© 2025 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2025. Liberia Country Economic Memorandum © World Bank.” All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org March 2025 Table of Contents Acronyms and Abbreviations......................................................................................................................................................................................................................................................... i Acknowledgments................................................................................................................................................................................................................................................................................ ii Executive Summary.............................................................................................................................................................................................................................................................................. iv Chapter 1: Drivers of Growth...................................................................................................................................................................................................................................................... 1 1.1 A brief history of the Liberian economy............................................................................................................................................................................................................ 1 1.2 Past drivers of growth.................................................................................................................................................................................................................................................... 2 1.3 Policy contribution to growth.................................................................................................................................................................................................................................. 11 1.4 Future drivers of growth.............................................................................................................................................................................................................................................. 12 1.4.1 Business-as-usual growth scenario.................................................................................................................................................................................................... 13 1.4.2 Growth scenario with reforms.............................................................................................................................................................................................................. 16 1.4.3 Growth ambitions and structural reforms ..................................................................................................................................................................................... 19 1.5 Conclusion............................................................................................................................................................................................................................................................................ 19 Chapter 2: Trade as a catalyst for growth ........................................................................................................................................................................................................................... 20 2.1 Introduction........................................................................................................................................................................................................................................................................ 21 2.2 Liberia’s trade performance and specialization ............................................................................................................................................................................................ 21 2.2.1 Declining export openness and high volatility............................................................................................................................................................................. 22 2.2.2 Increasing export concentration ........................................................................................................................................................................................................ 23 2.2.3 Exploring new export markets ............................................................................................................................................................................................................. 25 2.2.4 Extinction of existing export products in traditional markets................................................................................................................................................. 26 2.2.5 Shifting composition of imports and source countries ............................................................................................................................................................ 27 2.3 Identifying export opportunities............................................................................................................................................................................................................................ 28 2.3.1 Low-risk opportunities............................................................................................................................................................................................................................. 28 2.3.2 High-risk opportunities............................................................................................................................................................................................................................ 29 2.4 GVC participation and determinants of trade .............................................................................................................................................................................................. 29 2.4.1 Liberia’s increasing participation in GVCs....................................................................................................................................................................................... 29 2.4.2 Fundamental and policy-related determinants of trade ......................................................................................................................................................... 31 Chapter 3: Leveraging Liberia’s Agro-processing Potential.................................................................................................................................................................................... 39 3.1 Introduction........................................................................................................................................................................................................................................................................ 40 3.2 Diversification and upgrading opportunities................................................................................................................................................................................................. 40 3.3 Leveraging the potential of agro-processing................................................................................................................................................................................................. 44 3.3.1 Value-adding activities in agribusiness ........................................................................................................................................................................................... 44 3.3.2 Selection of promising value chains ................................................................................................................................................................................................. 45 3.3.3 Policy implications .................................................................................................................................................................................................................................... 56 Chapter 4: Microeconomic Foundations of Growth.................................................................................................................................................................................................... 59 4.1 Introduction........................................................................................................................................................................................................................................................................ 60 4.2 A conceptual framework for pathways to growth...................................................................................................................................................................................... 61 4.3 Firm-level productivity: setting the priorities................................................................................................................................................................................................. 61 4.3.1 Upgrading the growth of existing firms .......................................................................................................................................................................................... 63 4.3.2 Facilitating the growth of more productive firms........................................................................................................................................................................ 65 4.3.3 Encouraging investment in new firms.............................................................................................................................................................................................. 67 4.4 Upgrading the institutional framework for investment promotion and facilitation.............................................................................................................. 71 LIST OF FIGURES Figure 1: Liberia’s economic trajectory since independence ........................................................................................................................................................................................... iv Figure 2: Trend in total factor productivity .................................................................................................................................................................................................................................. v Figure 3: Baseline and reform scenarios ........................................................................................................................................................................................................................................ vi Figure 4: Summary of policy recommendations....................................................................................................................................................................................................................... viii Figure 5: Trajectory of Liberia’s economy since independence....................................................................................................................................................................................... 1 Figure 6: Contribution to GDP growth (2014-2023) ............................................................................................................................................................................................................... 3 Figure 7: GDP per capita and GDP per person employed in Western and Central Africa .............................................................................................................................. 4 Figure 8: Labor market indicators in Liberia and Western and Central Africa......................................................................................................................................................... 4 Figure 9: Shapley decomposition of per capita GDP growth and labor productivity growth (2004-2022)......................................................................................... 