Perched on the bottom tip of Northwest Africa between the Atlantic Ocean, Cote d’Ivoire, Guinea and Sierra Leone, Liberia is a country that suffered mightily throughout much of the latter portion of the twentieth century.
Following a series of military coups and crushing civil wars, the country has emerged under the capable leadership of Africa’s first female chief of state – Ellen Johnson Sirleaf.
Sirleaf, a western-educated Nobel Prize winner, has run Liberia after winning democratic elections in 2005 and 2011. In her hands, Liberia has begun the long process of reconstruction and recovery from nearly a quarter century of tumult and strife that began in 1980 with the overthrow of the then-incumbent president by Master Sgt. Samuel Doe.
Doe, a member of an ethnic group long excluded from power in Liberia by the country’s ruling Afro-American elite, instituted a reign of terror that culminated in his armed overthrow by rebel factions led by Charles Taylor in the late 1990s.
Taylor, who is now a convicted war criminal serving 50 years for crimes against humanity, proved little better as a leader than Doe, and like his predecessor, looted and terrorized his own country while simultaneously assisting rebel groups in next door Sierra Leone.
Military pressure from rebels, the U.S. and Nigeria eventually led to Taylor’s resignation and flight from the Liberian capital of Monrovia in July 2003, setting the stage for a comprehensive peace agreement between the remnants of the Liberian government and rebel factions a month later in Accra, Ghana. A provisional government then set the stage for new elections, leading to Sirleaf’s victory in January 2005.
While recovery from civil war has been slow, Sirleaf has been a sure hand at the helm. Her experience in finance and banking has assisted her in rebuilding her tattered country while her democratic legitimacy – both her elections in 2005 and 2011 were touted as the freest and fairest Liberia has ever had – gives her a strong position vis-a-vis the country’s many competing factions.
In many respects Liberia is similar to Rwanda in that it is a country rebuilding after horrific violence which nearly destroyed Liberian society. However, unlike Rwanda, Sirleaf does not rule as a boss of an ethnic political machine, albeit an inclusive one, that is ultimately backed up by force.
Given that most security functions in Liberia are carried out by U.N. peacekeepers, Sirleaf would have little opportunity to resort to force to back up her rule even if she wanted to. Thus, with Liberia effectively under international protection and U.S. tutelage, democracy, finally, seems to be taking root. Given this, what are conditions like for businesses in Liberia?
Liberia currently ranks 155th out of 183 countries on According to the World Bank’s Ease of Doing Business Index – a measure created by the to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses.
By comparison, the U.S. ranks 4th for ease of doing business, right after Singapore, Hong Kong, and New Zealand. This means that Liberia is a very difficult place to do business.
What does this ranking mean? Take, for instance, the bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. From the figure one can see that the bank defines business-creation costs as the time and money involved in the series of legal steps an entrepreneur must take to legally establish an in-country firm. Using this framework, the bank then tasks researchers to go through this process in order to establish in-country averages.
When this metric is applied to Liberia, the bank finds that Liberia ranks 64th out of 183 in ease of starting a business, making Liberia a relatively easy place to start a commercial enterprise. To start a business in Liberia, one has to complete five bureaucratic procedures that take a total of 20 days at a total cost of only $86, with no minimum capital required by the government for the start-up. Needless to say, these are very benign conditions for outsiders seeking to start a business in Liberia, but given that per capita income is $160 a year, it is still nonetheless steep for native Liberians.
Figure 1:
How the World Bank Measures Ease of Starting a Business
Using similar metrics for other aspects of business operations, the bank has ranked Liberia in a number of other areas. To obtain a construction permit, for instance, Liberia is ranked 135th out of 183 as it takes the completion of 24 procedures which take 77 days at a cost of nearly $50,000 – nearly 300-times gross national income – to begin construction on a given property. Clearly, this is a huge problem for not only Liberians but foreigners seeking to start a business as well.
Continuing in its assessment, World Bank determined that in order to obtain and register property, Liberia ranks at a truly terrible 176th out of 183 countries measured. To register property in Liberia, it takes the completion of 10 bureaucratic procedures lasting 50 days and costing 13.2 percent of the property’s financial value in fees and other costs to complete.
Liberia is also a difficult place to obtain credit, ranking 138th out of 183. Here, as depicted in Figure 2, the bank examines the legal rights of creditors and borrowers in secured transactions and bankruptcy law as well as the strength of credit information bureaus and exchanges. When lenders have both strong legal rights and easy access to a wide variety of information about the clients’ creditworthiness, credit will be more available. For Liberia, while creditors have some legal rights, there is next-to-no information available on most borrowers – making lending a huge risk.
Figure 2:
How the World Banks Conceptualizes Credit Acquisition
Liberia, unfortunately, is also terrible at protecting investors and minority shareholders. The bank ranks the country 147th out of 183 countries. While it is somewhat easy to bring minority lawsuits, there are few and relatively weak laws pertaining to board disclosures and next-to-no liability laws constraining board and director actions. When investing in a Liberian company, therefore, the rule of the game is buyer beware.
Next, Liberia does better, though not great, in the area of taxation. World Bank estimates that pleasing the tax man requires a total of 32 payments over the course of a year which take up to 158 hours to complete and consume up to 43.7 percent of a company’s profits. Accordingly, Liberia’s tax burden is ranked at 84th out of 183 nations.
