Abstract
1. This paper analyzes Liberia’s economic growth potential and suggests economic policies to help realize it as much as possible. Two devastating civil wars during 1989-97 and 1999-2003 plunged Liberia into poverty, with real GDP per capita now only a third of it once was. At US$680 in 2021, it is the 35th lowest out of 43 ranked Sub-Saharan Africa (SSA) countries and well below the continent’s average of US$1,600. The poverty rate stood at 51 percent in 2021, also significantly above the SSA average of 44 percent. Raising living standards through sustainable inclusive growth is thus easily at the top of the economic policy agenda. The Government of Liberia is targeting at least 5.8 percent per year by 2023 in its National Development Plan, the Pro-Poor Agenda for Prosperity and Development (PAPD). But how do we get there? What insights does the growth track record offer about Liberia’s drivers and impediments to growth and the economy’s true potential? What policies are most promising to help unlock it?
Liberia’s Growth Potential and how to Get There1
1. This paper analyzes Liberia’s economic growth potential and suggests economic policies to help realize it as much as possible. Two devastating civil wars during 1989-97 and 1999-2003 plunged Liberia into poverty, with real GDP per capita now only a third of it once was. At US$680 in 2021, it is the 35th lowest out of 43 ranked Sub-Saharan Africa (SSA) countries and well below the continent’s average of US$1,600. The poverty rate stood at 51 percent in 2021, also significantly above the SSA average of 44 percent. Raising living standards through sustainable inclusive growth is thus easily at the top of the economic policy agenda. The Government of Liberia is targeting at least 5.8 percent per year by 2023 in its National Development Plan, the Pro-Poor Agenda for Prosperity and Development (PAPD). But how do we get there? What insights does the growth track record offer about Liberia’s drivers and impediments to growth and the economy’s true potential? What policies are most promising to help unlock it?
A. Liberia’s Economic Growth Record
2. Liberia’s growth performance since the end of the civil war in 2003 is comparable to that of SSA as a whole and other low-income countries (LICs) but shows two distinct phases. On average, real GDP grew at an annual rate of 4.2 percent between 2003 and 2021, corresponding to 1.1 percent in per capita terms. This is not far off SSA’s average growth rate of 4.4 percent and somewhat weaker than the LIC average of 5.3 percent. Like the SSA and LICs groupings, growth in Liberia was stronger in the first decade than in the second, but the swing was much more pronounced, with a very strong 6.7 percent reading during 2003-13 and a painful setback during 2014-21 when the economy contracted by -0.6 percent per year, despite sizable population growth.
Liberia and Selected Regions: Real GDP Growth
(Percent)
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, WEO; and IMF staff calculations.Liberia and Selected Regions: Real GDP Growth
(Percent)
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, WEO; and IMF staff calculations.Liberia and Selected Regions: Real GDP Growth
(Percent)
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, WEO; and IMF staff calculations.3. In the first decade after the end of the civil war, the economy benefitted from solid economic policies and several important tailwinds. Peace allowed the resumption of economic activities that had stopped, giving rise to a rebound effect, and spending on the reconstruction of infrastructure gave the economy a welcome jolt. The presence of the United Nation’s peace keeping operation (United Nations Mission in Liberia, UNMIL) from late 2003 was instrumental for securing peace and establishing confidence, but it also had a strong economic stimulus effect through its budget that peaked at 60 percent of Liberia’s GDP. With the signing of a concession agreement with ArcelorMittal, iron ore mining took off, which became Liberia’s main export. When the first post-war elected government took office in 2006, the economic recovery at first slowed, but sound macroeconomic policies and reforms that strengthened institutions accompanied by an IMF-supported program gave rise to solid growth through 2013. In 2010, Liberia received debt relief from the IMF and the World Bank under the Heavily Indebted Poor Countries (HIPC) Initiative that reduced the external debt stock to 15 percent of GDP from 90 percent of GDP, thereby further catalyzing donor support.