5 Figure 10: Trend in sectoral value added per worker and share of employment (2004-2022)....................................................................................................................... 6 Figure 11: Contribution to GDP growth by production factor (2014-2019)................................................................................................................................................................ 7 Figure 12: Trends in human capital wealth and human capital index .......................................................................................................................................................................... 8 Figure 13: Trend in physical capital per worker............................................................................................................................................................................................................................. 9 Figure 14: Trend in total factor productivity................................................................................................................................................................................................................................... 10 Figure 15: Policy contribution to economic growth ............................................................................................................................................................................................................... 11 Figure 16: Historical, baseline and reform scenarios, constant 2015 US$ .................................................................................................................................................................. 12 Figure 17: Share of the population in poverty at $2.15 per day (2017 PPP) ............................................................................................................................................................. 12 Figure 18: Assumptions on mining production and export................................................................................................................................................................................................ 14 Figure 19: Baseline headline GDP growth and decomposition of GDP per capita growth............................................................................................................................. 15 Figure 20: GDP per capita growth and decomposition of incremental growth in ambitious reform scenario................................................................................... 18 Figure 21: Impact of structural reforms on annual growth.................................................................................................................................................................................................. 19 Figure 22: Export to GDP ratio versus GDP per capita............................................................................................................................................................................................................. 22 Figure 23: Exports of goods and services, Liberia, 2004-2021............................................................................................................................................................................................ 23 Figure 24: Export product concentration in Liberia and peers.......................................................................................................................................................................................... 24 Figure 25: Technological classification of goods exports, Liberia, 2002-2022.......................................................................................................................................................... 25 Figure 26: Export growth 2011-21, percent, Liberia vs. world, top 8 markets (excl. ships) .............................................................................................................................. 25 Figure 27: Decomposition of export growth, Liberia, 2009-11 to 2019-21 (in percentage) ........................................................................................................................... 26 Figure 28: Imports by broad economic category in Liberia................................................................................................................................................................................................. 27 Figure 29: Share of consumer goods in total imports in Liberia and comparators............................................................................................................................................... 27 Figure 30: Liberia’s top exported products featuring RCA.................................................................................................................................................................................................... 29 Figure 31: High-risk opportunities for export growth from Liberia’s product space............................................................................................................................................ 29 Figure 32: GVC participation rates for Liberia and comparator countries (in percent)....................................................................................................................................... 30 Figure 33: GVC participation by sector, Liberia, 2015 .............................................................................................................................................................................................................. 30 Figure 34: Different policy priorities underpin the transitions across types of GVC participation............................................................................................................... 31 Figure 35: Natural capital endowment per head and FDI, Liberia and comparators........................................................................................................................................... 32 Figure 36: Tariffs in Liberia and comparators................................................................................................................................................................................................................................. 33 Figure 37: NTM usage, Liberia and peer countries, 2014....................................................................................................................................................................................................... 34 Figure 38: Services Trade Restrictions Index (STRI) in Liberia and comparators (2021)....................................................................................................................................... 35 Figure 39: Ad valorem trade costs (%), Liberia and comparator, 2018.......................................................................................................................................................................... 35 Figure 40: WTO TFA implementation in Liberia and comparators, 2022...................................................................................................................................................................... 36 Figure 41: Trade facilitation indicators for Liberia and comparators, 2022................................................................................................................................................................. 36 Figure 42: Logistics Performance Index, Liberia and peers, 2010 to 2023................................................................................................................................................................... 37 Figure 43: Logistics Performance Index by sub-indicator, Liberia and peers, 2018............................................................................................................................................... 37 Figure 44: Liberia’s revealed comparative advantage, by product, 1995-2021........................................................................................................................................................ 41 Figure 45: Economic Complexity Index (ECI) score and ranking for Liberia and comparators, 1995-2021............................................................................................ 41 Figure 46: Economic Complexity Outlook (ECO) score and ranking for Liberia and comparators, 1995-2021................................................................................... 42 Figure 47: Liberia’s low-complex products identified in the periphery of the product space....................................................................................................................... 42 Figure 48: Liberia’s pathways to economic complexity and diversification............................................................................................................................................................... 43 Figure 49: Types of agribusiness value chains.............................................................................................................................................................................................................................. 44 Figure 50: Agricultural value chains.................................................................................................................................................................................................................................................... 45 Figure 51: Summary of agricultural value chains’ potential.................................................................................................................................................................................................. 45 Figure 52: Quarterly palm oil production, annual exports, and RCA.............................................................................................................................................................................. 46 Figure 53: Palm processing score card.............................................................................................................................................................................................................................................. 47 Figure 54: Quarterly cocoa production, annual exports, and RCA................................................................................................................................................................................... 49 Figure 55: Cocoa processing score card........................................................................................................................................................................................................................................... 50 Figure 56: Quarterly rubber production, annual exports, and RCA................................................................................................................................................................................. 51 Figure 57: Rubber processing score card......................................................................................................................................................................................................................................... 52 Figure 58: Liberia’s cassava market outlook, 2024-2034......................................................................................................................................................................................................... 53 Figure 59: Cassava processing score card........................................................................................................................................................................................................................................ 54 Figure 60: Liberia’s rice market outlook, 2024-2034.................................................................................................................................................................................................................. 55 Figure 61: Rice processing score card................................................................................................................................................................................................................................................ 55 Figure 62: Ranking of constraints to the development of agricultural value chains............................................................................................................................................ 