How to Wean Liberia Off Aid: A Conversation with Todd Moss
On June 23 the Center for Global Development hosted a conversation with President of Liberia Ellen Johnson Sirleaf. Vice President of Programs and Senior Fellow at the Center, Todd Moss, led the discussion. We were lucky enough to have the chance to chat with him about the major themes of his conversation with Sirleaf, including her goal of weaning Liberia off Western aid within ten years. The following is our conversation with Moss about the challenges the post-conflict nation faces to stimulate economic growth, remain stable and become aid-free.
If you prefer to listen to an audio version of the interview, it is broken down by each section throughout this post. Listen to part 1 below.
Economy and the Private Sector
PDT: I’m here with Todd Moss, who is a senior fellow at the Center for Global Development and also the director of the Emerging Africa Project. So I just want to first and foremost say thank you for letting me interview you.
TODD: Sure, happy to do it.
PDT: Liberia’s President Ellen Johnson Sirleaf visited the Center for Global Development about two weeks ago. She gave a speech and also had a discussion with you so a lot of my questions are going to focus on some of the points that she brought up. So my first question is based on the big announcement that she made, which was that Liberia is going to wean itself off of aid in ten years, which seems like a pretty daunting task. So what are some of the main steps that the Liberia government would have to take in order to make this happen?
TODD: Well, given how far Liberia had fallen from all the years of war, the economy was essentially destroyed. So when she came into power she had to start almost from scratch to rebuild very simple basic services. The schools, the clinics, even most of the roads had been destroyed. It’s very understandable that they were going to be highly reliant on international help for quite a long time. They’ve done really well so far. Growth is up. They’ve started to rebuild those social services, but it’s still an economy that’s very far from coming back to even where it was say in the late 1970s. So it’s still in the recovery phase. If they wanted to wean themselves off of international assistance, they need to really grow the economy very, very rapidly. And they need to find other sources of income that would finance government services.
PDT: So what are their options? What are some of those other services?
TODD: The main source, of course, will be domestic tax revenue. So that means getting the private sector going so that the main taxpayers in the country, which will be corporations largely, will start to pay a greater amount into government coffers. The other sources are likely to be an expansion of the extractive sectors – traditionally that has been rubber and timber in Liberia. But now they’ve got iron ore mining and, as the president alluded to, Chevron has taken an offshore oil license and is going to start drilling in an exploratory sense soon. So they’re hopeful they’ll get some oil revenues as well.
PDT: Are there any things to be worried about with a Chevron or other large multinational extraction corporations? I think they get a little bit of a bad rap.
TODD: Anytime you have an extractive industry like mining it can be disruptive to people living in the area. In lots of countries, natural resources have become a flashpoint for either conflict or corruption so they need to be extremely careful about how to try to manage some of those risks. But the reality is that Liberia, given where it is and where it’s going, is going to be an extractive economy for generations. It’s not a question of not exploiting those resources, it’s trying to find a fair deal for the government, a fair deal for the company; so that they feel sufficiently confident that they can put in what will be billions of dollars into Liberia; and that the people of Liberia, most importantly, the people of Liberia see some benefits, that it’s not just a few small elites that reap all the benefits.
PDT: And how would Liberia go about doing that to make sure the people, the Liberian people, are getting some benefits from those contracts with multinationals?
TODD: So, the short answer is that we don’t really have very good answers. If you look at countries that have been resource rich and have not fallen prey to some of these negative outcomes you’re looking at countries like Chile, Botswana, Norway, arguably even Canada. And the argument has been: well they had very strong institutions that were able to prevent things going wrong. But it’s a bit of a circular argument. So what do you do in a country like Liberia that is already very weak? And we don’t have great answers. But a very optimistic window here is that Liberia has been extremely careful in reopening their timber sector. In fact, you could argue that they’ve been too cautious. But they have what is a cutting edge tracking system for every single log that is cut down in Liberia. This was done because in the past the timber industry was a source of money that fueled the conflict. They wanted to make sure that they knew where every log was coming from and that they could account for those revenues. In some sense they’ve really gone almost over the top. But that’s given the Liberia government a lot of lessons in how transparency and tracking can be used to try to better manage natural resources.
