State of the Liberian Economy: Full Text by Finance Minister Amara Konneh

Min. Konneh

Distinguished Ladies and Gentlemen of the Press, Fellow Liberians

Let me begin by first extending sincere apologies for the abrupt cancellation of our October Press briefing with the media on the state of the Liberian economy. It was due to pressing and intervening national emergencies. My apologies again!

Ladies and Gentlemen of the press, today, we continue the exercise of keeping the country and the public informed about the opportunities, challenges, difficulties we are experiencing and gains we have seen so far, in the quest to transform our economy and put Liberians to back work again. We believe it is important for Liberian citizens to know what Government is doing for them, and to hold us accountable. 

This is why today I want to talk to the nation, through you, about the progress we are making on key fiscal policies as well as infrastructure projects to address the structural issues in the overall economy.

After several months of constructive consultations between the Legislative and Executive Branches of Government, we are now fully executing the 2013/2014 national budget. Between July 2013 and Mid November, we have already disbursed US$155 million and between now and end December, we shall inject US$97m into the economy.

We would like to thank the leadership and members of both houses of the legislature for their diligence, commitment and service in this direction. There is no doubt that the National Budget is the single most important policy instrument through which all of our development goals and objectives can be accomplished.

Post-war economic growth, under the leadership of President Ellen Johnson Sirleaf, has been sustained through steady increase in economic productivity, mainly from iron ore exports, construction, and strong performance in the service sector. This would not have been possible without good Governance and political stability that is prevailing. Credit goes to all Liberians regardless of their political inclinations. The passing of the 2013/14 budget as part of the Medium Term Expenditure Framework shows that our growth and development agenda is consistent with the Agenda for Transformation and is largely on track.

Unemployment, especially youth unemployment, remains the crisis of our times. Creating gainful employment for young people is vital for peace, security and economic transformation of the state. It is within this context that we are seeking to drive a growth strategy that is not only sustainable but fully aligned to our vision of becoming a middle income country by 2030.

Economic Growth and Unemployment        

Distinguished ladies and gentlemen of the press, let me first start by reassuring all our people that with respect to our economy as a whole, the fundamentals still remain solid. We have grown at an annual average of about 7 percent since 2003 reflecting the peace dividends following the end of a protracted civil war.

The fundamental challenge has been that the impressive growth in the economy has not produced the levels of employment we desire. Nonetheless, we continue to take bold steps to remove the structural impediments to jobs creation in the economy.

Public Spending           

In order to ensure that economy grows with jobs being created at the same time, we have remained focus on ensuring that public expenditures are invested in the key infrastructure priorities such as electricity, roads, ports and agriculture, all of which have great potential to engender social and economic returns that will touch the lives of all Liberians and without which we will not see economic improvement at an individual or national level.

As a government, we have secured $1.2 billion for priority infrastructure projects – such as the Mount Coffee hydro-plant which will increase power supply for Liberia. We are seeking another $1.15 billion from development partners to invest in other projects. The focus is on these key sectors: electricity, roads, ports, and agriculture.

On energy – Liberia cannot develop without cheap, reliable and adequate electricity supply.  We want to extend the electricity supply to households and businesses and across the whole country.

To this end we are working with our development partners, especially the Japanese Government and World Bank, to build three power plants over the next 2 years, for a total of 38MW.  Out of the 38MW capacity, the18MW is being financed through our budget.

I mentioned previously the Mount Coffee Hydro Electric Power Plant in Montserrado, co-financed by the Governments of Liberia, Norway and Germany, in partnership with the European Investment Bank (EIB). Once completed, the Mount Coffee Dam will have a capacity of up to 80MW. The Government of LIberia, contributed US$10 million last year from its budget and will contribute another US$15 million this year to the hydro project.

We are also supporting the West African Power Pool (WAPP).  This regional power plan will create an electricity network among Cote d’Ivoire, Liberia, Sierra-Leone & Guinea (CLSG), costing an estimated $415 million. In the case of Liberia, $202 million will be for linking Yekepa, Buchanan to Margibi, Mt Coffee & Mano and will be financed by the Liberian Government, World Bank, AfDB, & Germany. A separate $14 million from EU cross-border project will electrify Nimba, Grand Gedeh and Maryland.

