A critical analysis of Liberia’s attractiveness to foreign investment



By Jackson Fiah Doe, Jr.


The Perspective
Atlanta, Georgia
December 22, 2005



Envision the Liberian economic landscape in the year 2020 via the lenses of two contrasting scenarios. In the first, the country’s economy is in shambles and tattering on the brink of collapse. The unemployment rate is 95%, and Liberians can no longer afford basic necessities. Prices of goods and services are extremely high. The gap between rich and poor have significantly widened. The Liberian currency is 6000 Liberian dollars to a US dollar. All foreign companies investing in the country have pulled out. There are no basic services like electricity and running water. There are unrests everywhere, and the country is on the verge of a civil war.

As regards the second, Liberia has a robust economy, thanks to private investments and widespread entrepreneurial activities. There is a very strong private sector comprising local and foreign businesses, providing thousands of jobs. Liberia is exporting goods and services throughout the West African region. These companies are paying millions of dollars in taxes to the government. The country has become a tourist haven. The standard of living for ordinary Liberians has immensely improved. There is a large middle class. There are many local factories and manufacturing plants, and a well-developed communications infrastructure. Companies and people have easy access to the rural area, thanks to well-maintained paved roads throughout the country. There is political stability. Many professional Liberians have returned home to either to establish businesses or work for foreign companies. The agricultural sector is vibrant. Gone are the days when Liberia was importing food. It is not only feeding itself, but is also exporting food products to other African countries.

The above-mentioned scenarios are possible. Which one becomes a reality will depend, to a greater extent, on the willingness of multinational corporations (MNCs) – firms that have extensive involvement in international business 1 - as well as investors (including affluent Liberians living abroad) to participate in investment activities in Liberia. These activities will mainly take the form of Foreign Direct Investments (FDIs), which are investments of foreign assets into domestic structures, equipment, and organizations. 2 An example of FDI is a Toyota plant in Liberia. Multinational Corporations and other investors are not particularly excited to do business in Sub-Sahara Africa, including Liberia, for a number of reasons. However, in my view, these investors should objectively weigh the positive as well as negative aspects of doing business in Liberia, in order to ascertain whether or not to invest in the country. In this paper, I will critically examine the pros and cons of investing in the country. I will also show how to invest in the country, and which industries foreign companies and private investors should consider investing in.

Why Liberia is not attractive to foreign investors

Like many countries in Sub-Saharan Africa, Liberia, in recent years has discouraged foreign investors from doing business in the country. Net foreign direct investment flowing in the Sub-Saharan region took a significant nosedive between 1982 and 1987, from $1.22 billion to $498 million.3 Conversely, there has been an upsurge in investment capital flowing into the developing countries (India, China, Taiwan, Singapore) between 1990 and 1995, when net yearly flows quadrupled to over $90 billion.4 But as for Liberia and the rest of Sub-Saharan Africa, flow of investment capital was just 2.4 percent.5 In 1995, despite a record $231 billion in foreign investment that flowed to the developing world, with Singapore alone attracted $5.8 billion, sub-Saharan Africa’s share was a minuscule $2 billion.6 However, Foreign direct investment in Sub-Saharan Africa rose in 1996 to $4.7 billion, stagnated at the level for 1996 and dropped drastically in 1998 to $3 billion because the region lost its attractiveness.7

Prior to 1990, there were several multinational corporations doing business in the country. These companies included Firestone, Coca cola, Chase Manhattan bank, Citibank, KLM, Swiss Air, DHL, Western Union, British airways, to name a few. However, with the onset of the civil war in mid 1990, most of these companies left and have not returned. The reasons Liberia - like many countries in sub-Saharan Africa - is not attractive to foreign companies include, but are limited to, political instability, small market, and weak economic indicators.

