AttJ2_Liberia_Agenda_for_Transformation.pdf

REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013 i

TABLE OF CONTENTS

Letter from the President………………………………………………………………………

ACRONYMS .................................................................................................................................................... vii

EXECUTIVE SUMMARY ................................................................................................................................ xi

SECTION I: HISTORY, FUTURE VISION, CURRENT CONTEXT

Chapter 1. From Recovery to Inclusive Growth and Wealth Creation

1.1 Introduction

1.2 Historical Issues Around Growth and Inequality in Liberia

1.3 Achievements of the Recovery Phase—the Foundations for Inclusive Growth

1.4 Remaining Constraints to Growth

Chapter 2. Liberia Rising 2030—Achieving Middle Income Status

2.1 Introduction

2.2 A Vision of Middle Income in the Context of Liberia

2.3 The Path to Middle Income

Chapter 3. Geography, Poverty and Population

3.1 Introduction

3.2 Geography and Demographics in Liberia

3.3 Liberia’s Population

3.4 Dimensions of Poverty in Liberia

3.5. Other Dimensions of Poverty

3.6. Demographic Projections

Chapter 4. Chapter 5. External Environment—Opportunities and Challenges

4.1 Introduction

4.2. Opportunities Posed by the External Environment

4.3. Challenges Posed by the External Environment

SECTION II: MEDIUM TERM GROWTH AND DEVELOPMENT STRATEGY

Chapter 5. Developing Liberia’s Growth Strategy—Method and Process

5.1 Introduction

5.2 The National Vision: Liberia Rising 2030

5.3 Medium-Term Growth and Development Strategy Development Process ii REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013

Chapter 6. Review of Experiences and Lessons Learned From the Lift Liberia PRS

6.1 Introduction

6.2 Summary 6of Lessons Learned from the Lift Liberia PRS

6.3 Implications for the Agenda for Transformation

Chapter 7. Objectives and Structure of the Growth Strategy

7.1 Introduction

7.2 Objectives of the Agenda for Transformation

7.3 The Structure of the Agenda for Transformation

Chapter 8. Pillar I—Peace, Justice, Security and Rule of Law

8.1 Security

8.2 Peace and Reconciliation

8.3 Justice and Rule of Law

8.4 Judicial Reform

8.5 Capacity Development Needs and Opportunities for Security Sector

Chapter 9. Pillar II—Economic Transformation

9.1. Private-Sector Development

9.2 Macroeconomic Issues—Fiscal and Monetary

9.3 Infrastructure

9.4 Agriculture and Food Security

9.5 Forestry—Development and Protection

9.6 Mineral Development and Management

9.7 Capacity development Needs and Opportunities for Economic Transformation Sectors

Chapter 10. Pillar III—Human Development

10.1 Education

10.2 Health and Social Welfare

10.3 Social Protection

10.4 Water, Sanitation and Hygiene (WASH)

10.5 Implications of the Human Development Strategy for Other Pillars

10.6 Capacity Development Needs and Opportunities for Human Development

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Chapter 11. Pillar IV—Governance and Public Institutions

11.1 Political Governance

11.2 Public Sector Modernization And Reform

11.3 Economic Governance

11.4 Capacity Development Needs and Opportunities for Enhanced Governance

Chapter 12. Pillar V—Cross-cutting Issues

12.1 Gender Equality

12.2 Child Protection

12.3 Persons with Disabilities

12.4 Youth Empowerment ..................................................... Error! Bookmark not defined.

12.5 Environment ..................................................................... Error! Bookmark not defined.

12.6 HIV/AIDS ........................................................................... Error! Bookmark not defined.

12.7 Human Rights

12.8 Labor and Employment

12.9 Capacity Development Needs and Opportunities for Enhanced Cross-cutting Strategies

12.10 Cross-Cutting Issues and the Strategy Pillars

12.11 Conclusion

Chapter 13. Macroeconomic Policy Framework

13.1 Macroeconomic Overview

13.2 Liberian Economic Overview

13.3 World Outlook

13.4 Liberian Sources of Growth

13.5 Liberian Sources of Risk

13.6 Economic Policy

13.7 Fiscal Performance

13.8 Fiscal Rules

Chapter 14. Implementation Strategy

14.1 Organizations Leading AfT Implementation

14.2 The New Deal for Engagement in Fragile States

14.3 Institutional Framework for Implementing the AfT

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Chapter 15. Monitoring and Evaluation Strategy

15.1 PRS I M&E Experience: Key Challenges and Lessons

15.2 Policy Framework and Guiding Principles of an Enhanced M&E Strategy

15.3 Objectives of an Integrated Results-focused M&E Strategy

15.4 Links Between MTEF/Budget and AfT Monitoring

15.5 Scope and Design of the Integrated M&E System

15.6 Main Content and Function of the Monitoring Plan

15.7 Geographical and Stakeholder Aspects

15.8 Evaluation Aspects

15.9 The M&E Institutional Arrangements and Roles

15.10 Institutional Framework: Roles and Responsibilities

15.11 Progress Reporting, Reviews and Communication Strategies

15.12 Utilization, Communication and Dissemination Strategy

Chapter 16. Risks and Mitigation Strategies

FIGURES

16.1 Mitigation Strategies

Figure 1.1: Key Events in History and Real GDP

Figure 3.1: Counties in Liberia and the Spatial Distribution of Population, 2008

Figure 3.2: Percentage of Households with Essential Assets Deficiency by County

Figure 5.1: Relationship Between Planning Tools

Figure 5.2: Results Framework for the Agenda for Transformation

Figure 12.1: Cross-cutting Issues: Special Poverty Problems

Figure 12.2: Cross-cutting Issues and the Growth and Development Pillars

Figure 12.3: Categories of Cross-cutting Issues and Nature of Interactions: Human and Non-human Issues

