MARKET DEVELOPMENT
Liberia: Economic Developments 2013
Liberia: Economic Developments 2013
06/07/2013 (Afribiz.info) - Liberia’s post-war economic growth was sustained in 2012, led by the first full year of iron ore exports, construction, and a strong performance in the service sector. Real GDP is estimated to have grown by 8.9% in 2012, and is projected to expand by 7.7% in 2013 and 5.4% in 2014, supported by iron ore production and concession-related foreign direct investment (FDI). This outlook, however, remains vulnerable to commodity price fluctuations, particularly for iron ore and rubber, FDI, and overseas development assistance (ODA), including the partial withdrawal of the substantial United Nations Mission in Liberia force (UNMIL). Disputes regarding concession agreements, particularly in the forestry, palm oil, and oil sectors, also constitute substantial risks. Faster job creation will be necessary to ensure stability. Consumer price inflation moderated to 6.9% in 2012, reflecting lower international food and fuel prices. Inflation is expected to slow down to 5.1% in 2013.
Agriculture, fisheries, and forestry represented about 36% of GDP in 2012, which should retreat slightly in the coming years as iron-ore production increases. Rubber production declined by more than 30% in 2012, due to lower international prices and reduced output by a major producer. While round log production nearly doubled compared to 2011, sawn timber production fell about 25%. Timber production is expected to decline in 2013, due to the moratorium on the Private Use Permits (PUPs), which cover an estimated 40% of Liberia’s rainforest and 23% of its land area. The government is investigating fraud allegations in PUP contracts. If these issues are resolved, forestry activities could expand further once transportation links are improved and the Greenville port is fully operational. Palm oil concession investments have slowed due to disputes over land access, but the sector has a high potential for employment creation. The agriculture sector, while it is a large component of income and comprises about half of employment in Liberia, suffers from low productivity and largely comprises subsistence agriculture.
The industrial and manufacturing sector expanded substantially in 2012, thanks to the first full year of iron ore production from the Yekepa mine run by Arcelor Mittal. The sector accounted for about 21% of GDP in 2012, but only employed about 8% of the labour force. This share could increase since investments in iron ore production from global companies like China Union and BHP Billiton are expected to come online by 2015. Further expansion, however, could be hampered by lower iron ore prices. Oil exploration continues. One company, African Petroleum, is determining the commercial viability of discoveries made in February 2012. The awarding of additional offshore blocks has been suspended, however, while the petroleum policy is reviewed. Potential production would not commence for several years. Manufacturing — primarily of cement, beverages, woodwork, printing, and various consumer goods — will continue to have a limited impact on output and growth. The sector suffers from an insufficient and prohibitively expensive electricity supply, a shortage of skilled labour, the high cost of inputs, and a limited production capacity.
The services sector contributed around 43% of GDP in 2012. Main activities include trade and hotels, government services, real estate, transport and communication, and construction. The sector is supported by one of the highest levels of per capita overseas development assistance in the world. Services are expected to grow steadily in 2013, although the phased partial withdrawal of the United Nations Mission (UNMIL) through 2015 may reduce demand.
Considerable obstacles continue to impede Liberia’s economic growth. Electricity reaches less than 5% of the population, and its cost is among the highest in the world, at USD 54 cents per kWh, which renders manufacturing prohibitively expensive. The road network is in severe disrepair. Only about 45% of households have access to an all-season road within 5 km and much of the country’s interior is cut off from the capital during the rainy season. This reduces access to government services and to markets for agricultural production. Access to finance, particularly long term, is limited. Land rights remain problematic and unclear, and the judicial system is ineffective. Finally, both the public and private sectors suffer from severe capacity constraints.
The country faces further challenges due to its susceptibility to external factors. Liberia’s undiversified economy depends heavily on exports such as iron ore, rubber, and timber, which are reliant on fluctuating international prices and demand. The major staple food, rice, is imported, increasing vulnerability to external prices. Overseas development assistance, which provides substantial support, will be susceptible to austerity measures in advanced economies. The drawdown from 8 000 UN troops to 4 000 by 2015 may pose security risks. It will also require the government to divert expenditure to the security sector, and will reduce consumption of local services. The security situation in neighbouring states could also pose a risk. Internal stability will depend on the ability to generate jobs to offset the 78% of the labour force in vulnerable employment. The USD 16 billion worth of FDI commitments recorded since 2006 are expected to produce only 100 000 jobs over 10 years, although 50 000 youth join the labour force annually. Meanwhile, these concession agreements have, in some cases, led to resentment that the government is auctioning off land to foreign companies, with limited local consultation and little benefit to Liberians.
