By Romeo D.N. Gbartea
The extractive industries have the potential of raising incomes, employment, improving the socio-economic situations in any environment, or provides for the industrial development of a country but the developmental scenario of Liberia becomes a mirage. The Government of Liberia under the leadership of President Sirleaf hired the expertise of a group of Liberian intellectuals in different study areas to review the past of Liberia and to define what will be the future of the country. This retrospective analysis highlighted issues in sociology, (Society), Demography, Environmental, Economic, Education, etc. The study envisaged that Liberia should be a Developmental State. This article gives an intellectual outlook or strengthens the minds of the readers on extractive industries, industrial development, and how Liberia can be a developmental state. It will serve as a guide on how the industries, the stakeholders in the country can improve, and put the real practical and patriotic nature into place to improve every sector of the country. For complete comprehension, this short intellectual piece is segmented into different sub-topics and it will critically analyze extractive industries and Industrial Development in the context of Liberia being a developmental state.
The Country, Liberia:
Liberia was founded through a courageous means by its forefathers in 1822 with independence on July 26, 1847. It is a country where the people make the electoral decision based on grassroots & kinship relationships, they don’t care whether you get ill-gotten wealth either from government or private entity, whether you are functionally literate or not, those who frequently disrespect the laws of the nation-state are part of the variable for electoral decision. Once you have a western education and you are living a good life, especially through your well-established profession, you are not seriously respected, only quasi expert(s) most times takes the airwaves. The country has not been properly managed by its political leaders since its foundation. Most of the citizens are weary to participate in an electoral process based on constant bad governance. For Jeremy Levit in his book, The Evolution of Deadly Conflict in Liberia: From ‘Paternaltarianism’ to State Collapse”, stated that Liberia is an aberration and archetype: in the African context, its political history is unique, yet its contemporary record is typical of other African states. It does not have a colonial legacy, except for the quasi-colonial period in which the American Colonization Society (ACS), an American pseudo-humanitarian association governed by white American slave owners, ruled the dominion (1822-1847).
A Liberia “Developmental State”:
The Vision 2030 document was a retrospective study conducted by a group of Liberian scholars, some of the intellectuals include: Prof. Amos C. Sawyer, Chairman, Governance Commission (led the research), Dr. S. Byron Tarr (Head, Economic Team), Prof. Dr. Elwood Dunn, Sis. Mary Laureen Browne (Educational & Curricula issues, Dr. Geetor Saydee/Hon. Larry Yonquoi, (Demographers), Mr. Romeo D.N. Gbartea (Industrial Sociologist, National Working Group & Head, Society)
In the context of the “Vision 2030 Document”, under the dynamic leadership of President Ellen Johnson Sirleaf, states that Concessions are the dominant production system in the monetized sector while Liberians operate primarily in subsistence agriculture and the informal sector. Growth has been erratic with a period of significant progress followed by stagnation and outright collapse. The robust economic growth recorded since 2006 maybe another short sequence as structural impediments to shared growth, including demographics, physical infrastructure, land tenure and property rights, implementation capacity, and peace and security remain.
The Liberian economy is characterized by increased dependency; other sources of dependency include Foreign Direct Investment (FDIs) and Official Development Assistance (ODA) debt and inappropriate public finance management. Liberia’s public finance management remains problematic: budgetary allocations have yet to conform to the government’s policy pronouncements, especially for agriculture, education, and health. Liberia remains an offshore corporate haven: Companies registered in Liberia but doing business exclusively outside the country are exempt from Liberian taxes. Liberia has had a dual currency system since 1944. Liberia’s budgets are expressed in US dollars although the Central Bank Act of 1999 established the Central Bank of Liberia and granted the CBL full powers of a Central bank.
