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Symposium 2009

Proposal - Liberia: Rebuilding for Growth and Development

The Challenge

In a number of territories primarily situated in the poorer parts of the world, the state no longer performs its basic security and development functions. Beyond causing hardship for their own citiz ...

In a number of territories primarily situated in the poorer parts of the world, the state no longer performs its basic security and development functions. Beyond causing hardship for their own citizens, failed states provide breeding grounds of organized crime and terrorism.

Liberia is a case study both of Africa’s terrible tragedy and for the recent emergence of hope. For the past two decades, the world came to know Liberia as a land of political comedy, widespread corruption and unimaginable brutality. Liberia became the strange footage that flickered on television screens with terrible images of savagery. The Liberian people became refugees and fled to all corners of the globe for shelter. It was a period of darkness and insanity. But fortunately, things have finally begun to change.

 

Conflict and Recovery

The origins of the Liberian conflict can be traced back to various forms of exclusion and marginalization which have characterized the country for most of its existence. The founding constitution was designed for the needs of the settler population, which subjugated the indigenous people for over a century. Land and property rights of the majority of Liberians were severely limited. Political power was concentrated essentially in the capital city of Monrovia and primarily at the Presidency, with few checks and balances and little accountability. Most infrastructure and basic services were concentrated in Monrovia and a few other cities fuelling uneven development, a dualistic economy, and a major dichotomy between urban and rural areas. The political and economic elite controlled the country’s resources for their own use and to consolidate their power. These factors led to wide gaps in the distribution of the nation’s wealth and fuelled ethnic and class animosities and rivalries. These realities and the dependence of the nation on a small range of natural resources eventually sowed the seeds for the 1980 coup d’etat and the subsequent 14-year violent conflict that began in 1989.

The economy began to unravel in the 1970s with the combination of the sharp increase in fuel prices and the decline in the prices of key export commodities. By the latter part of the decade all indicators pointed to a looming crisis. Unemployment, consumer prices, and food prices in particular all rose at alarming rates. The lack of a long term vision and the absence of an effective short term response to the onset of the economic stagnation coincided with political repression, social exclusion and corruption in high places, thus accelerated the gathering storm of crises that were to engulf the nation.

The April 1980 coup marked the beginning of Liberia’s steep descent into crisis. A decade of gross mismanagement and dictatorship led to the outbreak of civil war and fourteen years of chaos, plunder, and violence, which did not end until international peacekeepers finally ousted the government in 2003 and established the basis for stability, peaceful elections, and the beginning of recovery.

Liberia was decimated by the war. More than 270,000 people were killed, and 500,000 more were forced to flee their homes as either internally displaced persons or refugees in neighboring countries. Families were shattered; entire communities were uprooted; and social, political, economic, and governance systems were destroyed. Commercial and productive activities collapsed as warlords looted and vandalized the country. Economic output declined precipitously, with GDP per capita falling more than 85 percent between 1980 and 2003. Poverty increased sharply, and more than 75 percent of Liberians now live below the poverty line of $1 per day. The decline was across the board: agricultural production dropped as people fled their farms and the supporting infrastructures collapsed, mining and timber activities shut down, rubber plantations closed, manufacturing essentially stopped, and services ground to a halt.

Basic infrastructure was left in ruins. Roads were destroyed, and there was no electricity or piped water anywhere in the country for 15 years. Schools, hospitals, and clinics are badly damaged, and most government buildings are in shambles. There are less than 50 Liberian physicians to cover the nation’s public health needs, one for every 60,000 Liberians. Government finances collapsed in tandem with the economy. Total annual government revenues fell to less than US$85 million a year between 2000 and 2005, translating into public spending per capita of only about US$25, one of the lowest levels in the world. At the same time, years of mismanagement left a huge external debt burden, mostly as a result of large borrowing (and imprudent lending by the creditors) in the 1980s and steady accumulation of arrears since then. Liberia’s total debt is estimated at about US$4.5 billion, equivalent to an astonishing 800 percent of GDP and 3,000 percent of exports.

The economy finally stabilized and began to rebound in 2004 after the ouster of the previous government and the signing of the Accra Peace Accords. Following the elections in late 2005 and the inauguration of the new government, the pace of economic recovery accelerated. The signs of recovery are clear: storefronts are newly painted, restocked, and open for business; families are repairing homes; trucks are lining up at building supply stores for cement, gravel, and tools; road and port traffic have increased markedly; and construction projects are sprouting throughout the country. Liberia is on the rebound.

