Kick-starting the gears of the Liberian economy after the Ebola crisis
How has the Ebola crisis affected the Liberian economy? What possibilities exist around revitalising the gears of the private sector and spurring growth in the short term until existing medium-long term reforms are implemented ? Can a stimulus program aimed at MSMEs and consumers work in the country?
In a recent op-ed in the Financial Times, Liberia’s finance minister Amara Konneh outlined the economic fallout of the Ebola crisis on the country’s fragile economy. On a particularly somber and accurate note, Konneh added ‘It is crucial to remember that the disaster does not end when Ebola is defeated’. Indeed, the economic dimensions of the crisis are expected to persevere well after the health crisis is resolved. By all accounts, this refrain rings true. The health crisis has severely impacted private sector operations in the country and beyond. It does not matter whether the business is small, medium sized or large, whether it is Liberian or an international concessionaire operating in the country, or even whether it involves roadside hawking or a multi million dollar concession such as a rubber plantation - the private sector is at its lowest ebb since the end of the civil war in 2004. In a post-conflict nation that has courageously attempted but not fully succeeded in dislodging the societal drivers of conflict, economic adversity on this scale could prove calamitous.
A quadruple shock on the economy
The government, faced with limited choices in the early days of the Ebola crisis, established travel restrictions, curfews and border closures to limit the spread of the virus. The reduced mobility impacted the ability of workers to report for duty. Many businesses simply told their staff to stay home. Except for the government, wages were curtailed in the majority of sectors. Cross-border trade, an important source of sustenance and employment in the informal sector has also been affected. According to polls conducted by the Gallup organisation and the Liberia Institute of Statistics and Geo-Information Services (LISGIS) nearly 50 percent of Liberian households are currently out of work, a situation that has been exacerbated since the crisis unfolded and even with the lifting of the travel restrictions.
With the loss of livelihoods and expectations of further losses, the spending capacity of consumers across a broad spectrum of sectors has decreased. Reduced consumer spending has significantly impacted the working-capital needed by Liberian businesses to maintain their operations – i.e. manufacturers have reduced capabilities for procuring raw material (especially imports), fuel, supplies, transportation services etc. Shopkeepers are facing challenges in procuring products and stocking shelves. The crisis has possibly worsened their existing low capital reserves. So businesses are expected to face challenges in procuring, producing, and supplying goods to the market.
Official support services have been impacted, adding to the woes of the private sector. Government revenues have taken a hit, decreasing more than 2 percent of Liberia’s annual receipts over the last several months. Key ministries and technical agencies were operating on a skeleton staff basis with all non-essential personnel ordered home, although operations are slowly reverting to usual levels. This will certainly have fallout on critical support services that government institutions provide to the private sector ranging from company registration to issuance of export licenses.
The informal sector and MSMEs
Micro, Small and Medium Enterprises (MSMEs) have been the hardest hit, especially in the vast and deeply entrenched informal sector, which by its nature receives very limited official support in the best of times. According to the latest (2010) labour force survey conducted in Liberia, nearly three‐quarters of a million people are engaged in informal employment, accounting for 68 percent of all employment. This is a significant percentage by all accounts. Agriculture, forestry, and fishing constituted the main slice of total informal employment (55 percent) followed by retail trade, which accounted for 27 percent of total informal employment.
Rates of informality ranged from over 60 percent in counties such as Montserrado and Nimba, and up to over 80 percent in Grand Gedeh and Lofa. A sobering insight is that this was the situation in 2010, when the economy was showing signs of revival. It is a fair assumption that the situation for MSMEs and operators in the informal sector is much worse now.
What can be done to review the economy?
Both short term and medium-long term approaches will be necessary to support the private sector. In the medium-long term, the government must tenaciously review its reforms and development agenda. These include follow-up to the implementation of The National Trade Policy (NTP) and the National Export Strategy (NES), which were both launched by President Sirleaf in May 2014. WTO accession is another priority for Liberia, and the government has accelerated efforts to complete formalities in 2015.