The Vision 2030 envisaged that Liberia should be a “Developmental State”. This conceptual thought indicates that a significant break-away from the current development model to other more knowledge-based one is possible through strategic interventions. It states that in the absence of a strong private sector, the state must have strong capacity, knowledge, legitimacy, credibility and the political commitment needed for the necessary policy formulation and implementation to effect transformation. The state must have these attributes to also manage the number of tradeoffs associated with this scenario that may cause tension in society. However, whereas it is very unlikely that the developmental state scenario will have been completely achieved by 2030, significant progress will have to be made to show that the country is marked on the path of sustained growth and development.
Liberian Scholars’ Viewpoints:
There are many Liberian scholars who have contributed to knowledge in the areas of Extractive industries, Industrial development, and the Firestone Company, therefore this article has considered the scientific viewpoints of these scholars.
It is a true reality that economic history will always have to change hands, especially as life goes with them. Dr. Elwood Dunn, a longtime public sector worker of Liberia and a retired professor and a scholar emphasized in his 1979 book ” The Foreign Policy of Liberia during the Tubman Era-1944-1971“, that Liberia is in many times typical of the developing countries of Africa, an economically newly emerging, the non-industrial state desperately trying to accelerate production in all fields. The scholar continued by stating that significantly, the United States and European Economic Community import almost all of Liberia’s iron ore, rubber and frankly indicated that economic development programs also involve foreign policy. He says Firestone began operations in Liberia as far back as 1926 with other companies like the B.F. Goodrich Corporation, the Liberian Agriculture Corporation, the Salala Rubber Corporation, and African Fruit Company and there were 1900 independent Liberian growers, some of them were out of business while others are operating at a loss due to the uneven competition.
However, Professor Joseph S. Guannu, in his 2010 historical literature “Liberia History Since 1822″, stated that rubber was the principal industry in Liberia until it was replaced by iron ore in the 1970s. The story of rubber did not begin with Firestone in the 1920s. It goes as far back as 1894 when the government granted a British-Liberian company, the Monrovian Rubber Company, the right to collect wild rubber in the country. In 1904, the company opened a station on Dobli Island, Bong County, and by 1906 its name was changed to the Liberian Rubber Corporation. As interest in rubber increased, the Liberian was Rubber Corporation was empowered by the government to regulate the production and sale of rubber in the country. Royalty received by the government was eight cents per pound. Furthermore, he emphasized that under the direction of the corporation, 2000 acres were planted at Mount Barclay near Monrovia. Unfortunately, the plantation was forced to go out of business during the course of the first World War. He underscored that between 1922 and 1925, the price of rubber reached a very high mark on the world market. The price per pound climbed from 14 cents to $1.23. While the British in the far east produced about 75 percent of the world’s output, the American economy consumed almost that percentage of British production. This scenario hurt the young American automobile industry and compelled the industrialist Harvey S. Firestone to search for a place to grow rubber in his developing automobile industry. Interestingly, the search determined that Liberian soil was suitable to grow the rubber plant.
Moreover, in 1926, the government signed two major agreements with the Firestone Tire and Rubber Company. Through the first agreement, Firestone succeeded in obtaining a 99-year year lease on one million acres at an annual rental fee of six cents for every acre that was under cultivation. The yearly tax was one percent of the value of rubber exported. The second agreement was the Finance Corporation of America, which pertained to a five-million-dollar loan to Liberia for the purpose of paying off debts and covering expenses for infrastructural development. The life of the loan was forty years at an annual interest rate of 7 percent.
Policies of Liberia and Modernization Concept
This part of this unique article critically discussed the summary of the UNIDO Industrial 2018 report, the different industrial policies of Liberia and the modernization concept of Liberia. This aspect of the article is intended to contribute to knowledge and give the reader an educational perspective or broaden their minds on the different policies in the country.