Political instability

During the last decade and a half, Liberia has been plagued by a prolonged brutal civil war, which claimed the lives of several hundred thousands, and triggered a mass exodus of Liberians into neighboring countries as refugees. The civil war raged from 1990 to 1997 and from 2001 to 2003. The civil war erupted in December 1989, when the National Patriotic Front of Liberia (NPFL), an insurgent organization led by Charles Ghankay Taylor, invaded Liberia from the Ivory Coast, with the assistance of regular soldiers from Burkina Faso, and mass recruits from the Mano and Dan (Also known as Gio) ethnic groups.8 NPFL forces were trained in Libya, and received financial backing from Libya, Burkina Faso, Ivory Coast, as well as from Liberian opposition groups abroad.9 The Mano and Gios (both groups are linguistically related) were motivated to join the rebellion against the Doe regime, because they had suffered immensely at the hands of the incumbent Samuel K. Doe. The Doe regime launched reprisal against these groups, courtesy of a failed coup on November 12 1985, which was apparently masterminded by Thomas Quiwonkpa (one of their kinsmen), who was later executed by Doe.

A breakaway faction of the NPFL, led by Prince Johnson, eventually killed Samuel Doe in 1990. During the civil war, an estimated 250,000 lives were lost, 464,000 Liberians became internally displaced persons (IDPs), over 350,000 sought refuge in neighboring Guinea, Côte d'Ivoire and Sierra Leone, and thousands more fled to other African countries or to the United States.10 Because of the war, several companies with investments in Liberia lost millions of dollars in property damage and work stoppage. Subsequently, many left the country. Only few foreign companies stayed – including Coca Cola, DHL, and Firestone. Although there is some semblance of stability in the country, as evident by the recent peaceful presidential elections, foreign investors are not yet convinced that Liberia is safe enough to engage in business activities.

Damaged/deteriorated infrastructures

Many key infrastructures critical to conducting business in the country have either been destroyed, due to the civil war, or deteriorated over the years because of neglect. The main power plant, which provided electricity to Monrovia and the surrounding cities, was severely damaged, plunging the city and its environs into darkness for almost a decade. Many private generators are currently used by government agencies, embassies, nongovernmental organizations, as well as by individuals. Also, the water and sewer infrastructure suffered severe damaged during the civil war. There is no running water in Monrovia and much of the country. It is not uncommon to see many private wells and water pumps throughout Liberia.

Additionally, the Liberia Telecommunications (LTC) - a public Corporation with full monopoly in all kinds of telecommunications and information service - which provided phone services and owned the public telephone network (including landlines all over the country), is not fully functional. All the phone lines in the country are not working. The lack of operable phones lines in the country has given rise to the proliferation of pre-paid GSM mobile phone services providers11 in the country. Finally, the road systems in Monrovia and around the country are in desperate need of repairs because of neglect over the years. Even prior to the civil war, roads (mostly unpaved) in the country were not properly maintained. The civil war made matters worse, as the roads - especially those in the hinterlands - are very dangerous to use. Certain areas in the country are extremely difficult to access because of very poor road conditions.

Weak economic indicators

The civil war has undoubtedly dealt a devastating blow to the Liberian economy. The percent of Liberians living below the poverty line in 2004 was an alarming 80%.12 One possible explanation for the high poverty rate in the country is that there are many internally displaced persons who fled the various regions in Liberia and settled in Monrovia, swelling the city’s population to well over a million people. Most of them are uneducated, and have no valuable skills; they are unable to compete in the already scarce job market. Also, the unemployment rate in 2003 was a staggering 85%.13 In addition, the government, which was the largest employer in the country, can no longer hire a workforce as large as in the past. There are currently very few employment opportunities in the country.

Another indicator of the weak economy is foreign exchange rate. The foreign exchange rate in the country is 49 Liberian dollars (LRD) to 1 US dollar,14 whereas in 1984, the rate was 1 to 1. Because of the exchange rate, the price of imported goods and services are high; conversely price of Liberian exports is cheap. Additionally, the Liberian per capital income in 2004 was $11015, while it was $450 in 1986.16 This indicates that Liberians are poorer today than they were about two decades ago.

Not a lucrative market

Liberia does not seem to be attractive to many multinational corporations and investors because they perceive the country to be a small market for their products and services. Unlike Nigeria and South Africa, – with populations of over 100 million and 25 million respectively – which have attracted many foreign companies, Liberia is not exactly a prime target for investors, because of its size. The country currently has a little over 2.5 million people. It also is not endowed with big-ticket items like petroleum, natural gas and so forth. In these areas, investors can put in money and get a quick return, or they can try to mitigate and balance risk via higher potential profits.17 In the eyes of many multinational corporations, Liberia apparently is not a market where they can reap huge dividends. Hence, they seek grainer pastures like South Africa, Nigeria, Singapore, Malaysia, Taiwan and China, where the potential to make profits is enormous.

