“Unpopular Policy”, But Real, Is Good. So, Cut Wages to Create Jobs

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By J. Yanqui Zaza

It is never easy for any government to institute a pro-poor policy; neither is it usual or popular for an individual to do the right thing. That is why almost everybody appears to have the tendency to overstate his/her value, experience, worth, etc. A home buyer overestimates his/her monthly earnings to convince a bank that he/she can afford the mortgage payment.

A big business includes non-business money (for example, a loan from a related party) to increase its revenue; searching for loans, a government inflates its assets; it accepts anti-poor policies dictated by money-lending institutions; or it under-reports its unemployment rate. In Liberia, the former regime, while it downsized slave-wage-employees and at the same paid excessive wages to a few advisers, it also understated Liberia’s unemployment rate at 3.7%. (https://www.statista.com/statistics/808768/unemployment-rate-in-liberia/).

In calculating this rate, the regime did not include many employable citizens. For instance, residents of rural towns were not counted because there are either a few or no employers within rural towns for residents to seek employment and equally so, many residents of urban settlements were not counted because they have long since given up efforts to search for employment.

To be perceived as a global reformer, former President Sirleaf did not only manipulate the employment rate, but deliberately overestimated government revenue and under-reported expenditure. To cover up the shortfall in revenue, Mr. Amara Konneh, the minister of Finance diverted the European donation of $13 million slated for combating maternal maternity even though his counterpart, Dr. Walter Gwenigale, of the Health Ministry had sent a letter to the Finance Ministry requesting that the money be wired to the bank account of the Ministry of Health and Social welfare.

The International Monetary Fund (IMF) stated in its 2016 Report that the government spent $80M (i.e., on unidentified projects), but did not include the $80M expenditure within the Annual Budget, which is an example of under-reporting. Additionally, in 2016,  government did not receive money from outside of government to cover up the shortfall in revenue. However, Mrs. Sirleaf asserted in September that the decline in global prices was responsible for the liquidity crisis.

But, the Chart below, shows that global prices for our two major exports (iron ore and rubber) went up in 2016 and 2017 as well as oil and rice prices (i.e., two of our major imported items), according to the Central Bank of Liberia(CBL).

Table 2: Selected Global Commodity Prices (2015-2017) by Central Bank of Liberia

Commodity Unit 2015 2016 2017 % Changes
Actual Revised Estimate 2017/2016 2017/2015
Iron ore USD/MT 55.20 58.50 71.40 22.1 29.3
Rubber USD/MT 1559.40 1642.10 2025.10 23.3 29.9
Crude oil USD/BBL 50.80 42.80 51.40 19.9 1.2
Rice USD/MT 380.10 388.30 401.90 3.5 5.7
Global Commodity Price In Index 111.2 100.1 112.4 12.3 1.1

Sadly, CBL, a nonpolitical entity, is also engaged in producing rosy economic reports. For instance, CBL increased its assets on the balance sheet by including Special Drawing Rights (i.e., a privilege IMF granted to debtor countries to borrow money). Also, the 2017 CBL’s annual report indicated that Liberia economic position “…remained…resilient…banking industry continued to witness improvements in profitability…”

Total credit to all sectors of the economy during the year expanded by 31.0 percent… the private sector accounted for about 98.0 percent of overall credit to the economy, reflecting expansion of the private sector…” However, Liberia’s real Gross Domestic Product (i.e., unlike its Nominal Gross Domestic Product) is not impressive as depicted within the Chart below.

A slow increase from $896 in 2015 to $904 in 2016 or from $904 in 2016 to $936 in 2017 does not support the Governor’s assertion that Liberia’s economic position is resilient. More so, the 31.0 percent expansion of more money is not reflected within the real Gross Domestic Products. Worse, a significant amount of the loans from the commercial banks was lent to retail and service economic sectors that do not employ a significant size of the available work force.

Source: Liberian Authorities & IMF Staff estimates and projections * Projections + Revised/Actual.  (In Millions of US$)

Sector 2015 2016 2017+ 2018*
Agriculture & Fisheries 218.2 232.2 236.3 242.5
Forestry 94.8 94.8 87.2 83.7
Mining & Panning 103.5 69.3 89.3 92
Manufacturing 63.5 60.2 61 62
Services 416.4 425.1 429.4 434.5
Real Gross Domestic Product 896.4 882.1 904.1 939.4

Further, out of the 2,441 registered businesses in the sample survey, including the retail and service industries, are largely located within four Counties (Monsterrado County, 1,271; Nimba, 170; Bong, 130; Bassa, 81) out of the fifteen Counties, according to http://buildingmarkets.org/sites/default/files/pdm_reports/liberian_businesses_-_the_engines_of_economic_recovery_and_growth.pdf). On the downside, Gbarpolu County, (1) one registered business, Grand Cape Mount, 13; Grand Gedeh, 14; Lofa, 40, etc.

These kinds of economic arrangements have been around even before the creation of the Liberia Bank for Development and Investment (LBDI) in 1962. Why did LBDI not spur manufacturing activities such as food production across the country? This is because past governments succumbed to the World Bank’s anti-poor agricultural policies, according to Mr. Kjell Havnevik and Others (African Agriculture and the World Bank (WB): Development or Impoverishment).

Okay, if the government should play a limited role, then profiteers should increase investment in gold, diamond, food production, etc. But they have not. Therefore, the Pro-Poor government should focus less on capital-intensive investment such as were the Hotel Africa in the 70s, expensive government buildings in the 90s or the proposed investment on Bali Island or on a Coastal Highway. Rather, it should cut additional wages and invest the amount in labor-intensive projects.

Food production, for example, (a labor-intensive investment), might not only reduce Liberia’s trade deficit but rather increase rural activities, subsequently, discouraging rural-town residents from migrating into our already crowded urban cities. Further, by increasing agricultural activities, other economic sectors, including retail sector, service sector, entertainment, legal, healthcare, accounting, education, etc. will find business reason to locate within those rural towns.

Last, but not the least, with minimal amount of money allocated for capital-intensive projects, profiteers and government bureaucrats will not find a conducive environment to siphon limited resources.

3 COMMENTS

  1. Reading from table 2 in the above narrative, and believing the information and statistics is correct and comes directly from the CBL, it should be safely stated that the government, especially our policy and decision makers have package poverty for the larger mass of the Liberia population. How in the world will our government allow rubber buying companies to buy unprocessed rubber from farmer for less than US$600 per metric ton when the global price was US$2025 in 2017?
    The government can help to set standards and resolve this kind of anomaly. Encouraging productive work is another way of “being pro poor”.
    Don’t these people know that enabling the growth and development of poor farmers will contribute to the physical, educational, social, nutritional and psychological wellbeing of our people
    It is time that those at the helm of power now take the frog leap steps and bring to reality dreams of poor farmers. At least our leaders can make this happen especially for small holder rubber farmers. Let our people not live in dare poverty all through their lives. You can make our farmers happy now and let them appreciate true value of the ever never ending labour. Farmers will appreciate and value their labour when Government provides the safe guide ensuring that the price (s) for agriculture commodities paid when the season is good. Paying the rightful market price will encourage farmers to increase production.
    The reading in this article shows that it is our government (leaders) that promotes poverty. Ensuring fair price for export products will endear citizens to the government. We can make this change and now is the time to begin.

    • Zikeh, thanks for the brief analysis as reaction to this article. I found it more informative and coherent than did the article itself.

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