Summary of the (UNIDO) Report of 2018
The United Nations Industrial Development Report of 2018 stated that industrial development has typically been studied from a supply-side perspective, ignoring the importance of demand. The initiation of industrial development, however, requires a critical mass of demand for manufactures. With the right set of conditions, the consumption of manufacturing goods can set in motion a virtuous circle of industrial development comprising income creation, demand diversification, and consumption. Initially, as income grows, demand shifts from necessities to more sophisticated goods. Unfortunately, Liberia is in the categories of the least developed and low-income country. When it is realized that if enough industrial capabilities are in place, this diversification can be a powerful driver of industrial development through the emergence of new industries. The expansion and consolidation of manufacturing industries, in turn, lead to increases in production efficiency and reduction in prices, which enable a broad-based division of manufactures through mass markets. Further increases in production efficiency, improve the purchasing power of all consumers, which create new disposable incomes and keep the circle turning. Around this circle, industries emerge and disappear, and new sources of income are created for consumers, workers, and entrepreneurs.
Liberia 2011 Industrial Policy
The Liberia Industrial Policy of 2011, clearly emphasized the significance of this article. The policy states that Liberia is blessed with abundant resources: fertile land for agriculture and tree crops, extensive forestry resources, minerals like iron ore, gold, diamonds, and extensive ocean and coastal areas. However, for many decades, these resources were extracted and exported without local processing or value-added. In addition to the loss of revenue, particularly important in countries dependent on revenue collected from non-renewable extractive industries, this scenario leaves very little room for job creation, and worst of all, communities in which these concessions operate are often time made vulnerable since their land is usually subject to concessions. Furthermore, Liberia also has an exceptional capacity for growth, especially in the agro-based industries as its current production levels are far below Liberia’s proven capacity in the past. For instance, before the civil conflict in the country, mining contributed to 62% of export revenue in the 1970s and 1980s, while in 2008 it contributed 1% to GDP.
The Government of President Ellen Johnson Sirleaf recognized the importance of industrial development in achieving the poverty reduction strategy (PRS). It was realized by Johnson’s Government that sustained industrial growth can benefit Liberians through greater opportunities for formal employment and rising wages; diversification of the economy to include more industrial activities can reduce Liberia’s dependence on natural resources, which can, in turn, insulate the Liberia economy from fluctuating commodity prices, as well as provide the foundation for more sustainable development not dependent on extraction of finite resources; employment opportunities in industries offer greater opportunities for skills development compared with self-employment or work in the informal sector. This can also positively impact gender issues as both men and women are able to access these employment opportunities. Furthermore, jobs are also more likely to produce a middle class than by direct redistribution of resource rents, and by distributing income more widely it insulates vulnerable populations from the typical side-effects of resource-driven growth spurts.
Growth Without Development
In 1966 a team of United States of America experts did an economic survey of Liberia, the report stated that there had been “enormous growth in raw materials produced by foreign companies for exports, but unaccompanied by either structural changes which could spread the increase in income among all layers of the population. In essence, they described the economy as “Growth without Development”. It has been stated that Liberia is a country with an African elite with very strong pro-west interests. The country today is the shambles, both economically and politically. Following president Tubman’s open-door policy, which allowed unrestricted foreign investments in Liberia and the participation of the indigenous of Liberia formally excluded from the mainstream of Liberia life by the Americo-Liberians, foreign capitals begin to flow into that country, Firestone plantation, various mining and a host of other concessions, are owned and run by Americans, Germans, Scandinavians, Swiss, and other non-Liberians. Lebanese and Syrians monopolize merchandising commodities. Indians, Sierra Leoneans, and other non-Liberians run large rubber and plantations owned by Americo-Liberians.
The Modernization Concept
There are many structural concepts, but according to the modernization concept, it states that what Africa needed to do is to embark on the road to development was the creation of the “entrepreneurial class,” the core of an indigenous bourgeoisie, and then with development aid pouring in from the west, industrialization would follow. This development theory is yet to be supported even by the pro-western countries in Africa. What we have found in African countries is what has been dubbed “growth without development.” The so-called African bourgeoisie (phantom bourgeoisie) is mere gatekeepers, people who still in government service simply for the sake of collecting illegal tolls on foreign businesses seeking to operate in their country. The well-structured intellectual, Daniel Offiong in 2001, in his “Globalization Post-no dependency & Poverty” described African bourgeoisie and their relatives, friends, concubines benefit in the process, serving as agents of western capital. Such persons are employed as managers and paid fabulous salaries and placed in conspicuous positions without any significant responsibility. This is what African Americans refer to as tokenism. In Africa, these people become monks without hoods because the responsibilities associated with people of their rank are not accorded to them. They are imposters.
