Leveraging Liberia’s Resources to Lift the Pro-Poor Agenda

By Ansu O. Dualu, MBA

Introduction
The mean question of this literature is whether Liberia has done all it can to ensure our natural resources are optimized for the betterment of all its citizens. Better yet, have we properly leveraged our natural and human capital for development and continued sustainability? Have current policies been designed to ensure macroeconomic and fiscal stability? There is no exact formula for technical aspects of policy design, however there are best practices that have been proven to work repeatedly; different countries may employ the extraction of their natural resources with endowments and with characteristics that suit that specific country, but a few things must happen for any country to experience wealth in an equitable and sustainable way. The question now remains: How does Liberia leverage its natural resources to create a political economy with strong institutions that ensure socio-economic development and a system that guarantees a fair degree of equability across the board? As a matter principle, transparency, inclusion, accountability, a position that factors future generations into policy design and the realization that natural resources are usually finite, with institutional plans to fully develop human capital when the resource monies are flowing must all be factors that the authorities consider in their decision-making.

Furthermore, for resource-rich countries to fully leverage their position, it must implement the following measures before any extractions begin. In the case of Liberia where we have already begun extraction without full considerations of the below-listed measures, Liberia can revisit its position and redesign policies to meet these measures:

• The government must be transparent throughout the contracting process; track the flow of revenue from contracting firms to government and back – even government expenditure decisions must be accounted for at all levels. To put it simply, there must be straight oversight from the beginning.

• Local and civil service authorities must form part of the initial management teams that design and allocate natural resource funds – this approach makes sure benefits are distributed as widely as possible. Moreover, this method eliminates or minimizes the opportunity for conflict and ensures locals approve of what is happening in their backyard. To be clear, the definition of local that this literature speaks to is “the very people on whom the extractive process impacts directly, some of whom are indigenous people, to ensure their rights are upheld and their development aspirations are met” (Helen Clark, UNDP).

 

• Overseers of extractive industries must balance the country’s short-term agendas with the overall long-term developmental priorities. Natural resource extractions must be approached in a holistic way: there are environmental issues to consider during and after extraction; mitigating measures must form part of the initial contract to protect local peoples. Forming part of this mitigation must be health, education, infrastructure, a productive capacity that will help advance the human development when all the resources are exhausted. We don’t want to see a repeat of the “Bomi Hole” debacle.

 

• In the specific case of Liberia where we heavily rely on supply-side economics to bring in multi-national corporations for extractive purposes must be abolished, especially where those companies are barely monitored after contracts are signed. They need us as much as we need them. Let’s first start by adequately vetting applications of companies that are interested in our minerals, both renewals, and non-renewables. Transnational investors are heavily profit-seeking; understand from their position – they are considering several factors including sovereignty risks, political unrests and a host of other issues that are prevalent in emerging markets. They want their profits upfront for a reason.  But we cannot concern ourselves with their perceived risks; designated oversight bodies must protect our position just as they are. Put the tax breaks and the investment incentives on the back end – there must be mutual benefits to both parties at the same time; we cannot delay our benefit while they get theirs upfront. As they conduct their political feasibility, we too must do our cost/benefit analysis. Use every angle, legal or sophisticated negotiating tactics to get Liberia’s fair share of any agreements with transient firms that are only interested in grabbing and going.

 

• Be fully cognizant of the host of problems that comes with new discoveries of natural resources, from the deterioration of governance, descent into autocracy, exchange rate appreciations, failure to diversify your export basket to the point where the full weight of the Dutch Disease is upon your shoulders. The rule of law and institutions should be strengthened to mitigate some of the curse that come with billion-dollar discoveries. Form regional regulatory block as we have done in the Mona River basin and implement mechanisms that restrict multinational firms from engaging in cross-border regulatory arbitrage. Again, keep investors in constant check because they will find ways to circumvent the system – they have full time employees just for that. Employ Liberia’s best and brightest – no political patronage or “who knows you” here, it is way too important to be left with inexperienced hands or bootlickers. Get experts.

