Domestic Resource Mobilization: An Alternative To Financing Development in Liberia

0
308

By Ansumana MM Konneh & Musa AF Sherif

Murtala Muhammad’s speech, “Africa Has Come of Age”, came as a defying voice against western imperialism in 1976. It was defiant as it pricked on the superstructures of the maladies in the continent’s belly— foreign aid.  He averred that “the fortunes of Africa are in our hands to make or to mar.” His assertion not only meant that Africa was free from colonial bondage, but that it was capable of handling its own affairs economically as it was politically and socially. But fifty (50) years afterwards, can one claim that the continent “is no longer under the orbit of any extra-continental power” as posited by General Murtala?? Have African countries exerted significant effort to transcend dependence on foreign aid? How prosperous is the continent since independence in the 1960s? What have we to show for the trillions of dollars pumped into Africa by foreign donors? These questions are as puzzling as they are revealing. And it’s a bitter truth that since independence, African countries still look up to the homes of their former colonizers to finance their development programs.

A good example is Liberia. For a long time, it has fed on the crumbs of the United States’ treasury to finance strategic national developments such as the Robert International Airport, Freeport of Monrovia, and the John F. Kennedy Hospital, to cite but a few. Just in the last decade, billions of dollars have been given to the country in the form of foreign aid. In 2011 alone, as indicated by a report by the OECD, Liberia received the sum of $765 million in official development aid; constituting 73% of its gross national income. And in recent time, the government of the United States of America signed a deal of  $112 million with Liberia through the United States Agency for International Development. But the country’s dependence on foreign aid did not just have sudene start. It can be recalled that between 1819 and 1869, The US government and the ACS “provided a combined total of nearly $5million in assistance to Liberia” as a support for development. This was in addition to the extra $100,000 the United States provided initially for the repatriation of free slaves. A mention of these amounts will seem to be a solution in themselves towards the economic challenges of Liberia, but in reality, it is actually the opposite as poverty levels are still very endemic and basic social services remain the dream of many.

In a bid to describe Liberia, The Economist wrote in June 2017, “ Liberia remains the world’s fourth- or fifth-poorest country, and the poorest one with a solid government”. While proponents of aid would be quick to argue that  aid  has helped in the development of Liberia and has contributed to the construction of revenue generation sectors such as the Robert International Airport, Freeport of Monrovia, and the John F Kennedy Hospital,  it is, however, noteworthy to establish that the aid model of financing development is not sustainable anymore as most of what it has done is to create an environment of huge dependency, increased corruption, and a lethargy on the side of our policymakers in innovating context-specific economic solutions to the country’s existing problems. Here we contend— not for the first time— that rather than aid,  the way forward to financing development in Liberia is to look within and invest in an alternative economic model. In light of this and in a desire to help our country, we recommend few steps as doable solutions in the country’s drive to economic prosperity.

The first step towards this will be the setting up of a defense mechanism that will not only teach the citizenry about the change of paradigm (from aid dependence to domestic resource mobilization) but also make them embrace its consequences. This must be in the form of a holistic national reorientation and or re-education program. History of the past reminds us that in most countries where such change of paradigm have been done, citizens,  by mass propaganda of external forces or domestic politics, have always (or at least in most cases) risen to the throat of their leaders. And in many of these instances, there is either a loss of leadership as in the case of Ghana’s Nkrumah or an extreme economic hardship as in the case of China’s Mao Zedong and Cuba’s Fidel Castro. Liberia cannot be an exception to this. This is especially given that we are a post-war country majority of whose citizenry knows about war and are not afraid to resort to it as recourse. Therefore before anything, the government, its development partners, and civil society organizations– such as the Liberia National Student Union, NAYMOTE, etc must engage in programs that will prepare the citizenry in ways that will make it possible for them to embrace the shift and strive to achieve its desired goal.

When this is done, the second step must be to look within and find solutions that will give us the ease of means to mobilize revenue towards the country’s development. In any development process, resource mobilization is key. Whether it is from foreign coverts or the domestic treasury, it defines what is ought to be an achievement. In the case of Liberia, it lies in the armpit of domestic resource mobilization. Of all the methods, it is the most significant and remains cardinal to the overall achievement of financing our development. This method of financing primarily depends on the central government. The government should invest in programs that will bring high revenue return benefit. It should cut across increased taxation on strategic sectors of the economy such as the imports and exports sectors, development of programs and policies that will not only encourage businesses to pay tax, but also reward them when they commit to their tax payment in order to maintain their loyalty and ensure the proper usage.

The third approach is accountable taxation. Taxation remains a problematic economic issue in Liberia. Its appropriate usage and accountability, just like foreign aid, is even more awkward. The Liberian government, through LRA, must tax both local and international businesses in a way that will allow them to have a profit and at the same time contribute to the development of the country. When it taxes the local business, the government should ensure that it provides better services in return. As for their Foreign counterparts, their tax must reflect the value of their investment. This includes extraction companies of raw material such as logs, gold, and other natural resources. Taxes collected from them could be used to create good road networks, security, and other basic social services. The government must not only collect taxes to spend, but should also focus on creating appropriate ways to use them.