Figure 13. Value of Net Eports

Figure 14.1: Pillar Alignment with the New Deal PSGs

Figure 15.1 Integrated Aft-MTEF-NCDS Monitoring and Planning

Figure 15.2. The Results Chain for Liberia

Figure 15.3: Overview of the Integrated M&E System

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TABLES

Table 1.1: Remaining Constraints to Growth: Diagnostics Matrix

Table 2.1: Countries that Crossed into Middle-Income, 2000–2011

Table 2.2: Liberia, LICs, and countries that crossed to Middle Income

Table 3.1: The Population trends of Liberia, 1962–2008 (census statistics)

Table 3.2: Select Demographic Features of Liberia by County

Table: 3.3: Distribution of Poor Population by County

Table 3.4: Total Population—Under Three Different Fertility Scenarios, 2008–2038

Table 3.5: Working-age Population Under Three Different Fertility Scenarios, 2008–2038

Table 3.6: Educational Sector Indicators Under Medium Fertility Scenario, 2008–2038

Table 3.7: Health Sector Indicators Under Medium Fertility Scenario, 2008–2038

Table 8.1: Sector Goals for Peace and Security

Table 8.2: Goals, Strategic Objectives and Outcomes for Peace and Security Sectors by 2017

Table 9.1: Economic Transformation Pillar Results Chain

Table 9.2: Sector Goals for Economic Transformation

Table 9.3: Summary Matrix for Economic Transformation

Table 10.1: Sector Goals for Human Development

Table 10.2: Goals, Objectives and Outcome Indicators for HD Sectors

Table 11.2: Goals, Objectives and Outcome Indicators for Governance Sector

Table 12.1: Goals for Cross-Cutting Issues

Table 12.2: Summary Matrix for Cross-Cutting Issues

Table 12.3: Summary Matrix of Cross-Cutting Issues and the Growth and Development Pillars

Table 13.1: Overall Economic Activity Expected during the First MTEF and the PRS Period ... 143

Table 13.2: Expected Inflation Rates

Table 13.3: The Values of Exports and Imports Forecasted over the PRS Period

Table 13.4: Full Balance of Payments Data

Table 13.5: Overall Estimated Revenue Over Time

Table 14.1: New Deal Focus and Trust Principles

Table 15. 1: Medium Term Budget Frame Work Plan

Table 15.2: Framework Roles and Responsibilities

Table 16.1: Summary of Main Risks and Mitigation Measures vi REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013

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ACRONYMS

ABE Alternative Basic Education

AFL Armed Forces of Liberia

AfT Agenda for Transformation

BPHS Basic Package of Health Services

BRC Business Reform Commission

CBL Central Bank of Liberia

CSA Civil Service Agency

DOD Department of Defense

ECCD Early child care and development

ECOWAS Economic Community of West African States

EPA Environmental Protection Agency

FCPF Forest Carbon Partnership Facility

FDA Forestry Development Authority

FDI Foreign direct investment

GAC General Auditing Commission

GBV Gender based violence

GC Governance Commission

GDP Gross Domestic Product

GNI Gross National Income

GOL Government of Liberia

GSA General Services Administration

HIPC Highly Indebted Poor Countries Initiative

ICT Information and communications technology

IMF International Monetary Fund

INHRC Independent National Human Rights Commission

KWH Kilowatt hour

LACC Liberian Anti-corruption Commission

LC Land Commission

LD Liberian dollar

LDA Liberia Development Alliance

LDHS Liberia Demographic & Health Survey

LEITI Liberia Extractive Industries Transparency Initiative viii REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013

LGS Liberian Geological Survey

LIC Low-income country

LIPA Liberia Institute of Public Administration

LISGIS Liberia Institute for Statistics and GeoInformation Services

LNP Liberia National Police

LTA Liberia Telecommunications Authority

LTC Liberia Telecommunications Corporation

LWSC Liberia Water and Sewer Corporation

M&A Ministries and Agencies

M&E Monitoring and evaluation

MCC Monrovia City Corporation

MDA Mineral Development Agreement

MDG Millennium Development Goals

MIA Ministry of Internal Affairs

MOCI Ministry of Commerce and Industry

MOE Ministry of Education

MOF Ministry of Finance

MOGD Ministry of Gender and Development

MOHSW Ministry of Health and Social Welfare

MIA Ministry of Internal Affairs

MOJ Ministry of Justice

MOL Ministry of Labor

MOT Ministry of Transport

MOU Memorandum of Understanding

MOYS Ministry of Youth and Sports

MLME Ministry of Lands, Mines and Energy

MPEA Ministry of Planning and Economic Affairs

MPT Ministry of Post and Telecommunications

MPW Ministry of Public Works

MSME Micro, small and medium enterprises

MTEF Medium-term Economic Framework

MW Megawatt

NCHE National Commission for Higher Education

NCDS National Capacity Development Strategy

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NGO Non-governmental organization