We are investing in linking economic growth corridors such as Paynesville-Gbarnga-Ganta, a 249km road project which will link Monrovia to the city of Gbarnga and on to the border with the Republic of Guinea.  This will facilitate trade & improve relationship between the two countries.  In addition, we are building roads between Fishtown-Harper, Ganta-Yepeka, Zwedru-Greenville and Somalia Drive-Red Light

Many Liberian’s are engaged in the agricultural sector and improving our production and productivity will support greater self-sufficiency and boost both jobs and the overall economic growth, especially by reducing food item imports.  To this end, we are currently focusing on three key projects:

1)     Smallholder Agricultural Productivity Enhancement and Commercialization (SAPEC): A $54.5 million project co-financed byGoL and the AfDB, including $6.4 million loan, to address our national food security strategy. (Please expand)

2)     West Africa Agricultural Productivity Program (WAAPP). A $14.60 million project co-financed by GOL and World Bank, including $6 million in IDA credit and $8 million grant to upgrade the National Center of Specialization and improve knowledge management in agriculture.

3)     Small Holder Tree Crop Revitalization: (STCRSP): A $61 million project for intensification of crop production, value addition and market development. It will directly benefit an estimated 110,000 households in the 12 counties.  The household income is expected to quadruple on successful completion of the project.

FISCAL POLICY

(a)              Revenue & Borrowing

Revenue performance has been strong, growing on average at 25% per year. For example, in FY2012/13 a total of US$554.2 million was realized from domestic sources and is projected to reach US$582 million in FY2013/14.

The Ministry of Finance is planning to improve its revenue collection through a number of measures intended to improve tax administration efficiency. In addition, the formation of the Liberian Revenue Authority and introduction of VAT in the next fiscal year, introduction of progressive tax regime in real estates, will further improve on the revenue collection and broaden nour tax base, respectively.

In FY2013/14, US$98 million has been appropriated for the PSIP. This reflects the pressure from high recurrent expenditure which is crowding out expenditures on priority projects.

The Ministry of Finance will continue to consult and coordinate with M&As as part of the budget process to review recurrent budgets, to check recurrent expenditure growth and improve efficiency. We shall develop and prioritize PSIP projects which have higher economic and social returns.

More discipline on our ambitious development agenda’s (AfT) implementation is needed to achieve sustained, strong, and balanced growth going forward. Reforms to address the legacy of the conflict and other previously identified structural weaknesses in the economy remain incomplete. The breathing space provided by accommodative monetary policies for the private sector should be used to make progress on these issues.

•              Growth and jobs. Although we have been growing at an average of about 7% annually, unemployment particularly among the young, remains unacceptably high. Further policy actions are needed to reverse the current structural unemployment in the Liberian economy by appropriately leveraging the presence of big investments on the ground. Our efforts to create more employment should be closely linked to reforms that remove supply-side bottlenecks.

•              Macroeconomic Policy Settings - With persistent downside risks to the global outlook, stronger fiscal and foreign reserve position at Central Bank of Liberia can provide buffers to mitigate adverse external shocks. To safeguard critical investment programs, fiscal consolidation should focus on mobilizing domestic revenues and scaling back costly and poorly-targeted recurrent expenditures and subsidy programs in the budget.

•              Inclusive Growth - The contours of the policy mix to promote more inclusive growth in Liberia over the next four years are familiar: scaling up public investment, improving domestic revenue mobilization and public service delivery, and promoting both financial deepening and access to finance.

PRIVATE SECTOR

Real GDP growth is expected to be 8.1 percent in 2013. While the IMF has estimated that growth will moderate to 6.8 percent in 2014 and then rising to 8.6 percent in 2015, we believe that there are some policy options we can use to ensure that growth remains above 8%, year-on-year, to ensure that we achieve middle income status by 2030.

Further to this, we are working together with cabinet to identify and remove all barriers currently faced by concessions, particularly Iron Ore, Timber and Palm Oil.

Iron Ore

The mining sector is one of the growing sources of export earnings and government revenue in the economy, with the contribution from iron ore growing the most rapidly: mineral royalties from iron ore surged from about US$0.65 million in 2011 to more than US$6 million as at December 2012. GoL is resolved to assist and support iron-ore mining concessions’ in meeting their production and export targets.

The government has been working with concessionaires to identify constraints and opportunities for ensuring companies meet their timelines and export deliverables, with urgency needed in addressing bottlenecks for two of these concessionaires, Western Cluster Limited and China Union, though Arcelor Mittal will also need support to achieve phase II of its project. We are working to resolve some of these issues, given the revenue potential from these concessions.