Liberia is also a middling country when it comes to engaging in cross-border trade. In Liberia, to import goods into the country one is required to have nine documents for customs officials to inspect. On average, it takes 15 days to import goods into Liberia costing $1,212 (excluding tariffs) per container.
Exporting goods is relatively similar to importing as Liberia requires 10 documents to be inspected by customs’ officials, while the total cost (excluding tariffs) is $1,232 per container with delivery taking up to 17 days from point of origin. Compared to global averages this nets Liberia a ranking of 116th out of 183 on ease of engaging in cross-border trade.
Liberia is also terrible in the area of contract enforcement, ranking 166th out of 183 countries. On average, World Bank reports it takes 41 legal procedures to take a contract from dispute to resolution, at the cost of 1,280 days – or nearly three-and-a-half years – spent in court or otherwise attending to legal issues. The financial cost of pursing a contract claim, says the bank, is also high, and typically accounts for nearly 35 percent of the value of the claim.
Finally, in terms of closing or liquidating a business, the World Bank also ranks Liberia at the bottom of the pack. It takes three years to close an estate at a cost of 43 percent of the value of the estate, for a recovery rate of 8.4 cents on the dollar. This gives Liberia a ranking of 148th out of 183.
Table 1 presents a summary of these rankings as well as Liberia’s overall ease-of-doing business rating. As one can see, most every aspect of conducting business in Liberia is either time consuming, expensive, or otherwise difficult.
Table 1:
World Bank Ease of Doing Business
Assessment and Rankings: Liberia
As might be expected, rebuilding Liberian society after such a devastating civil war and prolonged period of kleptocratic misrule is not easy. The country is digging itself out of a deep hole with most kinds of infrastructure – economic, legal, industrial – having either been destroyed by the war itself or left to deteriorate due to lack of maintenance and investment. Even around the capital roads are shoddy and electricity relatively scarce, compounding difficulties.
That said, countries that start from such a low base tend to grow quickly once the initial shocks of chaos and calamity have finished destroying what previously existed. Liberia is no different, and since Taylor’s ouster and the transition to democracy under President Sirleaf, the Liberian economy has grown considerably, racking up impressive growth rates in the last several years. If the civil war and transition period of 2003 to 2004 is dropped from the figures, Liberia has averaged 11-percent growth since 2005. This would make Liberia one of the fastest-growing economies in Africa.
Figure 3:
Liberian Percent GDP Growth, 2003 – 2012
Figures, of course, can be deceiving. This fast growth rate represents a return of more regular economic activity, to be sure, but this activity is nonetheless of the traditional type found in most primary-product African economies. Liberia’s economy centers on the production and exportation of timber, rubber, diamonds, iron, coffee, and cocoa with a few very small industrial operations involved in further processing these resources once harvested, mined, or otherwise extracted. In return, the country imports manufactured consumer and capital goods as well as food. Finally, while high commodity prices are in general good for Liberia, its dependence on global markets for its energy needs means that it must import petroleum at very high prices.
While the primary-products economy continues to recover, in the meantime the government and much else in the country remain dependent upon two significant outside sources of finance. The first consists of fees paid by international shipping and maritime companies to the Liberian government for the right to fly the Liberian flag – which is a flag of convenience for shippers wishing to avoid onerous tax and regulatory burdens in more developed countries. During the most recent civil war, for instance, flag fees paid by maritime operators to the Liberian government – meaning Charles Taylor – amounted to many millions of dollars annually.
The second source of outside finance is foreign aid and debt relief, which has become increasingly important as the country does the hard work of rebuilding its shattered infrastructure. President Sirleaf has made obtaining debt relief for her country a major concern of her administration and to date has been relatively successful in getting creditor governments to write off significant portions of her country’s foreign debt. Sirleaf has also pledged to keep borrowing below three percent of GDP, which she has so far done, and to use any borrowed funds for the reconstruction of vital infrastructure.
In terms of foreign aid, donor countries and organizations have poured billions into Liberia. In 2011, for instance, the country received over $700 million from government donors alone. While this aid may be vital in keeping services going and in funding badly-needed development projects, Liberia is arguably dependent upon Western largesse and looks set to remain that way for some time to come. Indeed, the country is something of an international protectorate – in many ways not unlike Bosnia and Herzegovina in Europe.
Unfortunately, despite these efforts, the vast majority of Liberians remains desperately poor and the business community largely dominated by ethnic Indians and Lebanese, not Africans – meaning the poorest of the poor are locked out of the country’s economic activity. In large part this is due to the fact that Liberia is exceedingly corrupt, and a major issue – as can be seen in Liberia’s Ease of Doing Business Rankings – is the degree to which this makes opening, operating, and profiting from businesses a difficult endeavor. To be sure, there has been some degree of foreign business investment in Liberia – see BET founder Bob Johnson’s 2010 deal to build hotels in Monrovia – but to lift Liberians out of poverty the government must do more to ensure that its own people can start businesses on their own.
Or, rather do much less. Assuming that infrastructure reconstruction continues to slowly improve connections with the outside world and within the country itself, the best thing Liberia could do is to lower the immense tax and regulatory burdens it currently has in place.
The high costs associated with owning and developing property, for instance, are clear barriers to starting a legal business and almost guarantee daily recourse by average Liberians to bribery and the black market.
Lowering the regulatory burden would bring the country’s extensive gray and black markets into the open and make it easier for Liberians to wean themselves off aid through enterprise and entrepreneurship.