56 Figure 63: Bird’s eye view of the special agro-industrial processing zone.................................................................................................................................................................. 57 Figure 64: Impact of EU deforestation regulation on Liberian exports ........................................................................................................................................................................ 58 Figure 65: Firm-level productivity and productivity growth................................................................................................................................................................................................ 62 Figure 66: Firm performance in Liberia and selected benchmark countries............................................................................................................................................................ 63 Figure 67: Firm investment and capacity utilization, Liberia and selected benchmark countries............................................................................................................... 63 Figure 68: Obstacles most cited by firms in Liberia................................................................................................................................................................................................................... 64 Figure 69: Domestic credit to private sector (% of GDP)........................................................................................................................................................................................................ 64 Figure 70: Access to electricity in Liberia and selected benchmark countries (% of population)................................................................................................................ 64 Figure 71: Access to internet in Liberia and selected benchmark countries............................................................................................................................................................. 65 Figure 72: Most important obstacles cited by exporting and non-exporting firms in 2017 (% of firms)................................................................................................ 65 Figure 73: Most important obstacles cited by top 10% and bottom 10% of firms by productivity in 2017 (% of firms reporting them) ������������������������� 66 Figure 74: BTI scores for competition and anti-corruption policy, Liberia and comparator countries .................................................................................................... 67 Figure 75: Business density in Liberia and comparator countries.................................................................................................................................................................................... 67 Figure 76: Global Entrepreneurship Index (GEI), Liberia and comparators................................................................................................................................................................. 68 Figure 77: FDI stock in Liberia and comparator countries..................................................................................................................................................................................................... 70 Figure 78: Regulatory quality and government effectiveness in Liberia and comparator countries......................................................................................................... 72 BOXES Box 1: Summary of macro- and micro-challenges to growth identified in the African Development Bank’s Growth Diagnostic Study for Liberia (2023)....................................................................................................................................................................................................................................................................... 10 Box 2: Policies to develop the palm oil industry: The case of Indonesia............................................................................................................................................................. 48 Box 3: Promoting entrepreneurship in Africa....................................................................................................................................................................................................................... 69 Box 4: Liberia’s open-door policy: An analysis...................................................................................................................................................................................................................... 71 Box 5 Institutional Framework for Boosting Investment—The Case of Senegal........................................................................................................................................... 74 TABLES Table 1: Overview of growth drivers under baseline and reform scenarios.......................................................................................................................................................... 16 References .......................................................................................................................................................................................................................................................................................................... 75 Appendix ............................................................................................................................................................................................................................................................................................................. 79 Acronyms and Abbreviations BTI Bertelsmann Transformation Index LTGM Long Term Growth Model CBL Central Bank of Liberia MFPD Ministry of Finance and Development Planning CCDR Country Climate and Development Report NIC National Investment Commission COI Complexity Outlook Index NRF National Road Fund COMESA Common Market for Eastern and NTM Non-Tariff Measure Southern Africa OECD Organization for Economic Cooperation and EAC East African Community Development ECI Economic Complexity Index PIA Plateforme Industrielle d'Adétikopé ECOWAS Economic Community of West African States PPP Public Private Partnership EU European Union PWT Penn World Tables FDI Foreign Direct Investment REDD+ Reducing Emissions from Deforestation and GBV Gender-Based Violence Forest Degradation GDP Gross National Product SAIPZ Special Agro-Industrial Processing Zone GNI Gross National Income SME Small and Medium-sized Enterprise GREAT Governance Reform and Accountability TFA Trade Facilitation Agreement Transformation Project TFI Trade Facilitation Indicators GVC Global Value Chain TFP Total Factor Productivity HCI Human Capital Index TVET Technical and Vocational Education and HCW Human Capital Wealth Training ICT Information and Communication Technology UNMIL United Nations Mission in Liberia ILO International Labor Organization US United States IMF International Monetary Fund USDA United States Department of Agriculture LEC Liberia Electricity Company WBES World Bank Enterprise Survey LLC Limited Liability Company WDI World Development Indicators LPI Logistics Performance Index WTO World Trade Organization Liberia Country Economic Memorandum i Acknowledgments The report was written by a World Bank team led by Mamadou Ndione. The team included Gweh Gaye Tarwo, Arthur Galego Mendes, Guido Damonte, Steven Michael Pennings, Alari Hasanatu Ijileyoh Mahdi, Neema Mwingu, Deborah Elisabeth Winkler, Karlygash Dairabayeva, Ileana Cristina Constantinescu, Mwenda Kazadi, Alain D’Hoore, Rose Mungai. The report was prepared under the guidance of Robert R. Taliercio, Country Director for Ghana, Liberia, and Sierra Leone, and Abebe Adugna, Regional Director for Africa West and Central. The team worked under the close supervision of Sandeep Mahajan, Practice Manager for Africa West and Central, and Stefano Curto, Lead Country Economist for Ghana, Liberia, and Sierra Leone. The team was supported by Joseph Massa Koilor, Irene Sitienei, and Pinar Baydar. The report benefitted from peer review guidance provided by Fulbert Tchana-Tchana, Samer Naji Matta, and Richard Record. Many other colleagues in the World Bank provided insights and suggestions to the report including Runyararo Gladys Senderayi, Utz Johann Pape, Paul Andres Corral Rodas, Abdoullahi Beidou, Bobby Eric Musah, Alonso Sanchez, Binta Beatrice Massaquoi, Kadir Osman Gyasi, Kelvin Doesieh, and Shafick Hoossein. As a light pilot under the CEM 3.0, the report benefitted also from Ekaterina Vostroknutova and Lazar Milivojevic, CEM 3.0 tools, training sessions and experience sharing. The team is grateful to participants in consultation meetings with the Ministry of Finance and Development Planning, the Central Bank of Liberia, the Economic Adviser of the President, as well as representatives from the private sector, non-governmental organization community, and development partners. The team is also grateful for financial support from the Umbrella Facility for Trade Trust Fund. ii Liberia Country Economic Memorandum Liberia Country Economic Memorandum iii Executive Summary i. Liberia is one of the poorest countries on the rents from natural resource extraction, contributed to planet, ranking 180th out of the 190 countries in the the conflict. Real GDP per capita collapsed and Liberia World Bank’s development database. Based on the lost its middle-income status. Growth resumed once national poverty line, 59 percent of Liberians were poor peace was reestablished in 2003, but the country in 2016, the latest year for which household survey was again hit by a succession of shocks, including data is available. According to World Bank estimations, collapse in commodity prices, the Ebola epidemic about 6 out of 10 Liberians continue to live in poverty. in 2014, the withdrawal of UN peacekeepers in 2018 Broader welfare measures tell a similar story: Liberia which removed a key source of foreign exchange and ranked 177th out of 193 countries on both the UN consumer demand, and then COVID-19 pandemic in Human Development Index and the UN Gender 2020. Although growth resumed once more starting Inequality Index in 2022. Low human development in 2021, real GDP per capita has broadly stagnated is exemplified by Liberia’s score of 0.32 on the World since peace was reached in 2003, with modest growth Bank’s measure of human capital, suggesting that in the first decade nearly offset by decline in the a newborn child will only reach 32 percent of their subsequent decade. potential productivity as an adult under current Figure 1: Liberia’s economic trajectory since independence conditions of healthcare and education. Poverty (per capita GDP in 2015 constant US$) is more prevalent in rural areas and its incidence 4,000 Closed door policy Open door policy Con ict Post-con ict increases with distance from the capital Monrovia, 3,500 3,658 highlighting Liberia’s severe spatial challenges. 3,000 Rapid population growth, deforestation, and the 2,500 accelerating impacts of climate change are degrading 2,000 the country’s abundant natural capital—a dynamic 1,500 which, in turn, is increasingly tied to the persistence 1,000 522 605 665 of poverty. Pervasive food insecurity contributes to the 500 236 0 high rate of child stunting and to malnutrition more 1847 1855 1863 1871 1879 1887 1895 1903 1911 1919 1927 1935 1943 1951 1959 1967 1975 1983 1991 1999 2007 2015 2023 generally. Inadequate sanitation heightens the risk of Source: World Bank staff computations communicable disease. ii. Liberia’s predicament exemplifies the iii. Historical fluctuation in total factor productivity consequences of the natural resource trap—whereby (TFP) highlights Liberia’s economic challenges and a narrow, commodity-based development model its struggle to keep pace with peers (Figure 2). The prompts recurring cycles of stagnation and recovery recovery of TFP in Liberia in the post-conflict decade (Figure 1). Vulnerability to shocks has repeatedly occurred at a time of rebuilding and potential for derailed Liberia’s economic growth and development. growth, reflecting efforts to stabilize the economy The single biggest shock in the country’s history came and improve efficiency. However, the decline in with the outbreak of civil unrest in 1979 and an ensuing productivity between the Ebola epidemic (2014) coup d’etat, which led to two decades of civil war. and the COVID-19 pandemic underscores Liberia’s A legacy of entrenched inequality, underpinned by vulnerability to external shocks. iv Liberia Country Economic Memorandum Executive Summary Figure 2: Trend in total factor productivity • Third, the economy must shift towards activities TFP trends (index 1980=100) better aligned with the employment needs of 160 an expanding urban population. This entails 140 120 increasing output in both the services and 100 manufacturing sectors. By focusing on sectors 80 whose products and services are in high demand 60 and have potential for growth, Liberia can 40 create more job opportunities and improve the 20 livelihoods of its fast-growing urban population. 