WCL: If Western Cluster is allowed to undertake its proposed means of transporting iron ore over its concession time period, Western Cluster’s projected capital investment/FDI will increase by USD 560 million in 2-3 years (for Bomi mine only) and more than USD 2 billion in the next 10 years (for all three mines). WCL’s contribution to government revenue is estimated to increase to USD 50 million per year for Bomi mine and to USD 400 million per year when all three mines are operational. Western Cluster’s mining activities will create 1000 jobs during Bomi project construction phase, 675 job during operation stage and 600-1000 jobs during the construction of the railway.

China Union: If the housing unit and the rehabilitation of the railroad are taken care off in a timely manner, China Union’s capital investment for Phase II is certain to increase substantially more than its current investment for Phase I, which was USD 463 million. China Union is expected to ship 50,000 ton of iron ore before the end of 2013 and 800,000 tons of iron ore in 2014. Furthermore, in the coming year or two China Union will be contributing USD 4-5 million per year. China Union plans on increasing its current employment of 232 Liberians to 459 Liberian in a span of one year.

Arcelor Mittal: Plans to complete phase II construction at the end of 2014. Beginning 2015, Arcelor Mittal will be shipping 15 million metric tons per annum. This is expected to generate more than $60 million per year in royalty revenue for the government. At full capacity AML will employ an additional 3000 people, many of them hired locally.

Forestry

The Forestry Sector, traditionally a strong source of export earnings for the Liberian government, has yet to attain its full potential. According to industry estimates, the sector could produce 40,000 cubic meters in the short run, generating $20.9m per annum in government revenue, &ramp up to 80,000 cbm in 3-5 years if bottlenecks are removed, generating $38.5m per annum in revenue. Working closely with the FDA, the industry aims to develop a brand for sustainable tropical timber management, as FSC certified timber commands a 25% price premium.

Forestry will be a powerful driver of growth & employment in remote rural areas. Estimates put the level of FDI at $80-$100m invested annually, which will bring a huge boost to local communities

With $2.5m in tax credits to address critical infrastructure needs, GoL could generate revenue of $20.9m per annum. This amounts to an 800% return on investment. Building on this success, further infrastructure rehabilitation could generate $38.5m per annum once at full capacity.  Sector employment is projected to increase from 3,000 to 10,000 by 2017, in line with the AfT. This will directly impact the lives of estimated 70-100 thousand people sub-contractors, merchants & dependents.

Agriculture (Oil Palm):

Approximately 60 per cent of the population depends on agriculture for their livelihood. The share of agriculture in national output has been substantial, contributing about half of nominal GDP in 2008. Liberia’s leading oil palm industry producers are expected to collectively invest over US$2.6 billion in Liberian projects and could directly employ over 80,000 people when fully developed. Investments in oil palm will create the largest number of employment opportunities in the Liberian economy, but will also take longer than other growth sectors to fully mature due to the time required to successfully grow and cultivate oil palm in order to achieve maximum yield quality and quantity.

In particular, key constraints to growth in palm oil development include land rights, tax issues, community relations and limited infrastructure. Much of this is due to poor communication between concessionaires and the Government of Liberia, but is also driven by poorly defining land rights and community agreements.       

Golden Veroleum Limited and Sime Darby are two of the largest foreign direct investors in Liberia, and are the two largest developers of oil palm. Both are progressing with their plans to collectively invest up to US$2.6 billion, but additional support and improved engagement with Government of Liberia is required to expedite their development / investment plans. With the oil palm sector potentially employing over 80,000 people directly through concessionaires projects, improved coordination is economically and politically wise and we have taken steps to address some of the shocks and structural issues in this direction.

Golden Veroleum Limited (GVL): Has already invested $85m and is currently employing 2,347 people, and intends to hire another 2,000 by the end of 2014. Over the next 5-10 years, GVL intends to invest US$1.6 billion, and to employ 40,000 people directly with several thousand of the employees in middle management, manufacturing, and value added.

Sime Darby: Has already invested significantly in Liberia, and is currently employing 3,000 Liberians (736 permanent workers from the project Affected Communities, PAC) and has provided 10,000 subcontractors. Once its estates are fully planted, Sime Darby will create up to 35,000 direct jobs, over the next 5-10 years, Sime Darby intends to invest US$800 million, and to employ 35,000 people directly.