“In isolation, each country’s resource sector policy is currently informed by domestic political economy considerations and regional geopolitics” (Kennedy Opala). However, that informed political consideration cannot be wholly relied upon without employing global standards and best practices in the wider extractive industries sphere. Going back to the issues of transparency and strong institutions, “more integrated regional corporation in the planning and implementation of infrastructure development project has the potential to insulate from domestic politics and patronage networks that often limit transparency in the tendering process”. The goal here is not to solely rely on, in many cases, weak domestic institutions and civil society organizations that are not up to the task. But rather to build capacity through regional collaboration and inter-governmental initiatives that hold regional bodies account. Remember leveraging requires that legal framework, transparency levels, checks and balances and the broader governance context are always adhered to. Learn from the experiences of others and position your team to avoid similar mistakes.

Human Capital Development
Apart from responsible governance and adequate regulatory oversight, there is nothing more important than human capital development. As we stated previously, and except for forestry and few other resources, most minerals are non-renewable – they are finite; when they are gone, they are gone forever! Clearly, transnational investors are fully aware of institutional weaknesses in emerging markets; they usually exploit this and do all they can to avoid abiding by disclosures and anti-corruption rules, pushing aside domestic reformers to cater to entrenched corrupt interests. These companies are fully cognizant of the fact that human capital development is extremely cost intensive; they will always do all they can to delay and at time completely avoid meeting their obligation on this front. This is where oversight, governance and the legal aspect of these multi-year contracts should be carefully monitored. Seek external support if you must – your foreign ministry exists for a reason, and publicly measure the obligations and expected deliverables of these entities. Set up a governmental agency whose sole responsibility is to monitor the day-to-day aspect of these multi-nationals. The agency must have a local office at every concession site, provide a quarterly updated report to central government and set a matrix that gauges the companies on deliveries, impact on local societies and the environment, and whether they are meeting their full obligation as stipulated in the contract. Secondly, this agency must ensure the extractive industry does not facilitate the opacity found in most of these countries with rich natural reserves. Develop a guideline that measures deliverables on the local human capital development index:

• Initially, establish the local human capital development index before extraction begins. Track it over time and in accordance with agreed guidelines in the contract. This progress in human capital must be addressed in each quarterly report. There must be a legal reason given why an agreement has not been met, what is being done to quickly address such lapse and the legal consequences that will follow. There should be no waivers on this front; it is extremely important that local knowledge-base is developed before all the natural resources are gone.

• Developed knowledge must be used locally. Put a reduced quota on how much “experts” can be brought in to fill local jobs – the highest degree of seriousness should be attached to this area. What good is local human capital development if they cannot be used? Hire local. This is the sure proof way to solidify local expertise and guarantee sustainability.

 

• There must be a clear plan for continuity and/or economic diversification after all is gone. The extractive industries must be included in developing a new local spin-off industry that ensures exhausted locales do not become ghost towns and wastelands after they have left. Plan for this day and make it a legal requirement for the multi-nationals to become a key part of the solution. There must be life after extraction. Avoid the catastrophe of the Island of Nauru, “a small Island nation in the South Pacific, was endowed with significant phosphate deposits. Their highly profitable export gave the country the second highest per capita in the world in the late 1960s and 1970s. Today, the accessible phosphate is exhausted; revenues have gone; leaving local people with a narrow, environmentally precarious rim of land circling a wasteland where open-pits phosphate mine operated” (Helen Clark, UNDP). Be very uncompromising in this area; the consequences will last for generations.

Budget Allocation and Policy Design
Why do national budgets exist? Or more precisely, how does a state’s resource wealth influence its economic development? The answer may vary depending on the priorities of a sitting government. But generally, budgets are instituted to meet the wishes and aspirations of the people, especially if that budget is heavily reliant on rent from natural resources like in our case here in Liberia. The sitting government must define its vision, hopefully, a people-centered one, before any budget is cast or approved. In the case of the current administration where the government has pronounced its direction as a pro-poor and development centered, the budget allocation, policy design and implementation must reflect this very agenda.
To fully leverage Liberia’s resources, the government must do what it says. A pro-poor agenda must have a pro-poor budget. Not the other way around where about 70% of the current budget reflects a pro-rich itinerary.  The leadership must ask itself a few questions if it is truly serious about leveraging the resources we have been endowed with:

• Have current policies and allocated budgets fully consider the future or are we just doing the same thing but expecting different results?