NHPP National Health Policy and Plan

NIC National Investment Commission

NOCAL National Oil Company of Liberia

NPA National Port Authority

NSC National Security Council

NSL National Standards Lab

NWRSB National Water Resource and Sanitation Board

OVC Orphans and other vulnerable children

PFM Public financial management

PLWHA People living with HIV and AIDS

PMTCT Prevention of mother-to-child transmission

PPCA Public Procurement and Concessions Act

PPCC Public Procurement and Concessions Commission

PPP Public-private partnerships

PRS Poverty Reduction Strategy

PSIP Public Sector Investment Plan

PWD Persons with disabilities

PTA Parent Teacher Association

SEZ Special economic zones

SME Small and medium enterprise

SOE State-owned enterprises

SWG Sector-working group

TOKKTEN Transfer of Knowledge through Expatriate Nationals

TRC Truth and Reconciliation Commission

TTI Teacher training institutes

TVET Technical and Vocational Education and Training

UNDP United Nations Development Programme

UNMIL United Nations Mission in Liberia

WAPP West Africa Power Pool

WASH Water, Sanitation and Hygiene x REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013

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EXECUTIVE SUMMARY

The Agenda for Transformation (AfT) is the Government of Liberia’s five-year development strategy. It follows the Lift Liberia Poverty Reduction Strategy (PRS), which raised Liberia from post-conflict emergency reconstruction and positioned it for future growth. The AfT in itself will—in its five year timeframe—not be able to achieve all that Liberia is poised to do. Rather it is the first step in achieving the goals set out in Liberia Rising 2030, Liberia’s long-term vision of socio-economic development. The AfT sets out precise goals and objectives that Liberia will achieve in the next five years in order to take the necessary steps toward its long-term goals, which are to become a more prosperous and a more inclusive society. This AfT supports the principles of the Paris Declaration, Accra Action Plan, and the New Deal for Engagement in Fragile States, to which Liberia is a signatory of these three donor frameworks.

The initial chapters of the AfT, Chapters 1 and 2 in Section I, highlight the history from which Liberia has emerged, the work that has been done in the reconstruction phase, and the vision of where Liberia is heading. Chapters 3 and 4 describe the internal and external context of the AfT. Chapter 3 reviews the features of geography, population and poverty in Liberia while Chapter 4 highlights the regional and global trends and the subsequent opportunities and risks that they pose to Liberia’s development agenda.

In Section II, Chapter 5 outlines the process of developing this strategy, its relation to other strategic plans, including the Vision 2030, and the collaborative process from which it emerged. Chapter 6 reviews the accomplishments and lessons learned from the predecessor to the AfT, the first PRS of Liberia. Informed by those lessons of the past, this chapter also outlines key principles that are internalized in the AfT and in its strategic choices. Chapter 7 describes the objectives of the AfT, and describes the structure of the strategy.

Chapters 8 through 12 in Section III constitute the heart of the strategy. They describe the specific goals and objectives across five pillars that Liberia plans to achieve in the next five years and the constraints that it will need to overcome to do so. Chapters 13 and 14 in Section IV discuss the costing and funding of the strategy. Chapter 15 discusses its monitoring and evaluation (M&E) framework. Finally, Section V describes the risks to the realization of the strategy and how they can be mitigated.

Ultimately, the success of the AfT will entail taking deliberate and calculated steps to ensure that priority interventions and resources are directed at the strategic objectives identified in a transparent, effective and coordinated way. The goal is to put the country on a path of sustainable and equitable growth and to create the right environment as Liberia transforms toward its long-term vision of becoming a more equal, just, secure and prosperous society.

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SECTION I: HISTORY, FUTURE VISION, CURRENT

CONTEXT

CHAPTER 1. FROM RECOVERY TO INCLUSIVE GROWTH AND

WEALTH CREATION

1.1 INTRODUCTION

Liberia is on the rise. Since 2003, the country has enjoyed peace, two democratic elections and nearly a decade of economic recovery. During this time, the Government of Liberia (GOL), development partners, and civil society have been dedicated to further recovery and reconstruction and to ensure that Liberians felt the benefits of peace. Several short- and medium-term development plans were implemented, ranging from the 150 Action Plan (2006) to the Interim Poverty Reduction Strategy (2007) and the complete Lift Liberia Poverty Reduction Strategy (2008–2011). These strategies and plans eased some of the immediate hardships Liberians suffered as a result of the war and contributed in meaningful ways to the relative stability that Liberia enjoys. Images from the Liberia of today—crops growing in replanted fields; traders doing business in the markets of Monrovia; cars driving through clean and repaired streets; children rushing to school in their uniforms—are all clear signs that recovery has taken hold.

However, the severe destruction to the fabric of Liberian society and economy means that there is much to be done in order to transition from recovery to prosperity—and Liberia remains one of the lowest-income countries in the world. The Government of Liberia is now embarking on this medium-term economic growth and development strategy, an AfT, in order to guide development activities over the next five years (2012–2017). It will provide the roadmap for Liberia’s transformation from post-conflict recovery toward its long-term vision of becoming an inclusive middle-income country by 2030.

