By Festus Poquie
The Liberian economy appears to have dipped into depression with pronouncement from the country’s Finance and Development Planning Minister that the nation has almost entered the era of economic turmoil.
In November 2014, the domestic economy hit deep into recession recording a negative zero point four percent growth rate from a five point nine percent projection.
Decline in the world prices of the country’s leading export commodities such as iron ore and rubber and the appreciation of the United States dollars against the Liberian Dollar coupled with China’s slow growth and the Ebola public health disaster were factors government’s economists then claimed to be responsible for the economic downturn.
It is a year now since the recession was announced and it seems that the economic crisis has escalated. In economics recession is a decline in real economic out (negative GDP growth) that persists for more than two consecutive quarters of a year. Depression is a long recession.
Finance Minister Amara Konneh who announced the recession in November, 2014 revealed on Thursday 29 October, 2015 that if the ailing agriculture and mining sectors are not rescued in days there will be economic instability..
“Liberia is struggling with the two backbones of its economy—iron ore and rubber. The commodity price shock has affected these two commodities to the extent that if action is not taken, the economy will have turbulence in the coming days,” Konnah said.
At the moment there are visible economic difficulties being experienced in the country with vast portion of the 4.5 million populations going to bed hungry while unemployment remains alarmingly high.
The European Commission estimates that 76% of the population lives below the poverty line of US$1 a day, and 52% lives in extreme poverty of under US$0.50 a day.
The Central Bank of Liberia has not released fresh figures on the performance of the economy for the second and third quarters of the current year. It however reported in July this year that the country recorded a trade deficit while rubber and iron ore had shrinking performances.
Net foreign exchange reserve position fall from a high of US$220million in April 2015 to a low of US$217million in July 2015, the Bank indicates.
The Central Bank said “iron ore price declined by 17.3 percent month-on-month on the back of the persistent oversupply of the commodity on the global market in the face of weakening demand. Year-on-year, iron ore price plummeted by 46.3 percent. The ongoing slowdown in the Chinese real estate and steel industries remains the key factor driving the demand for the commodity and its short-to-medium term price trend (Table
“As the price of crude oil continues to fall, synthetic rubber (a substitute for natural rubber) strongly competes with natural rubber in industrial activities. In addition to this, as the global supply and inventory of the commodity remains high in the face of weakening global growth, mainly from China, the price of natural rubber continues to drop, falling by 10.4 percent month-on-month in July. Year-on-year, natural rubber price dropped by 18.8 percent. As global growth remains weak and raddled with uncertainties, the downward spiral is projected to continue in the short-to-medium term
“Global food prices remained stable in July, with the FAO Food Price Index (FPI) recorded at 164.2 from 164.9 in June. Largely on the back of increased supply stock and falling energy prices, food prices are projected to remain largely stable in the short to- medium term. However, rice price rose by 4.6 percent in July to US$387.7 per metric ton from US$370.6 in June, indicative of a more seasonal upward trend than a permanent one. However, as geo-political tensions persist, coupled with a projected decline in production in key rice-producing economies on account of unfavorable weather conditions, the risk of upward price trend remains high in the medium-to-long term.
“Driven by 23.5 percent deterioration in Liberia’s export price index (reflecting mainlythe decline in the prices of iron ore and rubber), Liberia recorded a terms of trade deficit of 7.9 percent in July, from a deficit of 2.8 percent in June.
President Ellen Johnson-Sirleaf and her administration had been operating an economic policy which concentrates on luring Foreign Direct Investment (FDI) for economic development. In her 10 years rule, the President has reached resource deal with several multinational companies valued at about US$19 billion dollar.
Mega rich companies including steal giant AccelorMittal, China Union, Western Cluster are operating and enjoying various lucrative concessions in the country. Accelor Mittal is scaling down its operation and has laid off more than 250 employees citing low declining profit, although industry experts have forecast steel companies will still remain profitable during the falling price time.
Sustainable Development Institute – A local resource Watchdog reported recently that Liberia “earns too little from its iron ore exports. It reveals that the country gives overly generous tax breaks to iron ore investors grossly undercutting its revised Revenue Code. For example, while the Revenue Code requires multinationals to pay 30 percent income taxes on all corporate profits, ArcelorMittal, China Union, and Putu only pay 25 percent.
A senior economic actor within the Johnson-Sirleaf administration has blamed the ongoing economic crisis in the country to government failure to ensure that multinational companies fully operationalized their investment.
In June 2004, Deputy Finance Minister for Revenue James Kollie told German broadcaster Deutsche Welle that government should have endeavored for the US$16 billion Foreign Direct Investment to kickoff in order to absorb the shocks resulting from the drawdown of the United Nations Mission in Liberia, whose presence has been stimulating economic activities through remittances inflow.
He said it is an established fact that UNMIL will leave at a given point therefore the country should have prepared for the drawdown effect to avoid risking the economy.
With this explanation from an administration insider, it is clear that the Johnson-Sirleaf administration’s economic policy is to blame for the continued bad health of the domestic economy. It continues to ignore the International Monetary Fund policy advice not to provide tax cut for multinational companies. Also, it has been primarily reliant on the extractive sector and doing little to facilitate growth in the manufacturing industry.
On this point, the United States Ambassador accredited here has offered a very clear view on the Johnson-Sirleaf administration’s economic policy. Addressing students at the United Methodist University in Monrovia, the US Envoy said the Sirleaf administration was using outdated economic development model – which is looking up to concessions companies for investment and implored it to change this policy.
“I know that Liberians stand in the face of concessions as the one model for foreign investment. This model is becoming increasingly outdated. Foreign companies will invest in Liberia only as long as it is comfortable, and when it is not done their way, they would leave.” Ambassador Deborah Malac said with an advise for government to diversify its economy will focus on domestic manufacturing.
James Kpargoi – a public policy analyst told The New Democrat that the current economic turmoil is an offshoot of government failure. He said Liberia being a natural resource export country it should have diversified its economy to absorb shock resulting from unfavorable market condition with respect to the prices of key export commodities.
Kpargoi: “The prices of these commodities are cyclical. More investment in agriculture human resource capacity, manufacturing and technology would have been the most prudential policy decision to keep the economy in good shape.
“But the agriculture sector is nonexistent. This is glaring policy failure not restricted to this administration but successive governments.”
The impact of the depression has been glaring. The multimillion National Oil Company of Liberia has collapsed with more than 150 employees losing job and income. Similar situation is being experienced at other public agencies such as the Land Commission, which has terminated the services of 30 staff and has grounded.
There are reports that the President and her cabinet are settling for the sale of additional hydrocarbon basin. But how much will it be to revitalize the dying economy? Writes Festus Poquie