Accession is expected to significantly increase market access for Liberian businesses, increase investment (beyond natural-resource rich sectors only), and establish as well as communicate a transparent trading environment. However, to concretise reforms across the breadth of the trade value chain, implementation of the NES will be key. The NES addresses critical constraints across the supply side, business environment and market side dimensions of priority value chains including cocoa, rubber, and fisheries. Interventions designed over the 5-year timeframe of the NES are expected to greatly improve competitiveness of MSMEs and increase their export capabilities.
Institutional reform at key ministries and technical agencies would also be an important consideration. In this and other aspects the government cannot walk alone. Donors and development partners would need to restart stalled projects and indeed explore options of further support.
In the short term, the stalled private sector ‘vehicle’ is in need of a jumpstart on both the supply side (the producers – shopkeepers, manufacturers, farmers, electricians, plumbers, taxi drivers), as well as the demand side (everyday Liberian consumers of the products that the supply side produces). Sellers must be helped so that their products can be brought to the market and sold; Spenders must be helped financially so that they can start spending.
Creative ideas and models must be explored, especially those that have proved successful in other countries in times of economic crisis. One of these ideas relates to direct infusion of financial resources where they are needed most – with enterprises (so that they can start producing and supplying goods to the market), and with consumers (so that they can start buying available goods).
On the supply side,a number of ‘professions’ could be selected on a priority basis including shopkeepers stocking food, clothes, medicines and other daily consumable goods that Liberians depend on day-to-day consumption needs. Potential beneficiaries could then be invited to register for the stimulus program and immediately receive a one-time, or a monthly stimulus allowance (direct cash) for procuring inputs and stock and starting production activities. By injecting directly at the source, an initial effort would have been made to get the gears of the supply side moving.
On the demand side (consumers), households must be financially supported in fulfilling their basic essential needs through a monthly allowance system lasting at least 6 months. With an estimated population of 4.3 million, of which 39 percent are possible candidates of such funds, there are between 670 thousand and 800 thousand households that could be possible beneficiaries of this scheme. Vouchers (instead of cash) could be issued to consumers who would spend them to buy consumables at businesses that have registered for the stimulus program. The shopkeepers can exchange the spent vouchers for cash at select distribution points, thus also allowing for efficient tracking of utilised funds.
Other options could involve spurring demand for Liberian products among the international community present in Liberia. This includes UNMIL, UN agencies, International NGOs, consulates and embassies. Success stories do exist involving diverting procurement of non-essential items for the international community in a country from external suppliers to domestic suppliers potentially injecting millions of dollars of business into local businesses.
By no means are these the only creative solutions available for short term stimulation of the private sector, but these have worked in other cases ranging from the US, Mauritius to Afghanistan and East-Timor and could provide useful lessons for Liberia.
A sobering (but hopeful) bottom line
The work involved in energising the Liberian private sector activity will not be easy. Nor is it the first on the to-do list of national and international partners. The first action will be to ensure that the Ebola crisis has been contained. Then, efforts to stem the economic crisis ust begin in earnest.
There is money on the way. The World Bank, in collaboration with the IMF is preparing several tranches of support for the short-medium term future in Liberia, and it is conceivable that a significant portion will be focused on economic revitalisation in addition to direct support to the health crisis. There is talk of US reallocating US$750 million in war funds towards the Ebola battle (across the region). If properly utilised, this funding can help get the machinery moving on both the supply and demand sides. What will be required is a robust mechanism for ensuring that the funds are utilised in a targeted and efficient manner.
Increased resilience of Liberian private sector to future epidemics will ultimately depend on the speed and quality of reforms in the country. Port, transportation, and communications infrastructure improvement initiatives will be key, but so will be the ongoing task on building robust public institutions. At the policy level, a sustained implementation of endorsed policies and strategies must occur. The work involved will not be easy, nor cheap.
Fortunately, Liberia will not be starting from scratch. There is significant donor involvement in Liberia and the broader region. The analytical work conducted in the country such as the national export strategy etc. already provide detailed analysis of the private sector activity in the country – so the first base is already covered. What is required will be a structured and methodological approach to channel the funds so that the gears of the private sector machinery can start grinding again – and this time accelerating rather than stopping.
Author: Rahul Bhatnagar is an adviser on export strategy and competitiveness at the International Trade Centre (ITC).