Private Sector Development
According to the African Development Bank in 2013, Liberia emerged from its devastating civil war with a decimated private sector and the need for an improved business climate. Yet, Liberia knew of its past history that an attractive business environment is essential to attract investment. Liberia has made an effort to create a stronger enabling environment for private sector growth. Meanwhile, two contrasting facts bring home the dichotomy which characterizes the private sector in Liberia. On one hand, Liberia has attracted $16 billion in Foreign Direct Investment (FDI) since the end of the conflict. On the other, Liberia’s overall ranking on the 2012 DB index stands at 151 out of 183 ranked countries and it places the country higher than Ivory Coast (167), Guinea Bissau (171) and Guinea (179) but lower than Sierra Leone at 141. What these numbers actually show is that Liberia (and its neighbors) appear attractive to the foreign private companies able to respond to the natural resource potential on offer, but the sub-region as a whole is actually very under-developed with respect to an indigenous private sector. As such, it must be recognized that Liberia’s suffers from horizontal inequity in its private sector, with power and privilege exerted by foreign and domestic elites and poorly developed capacity within the indigenous segment of society.
Consequently, the “private sector” in Liberia has been characterized as having four segments, categorized according to whether the output is oriented towards domestic versus external markets and whether it operates in an environment that presents significant competitive pressure versus the opportunity to extract high “rents”. The bottom right quadrant includes Liberia’s indigenous fishing, farming, and artisanal mining communities on the one hand, along with predominantly Lebanese and Indian permanently resident “foreigners” who own and run small retail establishments, hotels, and restaurants on the other. What is vital to Liberia’s future is that entrepreneurs from this quadrant are helped to develop and move into the competitive quadrant in the top right. What this segment requires, aside from favorable policies and upgraded skills and education, is better infrastructure. Small businesses need better, cheaper communications, better roads, and transport infrastructure to reduce the cost of bringing goods to market plus low-cost production facilities to make their outputs competitive with imports.
According to the Agenda For Transformation (AFT) in 2012, the growth of private-sector businesses, outside the primary sectors, will be critical for the type of wealth creation that leads to poverty reduction and economic growth over the next five years. Achieving middle-income status will depend on this, no matter how much GDP is generated from large mines and plantations. The overarching goal of the Private Sector is to promote and sustain private sector development through enhanced economic competitiveness and diversification, increased value addition, and an improved administrative and policy environment. Commerce and small businesses—Micro-Small Medium Enterprises (MSME) are at the heart of our country’s private sector. Local traders, welding shops, and market women generate economic opportunities for themselves, their families, and their local communities and make a significant, but often unaccounted for, contribution to the Liberian economy. MSME will likely the main entry point to the labor market for the youth and disadvantaged, especially those who lack formal education. MSME grew in employment and output between 2008 and 2011, but not as rapidly as hoped. This was due to the establishment of a One-Stop-Shop for registry and other measures, MSME registrations in the formal sector have accelerated, especially for Liberian-owned businesses, although they remain a minority. Government assistance seems to have helped some firms, but not all.