Why foreign companies and investors should consider investing in Liberia

Emergence of Stability

Liberia has, in the last two years, enjoyed some semblance of stability, courtesy of United Nations’ troops, which have provided security in the country. The United Nations, on September 19, 2003, unanimously adopted resolution 1509 (2003); it decided that the United Nations Missions in Liberia (UNMIL) would consist of up to 15,000 united nations military personal, including up to 250 military observers, and up to 1115 civilian police officers, including formed units to assist in the maintenance of law and order throughout the country. The mandate was established for a period of 12 months.18

UNMIL assumed peacekeeping duties in Liberia on 1 October 1, 2003. Some 3500 West African troops who had been serving with Economic Community of West African States (ECOWAS) vanguard force were provisionally re-hatted as UN Peacekeepers.22 UNMIL would be able to contribute in a major way towards the resolution of conflict in Liberia, provided all parties concerned cooperate fully with the force and the international community provides the necessary resources. As of August 2005, UNML has 15,978 total uniformed personnel, including 14,692 troops and 202 military observers; 1,084 civilian police supported by 523 international civilian personnel.19

Liberia has also taken a positive step in the direction of political stability via its recent and elections on October 12, 2005 and the subsequent run off elections of November 8, 2005, in which Ellen Johnson-Sirleaf defeated George Weah, a former AC Milan striker and a 1995 FIFA Player of the Year. Johnson-Sirleaf is a Harvard- trained economist, who was once Finance Minister of Liberia. She also held various positions with the United Nations. Unlike the 1985 elections, which was seemly marked by reports of widespread irregularities and ensuing protests, the elections of 2005 appeared to have been free and fair.

Purchasing power of Liberians

At first glance, Liberia does not seem to be a profitable place for foreign investors. After all, a huge proportion of the country’s almost 3 million people live below the poverty line; furthermore, the majority of Liberians are unemployed. This population doe not appear to be well positioned to purchase goods and services offered by foreign companies. However, if one takes a closer look, it becomes increasingly clear that Liberians do in fact have significant buying power. Relatives and friends living overseas are financially supporting many people in the country. Liberians in the Diaspora routinely wire money to relatives in Liberia via Western Union and Money Gram. Thus, lots of people in the country have disposable incomes to spend on foreign goods and services. According to the Aite Group, a Boston financial services research firm, $600 million was wired to Liberia between 2000 and 200320. In other words, $200 millions was sent to Liberia each year between 2000 and 2003. This represents a significant amount of money. This amount, in my view, has since increased, meaning that lots of Liberians in the country with disposable income are poised to spend on goods and services available in Liberia, instead of having these goods sent to them from abroad.

The perception that the poor in Liberia has no money is misguided. While individual incomes may be low, the aggregate buying power of poor communities in the country is quite large. It is equally untrue that the poor are too concerned with fulfilling their basic needs to waste money on nonessential goods. Many poor people living in slums in Monrovia (Liberia’s capital and largest city) as well as in villages throughout the country are petty traders; many of them also receive money from family members living overseas, as already mentioned. Therefore they do not live in absolute poverty. It is not uncommon to see people in villages and city slums with cell phones, big screen TVs, DVD players and other gargets. They do buy luxury items. Many poor people embrace the reality they cannot afford buying a home, and rather than saving for a rainy day, they spend they incomes on what they can get now that improve the quality of their lives.21 Many people in Liberia are spenders, not savers. This is good news for investors.