4. From 2014, the economy stalled amid a series of negative shocks and policy slippages. During 2014-15, Liberia was hit hard by the regional outbreak of the Ebola pandemic. International support lessened the human toll and the financial impact, but a recession could not be avoided. The large aid flows also led to an expansion of public administration and the health sector, which proved difficult to reverse later on when priorities shifted, leading to a compression of investment. UNMIL’s operations and spending was wound down until the mission was terminated in early 2018, turning what used to be a stimulus into a drag on economic activity. International iron ore prices, which had averaged some US$150 per ton during 2010-13, plunged to US$55 per ton in 2015 and the recovery back to US$100 per ton took until 2020. The change in administration in 2018 led to a temporary loss of macroeconomic control as the government turned to central bank financing in the face of budget pressures, with inflation rising to 30 percent and the Liberian dollar losing 40 percent of its value. A new IMF-supported program to restore macroeconomic stability and repair reform setbacks was starting to gain traction in early 2020 when the COVID-19 pandemic plunged Liberia, along with the global economy, into a recession. Economic activity rebounded in 2021 as the pandemic eased and lockdowns had been lifted, but barely make up the ground lost in 2019 and 2020.
B. Sources of Growth
5. Growth accounting is a widely used approach in economic analysis to disentangle the sources of GDP growth. Essentially, it tries to decompose the headline number for GDP growth into the contributions from labor and from capital, where capital is typically further split into physical and human capital. Whatever cannot be explained by these factors is captured by a residual, which is referred to as total factor productivity (TFP). This is because, if the additional labor employed, the increase in workers’ skills, and the additional machines used do not fully explain GDP growth, it must be that processes have become efficient or that technical progress has made the economy more productive. Not all the fluctuations in productivity measured this way reflect structural changes though. Cyclical forces can also be at play. A downturn in demand increases the slack in the economy, so that factors are not fully employed and hence produce less output with the same measured inputs. Moreover, since TFP is a residual, it also picks up mismeasures and the contribution from all other factors not explicitly considered in the exercise. For example, workers’ skills are typically measured as years of schooling, but the quality of schooling and experiences outside formal education also make a difference. The growth of capital is typically measured as aggregate investment as per the national accounts, without differentiating between highly useful projects, such as a critical road, or inadequate projects, like a bridge that is never finished. Regarding employment, when data are not available, it is sometimes proxied by population growth, which gives rise to mismeasurements that get subsumed into TFP growth.
6. The growth accounting exercise for Liberia uses standard assumptions and data sources. As often in growth accounting, a Cobb-Douglas production function is used to model how labor and capital combine to produce output. Data availability is scant in the case of Liberia, requiring the making of strong assumptions. The labor share of income is estimated at 55 percent by projecting labor shares on income levels, employment rates, and consumption shares of GDP for a sample of other countries. This is somewhat less than the international average, probably reflecting the importance of Liberia’s mining sector. Data for capital are sourced from the Penn World Table 10.0 (Feenstra and others, 2015), with capital stock data reconstructed from capital-output ratios. Years of schooling proxy human capital. Model-based data from the International Labour Organization (ILO) are used to measure employment. Data are only available for the period 2003-19, thus omitting the recession brought on by the COVID-19 in 2020 and the rebound in 2021.
Liberia: Growth Accounting: Annualized GDP Growth and Its Components
Liberia: Growth Accounting: Annualized GDP Growth and Its Components
| GDP | Capital | Employment | Human Capital | TFP | ||
| 2003-2014 | 6.5% | 0.5% | 1.8% | 0.4% | 3.8% | |
| 2014-2019 | -0.1% | 1.6% | 1.5% | 0.4% | -3.6% | |
| 2003-2019 | 4.5% | 0.9% | 1.7% | 0.4% | 1.5% | |
| (memo items) Growth rate of relevant factors | ||||||
| Per Capita GDP | Population | Capital | Employment | Human Capital | ||
| 2003-2014 | 3.4% | 3.2% | 1.0% | 3.2% | 0.8% | |
| 2014-2019 | -2.6% | 2.5% | 3.6% | 2.8% | 0.7% | |
| 2003-2019 | 1.5% | 3.0% | 1.8% | 3.1% | 0.7% | |
Liberia: Growth Accounting: Annualized GDP Growth and Its Components
| GDP | Capital | Employment | Human Capital | TFP | ||
| 2003-2014 | 6.5% | 0.5% | 1.8% | 0.4% | 3.8% | |
| 2014-2019 | -0.1% | 1.6% | 1.5% | 0.4% | -3.6% | |
| 2003-2019 | 4.5% | 0.9% | 1.7% | 0.4% | 1.5% | |
| (memo items) Growth rate of relevant factors | ||||||
| Per Capita GDP | Population | Capital | Employment | Human Capital | ||
| 2003-2014 | 3.4% | 3.2% | 1.0% | 3.2% | 0.8% | |
| 2014-2019 | -2.6% | 2.5% | 3.6% | 2.8% | 0.7% | |
| 2003-2019 | 1.5% | 3.0% | 1.8% | 3.1% | 0.7% | |
7. For the period 2003-19 as a whole, employment and TFP were the main drivers of growth. At around 3 percent, employment growth closely mirrored population growth, and contributed 1.7 ppts to total GDP growth of 4.5 percent. TFP added another 1.5 ppts. Due to limited progress with improving educational attainments in Liberia, human capital grew quite slowly at only 0.7 percent, contributing a modest 0.4 ppts. Due to relatively low investment, the capital accumulation added only another 0.9 ppts.