• Have we adequately invested in education, health, and infrastructure to reflect the core of the pro-poor agenda?

 

• Are we over-allocating the budget in one area, where the lion’s share is set aside for recurring costs such as salaries and benefit that add little to no value to the country but only benefit the higher echelon of government? This pro-rich budgetary allocation has not worked; most other serious democracies such as Botswana with a much higher developmental index than Liberia’s, have flipped this kind of allocation on its head, creating results we can only imagine! What will be the outcome were Liberia to allocate 75% of its budget to direct people and infrastructure development – the core of the pro-poor agenda? The results we expect can only happen if this were a serious initiative with full law enforcement supported by strong institutions and government backing like the one we see in Rwanda today.

• Are the current government salaries and benefits in line with the per capita income (PPP about $800, World Bank) and standard of living of the general population of the country? Is there equitability in the distribution of the country’s wealth?

• Have the government created sufficient flexibility in the budget to adjust for legitimate changes in expenditure and priorities to address pro-poor needs?

The aim here is not just dumping money at an issue because we know from supply side that this does not always lead to improvement in human development outcomes. But rather, have we strategically allocated the right amount with the right supervision who is checked and balanced to get the desired results? Budgets and policies are not just about money and allocations, but they are a vision that has been set to purpose with calculated expectations. See this happen.

Law Enforcement and Institutional Governance

Fig1: Resource Governance Guide

Courtesy: World Bank
The single most important indicator that determines whether a country succeeds in creating wealth, fiscal stability, reduction of poverty, a political economy that ensures equability and sustainability from its natural resources is whether that country has strong regulatory institutions or not. “Poor resource governance can foster political corruption, eroding democratic accountability, inciting armed conflict and undermining inclusive and sustainable economic growth” (Matthias Basedau). The quality of your institutions will determine whether you become a growth winner like Botswana, Canada, Australia or Norway, or growth losers like Nigeria, Liberia, Angola and many others in Sub-Saharan Africa. Empirical evidence shows that when growth losers improve their inferior institutions and bring them in line using the governance standards listed in the chart above or model after those of growth winners’ countries, they too usually get similar result of fiscal and political stability.  This now begs the question: How can Liberia position itself to attain the advantages of its natural resource wealth?

• Stop setting up toothless anti-graft institutions that are only meant to meet some quota or give the appearance of seriousness or action. Accountability and transparency require legal actions that are enforced with personal and monetary consequences. Remove the cloud of patronage and cronyism and stop supporting dysfunctional institutions that invite grabbing. Do the people’s job.

• Concession contracts should not be signed and forgotten; designate full-time local experts to monitor and report on contract deliverables from birth to burial. Send a clear message to the transnational capitalist class and local officials that Liberia is no longer to be toyed with; we have set a new course and that destiny is a political economy that is transparent, stable, accountable and is grounded in a new governance style that seeks to be a growth winner economy.

• Finally, your push to meet this goal of growth winner-ship must be continuous and unrelenting in its execution. Stop the favors and invite the kind of precision that further strengthens and promotes the environment that creates strong institutions.

Economic Diversification – Agriculture and Industrialization
One of the primary reasons why countries with poor institutions fail when they discover a huge wealth of natural resources is the lack of understanding and the complacency that come with the expectation of a huge influx of cash. Initial discoveries usually bring in a whole host of other problems poor countries are not prepared to deal with. We know that infusion of natural resource wealth usually causes real exchange rate appreciations, making local industries and agriculture uncompetitive and create volatilities that are unfamiliar to local economies. But despite all this, the resource curse is not inevitable. Plan to diversify and contractually require transnational corporations to begin the value-added process locally so that local industries can get added boost. Liberia can no longer afford for companies to extract raw minerals and ship them overseas for processing without creating the initial value-added chain here at home. At least begin the value-added process here even if it is just in its basic stages; that’ll increase local expertise, increase employment, increase our revenue base and provide needed cash for infrastructure development. Transnational companies must contractually support government’s economic diversification effects if we are to truly realize any gains from the extraction of our natural resources. Have some restrictions on repatriation of income generated here in Liberia. For example, compel companies to have about 25% of their income generated from natural resource wealth deposited in local Liberian Banks for local borrowing, economic empowerment, and to boost our national reserves. Social responsibility is not giving an appearance of doing something; these companies must have a stake in the game and truly be a part of the system that has given them so much.  Economic diversification is a process not an event; it must begin early and made an integral part of the process.