PDT: What about corruption or the ease of doing business in Liberia? How is the country in those terms?
TODD: It’s still a very difficult place to do business. There is essentially no electricity grid. Roads are very few and far between. If you were starting a small business, or even a large business, you would have to provide for a lot of your own services that you could get from others in other countries. So it is still an extremely difficult place to do business. They’ve done pretty well in trying to reduce some of the regulations and red tape. There’s still quite a long way to go. But I think Liberia has really been going in the right direction. An important piece of the Liberia story is that we think of it as a country just coming back from the conflict, but it’s absolutely not a clean slate. So pre-1980 you had a very small elite that controlled most of the business in the country. And that created a lot of the tensions that led to the conflict. A lot of those tensions are not resolved today. There’s still a lot of concern about a small number of Liberians controlling a lot of the business sector. That’s something that the government still will need to deal with.
PDT: You mentioned that some of the regulations to starting a business, for example, are becoming easier to deal with or there are less regulations. Do you see a lot of entrepreneurs and small businesses sprouting up? Is that something that will probably happen within the next ten years?
TODD: I think you’re starting to see those early green shoots. If you listen to the president’s comments she talks a lot about skills. There’s a generation of kids that didn’t go to school. Some of those skills are being filled by the diaspora returning but not nearly enough. Some of those skills will be filled by people going to school and getting training but that takes a long time. There’s a lot of entrepreneurial energy in Liberia. The opportunities are still quite few and far between. The United States government backed a Liberian enterprise fund that was supposed to provide seed capital to small and medium enterprises. They’ve done well, but really they’ve had a hard time identifying companies even in that small to middle space that were kind of ready for second stage financing. That’s a good indicator that there’s still a long, long way to go. But I think if it actually stays stable and it continues to push reform and to accrue you’ll see a lot of that entrepreneurial activity take off, like you’ve seen in Ghana and other countries in West Africa.
PDT: Are there any NGOs or other U.S. businesses that are coming into the country that are trying to promote that entrepreneurship?
TODD: There are. There are a number of American organizations that are looking to invest directly. Some of them, straight commercial investors, some of them social impact investors, those looking for financial return but also looking to try to have some development impact directly. Liberia has got loads of NGOs, a lot of them are American, doing everything from direct social service delivery to job training. There are a lot of those things, there’s not like one obvious, big NGO that I would point you to.
PDT: What about the U.S? What can we be doing? What role should we play in Liberia?
TODD: The most important thing that the U.S. government will need to continue to do is to provide what’s essentially a security blanket. It’s provided by UN troops but that’s mostly paid for by the U.S., and there’s an implicit understanding that the U.S. will stand by Liberia if things go sour. Not that we would necessarily put U.S. troops on the ground, but we’ve done that in the past. But really providing that security blanket, which is to both give the government some confidence that they can try to start to hand over power to the Liberian forces and the police, and also as a deterrent to any warlords or potential warlords that might think about trying to restart violence.
PDT: Isn’t the UN mission leaving in a year or two?
TODD: You know, I’m not sure. The idea is that based on specific benchmarks of Liberian security, they’ll draw down some troops. Some troops were shifted from Liberia to Cote d’Ivoire so there’s a little bit of horse-trading within the region. But I think it’s pretty clear that the UN is not going to leave prematurely and put the investments that everybody’s made at risk in Liberia.
PDT: Is there a little bit of a security issue in the country now? Or a tension?
TODD: Right now there’s no risk of a major insurgency. You had guys come over from Cote d’Ivoire that could be a source of instability. You have a lot of local flashpoints that can break out into violence and that can quickly turn quite nasty and could lead to something. But in general it’s not a high-risk security situation in the country for right now. But given all the fragility, it’s something that could – and you know we’ve seen it in Cote d’Ivoire and other places – it can change quite quickly. I think U.S. policy makers, the UN and others are quite rightly cautious on trying to draw down too quickly. The other factor here is that the U.S. rebuilt the Liberian armed forces from scratch. They vetted absolutely every new recruit, sending out teams to the villages to do interviews to make sure they didn’t have human rights abusers or people with other bad pasts getting into the army. They’ve really been very cautious. But historically the Liberian army has been very predatory on its own people so there’s a lot of, I think, caution about going too quickly and pushing too much responsibility onto the Liberian forces in a way that could put everything at risk.