8. The sharp drop of growth between the first and the second decade after the end of the war reflects a large swing in TFP growth. Employment and human capital growth were about the same in the two subperiods. Educational attainment of the labor force cannot be changed very quickly without a major effort, and employment closely tracked population growth throughout. Interestingly, capital accumulation actually accelerated. As a result, TFP growth plunged with its contribution declining from +3.8 ppts to -3.6 ppts.
9. The large decline in the TFP growth contribution probably reflects to some extent cyclical factors, but it is nonetheless disconcerting. The series of negative shocks in the second subperiod no doubt increased the slack in the economy, thereby depressing TFP. Unless there is a repeat of an unlucky streak, TFP should rebound automatically going forward. However, more pernicious forces were likely also at work. Labor productivity might have declined as rapid labor force growth could have increasingly biased employment growth toward the informal sector. According to the 2016 Household Survey, formal employment account for only a quarter of total employment, but with no further surveys conducted, the hypothesis of increasing informality cannot be verified. There is some evidence that the productivity of capital might have decreased, with the data showing that the share of construction increased at the expense of outlays for machinery and equipment. In education, the opportunity to make more progress after the initial rebound in enrolment right after the end of the war seems to have been missed. And any structural reforms appear to have been insufficient to stem the drop in the growth contribution of TFP.
C. Policies to Spur Growth
10. Distilling policies to spur Liberia’s economic growth requires deeper analysis. While sustainable growth needs to be mainly driven by the private sector, which is not under the direct control of policy makers, there is still a lot that the government can do in its own domain and in terms of creating a more favorable environment for private businesses. The main levers are public education, public investment, and the business climate and access to financing. Because some of the measures that would in principle be desirable, such a massive infrastructure program, may not be affordable for now, opportunities for efficiency gains deserve particular attention, along with business climate reforms, which are largely costless. Efficiency enhancing reforms should be pursued in parallel with efforts to mobilize more domestic revenues and support from development partners to expand the overall envelope. Education and infrastructure investment should be afforded high priority when any extra resources are allocated.
Human Capital: Education
11. Educational attainment and public spending on education are comparatively low in Liberia (Figure 1). Net enrollment is lower than in SSA and LIC peers. Only 51 percent of school-age children attend school and overage and drop-out rates in primary school are high (IMF, 2019). Expected years of schooling of 4.2 years are the lowest in SSA, where they average 8.3 years. Harmonized test scores are amongst the poorest on the continent. The share of public expenditure that Liberia devotes to education is only about half the SSA or LIC averages and so is spending per student in primary education in PPP-adjusted terms, although the deficit is less stark at the secondary and tertiary levels. Education spending is also highly skewed toward wages and salaries, which account for almost 90 percent of the total during 2015-20. Accordingly, teacher-student ratios are more favorable than the SSA and LDC averages. But teacher quality seems to be an issue. The Ministry of Education (2016) estimates that only 50 percent of early childhood education staff, 62 percent of primary school teachers, and 34 percent of junior and senior high school teachers have the minimum qualifications for their positions. This may be one of the reasons why the gap between average years of schooling and average years of learning-adjusted schooling is particularly large, with the latter pegged at just 2.2 years.