This chapter reviews the historical issues of growth and inequality that fueled the conflict in Liberia. It then reviews the progress that Liberia has made in establishing the foundations for more inclusive growth during its recovery and reconstruction phase with the help of the Lift Liberia PRS. It then summarizes the constraints to inclusive growth and wealth creation growth that remain to be addressed, which the AfT will tackle.

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1.2 HISTORICAL ISSUES AROUND GROWTH AND INEQUALITY

IN LIBERIA

By 2013, Liberia will have crossed the 10-year milestone within which post-conflict countries face an omnipresent threat (50% chance) of relapsing into violent conflict.1

In the decades preceding the start of instability in the late 1970s, Liberia’s growth record was remarkable. The country had grown at an average rate of more than 7% annually during 1955–1975. By 1980, Liberia’s gross domestic product (GDP) per capita had reached a peak of USD $1,765 (purchasing power parity, constant terms), bringing the country close to middle-income threshold. Despite eight years of strong growth since the peace settlement, today’s average level of GDP per capita is USD $310 -- still well below that historical peak. However, a number of isolated sectors drove that early growth.

By the early 1970s and 1980s, iron ore accounted for more than half of Liberia’s export earnings; rubber and other cash crops accounted for 15% of all value added.

In order to permanently move beyond that threat, the future growth and development of Liberia must be shared widely with its benefits spread across the population. Liberia is determined not to repeat the mistakes of its past, when income inequality and socio-political marginalization fueled a brutal conflict that shook society for 14 years.

While this growth delivered results on top-line statistics, it also masked serious problems of poverty and inequality in much of the country. In 1970, less than 20% of the labor force was employed in the formal modern sector, while 74% was employed in low-productivity agriculture. Concessions employed only 7% of workers, despite the large share in GDP and exports. Wage inequalities across the sectors were stark: in 1974, per capita GDP in the agricultural economy was less than USD $120 per year, compared to almost USD $900 in the cash-crop economy and an estimated USD $2,500 in the concessions sector.

By the 1970s, the GOL tried to counteract these trends, but the efforts were too little, too late. With the global decline in commodity prices during the late 1970s, expected revenue flows from natural resource rents failed to materialize and the government’s fiscal position deteriorated. Liberia began a long-term economic decline, which was exacerbated by a subsequent military coup and ultimately outright civil conflict (Figure 1.1). Following the signing of the 2003 peace agreement, the country has grown steadily and boasts significant opportunities for growth with well-managed reactivation of the iron ore and cash crop sectors and prospects for the discovery of commercial quantities of oil. The prospect of Liberia reaching middle-income status is becoming a reality once again.

A mere 3.9% of the population controlled more than 60% of income and a large share of the benefits from enclave sectors was repatriated by foreign investors. Human capital levels were extremely low, with only 25% of the labor force (above age 15) literate. The average level of educational achievement in the country as a whole was only 1.3 years.

1 World Bank, ‘Crisis Impact: Fragile and Conflict-Affected Countries Face Greater Risks’, http://go.worldbank.org/3DUSQ99Y30 2 http://www.liberianembassyus.org/index.php?page=about-liberia 3 Reference World Bank growth diagnostic http://www.liberianembassyus.org/index.php?page=about-liberia�

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Figure 1.1: Key Events in History and Real GDP

However, Liberia has learned from its recent history that economic growth alone will not be sufficient unless matched by developments that diversify the economy; create productive employment for a large number of citizens; and spread the benefits of growth across Liberia. These lessons are recognized in the Lift Liberia PRS that both fueled growth in the traditional economic sectors (notably, iron ore, timber, rubber) and had the goal of creating the foundations for sustainable and inclusive growth. The first PRS sought to achieve specific objectives in four broad areas: Expanding peace and security; revitalizing the economy; strengthening governance and the rule of law; and rehabilitating infrastructure and delivering basic services. Significant achievements were made in each of these areas, which have created the foundations for growth that the AfT will continue to build on.

1.3 ACHIEVEMENTS OF THE RECOVERY PHASE—THE FOUNDATIONS

FOR INCLUSIVE GROWTH

Starting from a state of post-conflict instability, weak state institutions, and an economy left in shambles by decades of looting and neglect, the Lift Liberia PRS achieved significant success and reforms. Perhaps the most critical achievement has been the maintenance of peace and security. Following 17 years of war, Liberians have been able to achieve a level of reconciliation that has allowed society to function peacefully. Further, two relatively peaceful, democratic elections have been held (2005 and 2011). This success reflects hard work on the part of the citizens but also the government’s actions to strengthen social cohesion; build capacities to manage tensions without outbreaks of violence; promote reconciliation; and gradually lessen political polarization. As part of the PRS, Liberian security institutions, primarily the Armed Forces of Liberia (AFL) and the Liberia National Police (LNP) were rebuilt and reformed into professional and capable organizations. Although challenges remain and Liberia continues to rely on the support of a large force of United Nations peacekeepers, the country will take full responsibility for maintenance of security over the coming years. This peace and security has allowed

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Liberians to return to their farms, start businesses, return to their country from abroad, and to witness leading global firms invest in their country.