The 2011 Poverty Reduction Stakeholder Survey in Liberia, it shows that government policies in the last three years enabled members of the community to set up and operate small businesses. The number of microfinance lenders increased from three (3) in 2006 to eight (8) in 2010, including Access Bank Liberia Ltd.; the number of deposits and borrowers grew from 300 to 50,000 over the same period. The entity is structured such that getting credit and receive less protection of their property rights. Their workers are left unregulated and often face unhealthy conditions. Staying in the informal sector, thus traps the enterprises in a lower equilibrium of small scale and low returns, creating a ‘hand to mouth’ existence. Lack of credit as a constraint to expansion was cited by over seventy percent of MSMEs. Furthermore, banks are inexperienced in lending to MSME, typically not in the formal sector, and are reluctant to lend because legal claims for loan repayment are difficult to enforce. Without deposit mobilization schemes, banks have no history established with potential borrowers, and such borrowers have insufficient equity to absorb normal income fluctuations that may otherwise lead a solvent enterprise to loan default due to temporary liquidity. MSME owners and managers typically lack knowledge of the technology and business practices that are needed to expand and create more jobs and wealth. They too often had lacked access to markets and information, which is an impediment to industrial development.
Progress and Challenges
The country has made progress over the years, in spite of prolonged poor governance. The oldest independent country in Africa with the first female president in Africa with many industrial policies, especially it has a Vision 2030 document that is guiding its short and long term perspectives. Consequently, the authority of President Sirleaf launched a reform program under Poverty Reduction Strategy 1 designed to improve the conditions for business. By 2010, major progress toward private sector development: Legislative Reform: Ten pieces of legislation have been passed, including a revision of the Investment Act, the first commercial code and the establishment of a commercial court; Business Registration: A new “one-stop-shop” has streamlined the processes for business registration, reducing by half the number of steps to register a business and reducing the time required from 99 to 20 days leading more than 7 thousand people to register or re-register their business; Trade logistics simplification through streamlining of import and export procedures, including automation and revision of the customs code, improved trust between government and the private sector achieved through public-private dialogue. As a result of these and other measures, Liberia was named as the “best global and regional reformer” of the year in the World Bank’s Doing Business Survey for 2009.
However, the Industrial Development report of 2018 of the United Nations Industrial Development indicated that Liberia is among the Least Developed and low-income countries in the World as it regards its industrialization level. It means that Liberia has a significant gap in Industrial Development. The civil crisis only further compounded this situation. Notwithstanding, the history of industrial development in Liberia has been such that the Government over the years employed a variety of measures to encourage foreign and domestic investment especially in the manufacturing sector.
It was reported in the United Nations Conference of Least Developed Conference in 2010 that the “open door” policy founded on the free enterprise system, improvement of the investment incentive code which offers customs and tax benefits, reorganization and strengthening of the Liberian Bank for Development and Investment, the main source of long-term and equity financing for the sector, creation of a free zone corporation charged with the development of 80 acres in the Monrovia Free Port to provide facilities for about seventy manufacturing enterprises, establishment of an industrial park in Monrovia, and initiation of a special program for small and medium enterprises.
Unfortunately, the growth of Liberia’s economy has historically been driven by extractive industries with no or little linkage to the wider economy, which had in the past resulted in “growth without development”. Liberia’s history of ‘growth without development’ is largely a story of the misapplication of resource rents. It was reported in the Liberia Constraints Analysis that Liberia iron ore exports are about to assume about 15% of GDP by 2015, rubber exports consuming the largest share of GDP in agriculture, combined with developments in the oil palm and hydrocarbon sectors, the role of natural resource rents in spurring growth remains central.
However, professor Amos C. Sawyer stated in 1992 in his book, The Emergence of Autocracy in Liberia: Tragedy and Challenge emphasized that the Firestone plantation came to Liberia as the result of several considerations. The failure of the Liberian government to obtain a $5 million U.S. government loan in the 1920s left it unable to retire its indebtedness to the Consortium of European and American banks and terminate the international receivership that had scrutinized and controlled its expenditure since 1906. The burden of rising debts to European powers, which also seemed to fit colonial designs on Liberian territory, created a “sense of desperation” among Liberian officials.
Moreover, efforts to obtain the United States guarantees of Liberian Sovereignty were never successful. While the Liberian government to ensure its security and economic relief, sought ways of obtaining U.S. assistance, British decisions regarding the supply of rubber focused on Liberia the attention of private American investors. By 1922, the US used 70 percent of the world’s production of rubber much of it destined to a rapidly expanding automobile industry. At the same time, British colonies accounted for 75% of the rubber much of it destined to a rapidly expanding automobile industry. At the same time, British colonies accounted for 75% of that production.