In December 2012, the government launched a strategy to address these challenges over the next five years, the Agenda for Transformation (AfT). This is its second poverty-reduction strategy, and the first step towards its Vision 2030 of turning Liberia into an inclusive middle-income country by 2030. The AfT will attempt to remove structural development obstacles through an estimated USD 3.2 billion programme, more than half of which is planned for roads and energy. It also includes programmes to improve social inclusion, particularly among the youth, and improve governance and public institutions. As a first major step, the government has secured financing to rehabilitate the Mount Coffee Hydropower Plant. The plant is expected to provide more than 64 MW of power to Monrovia, a substantial increase over the current 23 MW. Generation should start at the end of 2015.
Agriculture, fisheries, and forestry represented about 36% of GDP in 2012, which should retreat slightly in the coming years as iron-ore production increases. Rubber production declined by more than 30% in 2012, due to lower international prices and reduced output by a major producer. While round log production nearly doubled compared to 2011, sawn timber production fell about 25%. Timber production is expected to decline in 2013, due to the moratorium on the Private Use Permits (PUPs), which cover an estimated 40% of Liberia’s rainforest and 23% of its land area. The government is investigating fraud allegations in PUP contracts. If these issues are resolved, forestry activities could expand further once transportation links are improved and the Greenville port is fully operational. Palm oil concession investments have slowed due to disputes over land access, but the sector has a high potential for employment creation. The agriculture sector, while it is a large component of income and comprises about half of employment in Liberia, suffers from low productivity and largely comprises subsistence agriculture.
The industrial and manufacturing sector expanded substantially in 2012, thanks to the first full year of iron ore production from the Yekepa mine run by Arcelor Mittal. The sector accounted for about 21% of GDP in 2012, but only employed about 8% of the labour force. This share could increase since investments in iron ore production from global companies like China Union and BHP Billiton are expected to come online by 2015. Further expansion, however, could be hampered by lower iron ore prices. Oil exploration continues. One company, African Petroleum, is determining the commercial viability of discoveries made in February 2012. The awarding of additional offshore blocks has been suspended, however, while the petroleum policy is reviewed. Potential production would not commence for several years. Manufacturing — primarily of cement, beverages, woodwork, printing, and various consumer goods — will continue to have a limited impact on output and growth. The sector suffers from an insufficient and prohibitively expensive electricity supply, a shortage of skilled labour, the high cost of inputs, and a limited production capacity.
The services sector contributed around 43% of GDP in 2012. Main activities include trade and hotels, government services, real estate, transport and communication, and construction. The sector is supported by one of the highest levels of per capita overseas development assistance in the world. Services are expected to grow steadily in 2013, although the phased partial withdrawal of the United Nations Mission (UNMIL) through 2015 may reduce demand.
Considerable obstacles continue to impede Liberia’s economic growth. Electricity reaches less than 5% of the population, and its cost is among the highest in the world, at USD 54 cents per kWh, which renders manufacturing prohibitively expensive. The road network is in severe disrepair. Only about 45% of households have access to an all-season road within 5 km and much of the country’s interior is cut off from the capital during the rainy season. This reduces access to government services and to markets for agricultural production. Access to finance, particularly long term, is limited. Land rights remain problematic and unclear, and the judicial system is ineffective. Finally, both the public and private sectors suffer from severe capacity constraints.
The country faces further challenges due to its susceptibility to external factors. Liberia’s undiversified economy depends heavily on exports such as iron ore, rubber, and timber, which are reliant on fluctuating international prices and demand. The major staple food, rice, is imported, increasing vulnerability to external prices. Overseas development assistance, which provides substantial support, will be susceptible to austerity measures in advanced economies. The drawdown from 8 000 UN troops to 4 000 by 2015 may pose security risks. It will also require the government to divert expenditure to the security sector, and will reduce consumption of local services. The security situation in neighbouring states could also pose a risk. Internal stability will depend on the ability to generate jobs to offset the 78% of the labour force in vulnerable employment. The USD 16 billion worth of FDI commitments recorded since 2006 are expected to produce only 100 000 jobs over 10 years, although 50 000 youth join the labour force annually. Meanwhile, these concession agreements have, in some cases, led to resentment that the government is auctioning off land to foreign companies, with limited local consultation and little benefit to Liberians.
In December 2012, the government launched a strategy to address these challenges over the next five years, the Agenda for Transformation (AfT). This is its second poverty-reduction strategy, and the first step towards its Vision 2030 of turning Liberia into an inclusive middle-income country by 2030. The AfT will attempt to remove structural development obstacles through an estimated USD 3.2 billion programme, more than half of which is planned for roads and energy. It also includes programmes to improve social inclusion, particularly among the youth, and improve governance and public institutions. As a first major step, the government has secured financing to rehabilitate the Mount Coffee Hydropower Plant. The plant is expected to provide more than 64 MW of power to Monrovia, a substantial increase over the current 23 MW. Generation should start at the end of 2015.