Monrovia - Liberia is the eleventh worst place on earth to do business, according to the World Bank Doing Business Survey of 2016.
Liberia’s economic decline is occurring amidst the worsening of the country’s business climate.
The country ranked 179 out of 189 countries. Liberia is doing worse than Sierra Leone (147), Guinea (169), and Ghana (114), and La Cote d’Ivoire (142) Nigeria (169) and Rwanda (62).
The 10 measurements in the ranking of the bank’s Doing Business 2016 survey include starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.
According to the World Bank, labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking.
Liberia has indeed made some progress in reducing the number of steps to start a business and the number of days it takes, but lags in other important measurements.
At the beginning of the current administration, the country did well in several categories of ease of doing business, so much so that it was one of the top performers in Africa, ranking 157 in 2008, but there has been a steep decline in the country’s ranking since that time.
In 2009, in just one year, Liberia lost 10 places declining to 167.
With the country’s low ranking in the World Bank Survey, there is more bad news on the business climate in Liberia, coming from the US government. Corruption is obstructing American investments in Liberia according to Export.Gov.
Export.Gov is a collaborative effort between the US Department of Commerce and 19 US government agencies to provide information on the circumstances for doing business in countries.
According to the US government, “foreign investors generally report that corruption is most pervasive in government procurements, award of contracts or concessions, customs and taxation system, regulatory system, performance requirements, and government payments systems.
Multinational firms often report having to pay fees to agencies that were not stipulated in investment agreements.
When new concessions are signed and ratified, the press frequently report on corruption allegations implicating both the legislative and the executive branches.”
Sadly, Liberia was ranked the second most corrupt country in Africa in 2015 by Transparency International making efforts to revitalize the country’s economy in the midst of deteriorating circumstances difficult.
There are worries from the IMF that the country’s economic decline comes at a time where there are security concerns with the UNMIL drawdown and upcoming elections in 2017.
Other experts are concerned that a contentious hard fought election under the current economic hardship in the country could potentially undermine the country’s security.
Liberia’s experienced zero growth in 2015 according to revised figures from the Central Bank of Liberia.
Most economists including the IMF project growth of only 2.5 percent in 2016, largely due to increased gold exports from Aureus Mining.
The country’s economic decline is caused by deterioration in the terms of trade, as a result of drastic reduction in the prices of Liberia’s two primary commodity exports, rubber and iron ore.
Rubber and iron ore prices have declined by more than 66.1 percent and 67.9 percent respectively over the period of 2011-2015 according to IndexMundi.
The country’s current account balance was 1.97 billion dollars and the trade deficit rose to 1.98 billion dollars in 2015 according to Liberian authorities.
The current account is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers.
As a result of the deterioration in major economic variables, Liberia’s fiscal position is precarious, with projected deficits that will cause additional budget shortfall and put many development projects at risk, and worse the country might be in danger of not even meeting recurrent expenditure, putting into jeopardy funding to fill in the UNMIL drawdown gaps and investment in public sector projects.
Corruption is undermining the country’s economic development, with irregularities in the procurement system.
According to the IMF, more than 92 million dollars in off budget public works projects did not minimally meet requirements of the country’s Public Procurement and Concession Commission (PPCC).
The overspending in the budget and the government’s inability to pay vendors in the construction industry is causing havoc within the country’s banking system, as many contractors used “letters of authority” written by officials of the Ministry of Public Works as guarantees for loans, which remain largely unpaid.
As a result the country’s financial system has seen a rise in non-performing loans, which was 20 percent of outstanding balances at the end of 2015 according to the Central Bank of Liberia.
With the election campaign season less than a year away, it is difficult to see how the government of Liberia, political parties and civil society groups, business support organizations such as the Liberia Chamber of Commerce, Liberia Business Association, Liberia Better Business Forum and others can work on a plan to improve the business climate in order to attract foreign direct investments and make it easier for Liberians to overcome barriers to entry in economic empowerment.
Most observers believe that there can be no improvement in the country’s worsening business environment before the inauguration of a new government in 2018, which will then indicate that the country’s economy will also be at a standstill or worse economic contraction until after the elections.
Economists believe Liberia’s current economic circumstances cannot be improved without external support.
The country sorely needs a combination of foreign direct investments and a healthy dose of overseas development assistance in order to achieve its objective of economic recovery in the post Ebola era.
However in order to attract any meaningful foreign investment, Liberia must improve its worsening business climate. Improvements in the business climate would require implementation of good governance measures with support from the three branches of government.
There seems to be no appetite from the executive branch to use aggressive measures due to its limited tenure in office, of less than 15 months.
There is legislative inertia due to the upcoming elections with lawmakers fighting for reelection.
Thus the worsening business climate will persist during the next 15 months and beyond, with Liberia’s economic recovery being imperiled.