To revitalize the economy, the three-pronged economic strategy of the PRS focused on 1) rebuilding critical infrastructure; 2) reviving traditional resource sectors; and 3) establishing a competitive business environment. Initial actions in these areas have set the stage for near term growth. Infrastructure and basic services saw more than USD $500 million of direct investment with key pieces of infrastructure renovated or reconstructed (including airports, ports and roads). During the PRS, nearly 2,500 kilometers of paved and laterite roads were reconstructed or rehabilitated; electrical generation capacity increased from practically zero to 23 megawatt (MW); 48 kilometers of power transmission and distribution lines were constructed or renewed; and implementation on the regional West Africa Power Pool (WAPP) cross-border electrification project began. To revive traditional economic sectors, Liberia attracted leading global firms that have begun to reinvest in forestry, rubber and mining. As a result, exports increased from USD $175 million in 2006 to USD $295.2 million in 2011. In addition, Liberia attracted foreign direct investment (FDI) in several non-traditional sectors including petroleum, oil palm, hotels, finance, industry and infrastructure. In total, FDI is poised to invest roughly USD $16 billion and create more than 100,000 jobs over several years.

However, these investments alone will not suffice to diversify the Liberian economy, nor create jobs for the roughly 500,000 Liberians who will graduate from schools in the next five to 10 years. Therefore, the government has worked to establish a competitive business environment for firms in Liberia. It reformed the Tax Code and the Investment Code, making them more competitive and beneficial to growth. It streamlined business registration processes; established a One-Stop-Shop for customs clearing; and started implementing proactive industrial policies as a way of facilitating the growth of local micro small and medium enterprises (MSME). The government prioritized a stable macroeconomic environment, which is also conducive to growth. Further, it maintained a cash-based balanced budget;

significantly increased government revenue; moved toward multi-year financial planning; and achieved USD $4.9 billion of cumulative debt relief under the Heavily Indebted Poor Countries (HIPC) initiative.

These actions and their follow-up in the coming years are creating the right incentives for further growth in employment, GDP and public and private investment.

The government also focused strong efforts on improving governance, strengthening justice and restoring confidence in the rule of law. During the PRS period, it created the Liberia Anti-Corruption Commission (LACC), the Public Procurement and Concession Commission (PPCC) and the Liberia Extractive Industries Transparency Initiative (LEITI). To make government institutions more transparent, capable and oriented toward service delivery, the government created a comprehensive Civil Service Reform Strategy, which reduced the number of civil service employees, and rationalized the functions and mandates of a number of ministries and agencies (M&As). The delivery of justice improved as the government developed and implemented a national and county-level case management system; deployed public defenders throughout the country; and replenished the ranks of trained magistrates for the first time in 20 years. Policies that increasingly put power in the hands of local communities are taking hold with the passing of the Community Rights Law, endorsement of a National Decentralization Policy, and the creation of county-level branches for government service-delivery.

The PRS also focused on building the capacity of health, education and social services—improving institutions and service delivery. To improve education, a large number of schools were constructed or rehabilitated and furnished, while teachers were trained and received salaries that matched their

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qualifications. School curricula were modernized and aligned with West African standards. In the health sector, functioning health facilities increased from 354 to 550; health workers increased from approximately 5,000 to more than 8,000; and the number of facilities credited for provision of services increased. These investments are beginning to show results in increased school enrollment at all levels;

increased levels of schooling and training for teachers; and substantially improved health outcomes.

The Lift Liberia PRS and Liberian Government made great strides toward recovery, but it did not meet all of its goals as a result of the enormous institutional and human capacity deficits. Moreover, in the process of addressing institutional concerns, some important opportunities for achieving immediate measurable results were missed. This AfT places greater focus on interventions to target the most pressing problems and binding constraints, while capitalizing on the lessons learned from the Lift Liberia PRS.

1.4 REMAINING CONSTRAINTS TO GROWTH

To reach its targeted levels of growth, Liberia will need continued and high levels of investment. As a result of underinvestment during the civil war, combined with the depreciation and destruction of public and private infrastructure, the value of capital stock per unit of labor in Liberia has substantially declined.

Currently, the average Liberian worker has about one quarter of the value of capital stock that he or she had prior to 1980.4

• Weak infrastructure—especially roads and power. The World Bank’s Doing Business survey of Liberian firms shows that 59% identify electricity as a major constraint and 39% identify transportation as a major constraint.

In order to understand the main constraints to higher investment in the country, a growth diagnostic was performed on the Liberian economy. Key remaining challenges to stimulating increased investment and growth include:

• Difficulty in accessing finance. This constraint is particularly binding for manufacturing and agricultural MSME. Due to a high incidence of non-performing loans, high informality and low financial literacy among borrowers, Liberian banks are risk-averse. Most loans are short-term and extended for trading and other service activities. Loans to manufacturing and agricultural activities, which are needed to fuel the emerging micro, small and medium enterprises (MSME) sector, account for less than 10% of bank loans. Although the government has been easing registration procedures in order to make it more attractive for small businesses to formalize, the majority of firms still exist in the informal sector, limiting their ability to access finance. As a result, only 10% of firms used banks to finance investment in 2009. In the Doing Business survey, 40% of Liberian firms cite finance as the

Despite the fact that infrastructure programs received the largest amount of funding during the PRS, most of the country is connected only though seasonal laterite roads and occasional electricity. Poor roads limit the ability of farmers to get their goods to markets and constrain some of Liberia’s most promising sectors—agriculture, tree crops and forestry. Formal electricity is confined to the capital and power tariffs are USD $0.43 per kilowatt hour (KWH) on average, which is three times higher than the Sub-Saharan African average. Private businesses must rely on their own generators at high costs—a serious constraint to small-scale manufacturing and industrial MSME.