Liberia: Education Spending and Outcomes
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, Expenditure Assessment Tool (EAT); Worlds Bank, HDI; and IMF staff calculations.1/ Latest data available.2/ Dashed lines indicate the SSA average.Liberia: Education Spending and Outcomes
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, Expenditure Assessment Tool (EAT); Worlds Bank, HDI; and IMF staff calculations.1/ Latest data available.2/ Dashed lines indicate the SSA average.Liberia: Education Spending and Outcomes
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, Expenditure Assessment Tool (EAT); Worlds Bank, HDI; and IMF staff calculations.1/ Latest data available.2/ Dashed lines indicate the SSA average.12. The analysis suggests considerable scope for efficiency gains in the education sector. Simply augmenting education spending to the level in the rest of SSA and changing nothing else may be difficult—it would cost the equivalent of 1.4 percent of GDP to match the SSA spending ratio and almost 2.5 percent of GDP to match the average SSA spending per student in PPP-adjusted terms. However, there is scope for efficiency gains from resource reallocations. Resources should be shifted to education from other sectors. For example, it seems hard to justify that the budget allocation of the Legislature is only some 30 percent lower than the one of the entire education sector. Within the education sector, there is a case for shifting resources from wages and salaries to teaching and learning material and school infrastructure. Other efficiency enhancing measures include a bigger emphasis on teacher training, paying particular attention to teaching in rural areas, and scaling up school feeding program to keep children in school. The existing, though rudimentary, school feeding programs provide a ready basis to build upon. Liberia has also begun to clean up the learner data captured in the Education Management Information System (EMIS) to eliminate ghost learners, thus facilitating a more efficient regional allocation of education resources.
Physical Capital: Infrastructure and Public Investment
13. Large infrastructure gaps hamper Liberia’s growth prospects (Figure 2). Liberia features the lowest percentage of paved roads among selected Economic Community of West African States (ECOWAS) countries. This makes domestic and international trade challenging, especially during the rainy season when unpaved roads often become impassable. Similarly, electricity production and consumption are extremely low compared to peers, while tariffs are extremely high, even after they were cut by about one third in December 2021. Supply by the Liberia Electricity Company (LEC) is also highly unreliable, with large companies, like the local cement producer or Monrovia Airport, and most households not even bothering to connect. Capital accumulation is held back by a lack of domestically financed public investment. Out of total public investment of around 10 percent of GDP in 2021, only 0.2 percent of GDP came from the central government’s budget, with the rest financed by development partners. Only modest amounts tend to be allocated to investment in central government budgets to begin with and they are then typically further compressed in budget execution when revenues fall short or current expenditures overrun their allocations. The incremental capital output ratio (ICOR), a common indicator of investment efficiency, suggests that the productivity of new investment has tanked in the last ten years and is now the third lowest in SSA.2
Liberia: Infrastructure and Public Investment
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: Liberian authorities; GFS database; PIMA; Penn World Table; and IMF staff calculations.1/ Under-execution of the PSIP may be overestimated as some current spending tends to be misclassified as investment in budget, but when outturns are reports, some investment is also recorded as current spending due to weakness in the government’s reporting systems.Liberia: Infrastructure and Public Investment
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: Liberian authorities; GFS database; PIMA; Penn World Table; and IMF staff calculations.1/ Under-execution of the PSIP may be overestimated as some current spending tends to be misclassified as investment in budget, but when outturns are reports, some investment is also recorded as current spending due to weakness in the government’s reporting systems.Liberia: Infrastructure and Public Investment
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: Liberian authorities; GFS database; PIMA; Penn World Table; and IMF staff calculations.1/ Under-execution of the PSIP may be overestimated as some current spending tends to be misclassified as investment in budget, but when outturns are reports, some investment is also recorded as current spending due to weakness in the government’s reporting systems.14. Like in the education sector, there seems to be ample room to boost the efficiency of public investment. Again, just increasing public investment to match the SSA average is not an option. It would add 6 percent of GDP to government spending. That said, some improvement in the mix between current and capital spending is possible, by allocating any additional resources primarily to investment, containing the wage bill, and better protecting investment in budget execution. Better public investment management could boost projects’ efficiency. The IMF’s 2016 Public Investment Management Assessment (PIMA) estimates an overall efficiency gap with respect to physical indicators of 38 percent compared to the SSA and LIC averages. A host of factors is responsible: low institutional strength to manage the public investment program in the areas of multi-year budgeting and safeguarding availability of funding for the selected projects; low institutional effectiveness for project coordination at the local level; insufficient alignment of project selection with national priorities; lack of project monitoring; limited coverage that omits about 60 percent of donor-funded projects; and low transparency of execution due to limited monitoring, evaluation and ex-post audits. Insufficient and late national co-financing of donor-financed projects leads to undue delays or even the loss of projects that would have come at little cost to the budget (Box 1). Finally, much remains to be done to reform mismanaged public entities, such as LEC, which struggles financially and provides poor services despite charging very high tariffs.