0 1980 1985 1990 1995 2000 2005 2010 2015 Investing in skills development and vocational Benin Côte d'Ivoire Gambia Ghana Guinea Guinea-Bissau Liberia Senegal Sierra Leone training programs can help prepare the workforce Source: PWT, USDA, and World Bank staff computations for employment in these sectors. iv. Transitioning from cyclical stagnation to • The fourth transformation entails transitioning sustainable, inclusive growth through structural from a state-centric mindset to recognizing transformation is the key to reducing poverty the private sector as the primary driver of and building shared prosperity. Liberia needs economic expansion and job creation. By to enact five significant transformations to create fostering entrepreneurship, removing barriers to the conditions for long-term development, thus business growth, and cultivating an investment- fostering economic expansion, employment creation, friendly climate, Liberia can unleash the creativity and poverty alleviation. and dynamism of the private sector in areas such as technology, agriculture, and infrastructure. • The first transformation involves fundamentally This entails streamlining bureaucracy and reshaping Liberia’s macro-economy. This entails implementing policies targeting small and substantially increasing domestic savings—both medium-sized enterprises. public and private—reducing the current account • Finally, the government must implement deep deficit, and mobilizing domestic resources. policy and institutional reforms to modernize Greater availability of domestic capital will the public sector. Priorities include ensuring facilitate a steady increase in the provision of consistency in contract enforcement, safeguarding public goods, such as roads, electricity, and property rights for all, and strengthening telecommunication networks. Stronger domestic governmental institutions and governance revenue mobilization will facilitate investments in frameworks. Combating corruption is essential for human capital through higher-quality and more ensuring equitable and efficient public services accessible education and healthcare. and governance. By prioritizing transparency, • Second, Liberia must diversify away from over- accountability, and the rule of law, Liberia can build reliance on the mining sector. Diversification trust in the government and foster a level playing can be facilitated by focusing on manufacturing field for businesses. industries where Liberia has a distinct comparative advantage, such as agro-processing. By investing in v. The progress that the current government, these sectors, Liberia can create a more balanced elected in October 2023, is able to make on economy that is less susceptible to fluctuations in structural reforms and capital investment over commodity prices and external market shocks. the coming five years will greatly impact Liberia’s Liberia Country Economic Memorandum v Executive Summary longer-term economic outlook. This outlook will, in the average duration of schooling from the current turn, determine the prospects for sustained poverty four years to 10 years, and raise Liberia’s quality of reduction and shared prosperity. The World Bank education score from 0.53 to 0.65, (iii) boost Liberia’s has developed a set of long-term scenarios for the stunting and adult survival rates to the 75th percentile economy, outlined in this study, that illustrate just of its peer group, and (iv) improve the efficiency of how much is at stake for Liberia. public investment to 70 percent from the assumed baseline of 60 percent. Higher investment, both public vi. Under a “business as usual” baseline scenario, and private, is projected to contribute approximately where current policies continue indefinitely, Liberia one percentage point to annual GDP growth in the would not be on track to meet its ambitious goal high-ambition scenario. Such a scenario envisages of achieving middle-income status by 2030. In the accelerated market reforms that could elevate private baseline scenario, GDP growth is projected to average investment to 18 percent of GDP, mirroring Vietnam’s 5.5 percent per year through 2029–consistent with the trajectory in the 1980s-1990s. Public investment is near-term outlooks of the World Bank and IMF–before projected to reach 12 percent of GDP, aligning with gradually converging to its estimated long-term Ethiopia and approaching half of China’s level. potential growth rate (under current policies) of about 4 percent through 2050. Crucially, education viii. Liberia could potentially attain lower middle- quality is assumed to stagnate while enrollment rates income status before 2040 in such an ambitious remain low. Child stunting also does not improve. This reform scenario, while per capita GDP could reach stagnation in human capital holds down potential US$2,000 in real terms by 2050 (Figure 3). In the increases in labor productivity. Under these baseline ambitious reform scenario, per capita GDP is projected assumptions, Liberia’s’ real per capita GDP grows to grow approximately 3.3 percent faster in the long modestly and does not reach the middle-income run relative to the baseline scenario—bearing in threshold of US$1,000 until around 2050. This mind that the specifics of any modeling exercise are outcome would nevertheless represent a sharp highly sensitive to the assumptions made, and a wide break with the overall stagnation in per capita range of outcomes is possible. More effective policies incomes experienced over the past two decades. and buffers to improve resilience will be important However, it would fall far short of Liberia’s aspirations, to enhance the response to future negative shocks, and would likely be viewed as disappointing by a large including from the impacts of global climate change. majority of Liberians. Figure 3: Baseline and reform scenarios (Constant 2015 US$) vii. Liberia has the potential to perform much 2,450 better over the medium to long run if credible reforms are implemented now to start transforming 1,950 1951 the economy, modernizing the public sector, and 2,200 improving governance. Based on the experience of 1,450 1945 peer and aspirational countries for Liberia, a highly 950 ambitious reform program could potentially: (i) double 1,100 the rate of projected annual productivity growth in 650 450 the non-mining sector to 2 percent, compared with 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 the 1 percent assumed in the baseline, (ii) extend Historical BAU Reforms Barclay-Tubman open door policy Source: World Bank staff computations vi Liberia Country Economic Memorandum Executive Summary ix. The extent to which long-term growth reduces roads and telecoms/digitalization. The fight against poverty and boosts shared prosperity will hinge corruption must also be more incisive. on the effectiveness of government policies and programs to enhance resilience and inclusion. GDP xii. A more attractive business climate will growth alone will not be enough to sustainably stimulate the deployment of private capital and reduce poverty. The structure of growth also matters: foster economic activity beyond mining. In the the poor must be able to participate fully in the ambitious reform scenario, private investment would economic growth process. As per the 2023 Poverty grow from 12 percent of GDP in the baseline to 18 Assessment, a concerted effort is needed to break percent, through stronger FDI policies and expansion the poverty cycle through better access to basic of domestic credit. Establishing a robust legal and services that promote human capital development, regulatory framework for public-private partnerships the provision of social safety nets to protect is essential to complement public investment in against shocks, and measures to raise agricultural critical infrastructure such as roads, energy, and productivity. Increasing connectivity by reducing telecommunications. Reducing barriers to new Liberia’s huge infrastructure gap is also critical. companies through simplified legal and administrative procedures, such as those for company registration x. A solid foundation for long-term growth requires and foreign investment, can foster innovation and macro-economic stability and fiscal sustainability. productivity. Effective implementation of the reform The ambitious reform scenario assumes raising public agenda requires a coordinated approach and the investment from 10 percent of GDP in the baseline restructuring of existing institutions. Soliciting input to 12 percent, through stronger domestic revenue from the business sector and addressing regulatory mobilization and improved expenditure management. gaps are crucial steps. This entails building buffers by maximizing revenue generation from the mining industry, rationalizing tax xiii. Harnessing Liberia’s comparative advantage in expenditures, and implementing the planned value- agro-processing and pursuing open trade can help added tax. Additionally, increasing the efficiency of sustain higher growth over the medium and long public spending is imperative, including by aligning term. Liberia should prioritize investments in value resource allocation with policy goals to ensure prudent addition within agricultural value chains by focusing and effective use of public funds. on sectors where it has a clear competitive advantage, and gradually advance on the technological xi. Institutional and policy reforms are essential to complexity ladder. Promising agro-processing sub- modernize the public sector, and ensure that Liberia’s sectors include palm oil, cocoa, rubber, cassava, institutions can lead the country’s transformation. and rice. Over the long run, expanding markets and Institutional and policy reforms need to aim for: (i) a sustaining productivity growth hinges on greater systemic overhaul of the business climate to promote economic integration and trade liberalization, private investment, innovation and job creation; (ii) particularly with Liberia’s ECOWAS counterparts. the delivery of higher-quality, more efficient core By improving trade facilitation and connectivity, public services to raise the level of human capital, Liberia can overcome its geographical isolation notably in education and health; and (iii) increases and foster trade and value chain integration, in the efficiency and scale of public investments— enabling more productive firms to benefit from financed increasingly by domestic resources—to new market opportunities. address infrastructure bottlenecks, including in power, Liberia Country Economic Memorandum vii Executive Summary xiv. The key policy recommendations to escape the to leverage trade opportunities and strengthen value natural resource trap and transition to sustained, chains in sectors where Liberia has significant potential inclusive growth are summarized in Figure 4. This are vital to sustaining higher economic growth over comprehensive reform agenda operationalizes the the medium to long term. Policy recommendations to five transformations presented earlier. Analysis in this improve governance, public investment and service report underscores the near-term importance of: (a) delivery; develop critical infrastructure; and mainstream continued progress on macroeconomic stability and climate action into the policy agenda—all summarized fiscal sustainability, (b) deeper policy and institutional in this report—are addressed in more detail in other reforms to modernize the public sector and combat recent World Bank diagnostic and project reports on corruption, and (c) an overhaul of the business Liberia. Each policy area can be addressed through environment. With progress in these core areas, both near-term measures, and follow-on measures achieving significant improvements in educational over the medium and longer term. The distinction in and health outcomes and narrowing the infrastructure Figure 4 