On the other hand, agriculture is the one resource that has the greatest potential for true and sustainable diversification yet it’s the only resource that remains untapped in Liberia! We spent millions a year on food and other goods importation, despite having some of the best arable lands for agriculture. This makes no sense. If the pro-poor agenda is to succeed, it must throw the bulk of its eggs into the proverbial agriculture basket because this is where it will have the greatest returns. Refocus your effects and investment here; allocations made to this area will provide the highest returns, year in, year out. In fact, returns here will exponentially go up as we begin to decrease food importation and diversify into other areas of agriculture, like animal husbandry, fisheries, etc. This area is cheap for small farming start-ups, there is local expertise and a great way to put a lot of people to work and keep our money here in Liberia. See Liberia import data below.

Liberia Import Data: All amounts listed here are in United States Dollars and is very much consistent across the board for the last 10 years. As the population grows, these numbers are expected to increase if nothing significant is changed about how we approach the economics of agriculture.

Figure 2: Courtesy of Central Bank of Liberia

Courtesy: Central Bank of Liberia
Furthermore, treat the lack of food self-sufficiency as a national security risk issue but start the development of our agricultural diversification on a very small scale. Avoid mechanized farming in the beginning; it is very costly, and the local capacity has not been developed to self-manage this operation on a large skill.  Let’s keep the costs low by looking to countries like India and Vietnam where mechanized farming is nearly non-existent, yet they produce millions of metric tons of agricultural products every year. Introduce their animal (bulls) farming methods and gradually work our way up to more modern approach, capitalize on this cheap option and train our farmers.

Kenya has introduced India’s bull farming methods and they are starting to see results. We can learn from their approach and organize one for Liberia. Remember, it is way cheaper to take farming “experts” from Vietnam than from the United States. Secondly, Vietnamese farming methods can be easily merged with ours since both are relatively on the same levels.

Leverage every available resource. Create an optional prison labor system that will supply laborers for these established government farms; these are not forced labor farms but a contractual agreement between prisoners and the government. The prisoners will be pay in a variety of ways – time deducted from sentences, and a small monthly payment for their services. Most importantly, they will develop their technical skills and will have an opportunity for full-time employment once their sentences are over. Thirdly, this approach could double as part of their rehabilitation requirements. It is a win/win strategy. Get the AFL out of the barracks and get them involved. All hands on deck.

To ensure this becomes a reality, designate three counties: Bong, Lofa, and Nimba, for this initiative. You can build small processing plants near these farms and develop a supply chain and logistical system that bring products to market. A small amount of $30 million dollars (or a cut of 5% of the salaries and benefits of those in the highest ranks of government, stop phone cards giveaways, gasoline slips, vehicle for officials and maintenance, can ensure this money is available) will be a wise investment to jump-start this much needed boost in the agricultural sector. It will also send a clear message that the administration is serious about the pro-poor policy and is willing to not just talk the talk but walk the walk as well. Let’s say bye to the pro-rich policies of yesteryears and truly usher in the pro-poor agenda.

Government Bonds/Certificates
Leveraging Liberia’s resources means thinking outside the box and seeking alternative sources of revenue for immediate infrastructure development. Look to our well-positioned compatriots in the diaspora. There are about 1.2 million Liberians living abroad, leverage this position and bring their resources into the fold. First, have a legislation that offers 3 seats in the legislature to Liberians outside our borders, as we have seen in countries like Cape Verde - expand our democracy and create the potential for new sources of government revenue. Immediately extend dual-citizenship to Liberians outside the country. The legislature will determine how these seats are divvied up in the diaspora. You can institute other taxing mechanisms later, but the initial aim is to bring them in for human capacity and developmental purposes.

Secondly, there must be a clearly defined objective before initiating any certification of bonds. If the targeted audience suspects the usual poor administration of public funds, they will not buy into this initiative. In fact, I will strongly advise that you keep this bonding process clear of government interference; set up an independent body who will administer the accounts and ensures accountability and transparency throughout the process. Have International involvement if you must. The goal here is to see generated funds be used for exactly what they were intended. Do not include said fund into government revenue but administer them separately.