Also, most products and services offered to people in the country are sold by small businesses that charge very high prices. Thus, a foreign company wishing to invest in the country would have to sell their products in large quantities at cheaper prices. Businesses in poorer communities often sell their goods at high prices, which is burdensome for the people. If foreign companies could offer these products cheaply, they would make enormous profits. There exists tremendous opportunities for companies with economies of sale and efficient supply chain to gain market share by offering higher quality goods at lower prices while maintaining attractive margins. Throughout the developing world, food in poor communities cost 20% or 30% higher than in affluent communities, because there is no access to bulk discount stores.22 Even the small-scale entrepreneurs who get loans from nonprofit micro finance institutions pay 40% to 70% interest per year – rates that are illegal in most developed countries.23 It is surprisingly cheap to market and deliver products and services to poor people, most of whom live in Monrovia and a few densely populated cities such as Buchanan and Ganta.
Liberia’s location, in my view, makes the country an idea place for tourism and agriculture. The country is situated along the Atlantic Ocean, and is blessed with spectacular costal sceneries, making it an excellent place for great beaches and sea front resorts, and could be transformed into a tourist haven. Currently, beaches in Liberia are poorly developed. Thus, companies investing in tourism and hospitality could make a fortune developing beaches and building resorts and hotels in Liberia. This is because many people from abroad, including Liberians living overseas, will visit Liberia in the thousands in the next few years, and would need nice places to stay and be entertained. Therefore, companies willing to invest in tourism will be well positioned to cater to thousand of visitors and tourists, and in turn make tons of money.
Additionally, Liberia is endowed with very fertile soil, thanks to its location in the equatorial region of Africa, which is characterized by regular rainfall during the latter half of the year. The constant rainfall makes the country ideal for agricultural production. However, the country has never been able to produce enough food to feed its people. Instead, its stable food, rice, as well as other food crops are imported from abroad. It never ceases to amaze me why Liberia, with its rich soil, would import its stable food from other countries. There are very few, if any, agricultural processing facilities in the country. Many Liberian farmers are subsistent and, unable to produce their food crops on a large scale to sell to the Liberian people. Companies interested in processing and selling food products – rice, potatoes, oranges, banana, yam, cassava – will make enormous profits, as there are no local competitors. However, for this to be possible, investment must be in capital equipment.
Moreover, because of the country’s rich soil, cash crops such as coffee, rubber, lumber and cocoa are grown in the country. However, there are currently no processing or manufacturing facilities in the country to transform these cash crops into finished goods. Thus, these crops are exported abroad unprocessed. I am of the conviction that companies wanting to build plants to process these crops will unquestionably reap significant financial rewards, as they will face little or no local competition.

Cheap to do business

Unlike the developed world, it is relatively cheap for foreign companies to do business in Sub Saharan Africa, including Liberia. Many companies and foreign merchants conducting business activities in the country have enjoyed great profits margins. Because of this, some of these companies and merchants did not leave the country during the bloody civil wars, which lasted 14 years. The companies that stayed to civil wars included Firestone, Coca Cola and Western Union. Almost all the Lebanese merchants who had businesses in the country refused to leave, even when there was fierce fighting in the country. Instead, these merchants made incredibly huge profits during the war; they were the only ones selling goods that people needed.

There are a number of reasons why it is it relative inexpensive for foreign companies to do business in Liberia.
Whereas in the developed world, like The United States and Europe, where cost of labor is high, it is incredibly cheap for companies to keep employees on their payroll. In contrast, the United states, for instance, mandates companies to provide certain benefits such as medical, paid vacation, paid sick leave, unemployment, in addition to their wages or salaries, which cost companies millions of dollars. However, employers in Liberia are not required by law to provide workers with all the aforementioned benefits. Additionally, because the lower value of the Liberian currency (45 Liberian dollar to 1 US dollar), wages or salaries significantly lower in Liberia than the developed world. An unskilled worker in Liberia, for example, might be paid $.50 US per hours, whereas comparable worker in the US is paid $7.00 per hour. Therefore, companies that outsource some of its operations from the developed world to Liberia, for instance, will undoubtedly saved tremendous amount of money in terms of labor.

Foreign companies could train Liberian managers who already understand the country’s business environment, instead of sending foreign nationals, to run their Liberian operations at lower labor costs. There are also competent and skilled Liberian professionals living abroad – engineers, accountants, lawyers, MBAs - wanting to go back home, who could be hired by these companies in middle to upper management positions for half the salaries they (foreign companies) spend regarding similar positions in the developed world.