between “short, medium, and long term” is gap—identified as key drivers of medium-term primarily one of sequencing as well as timeframe for growth—becomes feasible. Finally, actions taken now expected impacts on economic growth. Figure 4: Summary of policy recommendations Policy area Key objectives Recommended upfront actions Short to Macroeconomic • Increase domestic • Maximize revenue generation from mining Medium Term stability & fiscal revenue mobilization • Rationalize tax expenditures sustainability and improve public expenditure management • Implement value-added tax • Align resource allocation with policy goals • Ensure transparency of all government transactions Public sector • Improve delivery of core • Initiate policy and institutional reforms to modernization public services support: (i) improvements in the quality and • Promote private sector accessibility of education and healthcare, development (ii) overhaul of the business climate, and (iii) investments to narrow the infrastructure gap • Scale up impact of public investment Anti-corruption • Reverse the current • Implement legislative changes that grant upward trend in the the Anti-Corruption Commission direct perception of corruption prosecutorial authority and oversight of asset declaration and verification Overhauling the • Stimulate private • Establish robust framework for PPPs business climate investment (both • Reduce barriers to entry for new companies domestic and foreign), innovation and job • Coordinate approaches across government creation agencies • Solicit input from the business sector,and address regulatory gaps viii Liberia Country Economic Memorandum Executive Summary Figure 4: Summary of policy recommendations (cont.) Medium Term Improving quality • Raise average years of • Introduce incentive packages for female and accessibility schooling from 4 to 10, teachers and quotas to increase women in of education and and increase quality of leadership roles in education healthcare education score from 0.53 • Enact national school quality standards to 0.65 • Roll out TVET programs • Reduce child stunting rate from 30% to 15%, and • Establish code of conduct against school- increase adult survival rate related GBV to 80 percent • Accelerate priority health and nutrition programs • Ring-fence public spending on healthcare • Increase availability and productivity of health workers • Improve efficiency, transparency and accountability of the health system Policy area Key objectives Recommended upfront actions Medium Term Narrowing the • Support sustainable • Accelerate expansion of electricity access and infrastructure gap economic growth while regional integration addressing Liberia’s • Restructure Liberia Electricity Company unique spatial challenges • Improve road planning and management • Promote private sector solutions and maximize • Operationalize National Road Fund public financing for • Coordinate national digitalization initiatives, investment diversify international connectivity, and scale up broadband infrastructure • Promote digital payments systems and data protocols • Introduce a national program for digital literacy and ICT skills Medium to Prioritize investments • Diversify the economy • Expand agro-processing by focusing on sectors Long Term in agricultural value and create new job where Liberia possesses clear competitive chains opportunities advantage Advance economic • Expand markets for • Improve trade facilitation and connectivity integration and trade Liberian products and • Enhance quality of trade-related institutions liberalization drive productivity increases Fully harness digital • Accelerate structural • Continuously upgrade legal and regulatory revolution transformations environment, aligning with ECOWAS countries Integrating Mainstream climate • Shift to integrated • Invest in infrastructure with climate risks and Climate action into the policy approaches opportunities in mind, including scaling up Change agenda encompassing climate electrification, decarbonizing the power sector, finance, readiness and and increasing resilience of transport networks coordination • Invest in human capital to enhance social resilience and reduce dependency on natural wealth • Shift toward sustainable land use, emphasizing community benefits from natural capital • Eliminate barriers to effective implementation of REDD+ Liberia Country Economic Memorandum ix Executive Summary CHAPTER 1 DRIVERS OF GROWTH x Liberia Country Economic Memorandum 1. DRIVERS OF GROWTH 1.1 A brief history of the Liberian economy Figure 5: Trajectory of Liberia’s economy since independence L 100.0 iberia is Africa’s oldest independent democratic 1997 80.0 republic. The country was founded by former slaves 1951 60.0 1955 GDP per capita growth from the US who came to settle in 1822. It was declared 40.0 1950 1959 1960 1945 1964 1966 1968 an independent democratic republic in 1847. 20.0 1996 1976 1847 1974 0.0 The country’s economy has been on a seemingly -20.0 1995 2023 1873 1961 1983 19811979 1971 1994 1975 unending cycle of stagnation, expansion, and -40.0 1993 1989 2003 contraction. From independence until the mid- -60.0 0 500 1990 1,000 1,500 2,000 2,500 3,000 3,500 4,000 1930s, real income per inhabitant remained relatively GDP per capita (2015 constant US$) stagnant, hovering around US$600 in 2015 constant Source: WDI and Leigh Gardner (Sovereignty without Power) US dollar terms, with minor and temporary deviations. In the mid-1970s Liberia entered a prolonged During this time, the primary policy objective of economic decline, culminating in the civil war of successive governments was to uphold the country’s the 1990s and early 2000s. From its peak in 1974 to sovereignty and ensure the survival of the state, amidst its lowest point in 1995 during the civil war, per-capita the challenges of the colonial era. income plummeted by an astonishing 93 percent. By 2003, despite a notable rebound, Liberia had fallen to From the mid-1930s to the mid-1970s, Liberia nearly the bottom position globally in terms of income, experienced four decades of sustained economic ranking just ahead of the Democratic Republic of expansion. Real income per capita surged sixfold Congo, with its GDP per capita merely one-fifth that from US$565 in 1935 to US$3,658 in 1974. Remarkably, of Egypt’s. Liberia’s GDP per capita not only slightly surpassed that of Thailand or Egypt, but exceeded that of China, The end of the civil war heralded a period of Indonesia, Vietnam, and India by over 80 percent. economic rejuvenation, marked by impressive Historical accounts frequently made comparisons growth in the first post-war decade. From 2004 to between Liberia and Japan in the 1950s. The origin 2013, the nation enjoyed robust annual economic of such comparisons can be traced back to the growth of 7.4 percent—a rate at which income doubles Monthly Bulletin of Statistics published by the UN in just 10 years—driven by surging commodity prices in May 1962, which highlighted Liberia’s economic (such as for rubber and iron ore), an influx of foreign aid growth rate in the preceding decade as the second- as part of the “peace dividend,” and increased foreign fastest globally, trailing only Japan.1 This impressive investment. Enclave industries in the mining (gold, growth stemmed from a deliberate open-door policy diamonds, and iron ore) and tree-crop (rubber, cocoa, that attracted substantial foreign direct investment and palm oil) subsectors were key drivers of growth, in mining, industry, and agriculture. In the process, predominantly fueled by foreign direct investment Liberia’s predominantly agrarian economy underwent (FDI), which supported export-oriented production a transformation, becoming heavily reliant on iron with minimal domestic value addition. ore and rubber exports, thereby making it highly vulnerable to commodity price shocks. 1 This information was reaffirmed in a 1966 study of Liberia’s economy by economists from Northwestern University, led by Robert Clower. Liberia Country Economic Memorandum 1 Chapter 1. Drivers of growth However, the recovery was short-lived. Between streams but has also made the economy vulnerable 2014 and 2020, Liberia faced several external shocks, to fluctuations in global commodity prices. Such including the Ebola virus outbreak, a collapse in global dependence has implications for economic stability iron ore and rubber prices, the withdrawal of UN and development, often limiting diversification and peacekeeping forces, and the onset of the COVID-19 the growth of other sectors. As global dynamics shift pandemic. These factors led to sustained economic towards sustainability and technological innovation, it stagnation, culminating in an economic downturn in becomes increasingly important for Liberia to explore 2019 and 2020. Consequently, per-capita GDP fell by economic diversification to reduce its vulnerability to 15.4 percent cumulatively, pushing the fraction of the external shocks and foster long-term growth. population living on less than US$2.15 and US$3.65 per day (in 2017 PPP) to one-third and two-thirds by 2020, In the decade up to mid-2024, the country’s respectively. This effectively nullified almost half of the economic trajectory showed a worrisome pattern preceding gains in per capita income. of stagnation. After a notable recovery between 2004 and 2013, the economy experienced minimal The country is currently on the mend, yet concerns growth, with an average annual rate of only 1.2 about sustainability persist. Since late 2019, percent between 2014 and 2023. Factoring in authorities have made significant strides in restoring population growth, this translated to no expansion macroeconomic stability and improving growth at all: instead, the economy contracted by an average prospects. The economy showed resilience with a of 0.8 percent per year, and real GDP per capita, growth rate of 5.0 percent in 2021, 4.8 percent in 2022, measured in constant 2015 US$ terms, declined to and 4.6 percent in 2023, even amid Russia’s invasion of US$665 in 2023 from US$724 in 2013. Ukraine and global economic uncertainty. During this period, all sectors of Liberia’s economy This chapter explores the primary factors influencing exhibited weak performance, with services in Liberia’s economic growth between 2004 and particular declining by 0.4 percent per year on 2023, the first two decades after the country’s civil average. The Ebola outbreak, the withdrawal of conflict. It also employs a forward-looking approach to the United Nations Mission in Liberia (UNMIL), and identify potential drivers of future growth, and outlines the COVID-19 pandemic significantly impacted all two distinct scenarios for the Liberian economy: a sectors, but especially those concentrated in urban business-as-usual path (the baseline), which assumes areas. Agriculture, the backbone of Liberia’s economy, a continuation of past trends; and a reform path, that experienced only marginal growth of 2.2 percent per presumes the successful implementation of reforms year on average, which closely mirrored the growth targeting the growth drivers identified. rate of the rural population. This modest growth can be attributed mainly to the prevalence of subsistence 1.2 Past drivers of growth agriculture, primarily focused on rice and cassava Since the mid-1930s, Liberia’s economic model has production. Conversely, the industrial sector showed heavily relied on its abundant natural resources. the strongest growth, averaging 3.5 percent annually, Exports have predominantly been composed of rubber, driven primarily by gold mining and, to a lesser extent, timber, and iron ore, making these commodities the construction. However, manufacturing remained backbone of the national economy. This resource- largely stagnant over the decade, indicating a need for driven approach has provided significant revenue further development and diversification. 