Liberia: Risk Assessment
Country Risk Rating
Business Climate Rating
- Diverse natural resources (rubber, iron, gold, diamonds, oil)
- Strong financial support from the international community
- Member of the Economic Community of West African States (ECOWAS)
- Infrastructure shortcomings
- Dependent on commodity prices
- Significant levels of poverty and unemployment, shortcomings in education and healthcare
- Recent Ebola epidemic which could reappear
- Recent and fragile democracy, high levels of corruption
- Difficult business climate
- Dominant informal sector
A more favorable economic context
In 2017, Liberia exited a recession triggered by the Ebola epidemic, falling commodity prices and the phased withdrawal of the UN peacekeeping force (UNMIL). Growth prospects for 2018 are better. This momentum is fostered by recovery in the mining sector (mainly gold and diamonds). Mining production will be up by 15% in 2017 and investments in this sector will continue on an upward curve (+5% expected in 2018) to reach their pre-crisis levels. Nonetheless, iron prices could decline in 2018, which would discourage foreign investors. In contrast, investments are expected to rise in other sectors thanks to the agreement between the State and Tidfore Investment for the construction of the country’s first steel plant for an estimated cost of USD 200 million (10.5% of GDP). With a view to diversification, the government’s stated priority is to develop tourism activity as part of the National Export Strategy on Tourism (2016-2020). This will be implemented through infrastructure development, particularly thanks to the Road Fund paid into from fuel taxes and the contribution from the Millennium Challenge Corporation (MCC).
The Liberian dollar’s depreciation against the US dollar (i.e. 20% during the first six months of 2017) is expected to slow slightly, reducing the inflationary pressures on private consumption. The central bank’s tight monetary policy is not very effective because the economy is highly dollarized (90% of lending and 80% of deposits). Two currencies, the Liberian dollar and the US dollar are legal tender and compete against each other.
Deficits plugged with difficulty through foreign aid
State revenues fell significantly before the recession. The budget was only balanced thanks to international aid, even if its share in the budget is expected to gradually decline. The EU will pay EUR 65 million (3.4% of GDP) into an aid program between 2016 and 2018. Likewise, the IMF’s Extended Credit Facility mechanism (ECF), which completed in late 2017 (but is expected to be extended), will boost State revenues during the 2017-2018 tax year by USD 20.7 million. Current spending will represent 90% of the budget. Nevertheless, there has been a drive to reduce the wage bill, the main item of expenditure. The withdrawal of the UNMIL, which will complete in March 2018, will increase budget difficulties, as it is likely to drive up security spending. The public deficit is financed by bilateral and multilateral concessional loans.
The huge current account deficit, due to the trade imbalance is expected to continue to widen in 2018. Exports consist above all of unfinished raw materials, of which rubber (34.6% of exports in 2016), iron (29.3%) and diamonds (17%) are the main components. The drop in prices for the first two of these will adversely impact trade terms. Only exports of palm oil are likely to see considerable growth thanks to investments in the sector. Imports are expected to rise, against a background of firm oil prices and the depreciation of the Liberian dollar. To finance the deficit, the country depends on remittances from expatriate workers (50% of GDP in 2016), particularly those in the United States due to historical links. Since December 2016, 25% of these funds are held by the central bank to mitigate the hemorrhaging of foreign exchange, which was equivalent to 2.5 months of imports in late 2017. The capital flight is, however, expected to trail off, if there is a democratic transition following the 2017 presidential elections in 2017. However, these revenues are insufficient, so FDIs (11% of GDP in 2016) and external loans will help offset the current account deficit.
Complicated democratic transition, even with the Ballon d'Or elected President
After two consecutive civil wars (1990-1997 and 1999-2003), which left over 250,000 dead or 8% of the total population, and a transition period (2003-2006), Ellen Johnson Sirleaf led the country for over 10 years. She contributed to the much-improved situation and helped bring calm to the political arena. After two terms in office, she was no longer eligible to stand in the presidential elections, the second round of which took place in December 2017. The first democratic and peaceful transfer of power from one elected president to another for 73 years represented a major challenge. This because neither candidate won an absolute majority in the first round, resulting in a second round contest between former footballer George Weah and Joseph Boakai, vice president since 2006. Initially set for 7 November, it was postponed sine die by the Supreme Court following an allegation of fraud (rejected on 20 November) by the candidate Charles Brumskine, who was third. Considerable uncertainty prevails as to the policies the new president George Weah will follow.
Despite the reforms undertaken by Ellen Johnson Sirleaf, the business climate remains difficult (172nd out of 190 in the Doing Business 2018 rankings), particularly because of the lack of adequate infrastructure and the absence of (non-customary) legal property rights.