Foreign companies will not spend the amount of money on advertisement in Liberian that they earmark for markets in the developed world. For example, companies in developed countries spend millions of dollars on television ads alone. They also allot large sums of money for radio ads and marketing research. This is not the case with the Liberian market. Most Liberians use radios to get news and information. Radio is most popular medium. Even though they may have to produce radio commercials in multiples languages, foreign companies can develop locally tailored ads cheaply to incorporate the basic brand benefits. It won’t cost foreign corporations much to advertise in radio. For radio listeners who don’t speak English, translators should be used to reach people in the hinterlands. In the west, companies spend millions of dollars advertising their products and advertise via television, radio, Internet, newspapers and the like. However, these companies will save lots of money in Liberia. Few people have television, many of them urban dwellers. If companies want to advertise on television, they have to do so on a limited basis. A high percentage of sets are black and white, and therefore, not powerful in conveying image-building advertising.24

Another cheap method of advertising is trial-oriented sampling, which has proved to be effective in many African countries. Colgate-Palmolive for instance distributes samples of toothpaste and toothbrushes to students in some African countries and provides programs that teach them how to brush their teeth.25

Suggestions for investing in Liberia

Foreign companies or wealthy individuals desiring to invest in Liberia should employ certain strategies to be successful, because the business environment in Liberia, like many sub Saharan countries, is quite different from that of the developed world.

Long-term commitment
It goes without saying that to succeed in the Liberian business environment, foreign companies should be committed for the long haul. The complexity of doing business in third world countries often discourages companies from investing in these countries, including Liberia. Consequently, they leave the country prematurely, and therefore deny themselves the opportunity to succeed. Foreign investors need to understand that the government agency in the Liberia, like many countries in the underdeveloped world, responsible for issuing business permits and licenses is usually characterized by bureaucratic stonewalling, which is impossible to escape, unless one is willing to engage in corruption or bribery. In short, doing business in an underdeveloped nation like Liberia is a feasible but difficult endeavor, requiring a lot of patience, tenancy, wheedling and shear behind-the-scenes jostling.

If investors are willing to get over the initial shock (engendered by the companies complex business environment), and ride out the bumps, they will inevitably achieve success, which will translate into sustainable profits. Foreign companies that have succeeded in Africa have learned this lesson well. Companies like Coca Cola, Colgate-Palmolive, Western Union, and KLM have had business relationship with Liberia for a long time and have gotten accustomed to the business environment. Because they made long-term commitment, they have no doubt earned the loyalty of their African customers, and subsequently realize huge profit margins in the county.

Long-term investment
Companies interested in manufacturing or processing, should make long-term investments. If they want immediate returns on their investments, they will be very disappointed. Liberia has very few if any manufacturing or processing plants. Therefore, it requires quite a bit of time to have plants built and made operational. Also, time is required to have the products made in these plants marketed and embraced by the Liberian market. Because of this, many companies are reluctant to invest in processing plants, and often opt to buy and export raw goods such as lumber, rubber, coffee, coca, cotton and the like. Processing these cash crops entails long-term investment, which gives rise to great financial returns. Investment in industries such as agriculture, require long-term commitments. It takes five to ten years for the agricultural industry in Africa to show real profits.

Seek local partners
Foreign investors wanting to make inroads in the Liberian market should find local partners. The local partners could be companies or proprietors who have credibility and a track record of success in the market. Potential partners have to be thoroughly scrutinized. It is vital to contact local banks, embassies, and non-competing companies to inquire about the effectiveness and ethics of the prospective partners. Additionally, the local partners must invest their own money in the venture, or else they will not be committed and won’t have long-term stakes in the success of the company.26

An example of a successful joint venture in West Africa is found in neighboring Cote d’Ivoire. When the Wangler Jeans Company was seeking to enter the West African market, it teamed up with the Fakhry Group, a private family-owned holding company base in Cote d’Ivoire that owns a construction firm, a freight-forwarding business, a supermarket chain, and factories making T-shirts and blue jeans.27. The jeans company, Challenger, was formed when Fakhry was authorized to license the Wrangler name in 14 West Africa countries and subsequently acquired wrangler’s plant with its well-trained labor after the US owner decided to shift from direct production to licensing.28 Challenger manufacturing capability allows it to change its product line quickly, responding to the latest European fashions. This has earned it a niche as a quick-delivery, low-cost supplier to European distributors. Additional it has positioned itself in the west African market as a supplier of high-status jeans priced below the market leader, Levi strauss.29

Invest in food and cash crop processing
Despite been endowed with fertile soil, Liberia is not self-sufficient in food production. There is no food processing plants in the country. Consequently, rice – Liberia’s staple food – and food products are imported into the country by a couple of Lebanese merchants who determine prices of rice and other food products with impunity. These merchants have monopoly in the Liberian food market. I strongly believe that if companies were to invest in rice production, they would without doubt penetrate the Liberian food market, thereby capturing a significant share of that industry, and making a lot of money as a result. Most food crops grown in the country are produced for subsistent consumption. Therefore, an awesome opportunity exists for companies interested in processing food in the country.