Liberia: Timelines for the Southern Corridor Road Asset Management Project
The Southern Corridor Road Asset Management Project (SECRAMP) is among the government’s priority projects in line with the PAPD’s goal of building roads to connect Monrovia to the rest of the country and the region. The project aimed to rehabilitate and upgrade at least 104 kilometers of road stretching from Ganta to Tappita along the Ganta-Zwedru road corridor through a 15-year public-private partnership (PPP) arrangement. The project was expected to be financed with US$118 million from the government, the World Bank, other development partners, and the private sector, following the success of a similar investment model for bringing investment to the Free Port of Monrovia. Private financing would be paid back with resources from the National Road Fund, which was set up in 2016 by the Road Fund Act and is financed by revenues from a US$0.30 per gallon fuel levy with an estimated annual revenue yield of around US$30 million.
The project was approved in December 2018, construction was expected to begin in 2019, and completion was targeted for 2024. The project included a three-year window after construction to address defects and institution building. However, following delays in remitting funds to the National Road Fund and disagreements between the government and fuel suppliers, which jeopardized income flows of the National Road Fund, private investors pulled out. The project was subsequently restructured, leading to the splitting of the project into two sections: 39 km from Ganta to Saglepie to be financed by the government and 61 km from Saglepie to Tappita to be financed by the World Bank. Construction eventually began in 2021. Currently, 12 km of the government financed section have been completed while construction on the World Bank financed section is expected to commence in October 2022. Construction is now scheduled to be fully completed in 2026, 2 years later than originally planned.
15. In the context of the IMF-supported program, the government has expressed commitment to important reforms to address many of the identified issues besetting public investment. In the Public Sector Investment Program (PSIP), projects that are already underway will get priority. A framework paper to improve the public investment management cycle will be prepared with a view to better integrating donor-financed projects and developing a pipeline of approved sector projects. Funds allocated to investment will be better protected in budget execution by strictly adhering to the Public Financial Management Act and the Budget Transfer Act. The Ministry of Finance and Development Planning (MFDP) should also review its organizational structure to ensure an appropriate allocation of roles and functions, adequate communication, and sufficient resources to provide effective management of public investment. Moreover, as part of the IMF-supported program, the authorities have undertaken to reform LEC. The additional resources made available to the government through on-lending of part of the August 2021 SDR allocation by the Central Bank of Liberia (CBL) are predominantly earmarked for public investment.
Business Climate and Access to Financing
16. Structural reforms are a promising avenue to promote growth. The economic literature establishes clear links. For example, Hausmann, Pritchett and Rodrik (2005) find a strong effect on economic growth from structural variables, including openness to trade, the presence of marketing boards and socialist economic regimes, black-market premia for foreign currency, and financial liberalization. In a sample of African countries, Ncube, Soonawalla, and Hausken (2021) demonstrate a positive association between economic growth and improvements in the conditions for starting a business. Moreover, female labor force participation tends to rise when institutions to enforce contracts are strengthened. According to Kim and Lee (2021), reenforcing the growth orientation of structural conditions promotes medium-term growth. Peruzzi and Terzi (2021) underscore that structural reforms are particularly effective when tailored to local conditions. Within structural reforms, improving access to financing deserves particular attention. It is instrumental for small and medium-sized firms to grow and create jobs. King and Levine (1993) show in their seminal paper that financial development entails stronger economic growth. Bah and Fang (2015) find that financial development explains large parts of the TFP variation across SSA countries.
17. Liberia’s national development plan recognizes the importance of a favorable operating environment for businesses. According to the PAPD, the following challenges faced by Liberian firms need to be addressed: (i) a weak legal and regulatory framework; (ii) fragile and unclear property rights; (iii) poor infrastructure; (iv) high energy costs, especially for electricity; (v) excessive administrative and regulatory burdens due to red tape, corruption, and lack of transparency; and (vi) difficulties to access finance at affordable terms, particularly for longer maturities. The World Bank’s Enterprise Survey for Liberia (2017) echoes these concerns. The five most binding constraints for small firms are, in declining order of importance: access to finance, availability of electricity, taxation, access to land, and customs and trade regulations.