Set up a team of no more than 5 individuals who will go abroad and begin to pitch this agenda. They must function like salespeople, organizing town hall meetings in the Liberian communities abroad with the sole purpose of selling these government bonds and raising funds for these projects. These will be low interest securities – say 2.5% returns, with no interest payments for the first 3 years! After 3 years and after the projects are built and start generation income, interest payments can commence. However, the suspended 3-year interest will be spread over coming years and paid until arrears are fully paid off. Each project will be designed to generate income that pays for itself. So, if roads are built they will be toll roads; there will be no need to use government revenue to pay for these bonds. 

First, define three major projects that the government must undertake to show that the pro-poor agenda is the focus of the land. Set benchmarks, standards and accountability measures that will give people trust in the system. This is extremely important if this is to succeed. For example, let’s say these are the three projects:

• An inter-county coastal highway that stretches from Robertsport to Harper with arteries connecting to the heartland of Liberia.
• An aggressive plan to build a 600+ megawatts power hydro plant to help jumpstart our industrialization.
• A plan to build an 8-lane beltway freeway system around the city of Monrovia to prepare for an ever-expanding city. There should be a space reserved along this highway for a future metro line that we all know will be necessary soon for the city of Monrovia. 

Typically, and on a very conservative level, this approach can general hundreds of millions of dollars. Targeted sales of $500 per person will generate $600 million dollars! Let the face value of the bond start at $100. Some people will invest way more than this. There will be some non-Liberians that will invest as well, create a scheme to aggressively target this non-Liberian population – they are more and have more money. The total amount generated has the potential to be in the billions of dollars. Moreover, create investments categories with special designations, say, VIP Investor, Nation Builder, Son/Daughter of the Soil, etc., with required purchases of say, $1,000, $5,000 and $10,000 benchmarks. Create special memorials along these projects with names of high-end purchasers to honor and encourage them.  Push this agenda and set up an independent institution that supervises and makes sure interest and principal payments are made on time and in full. We may need them again.

Fig3: Average per Capital Income in Africa and Botswana, 2001-2009 (Purchasing power parity at current dollar prices) source: OECD

Guarantee the Future (National Fund 15% of Natural Resources)
Liberia’s natural resources are not just for present generation; there must be a portion set aside for our children and those yet unborn. We can copy the example of Botswana, where they have invested a portion of their resource wealth into the Pula Fund, which serves as a buffer against price volatilities and aims to preserve a sizable share of their resource wealth for future generations. These trusts are a great way to guarantee the future. It has happened in places like Norway where in the early 1900s that country was amongst the poorest in Europe, but through proper planning, establishment of strong institutions and the reliance on the rule law, they have managed to continuously lead the world’s global Human Development Index. Always remember that the dividends from resource exploitation will not last if they are not applied strategically. The economic management styles of the likes of Norway and Botswana have catapulted them to the very top of the world’s Human Development Index when natural resources are considered. What can Liberia learn from Botswana?

Create the Grain Coast Fund and invest 20% of resource wealth for future generations. Protect this fund with legislation that no one person can undermine – yes, including the president. This should be a part of your economic diversification strategy.  Good governance gets results. Compare the charts below. See what strong institutions and responsible governance have done in Botswana when compared to the rest of Africa:

References:

• Davis, Graham A., “Learning to Love the Dutch Disease: Evidence from the Mineral Economies,” World Development (March 2018 Google Scholar)
• Basedau, Matthias, “Rethinking the Resource Curse in Sub-Saharan Africa” (March 2018, Google Scholar)
• Clark, Helen, “Avoiding the Resource Curse: Managing Extractive Industries for Human Development” (UNDP Ulaanbaatar, Mongolia)
• Opala, Kennedy, “How Eastern Africa can Avoid the Resource Curse” (March 2018, Google Scholar).

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About the Author: Mr. Dualu is the author of several articles including the “Modernization Guide for Liberia”. He is a Financial Professional with over 15 years of experience in the field. He did both his undergraduate and graduate in finance with an MBA in Global business from New England Universities. He current works as a senior analyst in Massachusetts.