Problematically, the African Development Bank Group, in their 2013 “Liberia Country Strategy” indicated that Liberia now has the challenge to rebuild the capacity of its public sector administration and nurture the expansion of an indigenous private sector. Furthermore, the absence of capable and effective governance structures in many spheres of economic and political life meant that the drivers of the conflict could not previously find resolution through the legitimate institutional mechanisms. Foreign investment in Liberia remains substantial and is helping to open up development opportunities for all regions of the economy. But the concentration of Foreign Direct Investment (FDI) in the extractive sector and its minimal impact on the broader economy remains rich areas for policy exploration. The use of natural resource rents to spur the private sector through appropriate infrastructure investment remains priority area of focus. The Vision 2030 of 2016 illustrated that the Liberian economy is characterized by increased dependency; other sources of dependency include Official Development Assistance (ODA), Foreign Direct Investment (FDI), debt and inappropriate public finance management.
However, it is interesting to note that the Government of Liberia is centralized and it takes all the revenue and decides what’s happening to socio-economic conditions in the country, thereby creating a serious gap for the local government that hosts this plantation. This is a significant problem for the industrial development of the county. It must clearly be indicated that over-centralization of the political structures continue to pose problems for industrial development in spite of the deconcentration efforts that have implemented in four-county treasuries in Grand Bassa, Nimba, Bong, & Margibi and the fifteen county service centers coupled with the introduction of county & social development funds by President Ellen leadership. The concept of re-centralization is being introduced with the functionaries of government. The country challenges are enormous, but there is still hope if the government and its people are ready to restructure their thoughts and show extreme patriotism to enable or provide sustainable developmental programs in Liberia.
The implementation of industrial development in Liberia has to be practically re-examined. The developmental state scenario should be the pinnacle for Liberia’s sustainable development growth. The significant aspect of industrial development is to make a profit, create employment opportunities, respect the dignity of mankind, ensure that there is better health care, well established educational program, creating a peaceful environment, making sure that raw materials turned into finished products, etc.
However, private sector investment should be promoted and those gains made during the reign of President Sirleaf should be considered in the enhancement of industrial development. Patriotism should serve as the core for negotiation and industrial development. The thought of conflict should be erased from the mind of all Liberians. Workers in every industrial sector should be paid well, so as to create a motivational spirit or awareness for productivity. Those agencies of government responsible for monitoring and evaluation should also be paid well to avoid poor evaluation and monitoring reports. Thus, the core variables for industrial development in Liberia surround sincerity and commitment of statehood, working toward a developmental state.
Brief note about the Author:
Mr. Romeo D.N. Gbartea, holds, B. A., Sociology/ Economics; B.A. History/Anthropology; (University of Liberia). M.Sc, Industrial Sociology, University of Ibadan, Nigeria, Certificate, Fiscal Decentralization, and Financial Manag. Duke University, Ph.D. candidate, Industrial Sociology. and he was the employee of the year, 2016, Ministry of Finance & Development Planning and has written many reforms, journal papers and conducted qualitative and quantitative studies in Liberia. The Ph. D student has vice experience in public and private sector governance. He served as Vice Chairman for two hours in the (2003-2005), National Transitional Government of Liberia, under the mandate of Hon. Wesley Momo Johnson, Vice Chairman, National Transitional Government of Liberia. He worked as Decentralization Program Consultant for the Governance Commission for four years, under the guidance of Prof. Amos C. Sawyer, Former Interim President of Liberia. He has taught at the undergraduate and postgraduate programs at the University of Liberia, especially the Social Sciences: Anthropology, Industrial Sociology, and Research Methodology. He is married and has two daughters: Rojoe L.M. Gbartea and Rophine S.M. Gbartea.