PDT: Switching gears a little bit, I was wondering if you could talk a little bit about free trade. There are thoughts of establishing an African free trade zone for the entire continent. Is that a good idea? Would that be helpful for Liberia? What are some pros and cons to that?
TODD: The barriers between African countries are much higher than the barriers between Africa and other regions. So you often hear a lot of African countries complaining about U.S. trade barriers. There really are very few trade barriers, market access issues left for African countries. There are a couple of exceptions, some weird textile rules, sugar and things like that, but for the most part that’s not the issue. The issue for African trading is between African countries. A free trade zone and moving toward a free trade zone where countries reduce barriers to trade amongst themselves is a terrific idea; however, I’m a little bit skeptical that we’re going to see a lot of progress anytime soon. There’s been a lot of promises about reducing trade barriers for years and very little real progress. The most progress we’ve seen has been in East Africa. I don’t think it’s going to happen very quickly. It would be a good thing for Liberia. In the long run, there would be some dislocation of course. You’ll certainly hear a lot of complaining. If you scratch under the surface of who’s complaining you’ll see that on balance trying to reduce trade barriers would be a great thing for Africa. I really doubt we’re going to see a lot of progress soon. I hope so, but I don’t think so.
PDT: And what about the role of technology in particular in creating jobs in Liberia? For example, the high-speed fiber optic cable is coming through West Africa. Is that something that would make a big, positive impact on job creation and infrastructure?
TODD: Nobody is going to build a new landline telephone system in Liberia. That will probably never occur. So it’s a huge leap that they can jump right to a mobile phone network. It’s great that there are now private investments that are going to build a backbone so that countries like Liberia can plug into the Internet more quickly and more cheaply than they’ve been able to in the past. But we’re really talking about a country that doesn’t have basic electricity. Without electricity and without an electricity system that is even marginally functional, I wouldn’t expect Liberia to have an IT industry within the next ten years. It would be terrific if they could get electricity access up to 50 percent of the population. That would be a huge win. If they could get 24-hour, affordable electricity in the major cities – that would be a huge win. I think you’ll see small businesses sprout up. You can open a little business center in the middle of nowhere if you’ve got a little satellite dish and a generator or, better yet, if you got cheap power. So you will see some small pieces there. But even Ghana, which is years ahead of Liberia in terms of private sector development and IT development, you’re really only at the early stages of things like call centers and back office business services. Liberia is probably a little ways off that. Clearly technology is great for the diaspora. Liberia is going to be reliant on its own diaspora for quite a long time because of the exodus of skilled people. You want to encourage people to come back and forth, bring money back and forth, invest; and you need technology to enable that. So in general yes, but I wouldn’t get too excited about it.
PDT: Those are all the questions I have for you. Is there anything else you’d like to add or anything that I missed that’s a major point?
TODD: The one thing that I would just say about U.S.-Liberia relations is that in some ways it’s a very special relationship. The U.S. doesn’t have a relationship with any other African country like it has with Liberia. But in another sense it’s also a very odd relationship in that very few Americans know what Liberia is or will travel there or have any connection there. Yet Liberia feels very deeply connected to the United States. Almost all Liberian elites have family and personal ties back to the United States, which in some ways is great, and it can help to create business networks and all kinds of other opportunities. But it can also sometimes create a weird dependence. For example, Liberia looks to big brother America to resolve some of its problems. I think that the government, as it starts to think about weaning itself off of foreign assistance over time – which is a great idea if it’s managed well – will need to also manage that psychological relationship where Liberians really feel that their country is in their own hands and that the decisions need to be taken by Liberians. Then that transition, I think can be a lot smoother. It’s a very difficult thing, and it’s really going to take generational change. On the U.S. side that is really going to mean continuing to make a commitment to Liberia’s security and at least in the medium term continue to invest in Liberian recovery.
PDT: Great. Thank you again for speaking with me!
TODD: Okay great, thank you.