2 Liberia Country Economic Memorandum Chapter 1. Drivers of growth On the demand side, the primary driver of economic and Central Africa. Its real per capita GDP is only about growth was the surge in gold exports, accompanied one-quarter the level of Cote d’Ivoire (US$2,430), by a significant reduction in imports following one-third the level of Ghana (US$2,031), and about the withdrawal of UNMIL. Although government two-thirds the level of Guinea (US$994). In the region, consumption modestly contributed to growth, it relied Liberia’s per capita GDP exceeds those of the Central heavily on extensive donor support during the Ebola African Republic (US$365), Niger (US$545), and Guinea- crisis. Throughout this period, fiscal management Bissau (US$622), which however have reduced the gap remained challenging, leading to a decline in public with Liberia over the past decade. Furthermore, it is investment—primarily due to weak domestic slightly above the levels of Chad (US$590) and Sierra revenue mobilization and a high level of government Leone (US$627), which have experienced more severe consumption. Despite the relatively high inflow of FDI, economic contractions than Liberia. private investment’s contribution to growth remained marginal, owing to low domestic saving rates and Output per worker has been the primary contributor weak financial intermediation. Furthermore, despite to per capita GDP growth, but it dropped in the wake a consistently large inflow of remittances, private of the Ebola epidemic of 2014. In the post-conflict era, consumption experienced an average annual decline per capita GDP rose by 20 percent overall. However, of 0.5 percent, reflecting decreased household income this growth was not steady: a surge of 35 percent in associated with the departure of UNMIL. the first post-conflict decade was partially offset by an 11 percent decline in the subsequent decade. Shifts in Labor productivity and employment dynamics per capita growth were primarily driven by fluctuations Compared to other countries in Western and Central in labor productivity. At US$3,300 in constant 2017 PPP Africa, Liberia faces significant challenges that have terms, Liberia’s output per worker is now the lowest curtailed its economic growth and development. The in Western and Central Africa—equal to roughly contraction in Liberia’s GDP per capita over the past one-quarter of the regional average or of the level in decade has widened the gap between the country aspirational peers such as Senegal, Ghana, and Côte and many of its regional peers. Liberia now ranks in the d’Ivoire, and to about two-thirds the level in structural bottom quartile by revenue per inhabitant in Western peers such as Sierra Leone. Figure 6: Contribution to GDP growth (2014-2023) Supply side Demand side 6.0 20.0 5.0 15.0 4.0 10.0 3.0 5.0 2.0 1.0 0.0 0.0 -5.0 -1.0 -10.0 -2.0 -15.0 -3.0 -20.0 -4.0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Exports Imports Public investment Private investment Primary Secondary Services GDP Government consumption Private consumption GDP Source: MFDP, CBL, IMF, and WB calculation Liberia Country Economic Memorandum 3 Chapter 1. Drivers of growth Figure 7: GDP per capita and GDP per person employed in Western and Central Africa GDP per capita GDP per person employed 6.0 Togo 6.0 Guinea Growth in GDP per person employed Guinea Cote d'Ivoire Benin Cote d'Ivoire 4.0 Niger Senegal 4.0 Togo Growth in GDP per capita Lower middle Lower middle income income 2.0 Ghana Mauritania 2.0 Ghana Gabon Mauritania Cabo Verde 0.0 0.0 Senegal Africa Western and Cabo Verde Central Liberia -2.0 Liberia Gabon -2.0 Africa Western and Central Nigeria Sierra Leone Sub-Saharan Africa -4.0 -4.0 Sub-Saharan Africa Guinea-Bissau Sierra Leone Equatorial Guinea -6.0 Chad -6.0 Congo, Rep. Equatorial Guinea Congo, Rep. Chad -8.0 -8.0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 0 10,000 20,000 30,000 40,000 50,000 60,000 GDP per capita in 2022 (constant 2015 US$) GDP per person employed in 2022 (constant 2017 PPP $) Source: WDI and WB calculation Over the past decade, Liberia has experienced the past decade. This high level of participation modest yet positive change in dependency ratio, reflects strong engagement in the labor force, labor market participation, and employment rate. although disparities exist between genders—female With a predominantly young population (people under participation lags behind male participation by 9 the age of 15 account for an estimated 44 percent percentage points, Furthermore, the employment rate of the population), Liberia mirrors the demographic has been on an upward trajectory, with the notable profile of many African countries. The dependency exception of the COVID-19 pandemic period, which ratio, which includes both young and elderly disrupted economic activity globally. According dependents, gradually declined from 85.7 percent to the International Labor Organization (ILO), the in 2012 to 78 percent in 2022. This shift suggests a unemployment rate has remained relatively stable, decreasing burden on the working-age population, hovering around 3 percent. These trends underscore which itself has been expanding at a faster rate than a slow but positive evolution of the economic the total population. Such a trend indicates growing landscape in Liberia, marked by increasing labor force potential for income generation and development. participation and a gradually decreasing dependency ratio. However, the gender gap in labor market Liberia has the highest labor-market participation participation must be addressed to harness the full rate in Western and Central Africa, averaging 77 potential of the labor force and foster sustainable percent among those aged 15 and above over economic growth. Figure 8: Labor market indicators in Liberia and Western and Central Africa Dependency, employment, & participation in Liberia Gender gap vs. female labor participation in AFW 100 35.0 Mauritania 95 Gender gap in labor participation 30.0 Mali 90 IDA total Senegal World Niger 85 25.0 IDA only 80 Chad Low income Percent Guinea 20.0 Guinea-Bissau Central African 75 Cote d'Ivoire Republic Gabon Nigeria 70 15.0 Burkina Faso 65 Sub- Sub Saharan Africa Cabo Verde 60 10.0 Equatorial Guinea Benin Liberia 55 Sierra Leone Gambia, The Cameroon 5.0 50 Togo Congo, Rep. Ghana 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 0.0 Employment rate Participation rate Participation rate, male 40.0 45.0 50.0 55.0 60.0 65.0 70.0 75.0 80.0 Participation rate, female Working age population ratio Labor force participation rate, total Source: ILO, WDI and WB calculation 4 Liberia Country Economic Memorandum Chapter 1. Drivers of growth The examination of factors that influence in education and skills development, promoting productivity in Liberia points to several important innovation and technological adoption across sectors, dynamics: improving infrastructure and access to finance, and 1. Sectoral productivity drives growth: Productivity creating an enabling business environment to spur within each sector plays a significant role in entrepreneurship and formal job creation. Additionally, driving overall economic growth. This highlights efforts to enhance agricultural productivity and the importance of enhancing productivity across support rural development can help mitigate the various sectors to stimulate overall economic negative consequences of rural-urban migration while performance. fostering inclusive growth. 2. Post-conflict trends have been mixed: The positive trajectory of the first decade post-conflict was Trends in labor productivity and employment nearly completely offset during the second decade, by sector point to significant inefficiencies in the as progress reversed or stagnated. Understanding allocation of resources within the economy. Notably, the reasons for this trend is crucial for designing four key points emerge: targeted interventions that promote sustainable 1. The industrial sector has enjoyed sustained economic development and improve productivity productivity growth since 2004. This can be outcomes. attributed to significant investments in the mining 3. Labor reallocation has not made a positive sector, which has likely led to technological impact: Static labor reallocation, whereby workers advancement, improved efficiency, and higher remain in the same sector instead of transitioning value-added per worker. to more productive sectors, had a detrimental 2. The industrial sector employs a limited and effect on growth in the two decades following the stagnant share of the workforce. Despite its conflict. In addition, data suggests a shift of labor relatively high productivity, the industrial sector from rural agricultural activities to urban informal only accounts for approximately 10 percent of total services. However, this has not contributed to any employment. This suggests a disparity between improvement in productivity as the service sector productivity gains and employment opportunities that has witnessed declining productivity. in industry, and potential inefficiencies in labor allocation. Furthermore, industry’s share of total The challenges associated with static labor employment has remained stagnant over a reallocation, rural-urban migration, and declining prolonged period, pointing to limited capacity productivity in certain sectors require comprehensive to absorb additional labor or other structural policy responses. These may include investments constraints within the sector. Figure 9: Shapley decomposition of per capita GDP growth and labor productivity growth (2004-2022) Contribution to per capita GDP growth Contribution to labor productivity growth 40.0 40.0 30.0 30.0 20.0 20.0 10.0 10.0 0.0 0.0 -10.0 -10.0 -20.0 -20.0 2004-2013 2014-2022 2004-2022 2004-2013 2014-2022 2004-2022 Change in labor productivity Change in employment rate Per capita growth Within-sector productivity change Static reallocation Change in participation rate Change in dependency rate Dynamic reallocation Change in labor productivity Source: ILO, WDI and WB calculation Liberia Country Economic Memorandum 5 Chapter 1. Drivers of growth 3. Productivity in the services sector has been potential of the workforce through the provision of declining, particularly since the Ebola epidemic. employment opportunities and skill development This may be attributed to disruption in economic initiatives. Moreover, while human capital (a concept activity, reduced consumer demand, and challenges related to the skills and knowledge of workers) has in service delivery during the Ebola epidemic and also had a positive impact on growth, its contribution the COVID-19 pandemic. has been comparatively smaller than that from the 4. Employment has been shifting from agriculture sheer number of available workers. Enhancing human to services. Despite declining productivity in the capital through education, training, and healthcare services sector, there is evidence of a persistent shift initiatives remains crucial for sustaining long-term of labor from agricultural activities to services— economic development and improving productivity. skipping over industrial employment—associated Meanwhile, foreign investment, particularly in the iron with rural-to-urban migration. This suggests that ore sector, experienced a significant uptick between while there may be employment opportunities in 2010 and 2013 but slowed down thereafter. Domestic urban areas, the quality of jobs and productivity investment, on the other hand, has been constrained levels within the informal services sector need by low domestic savings rates, a challenging business improvement. This shift in employment patterns environment, and weak financial intermediation. also implies also that while productivity may be Encouraging both foreign and domestic investment declining in services, factors such as urbanization through policy reforms and incentives could help and perceived opportunities in urban areas are stimulate economic growth and diversify the economy influencing labor mobility. away from over-reliance on specific sectors. Unpacking the Drivers of Productivity Notably, Total Factor Productivity (TFP) and capital Labor has consistently been the primary positive accumulation have provided negative contributions contributor to economic growth in Liberia since to growth. This suggests challenges related to 2014. This finding is consistent with demographic technological innovation, efficiency, and investment trends, as the working-age population has been dynamics. Addressing them requires policies aimed expanding at a faster rate than the total population. at promoting innovation, improving infrastructure, The substantial contribution of labor to growth and enhancing the business environment to attract underscores the importance of harnessing the investment. Figure 10: Trend in sectoral value added per worker and share of employment (2004-2022) Value added per worker (constant 2015 US$) Share in employment 3,500 60.0 50.0 3,000 40.0 2,500 30.0 2,000 20.0 1,500 10.0 1,000 0.0 2004 2007 2010 2013 2016 2019 2022 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Agriculture Industry Services Total Agriculture Industry Services Source: ILO, WDI and WB calculation 6 Liberia Country Economic Memorandum Chapter 1. Drivers of growth Figure 11: Contribution to GDP growth by production factor human capital development to general economic (2014-2019) and fiscal conditions. The Ebola outbreak not only 13.0 11.0 had a devastating impact on the health of Liberia’s 9.0 population, but also lasting effects on the economy 7.0 by reducing labor earnings and future labor income 5.0 expectations. 