Service Industry

The key sectors for potential job creation are the agriculture and service sectors. The enclave sectors especially the mining & panning sector is usually capital intensive and they do not create many jobs. Therefore, the government is seeking to focus on sectors that have the potential to create more jobs and promote economic growth.

The strategy will address the following:

o             Improving the business environment and access to finance;

o             Linking private domestic firms with concessionaires;

Promoting agro-processing to expand the manufacturing sector; and

o             Promoting service sector development (especially in hospitality, ICT, etc.)

CEMECO

Consistent with our policy to create wealth for Liberians, the government will be undertaking series of divestitures of its interest in major income earning companies. Last week, we began with CEMENCO, where we hired the services of Liberia Bank for Development and Investment to undertake this divesture of the government’s 200,000 shares to ordinary Liberians.

Fellow Liberians, this bold step manifest the vision Her Excellency Madame President holds in ensuring that ordinary Liberians share in the wealth of the nation By transferring Government’s shares to Liberians, the real owners, they will have the opportunity to share in the profits that CEMENCO is enjoying as a result of investing in Liberia. The details of the offerings will be disclosed in a series of advertisements in the local dailies and radios.

One thing we have made abundantly clear is that no one Liberia can buy more than 15% of the total share offerings. In this direction, we encourage ordinary Liberians; market women, yana boys, school teachers, nurses, doctors, trade men and women and Liberians from all walks of live to take advantage of this divesture. 

When more Liberians own a part of these investments, it generates a wealth protection safety net that can run across several generations.

The President has instructed that we ensure this exercise is not monopolized by any one group of Liberians, with wealth or authority, as this program is critical to her vision of creating a middle class in our society consistent with the National Vision 2030 and the Agenda for Transformation. 

OUTLOOK OF FY 2013/2014 BUDGET

The total approved budget as passed by the legislature is approximately US$582 million and clearly articulates the policy priorities and direction of the Government of Liberia. In this budget, we have sought to strike a balance between keeping the operations and functionaries of the state stable and yet saving resources to invest in capital intensive projects and programs, with the ultimate goal of expanding our economy and creating jobs.

The budget as passed by the Legislature and signed by the President has appropriated approximately US$485 million to recurrent expenses with employees’ compensation accounting for over 45% of the total recurrent budget. We have in the same vein appropriated over US$101million to fund our Public Sector Investment Plans consistent with the Medium Term Expenditure Framework.

In the FY13/14 budget, we took a policy decision to remove all contingent revenue sources and borrowings. In Notes to the Budget, these sources have been identified but not included in the revenue envelope on which public expenditure will be calculated.

However, if these sources materialize within the fiscal year, supplemental budget requests will be made to the National Legislature for the purpose of appropriation. By this action, we have avoided raising the expectations of spending agencies and the public about the true size of the revenue envelope above what the government can deliver based on its available resources.

The fiscal rules from FY2012/13 budget remain in place. The Government will continue to exercise fiscal restraint through expenditure rules to guide government spending, encourage investment and the development of Liberian owned businesses. Restraining recurrent spending will free up funds to support projects within the framework of the Agenda for Transformation, the Government’s medium term growth strategy.

To achieve the government’s development agenda, spending is focused on maintaining a stable and effective government; and investing in areas that can deliver long-term economic growth and development.

Budget Execution

While the budget was passed into law in October, it is important to clarify that the government had been operational and some limited spending have been going on consistent with the Public Financial Management Act.

In the next two months, when all agencies shall have finalized their cash and procurement plans, we hope to infuse about 95 million United States into the economy.

These would include spending on personnel, goods and services, capital and project related expenses across all 11 sectors of the government.

As we work to accomplish this spending program, we are aware that some agencies have complained about the voucher processing time at the Ministry of Finance. You will recall that when we took over at the MOF, immediate steps were taken to address this issue but we see a relapse of the problem and I have hence, instructed the relevant actors to ensure that all Ministries and Agencies who have met all the procedural and legal requirements have their payment vouchers processed within 72 hours.

Anyone, experiencing difficulties having met the criteria consistent with the PFM Law, can direct their complaints to a publicly available Voucher Tracking Hotline 0888303030 and 0888404040. This is a temporary long code, as we work to secure a cross platform short code.