18. Despite the recognition of these reform needs, progress has so far been limited. The government established the Business Climate Working Group (BCWG) and took a few actions, such as issuing Executive Order No. 96 geared toward stimulating growth by streamlining administrative requirements for businesses, aliens, concessionaries, and property owners. Obtaining work and residence permits has indeed been simplified and some fees and duties have been cut. In another positive development, port procedures are being simplified and digitalized in a collaborative effort between the port and revenue authorities. Several conferences with business leaders have been held, most recently the National Symposium on Business Climate in June 2021 as a part of the 4th National Judicial Conference. Reform matrixes have been drawn up, but the Business Climate Secretariat at MFDP, which is tasked with coordinating the efforts amongst implementing agencies, is getting little traction. Business leaders are likewise expressing frustration.
19. In the context of the IMF-supported program, an effort is now being made to reinvigorate business climate reforms. The focus is on three specific priority areas (i) facilitating trade across borders and inside Liberia, with a reduction of excessive security checkpoints a particular objective; (ii) registering businesses through digitalization, harmonization, and a one-stop shop at the Liberia Business Registry; and (iii) the enforcement of contracts by strengthening the Commercial Court. At this point, plans are still rather general, but the authorities have initiated consultations with stakeholders. To maintain the momentum, the authorities have set themselves the program target to develop an implementation plan with concrete actions, milestones, and responsibilities by December 2022.
20. It would also be highly desirable to advance reforms that promote financial sector development in parallel. At just 17 percent of GDP, bank credit is low by SSA standards, where it averages almost 40 percent of GDP, and indictors of financial inclusion likewise show deficits (Figure 3). Moreover, the gender gap in access to finance is one of the largest on the continent. The jump in the number of mobile accounts during the COVID-19 pandemic, which brought Liberia close to the SSA average, is encouraging. Important reforms are already in train, such as the establishment of a “national electronic payments switch” to improve interoperability for digital payments or the development of a digital credit and collateral registry at the CBL, but more can be done. Greater efforts to resolve non-performing loans by fully applying existing tool, such as the exclusion of delinquent borrowers from banking services by the CBL, and a strengthening of the court system would induce banks to lend more and at better terms. Financial literacy program and connecting Village Saving Associations with the formal banking system would spur financial inclusion.
Liberia: Commercial Bank Credit and Financial Inclusion
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, Financial Access Survey; and World Bank, WDI.Liberia: Commercial Bank Credit and Financial Inclusion
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, Financial Access Survey; and World Bank, WDI.Liberia: Commercial Bank Credit and Financial Inclusion
Citation: IMF Staff Country Reports 2022, 297; 10.5089/9798400219665.002.A003
Sources: IMF, Financial Access Survey; and World Bank, WDI.21. There is no shortage of other reforms that could usefully be pursued, as long as they do not distract from moving forward in the identified priority areas. Other issues to be addressed include: (i) unclear property rights with only 20 percent of land deeded; (ii) absence of bankruptcy legislation; (iii) difficult access to laws and regulations; (iv) regulations adopted without consultation and impact assessment; (v) no oversight mechanisms to ensure that administrative procedures are followed; (vi) reservation of certain sectors for Liberian nationals and general minimum investment requirements for foreigners; (vii) excessive physical inspection of imports at ports for lack of a risk management approach; and (viii) notorious case backlogs at the Supreme Court, which could be resolved by establishing a dedicated appeals court.
D. Conclusions
22. The analysis strongly indicates that Liberia will find its way back to a better growth performance than in the last decade. The period was exceptionally challenging as Liberia was hit by a series of negative shocks, which is unlikely to be repeated. This contributed to the decline of TFP, but policy slippages, declining efficiency of investment, and failure to accelerate the improvement of educational attainment levels also played a key role.
23. Policy reforms will determine how much growth will rise in the period ahead. The analysis has shown that there is considerable room for the country authorities to spur growth along several axis: human capital, infrastructure, and the business climate and access to financing. While more resources should be mobilized to make progress, it has become apparent that a lot can be gained from addressing inefficiencies and implementing reforms that come with little or no costs.
24. Liberia has many assets to underpin future growth. It is endowed with ample fertile lands for agriculture, much of it still unexploited; copious rainfall; a climate suitable to grow cash crops like rubber or coffee; a fish-reach ocean; mineral resources in iron ore, gold, and diamonds; a favorable geographical location with potential to become the regional hub that it once was; a beautiful coastline and 40 percent of the Upper Guinea rain forest suitable for high-end tourism; a large and well-educated expat community in the United States; and English as the official language. Liberia has demonstrated that it can attract important international investors, such as ArcelorMittal (iron ore), China Union Investment (iron ore), MNG Gold Inc. (gold), and Aureus Mining Inc. (gold).