In this regard, it is instructive to dispel a commonly practiced and very disastrous economic policy that has suppressed revenue generation in Liberia from for a long time. Past Liberian governments believed that the best equation for revenue generation is equal to giving duty-free and other tax-free privileges to large scale businesses on one part of an economic nexus while taxing smaller local business so heavily on the part.  This is primitive and contravenes any modern economic rationale-regardless of who sits in the Executive Mansion, Parliament, Ministry of Finance, or the Central Bank of Liberia. The resultant effect of this is the lack of an ecosystem of support for the local business (which are actually the backbone of the economy) to thrive in their own capacity and compete with their foreign counterparts. Because the profit they generate is given to tax collection while mega revenue business such as Mittal Steel, Farmington, and others are rotting with money generated from tax-free privileges.  As the result, monopoly is created, prices inflated, and the people suffer while most of these small businesses are consigned to near extinction or are taken over bigger ones. To develop is to do the opposite by rather taxing large businesses while protecting the safety of the smaller or locally owned ones. That is to say instead of giving Farmington and Mittal Steel duty-free privileges, for instance, the government should tax them even heavier. Revenue generated in this way is bigger than those from the smaller ones and can be used to improve strategic sectors of national development.

Additionally, every government of the world depends on the income of its citizens to develop their country. This is regardless of whether the country is as big as populous as China, poor as hell, or luxurious as the United States. In this light, increased cut on the income of senior government officials such as ministers, directors, and head of agencies is a good way of generating revenue and can be the stablest of all other methods. Though it is hard to cope with, it is one of the surest ways. We cannot finance our development ourselves when we are not willing to sacrifice. This remains a solution for most developing and developed countries around the world. According to PWC 2015, in Rwanda, 30% tax is collected on the net income of every citizen. This accounts for why the country is safe and secure. Same can be done for Liberia.

Fourth, apart from taxing locally owned businesses, the import sector remains a good revenue generator and taxation on the sector must even be higher. OEC 2016 report puts the total number of inputs of Liberia at $7.68 billion; “making the country the 10th largest importer in the world”. This is after the sector experienced a brisk decrease rate of 15.8% in 2011. This explains the significance of the import sector and calls for the government, through the Ministry of Commerce and Industry, to come up with innovative strategies that would allow the sector to collect as much revenue as it can from goods that are imported into Liberia. Experts of tax could argue that the heavier the tax, the higher the prices of the taxed commodities will be, which in return might sore up the already harsh economic condition of the citizens. While this is true, it, however, is not a strong justification to not tax.  Because without it the revenue generation drive becomes weak and lame.

Fifth, Liberia has an abundance of resources that are needed in its development. It is said to be the chief exporter of rubber and blessed with natural resources such as bauxite, gold, and diamond. These resources can be key financiers of our national development if utilized well. To do this, the government must put a focus on value addition to products of the extractive industry so that when they are sold a lot is gained from it that can assist in the country’s development drive. This means that the government must manufacture raw materials into finished goods by creating local industries and equipping them to the status of their foreign counterparts. Put differently, instead of exporting raw rubber, industries such as the E- brothers must be supported through budgetary allocation to manufacture those into finished products. The return benefit is as follow:

  1. It breaks the monopoly of foreign own companies such as the Firestone Rubber Cooperation in terms of price control for local rubber planters and decision making.
  2. It gives opportunity to existing local business owners who travel to other countries to buy at a higher cost the chance to buy at a lower cost and still get the same profit they would on any distance.
  3.  It also gives rise to new businesses that do not have the capital to buy in long distance countries.
  4. Excess or produced rubber could be exported to other neighbouring countries that are facing the same problem which in return will harness a regional problem of inter-continental travel for rubber purchase. It also provides more job opportunities along the production value chain; this in turn expands the source of income tax for the government.

Lastly, while the country invests in building local industries for the final production of raw material, it must take radical decisions such as nationalising strategic sectors of the economy to be able to deliver to the aspirations of its citizens. Nationalism might not be the mode. But it is equally not the worst. And though pundits could argue that it has failed in other countries, we contend that it has proven to be the future of Africa’s development. This is evident of the rapid industrialization not only in Tanzania by president Magufuli, but other countries around the continent and the world. Nationalizing Firestone Rubber Cooperation, in this light, would be a great step. When all these are done and achieved, the national government should then turn to focus on achieving accountability. This is because no matter what we do and how we generate, if it is not honestly accounted for, the domestically generated resources will not serve its purpose. Integrity institutions such as the Liberia Anti-Corruption Commission and the General Auditing Commission must be strengthened to engage in a vigorous fight against corruption and the misuse of such fund.

Our recommendation here might not be the best, but they, however, speak to an interesting debate that must be held through different lenses and across many facets of the country. And self-reliance, regardless, of whatever our solutions are, must be at the helm of the conversations we have about finding alternative means of financing our development programs

Musa and Ansumana study Global Challenges at the African Leadership University. They focus on Governance and Public Policy in Africa and are passionate about Africa’s drive to sustainable development, inequality, rule of law, and policies and institutions that can help achieve them. Reach them at: [email protected] [email protected]

Leave a Reply