3.0 1.0 -1.0 A range of indicators confirm that human capital -3.0 levels are low in Liberia, albeit comparable with -5.0 Côte d'Ivoire Benin Guinea Senegal Ghana Guinea- Gambia Liberia Sierra Bissau Leone those of peers in Western Africa. Liberia scored 1.8 Human capital Physical capital Total factor productivity on the Penn World Table Human Capital Index (PWT Source: Penn World Table and WB calculation HCI),3 slightly above Senegal (1.8), Sierra Leone (1.6), Improving Human Capital The Gambia (1.7), and Côte d’Ivoire (1.7). From 1999 Human capital has contributed positively to growth to 2019, Liberia’s PWT HCI score grew by 0.8 percent over the past decade, but its impact could be per year on average to 1.8, but remains well below substantially amplified. Human capital encompasses the scores of Ghana (2.5) and Zambia (2.7), and on par the skills, knowledge, and health that people with Benin and Rwanda. The slow growth of PWT HCI accumulate throughout their lives, enabling them in Liberia is a critical concern, and suggests that the to realize their potential as productive members of country is lagging behind some of its African peers in society. According to data from the Penn World Table efforts to enhance its human capital at a feasible pace. (PWT) and the World Bank’s The Changing Wealth of On the other hand, the World Bank’s Human Capital Nations report (2021), Liberia features both shortfalls Index (WB HCI) quantifies the level of human capital and relative strengths in human capital compared with that a child born today is expected to attain by age its regional peers. The latter report estimates Liberia’s 18, given the typical health and education outcomes human capital wealth (HCW)2 at US$24 billion in 2018, in the country where she lives. On this index, Liberia or US$5,000 per person (a significant number in a has a score of 0.32, meaning that a child born in country where income per person falls below US$700, the country today is expected to reach 32 percent but far below the global average of US$101,000), equal of her potential productivity if current conditions to 42.0 percent of the country’s total wealth. Within in education and health persist. This has profound West Africa, Liberia’s HCW per capita is higher than implications for the country’s economic future. The those of Niger and Guinea, but below the levels of fact that Liberia’s future GDP per capita could be more Nigeria, Ghana, and Senegal. than three times higher than currently projected with improvements in health and education (Liberia The volatility of Liberia’s HCW per capita, which Human Capital Assessment, 2021) underscores the mirrors the trend in income per capita, reflects critical need for investments in these areas. Moreover, the country’s enduring economic challenges. the gender-specific HCI estimates reveal a slight HCW per capita is estimated to have risen from advantage for girls over boys in Liberia, with the US$2,900 to US$5,000 between 2011 and 2014, human capital level attained by age 18 projected to be then stagnated until 2018. This stagnation and the 3 percent higher for the former. impact of successive shocks, notably the post-Ebola economic downturn, highlight the vulnerability of 3 The PWT’s human capital index is based on the average years of schooling from Barro and Lee (BL, 2013) and an assumed rate of return 2 Human capital wealth estimates the value of the expected future labor income to education, based on Mincer equation estimates around the world that could be generated over the lifetime of the current working population. (Psacharopoulos, 1994). Liberia Country Economic Memorandum 7 Chapter 1. Drivers of growth To capitalize on its human capital for economic worker in Liberia is on par with Guinea, but significantly growth, Liberia needs to invest more strategically lower than in Ghana, Côte d’Ivoire, and Senegal. in education and healthcare. This includes not only expanding access to these services but also focusing The situation in the agricultural sector is particularly on their quality to ensure they effectively contribute concerning. Although agriculture is a crucial part of to the development of skilled, knowledgeable, and Liberia’s economy and a primary source of livelihood healthy populations. Policies aimed at stabilizing for a large portion of the population, its workers the economy and insulating it from external shocks remain poorly equipped. Limited irrigation coverage will also be crucial in maintaining steady progress in and scarcity of machinery underline the pressing human capital development. Moreover, investment need for substantial investment in agricultural in secondary education should aim to produce a infrastructure and technology. A lack of basic workforce equipped with mid-level skills—for instance, agricultural infrastructure and equipment not only through Technical and Vocational Education and hampers productivity and food security but also limits Training (TVET) (Box 1). the sector’s potential contribution to economic growth and poverty reduction. Better Equipping the Workers Physical capital has contributed negatively to GDP To address these challenges, a multifaceted approach growth over the last decade. Physical capital, which is needed. Prioritizing investments in physical includes the machinery, infrastructure, and technology capital across key sectors, especially agriculture, can that workers use to produce goods and services, is a significantly enhance labor productivity and economic critical factor in enhancing labor productivity. Capital growth. This includes expanding access to modern per worker declined by 58 percent in Liberia between agricultural technologies, improving irrigation systems, 1980 and 2012, impacting productivity and economic and providing farmers with the necessary tools growth. This trend reversed in recent years thanks to and equipment. Additionally, fostering a conducive new foreign investment in the mining sector and in environment for both domestic and foreign investment agricultural concessions, as well as to donor-financed in various sectors can accelerate the recovery and projects. However, even with a 26 percent recovery expansion of the physical capital base. The inadequacy since 2012, capital per worker has only reached 54 of domestic resource mobilization, especially against percent of its 1980 level. This suggests that, despite the backdrop of a high investment-to-GDP ratio, recent improvements, Liberian workers still struggle to underscores the country’s macroeconomic fragility access the tools and technology they need to be more and dependence on substantial external financing to productive. For a regional comparison, capital per maintain high investment levels and stimulate growth. Figure 12: Trends in human capital wealth and human capital index Human capital wealth indicators Human capital index 6,500 2.8 24,000 2.6 6,000 Millions, constant 2018 USD 22,000 2.4 Human capital index 5,500 In 2018 constant US$ 20,000 5,000 2.2 4,500 2.0 18,000 4,000 1.8 16,000 3,500 1.6 14,000 1.4 3,000 12,000 2,500 1.2 10,000 2,000 1.0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Human capital wealth Human capital wealth per capita (RHS) Benin Côte d'Ivoire Gambia Ghana Zambia Rwanda Liberia Senegal Sierra Leone Source: The Changing Wealth of Nations 2021 Source: Penn World Table 10 8 Liberia Country Economic Memorandum Chapter 1. Drivers of growth Figure 13: Trend in physical capital per worker All sectors Agriculture 35,000 4,000 Capital per worker (constant 2017 US$) 30,000 3,500 Agriculture capiatl per worker 25,000 3,000 (constant 2015 US$) 2,500 20,000 2,000 15,000 1,500 10,000 1,000 5,000 500 0 0 1980 1985 1990 1995 2000 2005 2010 2015 1980 1985 1990 1995 2000 2005 2010 2015 2020 Benin Côte d'Ivoire Gambia Ghana Guinea Benin Côte d'Ivoire Gambia Ghana Guinea Guinea-Bissau Liberia Senegal Sierra Leone Guinea-Bissau Liberia Senegal Sierra Leone Source: Penn World Table 10 Source: USDA and authors calculation Improving the E ciency of the Economy For policymakers, addressing the TFP gap—which Economic growth can also stem from advances is especially pronounced in agriculture—involves in technology or from the efficient use of existing identifying and tackling its root causes, and resources. The growth in the productivity of resources, implementing targeted strategies in coordination or Total Factor Productivity (TFP), has been an important with the private sector, international partners, driver of GDP growth for many countries. However, and civil society. Relevant measures could include: the TFP growth rate in Liberia during 2014–2019 was (i) investing in infrastructure and technology, negative, implying that overall efficiency in combining particularly to enhance agricultural productivity inputs (such as labor and capital) to produce output through modernized practices and to facilitate access decreased. to markets; (ii) building strong, transparent, and efficient institutions to support economic activity, Historical fluctuations in TFP highlight Liberia’s attract investments, and foster a conducive business struggle to maintain consistent growth and environment; (iii) investing in education and training efficiency, compared with its peers. From low levels to improve the workforce’s skills and capabilities in the 1980s, comparable to those in Benin, Ghana, across agriculture, manufacturing, and services; and Senegal, and Sierra Leone, Liberia’s TFP dropped (iv) developing strategies to enhance economic significantly during the civil war. It recovered in the resilience against external shocks, including first post-conflict decade, amid efforts to stabilize the diversifying the economy, building emergency economy and enhance efficiency. However, another response capabilities, and establishing social safety decline between the Ebola epidemic and the COVID-19 nets. Also, engaging more actively with neighboring pandemic underscores the vulnerability of Liberia’s countries to benefit from regional growth dynamics, economy to external shocks. Such downturns not only share best practices, and foster cross-border trade and hinder growth but also exacerbate the productivity investment can all contribute to raising productivity. gap with neighboring countries, which have shown improvement over the same period. Liberia Country Economic Memorandum 9 Chapter 1. Drivers of growth Figure 14: Trend in total factor productivity TFP trends (Index 1980 =100) Agriculture TFP (Index 1980=100) 160 240 140 220 200 120 180 100 160 80 140 60 120 100 40 80 20 60 0 40 1980 1985 1990 1995 2000 2005 2010 2015 1980 1985 1990 1995 2000 2005 2010 2015 2020 Benin Côte d'Ivoire Gambia Ghana Guinea Benin Côte d'Ivoire Gambia Ghana Guinea Guinea-Bissau Liberia Senegal Sierra Leone Guinea-Bissau Liberia Senegal Sierra Leone Source: Penn World Table, USDA Economic Research Service, and WB calculation Summary of macro- and micro-challenges to growth identified in the African Development Bank’s Growth  Box 1 Diagnostic Study for Liberia (2023) The primary constraint to growth in Liberia identified by AfDB is insufficient human capital to realize the country’s growth potential. Addressing the challenge of inadequate human capital requires the development of a comprehensive education financing framework, which acknowledges the interdependence of tertiary education and investments in high school education. Moreover, investment in secondary education should aim to produce a workforce equipped with mid- level skills, for instance, through Technical and Vocational Education and Training (TVET).It is also vital to align the growth of the labor force with the evolving demands of the economy. Overall, the macroeconomic landscape of Liberia over the past decade has been marked by a significant disparity between investment and domestic savings, resulting in a notable trade deficit and balance-of-payments deficit. The inadequacy of domestic resource mobilization, especially against the backdrop of a high investment-to-GDP ratio, highlights the dependence on substantial external financing to maintain high investment levels and stimulate growth. Effective monitoring and anticipation of such vulnerabilities are crucial. Therefore, strengthening public sector capacity is critical to the formulation and implementation of prudent macroeconomic policies that can mitigate vulnerabilities and foster sustainable growth. Moreover, economic actors in Liberia face several micro-level risks and challenges that impede their ability to generate private profits, thereby restricting national economic growth. The key micro-level challenges identified include: a. The difficulty in accessing land, which poses significant barriers to business expansion and investment. b. Limited access to financing at reasonable costs. c. Persistent issues with corruption control, affecting business operations and investment confidence. d. Low productivity and minimal employment creation among most Liberian firms, which are typically small, informal, and lack scale. e. The isolated nature of productive activities conducted by larger firms in the mineral and export-oriented sectors, which have limited linkages to the broader economy. Shortcomings in the financial landscape significantly impact the private sector’s ability to generate returns, and act as a major impediment to growth. Specific challenges in this area include: a. The high cost and limited supply of credit to the private sector, relative to regional benchmarks. b. The financial system’s limited resources, attributed to a low domestic savings rate. Analysis reveals a strong negative correlation between the lending rate and private investment. c. Minimal private capital inflows, predominantly in the form of FDI into export-oriented sectors, compared with regional peers. Source: Economic Governance and Knowledge Management Vice Presidency (ECVP). 