25. The Liberian economy easily has the potential to growth at 5.5 percent per year. TFP growth will rebound due to a combination of cyclical factors and reforms, strong population growth should ensure robust employment growth, given the low levels of educational attainments it does not take much to engineer strong human capital growth, and it should not be too challenging to maintain the past clip of capital accumulation. More concretely, if TFP growth reverts to the average of the post-war period, if employment grows at the same pace as the population, if capital grows no faster and no slower than it did historically, and if educational attainment levels gradually catch up with those prevailing in Ethiopia today, then the Liberian economy would grow by 5.5 percent annually (Table 2). Strong reforms could easily yield more, but nothing should be taken for granted either.
Liberia: Potential Growth and Its Drivers
Liberia: Potential Growth and Its Drivers
| Drivers of Growth | Growth Contribution |
| 2.6% population growth (UN) | 1.4% contribution to growth |
| 3.1% capital accumulation (historical) | 1.4% contribution to growth |
| 2.1% human capital growth (catching up with Ethiopia level) | 1.2% contribution to growth |
| 1.5% TFP growth (2003-19 average) | 1.5% contribution to growth |
| GDP growth | 5.5% growth |
Liberia: Potential Growth and Its Drivers
| Drivers of Growth | Growth Contribution |
| 2.6% population growth (UN) | 1.4% contribution to growth |
| 3.1% capital accumulation (historical) | 1.4% contribution to growth |
| 2.1% human capital growth (catching up with Ethiopia level) | 1.2% contribution to growth |
| 1.5% TFP growth (2003-19 average) | 1.5% contribution to growth |
| GDP growth | 5.5% growth |
References
Bah, El-hadj and Fang, Lei. 2015. "Impact of the business environment on output and productivity in Africa," Journal of Development Economics, Vol. 114(C): 159-171.
Berg, A., Buffie, E.F., Pattillo, C., Portillo, R., Presbitero, A.F. and Zanna, L.-F. 2019. “Some Misconceptions About Public Investment Efficiency and Growth.” Economica, 86: 409-430.
Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer. 2015. "The Next Generation of the Penn World Table" American Economic Review, 105(10): 3150-3182. Available for download at www.ggdc.net/pwt
Hausmann, Ricardo, Lant Pritchett, and Dani Rodrik. 2005. “Growth Accelerations.” Journal of Economic Growth, 10(4): 303–29.
International Monetary Fund (IMF). 2016. “Public Investment Management Assessment” Technical Assistance Report, IMF Country Report No. 16/352. International Monetary Fund, Washington, DC.
International Monetary Fund (IMF). 2019. “Liberia: Article IV Consultation Report”, Country Report No. 19/169. International Monetary Fund, Washington, DC. Available for download at https://www.imf.org/en/Publications/CR/Issues/2019/06/19/Liberia-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-47002.
Kim, Jung Yeon and Kwang Yeon Lee. 2021. “Structural Conditions, Structural Reforms and Growth in IMF-Supported Programs.” IEO Background Paper BP/21-01/04. International Monetary Fund, Independent Evaluation Office, Washington, DC.
Robert G. King and Ross Levine. 1993. “Finance and Growth: Schumpeter Might Be Right,” The Quarterly Journal of Economics, Vol. 108(3): 717–737.
Ministry of Education, Liberia. 2016. “Getting to Best Education Sector Plan 2017-2021". Available for download at https://www.globalpartnership.org/sites/default/files/getting_to_best_education_sector_plan_2017-2021._liberia.pdf.
Ncube, Mthuli, Kazbi Soonawalla, and Kjell Hausken. 2021. “The Links between Business Environment, Economic Growth and Social Equity: A Study of African Countries,” Journal of African Business, 22(1): 61-84.
Peruzzi, Michele and Alessio Terzi. 2021. "Accelerating Economic Growth: The Science beneath the Art," Economic Modelling, Vol. 103(C).
World Bank. 2020. The Human Capital Index 2020 Update Human Capital in the Time of COVID-19. World Bank, Washington, DC. © World Bank. Available for download at https://openknowledge.worldbank.org/handle/10986/34432 License: CC BY 3.0 IGO.