 

The Reconstruction and Development Framework

The new government of President Ellen Johnson Sirleaf faced the daunting task of rebuilding Liberia from the ashes of the war. It recognized that to be successful, it would need to implement policies aimed at both political stability and economic recovery that were mutually reinforcing, and that to sustain development over time, it would have to rebuild institutions and invest in human capacity.

Crucially, for Liberia to be successful it cannot simply recreate the economic and political structures of the past that led to widespread income disparities, economic and political marginalization, and deep social cleavages. It must create much greater economic and political opportunities for all Liberians, not just for a small elite class, and ensure that the benefits from growth are spread much more equitably throughout the population. It must decentralize political structures, provide more political power to the regions and districts, build transparency and accountability into government decision-making, and create stronger systems of checks and balances across all three branches of government.

Dr. Amos Sawyer, a former interim President of Liberia and one of the country’s leading political analysts, makes the argument this way:

“…Democracy [and development] have seldom flourished without evolving through processes of contestation [and cooperation] among a people themselves. Even when imposed from outside, [they] must be sustained by empowered citizens. Empowerment of those who have not had opportunities or cannot imagine being in control of their own destiny is the greatest challenge—but the surest path to success—in the quest for democracy and development in Liberia...A major question for Africans generally and Liberians in particular is how to establish governance [political, economic, social] arrangements that build on the capabilities of local people and advance their prospects of working together to build democracy and attain development from the bottom up.”

Thus, Liberia’s basic economic challenge has three dimensions. It must (1) quickly restore rapid growth, (2) achieve a much better distribution of the benefits from growth to overcome the disparities of the past, and (3) make equitable growth sustainable over time. It has designed its strategy to achieve these goals around a framework of four basic pillars.

1. Expanding peace and security. Without peace and security, there will be little new investment, economic rebound, or job creation, which in turn will undermine stability and threaten a return to conflict. Since the ouster of the previous regime in 2003, a force of approximately 15,000 UN peacekeepers – the second largest such force in the world -- have done an outstanding job of maintaining peace, supporting two rounds of successful elections, and helping establish the foundation for Liberia’s recovery. Going forward, the government is building new security and police forces that are sufficiently strong to maintain peace and security, but that remain firmly under democratic civilian control. It has deactivated 17,000 members of the old security forces, disarmed more than 75,000 ex-combatants and placed them in reintegration programs, and initiated the process of recruiting and training new professional security forces.

2. Revitalizing economic activity. The government has begun to put its financial house in order by strengthening both government budget operations and central bank functions. It balanced its budget in just four months, and moved to a cash-based budget in which all expenditures are approved by a cash management committee. It pushed hard to improved tax compliance, especially on import tariffs. Partly as a result, government revenues have doubled in just 18 months.

In terms of productive sectors, a central aim is to quickly restore agricultural production, where the majority of Liberians are employed. To jump-start agriculture from years of neglect, the government distributed large amounts of seeds, tools, and fertilizer, and re-established research and extension institutions. In addition, it will be critical to reinvigorate the natural resource-based activities that were once the engines of Liberia’s economy -- rubber, timber, mining and cash crops – and ensure that the gains are much more equitably distributed. The keys will be negotiating fair concession agreements; ensuring the financial flows are transparent; and using the gains to build infrastructures, create economic opportunities in areas surrounding the concessions, and deliver more effective health and education services throughout the country. The government negotiated a US$1.5 billion iron ore concession agreement with Arcelor Mittal Steel; re-negotiating its agreement with Firestone Rubber Company; negotiated a US$2.6 billion iron ore concession with China Union; concluded a US$112 million energy contract with Buchanan Renewable Energy; and is initiating negotiations on a variety of other concession agreements. Over the medium term, by opening the economy to trade and reducing barriers to investment, the government hopes to attract new investments in manufacturing and services so that Liberia can export labor-intensive products to the region and the world.

3. Strengthening governance and the rule of law. Liberia’s institutions were left in ruins by the war, and they must be rebuilt nearly from scratch. The government is in the process of building a more professional and better paid civil service. It has introduced a variety of systems to guard against corruption and to ensure transparency and accountability, including the cash management system, a new procurement and concessions commission, and a requirement that all Cabinet Ministers and other senior officials of government declare their assets. It quickly dropped 17,000 ghost workers from the payroll, and is in the process of rebuilding a smaller, more professional, and better compensated civil service. It is strengthening both parliament and the judiciary to move away from the system of supreme powers in the executive as in the past. It also is beginning to build capacity at the county and district levels to move over time to a more decentralized power structure.