Also, investing in processing cash crops – rubber, lumber, coca coffee, cotton – will pay off big for companies willing to get involved in this endeavor. Like food crops, cash crops are not processed in Liberia. Instead, they are shipped overseas as raw materials, processed, transformed into finished products, then repatriated to the country and sold to Liberians at exorbitant prices. I am amazed that a country such as Liberia, which is blessed with natural resources, has not been able to build factories to turn these resources into finished goods and sold in the local market as well as shipped abroad at affordable prices. Because of the lack of factories and processing plants for cash crops, Firestone, for instance, has managed to exploit the country by shipping raw out the country and making millions of dollars, while paying nickels and dimes to laborers working in its plantations under slave-type conditions.

Like many Sub-Saharan countries, Liberia is apparently not an attractive place for Multinational corporations and wealthy individuals desiring to make investments in third world countries. As has been mentioned, investors have some substantive reasons for being reluctant to pour their money into the country. However, these investors should take a closer look. If they do, what will be discovered is a country that has the potential to be a very profitable place for foreign investors. Nevertheless, investors must be prepared to navigate the country’s complex business environment, and be committed to investing in the long-term. Companies investing in tourism, hospitality, food and cash crop processing, will, in my judgment, be the ones to realize large sustainable profits.

1 Ricky W. Griffin and Michael W. Pustay, International Business: a Managerial Perspective, “Second Edition (New York: Addison-Wesley, 1999), p.12
2 http://economics.about.com/cs/economicsglossary/g/fdi.htm
3 George B.N. Ayittey, “Last Change for Africa?” Economic Perspective, vol.4, No.3 August 1999), p.1
4 Ibid
5 Ibid
6 Ibid
7 Ibid
8 http://pages.prodigy.net/jkess3/Civilwar.html
9 Ibid
10 http://www.lr.undp.org/cprofile.htm
11 Lionel Bernard, “A Case for Privatization of Telecommunications in Liberia, The Perspective, July 14, 2004
12 www.indesmundi.com/liberia/economy_profile.html
13 www.cia.gov/cia/publications/factbook/fields/2129.html
14 http://www.fms.treas.gov/intn.html
15 www.indesmundi.com/liberia/economy_profile.html
16 http://pages.prodigy.net/jkess3/History.html
17 Mima S. Nedelcovych, “Africa’s new Approach to Development: a progress report”, Economic Perspectives, vol.4, No.3 August 1999
18 www.un.org/Depts/dpko/missions/unmil/background.html

19 www.un.org/Depts/dpko/missions/unmil/facts.html
20 Sudansan Raghava, “After shattering civil war, Liberians see hopes at polls”, Washington Post, Sept 13, 2005, p.B01
21 C.K. Prahalad and allen Hammand, “serving the world’s poor, profitably”, Harvard business Review, September 2002, p.5
22 Ibid
23 Ibid
24 John H. Quelch and James E. Austin, “Should Multinationals invest in Africa?”, Sloan Business Review, Spring 1993, p.12
25 Ibid
26 Monique Maddy, “Dream Deferred: The story of a High Tech Entrepreneur in a Low Tech World”, Harvard Business Review, May-June 2000, p.11
27 J. E Austin and M. Gross, “African Enterprises”, the search for success (Boston: Harvard business school, Research project Working document, 1992)
28 Ibid
29 Ibid

About the Author: Jackson Fiah Doe Jr. is an entrepreneur in the Chicago area. He obtained a BA and MPA from the University of Illinois, as well as an MBA from DePaul University. He has a wealth of professional experience, and has held several positions including Research Analyst (EEOC), Personnel Manager (Conway-Milliken and Associates), Accounting Manager (Lakeshore Management Group), Director of intake (Salvation Army). He can be reached at jacksondoe@sbcglobal.net.