4 Reference Liberia Growth Diagnostic, World Bank 5 Enterprise Surveys (http://www.enterprisesurveys.org), The World Bank. Results based on a survey of 150 firms conducted in September 2008- February 2009.

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number one constraint of the business environment, compared to roughly 20% in Sub-Saharan Africa and 16% globally.

• Difficulty in launching new export activities, due to missing inputs (also known as coordination failures). Diversifying Liberia’s economy beyond the traditional resource-dependent export products and toward a greater variety of agricultural, small-scale manufacturing and services products is a key priority. Although numerous studies have shown that Liberia has comparative advantage in exporting cocoa, coffee and other tree crops, semi-processed agricultural goods and light manufactured textiles, these value chains are still weak and key inputs are missing—such as affordable fertilizer, farm-to-market transportation, cold-storage and affordable electricity. A number of donor, NGO, private sector and government initiatives have been working to address such gaps, but the coordination of these activities remains inadequate.

• Weak and unclear property rights. Land ownership in Liberia has a complex and confusing history, with land rights oscillating between communities and the state. Today, less than 20% of the country’s total land is privately deeded and registered. During the PRS-1, the government adopted the Community Rights Law (2006) and the Community Right Act (2009) in order to better formalize community ownership. Despite these attempts, land rights remain poorly defined with many rural lands having overlapping and unresolved ownership. Implementing records management and land registration systems for rural property—a deliverable from the PRS—remains an outstanding priority. In the Doing Business 2012 indicators, Liberia is ranked 176th out of 183 countries in terms of ease and cost of registering property. Commercial contract enforcement is also a challenge. To address this problem, the government established a separate Commercial Court to help clear the backlog of cases and improve contract enforcement in 2011.

Other challenges to growth and inclusiveness include:

• Low levels of human development. Years of war interrupted schooling for many citizens, resulting in low educational achievements. Further, the war interrupted people’s ability to acquire practical work experience, and there is a general lack of management skills, entrepreneurship skills, business-and financial literacy, all of which are essential for the growth of MSME. The education system is still rebuilding and struggling to deliver quality practical and vocational training. Private training and educational support services are still in their infancy. A discrepancy between demand and supply of skills may become even more apparent as jobs are created that require specialized skill training (e.g., specialized personnel in mining, agricultural processing, tourism). The Liberian civil service also faces capacity constraints.

• High administrative and regulatory costs. Although the government has reduced red tape, MSME continue to face unnecessary legal and regulatory burdens and are subject to onerous licensing regimes. The costs of getting permits, paying taxes and trading across borders are still high. Petty corruption (payments for licenses, bribes at check-points, etc.) adds additional burdens.

• Continued risks regarding security and stability. The risk of instability arises both from the threat of internal tensions and external conflicts in neighboring countries. Maintaining peace and security is a sine qua non when it comes to attracting domestic and foreign investment and stimulating growth in the long run. As Liberia transitions to taking responsibility for domestic security from UNMIL, significant investment will be needed to maintain a stable and peaceful environment, conducive to the growth of economic activities.

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As Liberia moves into its next five-year period of development, the country plans to make significant progress on easing each of these constraints, while prioritizing some over others (e.g., electricity and road infrastructure will be the top priority in the immediate term). Overall, the government’s goal is to achieve double-digit rates of economic growth, which is ambitious but achievable if investment continues. If so, Liberia will be well on the path toward the goals of its Vision 2030 as described in more detail in Chapter 2.

Table 1.1: Remaining Constraints to Growth: Diagnostics Matrix

Source: Adapted and modified from the Liberia Growth Diagnostic, World Bank, 2011.

Potential Constraint

Traditional Export Sectors (e.g., concessions, large-scale agriculture)

Non Traditional Tradable Sectors (e.g., small-scale agriculture, manufacturing, tourism, services)

Geography Not binding. Excellent location, favorable climate, rich in natural resources.

Infrastructure Not binding. Can be circumvented through private provision.

Binding. High cost/lack of access to electricity and roads reduces competitiveness of otherwise potentially attractive sectors.

Human capital A problem, but not currently binding.

Traditional sectors can circumvent by importing skilled labor.

A problem, but not currently binding. A lack of education and skills, especially among the population that missed out on schooling during the war. However, unemployment and underemployment among more educated is also high.

Macro risks

Not binding, although risks related to exposure to shocks in international commodity prices will need to be monitored and managed.

Not binding. Future risks related to revenue volatility, commodity price volatility, real exchange rate appreciation and Dutch Disease need to be monitored and managed.

Micro risks

Not binding, but land tenure issues and lack of clarity on land-use policy, including clarity on the concession process, constitute areas of future risk.

Binding. Clarity and security of property rights is an area of concern.

Information externalities

Not binding. Businesses are aware of what opportunities are within reach.

Coordination externalities

Not binding for large corporations.