4. Rebuilding infrastructure and providing basic services. The war brought widespread destruction of roads, bridges, power supplies, water, schools, clinics, and government buildings throughout the country. Rebuilding these infrastructures is central to Liberia’s recovery. Roads in particular are essential to supporting peace, reinvigorating agriculture and natural resource based industries, creating jobs, ensuring access to health and education services, strengthening local and district governments, and creating economic opportunities for those left out in the past. The government has started to rehabilitate some key roads with the support of the donor community, but the process is difficult. Donors moved away from road projects in the early 1990s, so finding adequate financing for these purposes has been a particular challenge. Nevertheless with donor support the government was able to turn on electric power and piped water to parts of Monrovia for the first time in 15 years. Health and education services need to be rebuilt for their immediate benefits to the people, but also as the foundation for sustained growth and development over time. Schools and clinics are being rebuilt. The government eliminated school fees, and partly as a result primary school enrollment rates shot up by 50 percent in one year.

Importantly, actions in each of these four pillars are mutually reinforcing. National security is a pre-requisite for economic progress with substantial impact on poverty. At the same time, peace and national security will be severely threatened if chronic poverty continues to rise. Sustainable peace will largely depend upon the ability to deliver basic social services throughout the country. Similarly, without basic infrastructure the private investments needed to fuel growth will not be forthcoming. Governance and the rule of law provide the institutional base for strong economic performance and poverty alleviation, and the justice that is needed to ensure that grievances are settled through dialogue within the political system, as opposed to violence.

The initial signs of Liberia’s recovery are encouraging. Economic growth for 2006 reached 7.8 percent, and growth accelerated beyond 9 percent in 2007, before declining to approximately 6% in 2008 due to the economic meltdown. Infrastructures are being rebuilt, jobs are being created, kids are back in school, and clinics are being reopened. There is a long way to go, but Liberia is finally on the path to recovery, accountability, and development.


Consolidating the Progress Across Africa

The recent changes in Liberia and other countries in Sub-Saharan Africa are a welcome reversal of the near universal bad news from the past, and provide hope for a brighter future. The fact that the changes are rooted in important historical and structural changes, and not simply high commodity prices, gives reason to believe that they can be sustained, at least in many countries, and that other countries across the continent can join in the progress.

But the emerging success over the last decade by no means guarantees future success. There is considerable risk that these countries might slide back, sparked by violence, opposition from the small elite minority that lose from these changes, or adverse economic shocks. There is no room for complacency. The governments of these countries and the international community must both take steps to consolidate the progress to date, sustain it going forward, ensure the economic gains are more equitably distributed, and spread the beginnings of progress to other countries in the region.

The key responsibility lies with the leadership and the citizens of African countries themselves. Governments must establish much more transparent and accountable systems of governance, with timely, open, and audited financial accounts; strong judicial systems; a free press with open public discourse; a full embrace of the Extractive Industries Transparency Initiative and similar instruments; and a responsible, professional, and well-compensated civil service. They must also take bold steps to diversify their economies and create new economic opportunities for the poor, including removing unnecessary regulations and red tape, building infrastructure that provides opportunities for rural development, and facilitating the development of competitive labor-intensive manufacturers. In Paul Collier’s language, these countries should aggressively take all possible steps to escape the governance and natural resource dependence traps.

The international community can support these countries in several ways. The industrialized countries can and should open their borders to much greater trade from low income countries. If for political reasons they cannot reduce trade barriers to all developing countries, they should begin by focusing first on the countries that are taking major steps to escape poverty and have a chance to stimulate labor-intensive exports. Foreign assistance should be focused primarily on countries that have moved to more accountable and transparent governance and implemented strong economic policies. Many of these countries can absorb much larger aid flows, for example through building basic infrastructures to support private sector growth. And in countries with stronger governance systems, the donors should give the recipients much greater authority over where the funds are spent.

Finally, for low-income countries recently emerging from conflict, maintaining security is a top concern. The international community should support a standing, professionally trained African military force that can be called in on short notice when necessary rather than the current approach as assembling ad-hoc international forces when the need arises.

The good news out of Africa is that many countries across the continent are finally beginning to emerge after thirty years of misrule and economic stagnation. Democracy, stronger economic management, and growth are slowly replacing dictatorship, mismanagement and decline. This is the best opportunity in many years for these countries to escape poverty. But continued progress is far from assured. African governments and the international community must seize this opportunity to accelerate the process towards stronger, more accountable governments and economic revival. The people of Africa want and deserve nothing less.

 

Amara M. Konneh
Minister of Planning & Economic Affairs, Republic of Liberia

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