partly been driven by increased support from donors in areas of health and education.

Finally, Liberia cannot expect continued increases in pro-poor changes and or donor support (President’s Weah recent trip to Paris and Nigeria are classic examples) in terms-of-trade so long poverty reduction mechanisms aren’t sustained and based primarily on redistributive factors. For pro-poor growth to become sustainable it must be based on growth in which the poor are given opportunities as economic actors, i.e. economic development that creates productive employment opportunities for the poor, productivity gains in agriculture (both with regard to labor and land) and economic diversification (development of the non-farm sectors). This calls for a focus on employment and employability and labor productivity while focusing on human resources and the need to create conditions that are conducive to unleashing the creative and productive forces that are needed and inherently necessary with particular emphasis on the poor as a starting point. This when achieved, will lead to an enhanced employment and huge returns on labor and strengthening the productive resources and capacity of the individual people, in general Liberians and in particular, the poor. This will open up opportunities for all and all our people to make full use of the productive resources at hand and as a main avenue for reducing income poverty and achieving pro-poor growth.

ABOUT THE AUTHOR:
Stephen Johnson holds a Bachelor of Science degree in Economics and a Master Degree (MBA, Highest Honors) in Finance. A post graduate Leadership Certificate from the John F. Kennedy School of Government, Harvard University and has a Master in Public Policy from the Penn State University. He has over 15 years of experience in finance, governmental administration/policy, special programs business development, account management, process improvement, and team leadership. He can be contacted at [email protected]

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