Exchange Rate              

The Liberian dollar has been under pressure in recent months, depreciating 8.2% against the US Dollar from August 2012 to October 2013. This has made the price of key commodities like rice & oil more expensive and we know this has affected mainly ordinary citizens. However, the government is working to control the situation:

In the short-term, Ministry of Finance shall increase its sale of USD to the Central Bank of Liberia in order to boost our foreign exchange reserves position.

In the medium-term, the Ministry of Finance is engaging in a campaign to increase Liberian Dollar (LRD) revenue that will match its LRD expenditure needs.

While the movement of the exchange rate is largely a monetary issue, fiscal actions or in actions, can bear greatly on this matter.  

Accordingly and in consultation with the Central Bank of Liberia, the Ministry of Finance is, with immediate effect, institute the following complementary actions intended to improve the value of the Liberian Dollar and stabilize the exchange rate..  This includes:

1.            Immediately and going forward, all taxpayers have the option  to pay their taxes in Liberian dollar at exchange rates announced and published by the Central Bank of Liberia on the day of the transaction.

This action will ensure that taxpayers do not have to buy US Dollar for the purpose of paying their taxes. Any revenue collector who refuses to accept taxes in Liberian Dollar should be reported to the Ministry of Finance and appropriate disciplinary action will be taken against such staff.

However, this policy action does not affect the customs duties which are a result of international trade.

2.            Additionally, importers of petroleum products will also have the option to pay the Sales Tax portion of their taxes in Liberian dollars.

This policy action will ensure that petroleum importers who are selling most of their products in Liberian dollars can use the Liberian dollars to pay their sales tax which is about 50% of their taxes on imported petroleum. They don’t have exchange their Liberian dollars for US Dollars to pay their sales tax.

3.            Even though we did not succeed last year, we will continue our efforts of ensuring that 25% of the purchases of Goods and Services in thebudget is spent on Liberian owned businesses.

4.            We are taking some aggressive measures on closing loopholes in our revenue collections:

                a.             As of December 2, returnees will no longer benefit from duty exemption on their imports except those returning from studies and diplomatic assignment;

                b.            Vehicles more than 20 years old will not be allowed into country and those above 10 years but under 20 will be charged higher duties.

                c.             NGOs and Charitable organizations will be allowed duty exemption only on items directly related to their works.

                d.            Concession companies will no longer be allowed duty exemption on consumables and small items that can be bought on the local market. This will ensure that thebig companies are buying from domestic businesses.

5.            The Ministry of Finance will work closely with the Central Bank of Liberia to ensure that the issuance of Treasury Bills (T-Bills) is appropriate to mop up any excess Liberian Dollars on the market.

Fellow Liberians, these actions are not a panacea in themselves. But when complemented with other policy actions that the Central Bank has taken, we will begin to see some appreciation in the Liberian Dollar. This means that the Liberian Dollar will gain value against the US Dollar which will benefit those who are earning their incomes in Liberian Dollar by increasing their purchasing power.

These are short to medium term policy actions. They don’t address our vulnerability in a sustainable way. The structure of our economy today lends itself to shocks of this nature. Unless we can change the structure of our economy whereby we are heavily dependent on imports, we will always be vulnerable to happenings in the dollar and euro zones.

Fellow Liberians, when an economy is losing valuable foreign exchange to the importation of rice, pepper, vegetables and other goods that could be produced locally, we are in serious trouble. We should be using our foreign exchange reserve to cover months of imports for essential commodities such as petroleum and pharmaceutical supplies.

In order to address to our exchange rate issue for the long term, we need to reduce our dependence on foreign imports especially for non-essential and agricultural commodities. We need to invest more in agriculture for self-sufficiency and possible export. Unless we strike a proper balance between our imports and exports- reducing the gap by reducing imports of consumer goods and increase exports, our exposure for exchange rate vulnerability will always remain unnecessarily high.

Again, I would like to thank the Liberian people for their patience and resilience. We hope that the policy measures I have just announced will help our situation in the short to medium term with a noticeable impact for all Liberians, but we must begin to work on the long term solution to this problem. And this solution requires us all to get involved. Let’s invest in agriculture and increase our productivity.

Thank you and God bless our beloved country, Liberia.


Delivered Tuesday, November 19, 2013 in Monrovia, Liberia