The Liberian Economy: The Path From Loot To Development (Part I)

By Geepu-Nah Tiepoh

A careful analysis of the nature of military conflicts occurring in most African countries points to a disturbing irony: Whereas these conflicts are often waged over the control and distribution of the available economic and power resources, the national economies that nurture these resources are often destroyed during the conflicts; they are looted of their very life-sustaining fibres, and denied much needed development opportunities during the crises.

This outright destruction, plunder, and denial of African economies during periods of military confrontations is very true of the seven years of war and political turmoil that plagued Liberia since 1990. In these years, the Liberian economy has not only been destroyed by war, but its resources have also been looted by the major protagonists of the war. Under such a climate of destruction and plunder, the economy has not had any effective development programs and has been unable to take advantage of any new opportunities and changes occurring in the world economy.

War and political instability have left in ruin most of the country's economic and social infrastructure. Transportation, communication, and public utility systems, which are the pipelines for any modern economic development, have been degraded to conditions much worse than what they were in pre-war times. Most public, business, and residential dwellings have been destroyed by the war, and schools and hospitals have been left inoperable. The fundamentals of the economy are now also in deeper crisis.

While there is a paucity of data on the current state of the economy, one can still gauge the extent of the crisis by noting the immediate pre-war economic conditions. With low private and public investments during most of the 1980s, the Liberian economy declined with negative real growth rates averaging over 4 percent. Urban unemployment rose to over 50 percent, while rising consumer prices cut deeply into the incomes of those employed, especially in the public sector. The unemployment situation was further worsened by a squeeze on public sector employment and the retrenchment of workers in the private sector (e.g., LAMCO retrenched half of its workforce). The Doe government maintained huge non-productive budget deficits with foreign financial loans and local commercial banks' reserves, causing an increase in the total external debt outstanding from $537 million in 1980 to over $1.4 billion in 1989. This combination of low production, mass unemployment, rising inflation, and excessive public debt produced serious negative socio-economic impacts on the lives of the masses of the Liberian people. Moreover, by the late 1980s, the government itself was in deep external financial troubles, as it could no longer meet its foreign obligations. Liberia's access to the World Bank was suspended, and several World Bank- supported projects, such as the Monrovia Urban Development Program, had to fold up. Even its best ally (the United States) demanded repayment of $7 million before providing further financial assistance, and in 1989 USAID began to close its programs in Liberia.

The above is a sketch of the macro- and socio-economic conditions in Liberia on the eve of the Civil War. One therefore would not expect seven years of war to have reversed this dismal situation. On the contrary, apart from destroying most of the country's economic and social infrastructure, the war drove the economy further into deep crises. In the first place, the division of the country into various territorial and political enclaves meant that Liberia did not have a nationwide economy, at least not until the enforcement of the first and second Abuja Accords ushering in the Council of State government. What existed throughout much of the period 1990-1995, and even beyond, was an economy divided into various zones of exploitable resources, over which different "warlords" fought to expand their control and advance their commercial ties to the outside world. And since most of these economic and commercial activities were done secretly and illegally, it is difficult for one to aggregate them and establish any realistic "national" account measures. One therefore can only describe such activities and show how they helped in sustaining the conflict, causing incalculable damage to the macroeconomy.

With the division of the country into various political and military enclaves, different lines of economic and financial sustenance had to be established. The ECOMOG-backed Monrovia-based governments, from the Interim Government of National Unity (IGNU) to the three National Transitional Governments (LNTGs), while officially acknowledged as the Government of Liberia, were effectively denied access to the principal resource sectors of the economy, as these resources were located in territories controlled by the major warring factions. Consequently, the Government of Liberia had to rely mostly on external assistance for economic existence. Financial and food aid from the US Government, European Union, Japanese, Canadian, and other bilateral and multilateral donors helped to sustain the Government economically. In spite of such aid, the Monrovia-based economy remained incapacitated, as only petty commerce and informal sector activities prevailed. Most businesses in the formal sector had fled with their capital during the wars. For the period under review, the Government of Liberia could not meet its domestic and foreign obligations. For example, for the period of March to December, 1996, the Council of State Government failed to pay its public servants, even though it announced to offer US$50,000 in Christmas bonus to each Council member! And now, the new Taylor government is already complaining about not having enough money to pay government employees. At a rate of over 50 percent, inflation continues to eat away the incomes of the employed, whereas food production is down by 70 percent from pre-war levels. The total external debt now stands at over $3 billion, according to government sources.

While the ECOMOG-backed governments relied on external donations during the conflict, the major warring factions presided, with the help of foreign commercial partners, over a vigorous trade in minerals, timber, and other agricultural products in the countryside. In this connection, the role of the oldest of these armed factions, the NPFL, is quite instructive. The NPFL leader, now President of Liberia, Taylor, was highly skilled at cultivating sources of foreign exchange through establishing commercial ties with foreign firms and exploiting their anxieties. Reports indicate that in the period 1990-1991, he attracted several European firms to a proposed iron ore mining project on the Guinea-Liberia border. Most of these firms paid him in order to maintain access to the project site. For example, a British firm, called African Mining Consortium, Ltd., paid him $10 million a month for permission to ship stockpiled iron ore on an existing railway. Taylor also sold timber products to France. In 1991 the NPFL- controlled Liberia became France's third largest supplier of tropical timber. Leaders of the other major factions also gained on the battlefield. In 1993 Kromah and his ULIMO took control of much of western Liberia thereby cutting off Taylor from the diamond mines of Sierra Leone. In the same year, Boley formed his LPC and occupied eastern Liberia which formerly belonged to Taylor. It is estimated that rubber exports from Boley-controlled plantations totalled about 3,000 tons in 1994 and generated approximately $15 million in revenues.

It is therefore understandable why armed factions proliferated at crucial stages in the peace process and the conflict was so prolonged. Even after the first and second Abuja accords, when the major factions were brought into state power, there was still resistance on the part of some of them in removing hindrances to the restoration of a nationwide economy. Each faction leader continued to guard his commercial ties in the countryside by preserving an exclusive access to certain highways. This reluctance for economic re-integration was reflected by the fact that long after the artificial division of Liberia was deemed to have ended, the faction leaders maintained support for the use of two currencies in the supposedly unitary state.

It is now widely assumed that the conflict is over, especially with the election and inauguration of the principal faction leader, Charles Taylor, as president. The responsibility for economic reconstruction and development now squarely lies in the hands of the man who waged one of the most deadly wars in modern history and, in the process, cultivated private commercial ties that turned him into a millionaire. Liberians hope that he will transform himself from this psychology of personal accumulation to one that will promote democratic socioeconomic reconstruction and development in Liberia. In the second Part of this series, the prospects and strategies for Liberian economic recovery and development will be explored.

Geepu-Nah Tiepoh Is A Development Consultant At ACLAD DEVELOPMENT, Canada