Binding, as new activities that require a different set of inputs and skills than what is available generally fail to emerge, especially for MSME in the agriculture sector, processing and manufacturing.

Lack of international finance

Not binding. Liberia is funded to a high degree by external sources and increases in such funding could encounter a limit in absorptive capacity.

Lack of local finance

Not binding. Capital accumulation by banks has been growing and reserves are sufficient.

Poor financial intermediation

Not binding for large enterprises that can self-provide finance or source finance internationally.

Binding, banks have capital but are unwilling extend credit (especially long-term loans) to the agriculture and manufacturing sectors due to high perceived risk of non-payment, poor recourse.

8 REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013

REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013 9

CHAPTER 2. LIBERIA RISING 2030—ACHIEVING MIDDLE

INCOME STATUS

2.1 INTRODUCTION

Liberia has an aspiration to become a middle-income country by the year 2030. As discussed in Chapter 1, Liberia was on the cusp of becoming a middle-income country by the 1980s; it was one of the highest-income countries in Africa. But years of conflict have reversed the country’s development. As part of its development agenda, the government is currently leading the development of Liberia RISING 2030, a visioning exercise that includes the perspectives of diverse stakeholders from Liberian society and takes a broad view of Liberia’s economic, political, social and human development over an 18-year timeframe (2012–2030). While the visioning process is still underway, the aspiration of becoming a middle-income country characterized by prosperity and inclusion by 2030 is already emerging.

Chapter 2 outlines this vision and defines what middle income means in the Liberian context; it then describes the path that Liberia must follow to reach this goal. The chapter concludes by describing the experiences of a number of other countries as they made their way to middle income.

2.2 A VISION OF MIDDLE INCOME IN THE CONTEXT OF LIBERIA

While there is no strict definition of “middle income” status, it is often defined as per capita income of more than USD $1,000 (in constant terms).6

While Liberia will use the GNI per capita threshold of roughly USD $1,000 as an overarching target for its economic development, the country must also meet other targets of economic, political, social and human development as well. By 2030, the country aims to have a peaceful and inclusive political system, a diversified economy, stable institutions, and healthy, capable citizens who can enjoy these changes.

Streamlined and efficient, the government will earn its legitimacy by providing efficient services to all Liberians, making intelligent investments in public goods and working consciously to equalize economic opportunities, while relying increasingly on market forces and proper regulation. Working with traditional systems, the government will administer and enforce justice and rule of law.

Starting out at its current level of income per capita, the technical goal of crossing this middle-income threshold means that Liberia needs to grow at an average rate of approximately 9% per year from 2012 until 2030. This goal is ambitious, but not unachievable.

From 2006 until 2010, Liberia’s GDP grew at 7% on average and this was before major export activities and investments had been rekindled. Moreover, a number of low income countries that transitioned to middle income during the last decade achieved average gross national income (GNI) per capita growth rate of 9% or higher over an 18-year period, including a number of African countries (Angola, Cote d'Ivoire, Cameroon, Congo, Lesotho and Equatorial Guinea). Several countries in Asia that crossed to middle income in the last decade (including Indonesia, China and Vietnam) had an even faster average 18-year growth—showing what is possible.

6 The World Bank defined middle-income countries as those with a GNI per capita level above $1,005 and below $12,275. Gross National Income (GNI) comprises the total value of all goods and services generated by a country in one year (its GDP) plus the net income from domestic factors of production used abroad (notably interest and dividends) minus the income of foreign factors of production operating in a country. The World Bank measures GNI according to the Atlas method, which adjusts for exchange rate fluctuations and reports each country’s income in real U.S. dollars. (http://data.worldbank.org/about/country-classifications).

10 REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013

The goal is to have a vibrant economy; one in which more than half of the workforce is employed in the formal sector. This is led—but not dominated by—the concessions economy, which is integrated into a prosperous Liberian economy. Liberians are successful managers and are entrepreneurs by choice. People trust that contracts and business agreements will be honored, all of which are supported by transparent, fair and efficient Commercial Courts. Agriculture continues to provide the majority of jobs; to produce the majority of non-resource exports; and to bring food security to Liberians. Manufacturing firms also thrive, mostly focused on serving Liberia and the sub-region, but also for labor-intensive exports. Services for export, including call centers and back office tasks, have begun to prosper. A special economic zone in Buchanan permits complex activities to service the extractive sector in the sub-region, while also acting as a staging ground for institutional reforms at the national level. Buchanan has established itself as the finance and business service capital of the sub-region, and opens its arms to international businesses. Smaller commercial zones on the borders with Guinea, Sierra Leone and Ivory Coast serve as bridges of peace and prosperity, backstopping a broader regional integration of tariffs and infrastructure. The macro-economy is stable, with taxes and expenditures simple, efficient and transparent.

Liberia’s renewable resources are well managed and resource rents are monitored and taxed efficiently.

Their spending is insulated from short-term political influence through strong institutions that serve the national interest. Financed directly and through public-private partnerships (PPP), the construction and maintenance of quality infrastructure and their management reduces transport and energy costs for non-resource sectors and makes dependence on foreign aid and loans no longer necessary. Health and education standards approach regional benchmarks in a mutually motivating effort between public and private provision and partnerships. Liberians are saving, confidently, for their own futures and average incomes in have reached the middle-income threshold.

2.3 THE PATH TO MIDDLE INCOME

Including Liberia, currently there are 35 low-income countries (LICs) in the world, of which 26 are Sub- Saharan African countries.7 In recent years, many LICs have experienced rapid growth and are quickly approaching the middle-income threshold. Liberia is currently among the poorest countries in this group—although in 1979, it was the third wealthiest and on par with many other countries that have since crossed over into middle-income. Table 2.1 shows the 33 countries that have crossed from low-to middle-income status during the period 2000–2011.8

Table 2.1: Countries that Crossed into Middle-Income, 2000–2011

Period Country Name Total

2000–2002 China, Equatorial Guinea 4 , Honduras, Syria

2003–2005 Angola, Azerbaijan, Bhutan, Congo, Rep 7 ., Georgia, Indonesia, Turkmenistan

2006–2008 Cameroon, Ghana, India, Lesotho, Moldova, Mongolia, Nicaragua, Nigeria 12 , Papua New Guinea, Sao Tome & Principe, Sudan, Timor-Leste

2009–2011 Cote d'Ivoire, Lao PDR, Mauritania, Pakistan, Senegal, Solomon Islands, Uzbekistan, Vietnam, Yemen, 10 Zambia

Source: World Development Indicators (WDI). Sub-Saharan African countries underlined.

7 Per the World Bank definition of “low-income” of GNI per capita (Atlas method) of less than US$1,005.

8 Countries shown in the first year in which their GNI per capita exceeded the threshold of US$1,005. Data from the World Bank World Development Indicators. July, 2011.

REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013 11

This large number of transitions is a result of exceptional short-term growth combined sustained long-term growth in a number of countries. Due to a favorable external environment, the majority of these countries experienced an average growth rate of more than 10% per year during the 2000s.

Over the 18-year period (comparable to the time in which Liberia aspires to reach middle income), the average growth of the whole group was 7.1%, ranging from 1.5% in the Solomon Islands to 22.7% in Equatorial Guinea.

What are some of the lessons that Liberia can draw from the experience of these countries? While there was no “silver-bullet” that can explain the transition to middle income for all, some broad similarities exist:

Favorable external environment. Strong global demand and high prices for primary commodities in the years leading up to the late 2000s improved terms of trade and fueled income growth.9

Improvements in the business environment. The 2000s gave birth to a number of new indicators for tracking and benchmarking country performance on measures of the business environment

Some of the strongest performers overall, in terms of average GNI per capita growth, were resource-intensive economies: Equatorial Guinea, Angola, Azerbaijan and Turkmenistan, each with share of resource rents in GDP of more than 50%. However, a number of these countries also saw reversals in their terms of trade starting in 2008, which illustrates the risks associated with the boom-bust nature of commodity prices for resource-exporting countries.

Gains in human development. The Human Development Index (HDI) measures life expectancy, educational attainment and income. Each crossover country experienced an improvement in the HDI during the 2000s, even after excluding GNI per capita from the index to focus on the other measures of performance.

and many countries took up reform agendas. Almost all countries that transition to middle income achieved positive improvements in the absolute level of their business environment and governance indicators.

For example, Ghana, Lesotho and Senegal achieved significant improvement in business reform indicators. Congo, Cote d’Ivoire and Nigeria achieved significant improvement in governance indicators.

Dividends of sustained peace. Nine of the 33 countries that transitioned had experienced a period of war in the 15 years leading up to 2005, but were not at war in 2010. These countries experienced somewhat higher average short run GNI/capita growth compared to the group as a whole; however, they had significantly lower average 18-year growth. This suggests some effect of conflict recovery or a “peace dividend” in the short term but not in the long term.

The best performers improved the HDI by more than 15% cumulatively and include Yemen, Indonesia, Pakistan, Senegal and India. Other top performers on this measure included Mongolia, Nicaragua, Solomon Islands, Lao and Honduras. Overall, the short-term growth of these countries was on average less than that of the resource-intensive economies. However, resource-intensive countries were less likely to enact reforms that were as significant.

Table 2.2 shows selected economic and development indicators for low-income countries, for the group of countries that crossed to middle income in the last decade and for Liberia. It suggests that Liberia

9 The commodity prices index for all commodities published by the International Monetary Fund marked an increase from 63.2 in 2002 to 152.2 in 2010 (with 2005=100). Source: International Finance Statistics (IFS).

10 For example, the World Bank Doing Business index and Enterprise survey; the Global Competitiveness Report of the World Economic Forum, the index of Economic Freedom by the Heritage Foundation and others.

11 The only exception was Lesotho where the HDI declined due to a recorded decrease in average life expectancy.

12 REPUBLIC OF LIBERIA AGENDA FOR TRANSFORMATION: STEPS FOR LIBERIA RISING 2013

needs to play catch-up on many economic indicators in order to reach middle-income status, including its level of GNI per capita, share of industry and services in GDP, domestic taxes and savings. One advantage is Liberia’s competitiveness on the doing-business indicators (including a low tax rate) with many LICs and MICs—however, its infrastructure is a clear disadvantage compared to other countries.

Population indicators show that Liberia has a significantly lower population density than its peers, while fertility is higher than other countries. Moderate population growth is an important factor in achieving higher per capita wealth.