2023. Liberia Growth Diagnostic Study. African Development Bank. Abidjan, Cote d’Ivoire. 10 Liberia Country Economic Memorandum Chapter 1. Drivers of growth 1.3 Policy contribution to growth Domestic factors were the primary drivers of growth, Beyond standard decomposition, analyses of past with external influences playing a minimal role. This growth episodes suggest that Liberia’s growth trend is particularly interesting given Liberia’s high rates could be explained by changes in key structural dependency on commodity exports. The country’s factors such as infrastructure, government size, trade resilience to global commodity price fluctuations can openness, export diversification, financial depth, and be attributed to its high level of dollarization, and the human capital; macro-political stability factors such growing share of gold in its export portfolio. The small inflation, financial crises, growth volatility, and political contribution of external factors indicates that Liberia is events; as well as external factors such as commodity not leveraging adequately its trade and FDI potential to terms of trade. promote economic growth, or, to put it positively, that the country can lean more on foreign contributions to Structural improvements contributed approximately grow faster and better. 0.9 percentage points (ppts) to Liberia’s average annual growth rate of 2.8 percent between 2000 Liberia’s economic growth trends between 2000 and 2019.4 Infrastructure rebuilding, urbanization, and 2019 are a testament to the critical role of financial deepening, and export diversification were structural improvements as well as macroeconomic crucial, accounting for nearly 90 percent of structural and political stability. The country’s focus on contributions to growth. Structural improvements in rebuilding infrastructure, encouraging urbanization, Liberia were on par with those in peer countries such deepening financial systems, and diversifying as Guinea, Guinea Bissau, and Senegal. exports has laid a solid foundation for growth. Additionally, Liberia’s ability to maintain economic Macroeconomic and political instability affected resilience despite its dependency on commodity economic growth. Recent improvements in monetary exports highlights the stabilizing role of its dual currency policy, with the substantial reduction of the inflation system, and the importance of export diversification to rate and stabilization of the exchange rate, are positive accelerate growth. steps towards sustainable growth. Figure 15: Policy contribution to economic growth Structural, stabilization, and external contributions Growth contributions of different policy innovations 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 2000-2004 2005-2009 2010-2014 2015-2019 -1.0 2000-2004 2005-2009 2010-2014 2015-2019 Macro Finance Infrastructure Trade and FDI Demography Structural Stabilization External Temp. volatility Political Source: CEM3.0 Growth Correlates Tool. Note: The Growth Correlates Tool is part of the ongoing effort to improve the CEM process to better identify policies that accelerate economic growth and job creation. The tool is detailed in Chapter 1, on macroeconomic and policy diagnostic, of the new CEM3.0 Country Growth and Jobs Report. The analysis builds on the approach by Araujo et al. (2016) and Wacker, Beyer, and Moller (forthcoming) and provides insights into country-specific growth episodes. 4 To study past growth episodes beyond standard decomposition analysis, the report examines the extent to which a country’s growth rates could be explained by changes in key macroeconomic variables - structural factors (e.g., infrastructure, government size, trade openness, export diversification, financial depth, human capital), macro-political stability (e.g., inflation, financial crises, growth volatility, political events), and external factors (e.g., commodity terms of trade). Although the tool provides only descriptive correlations, these variables can usually be linked with policies, making the approach informative from a policy perspective. The methodology follows a standard approach from empirical growth literature, and estimates panel regressions of a country’s per capita income level as a function of growth correlates. Liberia Country Economic Memorandum 11 Chapter 1. Drivers of growth 1.4 Future drivers of growth likely be viewed as disappointing by a large majority of This section applies the World Banks’s Long-Term Liberians. By 2030, half of the population is projected Growth Model (LTGM) to assess Liberia’s economic to still be poor (Figure 17). The model identifies growth prospects between 2024 and 2050. 5 The LTGM population growth and the depletion of gold reserves (Pennings 2016) is a simple growth model, developed as significant headwinds to economic growth. in the spirit of the Solow-Swan growth model (1956). It uses investment, savings and productivity as building Given the difficulty of addressing these challenges blocks, and ties them to economic growth. Applying through direct policy measures, the LTGM the LTGM to Liberia’s economic forecast from 2024 to underscores the need for comprehensive economic 2050 offers a comprehensive overview of the potential reforms to catalyze growth. A suite of ambitious trajectories of the country’s economy based on economic reforms could potentially elevate Liberia’s current trends and potential reform scenarios—while long-term growth rate by 3.3 percentage points setting a foundation for policy recommendations over the baseline scenario. Such reforms would and strategic planning. The LTGM predicts a gradual position Liberia’s GDP per capita at US$2,000 by 2050, deceleration of Liberia’s annual rate of GDP growth, categorizing the country as a top performer among from around 5.5 percent in the 2020s to approximately its peers. In the medium term, the emphasis should 4.5 percent in the long term. This slowdown reflects be on reforms that enhance private investment and the natural transition of the economy as it matures, basic infrastructure, areas expected to yield the most with substantial volatility driven by the extractive significant impact on growth. Over the longer term, sector, and particularly by gold mining. the focus should shift towards education reforms (particularly, improving schooling rates), and boosting By 2050, it is projected that GDP per capita will non-mining TFP, both critical for sustained economic reach US$1,080 (in 2015 US dollars) or US$2,160 in development. The model also suggests that high PPP terms. Concurrently, the poverty rate is expected iron ore prices could contribute positively to growth, to decline from 60 percent in 2023 to 23 percent by especially should the government adopt a high-tax 2050, marking a better performance relative to Liberia’s approach for mining concessions and reinvest windfall peer countries. However, the baseline scenario would profits effectively. fall far short of Liberia’s national aspirations and would Figure 16: Historical, baseline and reform scenarios, constant Figure 17: Share of the population in poverty at $2.15 per day 2015 US$ (2017 PPP) 2,450 60 50 1,950 1951 2,200 40 Percent 1,450 30 1945 23% 20 950 1,100 10 650 4% 450 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 Historical BAU Reforms Barclay-Tubman open door policy Baseline Reform Source: World Bank’s staff estimates based on the LTGM and Leigh Gardner (Sovereignty without Power) Source: World Bank’s staff estimates based on the LTGM Note: The line in dashed black (left panel) presents GDP per capita from 1935 to 1975 under Barclay and Tubman and the first years of Tolbert. Edwin J. Barclay and William V.S. Tubman were the 18th and 19 presidents of Liberia. Barclay served as president of Liberia from 1930 until 1944. Tubman was the country’s longest-serving president, holding the role from 1944 to 1971. th 5 For more information, see the Long-Term Growth Model website: www. worldbank.org/LTGM. 12 Liberia Country Economic Memorandum Chapter 1. Drivers of growth Ambitious reforms already fueled growth in Liberia the forecast from the Commodity Markets Outlook, in the past, notably during the Barclay and Tubman indicating a gradual return to the estimated long-run administrations from 1935 to 1970. Gardner’s price of US$60 per metric ton by 2050. estimates suggest that per capita GDP saw a substantial rise threefold from US$650 in 1937 to US$2,100 by 1963. Iron ore production in Liberia is anticipated to soar, This represents an average annual increase of 5 percent with the value of exports stabilizing at 8 percent of over more than three decades. Historically significant, GDP in the medium term. From 5 million metric tons this period marked the first time Liberia managed to (MMt) in 2020, iron ore production is projected to attract substantial foreign direct investment, thanks reach 15 MMt by 2045. Iron ore exports were equal to largely to an ambitious open-door policy. 10 percent of GDP in 2020, before slightly declining. They are expected to stabilize at 8 percent of GDP in 1.4.1 Business-as-usual growth scenario the medium term, aligning with projections by the Baseline Mining Projections International Monetary Fund. Liberia’s mining sector has expanded significantly in recent years, and could continue to do so off the back Gold production is projected to peak in 2030, before of abundant iron ore reserves. Over the past decade, declining sharply due to a rapid depletion of reserves. mining exports have seen substantial growth, with the Production is expected to more than double by 2030, value of gold and iron ore exports collectively rising from 5 to 12 metric tons per year, as per the authorities’ from less than 1 percent of GDP in 2010 to 20 percent projection under their IMF program and the mining in 2022. Information about the country’s underground group Tuzon & Dudge’s production schedule from gold reserves6 is relatively scarce and often unreliable. 2024 to 2034. However, production is anticipated to According to estimates from the Ministry of Mines and plummet to 2 metric tons per year by 2040, reflecting Energy, Liberia possesses reserves of approximately small new discoveries and the subsequent depletion 120 metric tons (4 million troy ounces) of gold and 8 of reserves. Consequently, gold exports, which billion metric tons of iron ore. While current production constituted 8 percent of GDP in 2020, are forecast to rates suggest that Liberia’s iron ore reserves could last decrease to approximately 2 percent by 2040. thousands of years, its gold reserves are projected to be depleted by the 2040s. Overall, initially robust growth in the mining sector will slow down gradually due to the depletion of Commodity prices have been highly volatile over gold reserves, leading to a contraction in the sector’s time. The history of gold prices has been one of ups share of GDP over time. Rapid sectoral growth is and downs, with periods of surges, notably in the anticipated throughout the 2020s (refer to Appendix 1970s and 2000s, interspersed with occasional dips, Figure 2, Panel II), followed by deceleration in the while generally maintaining a long-term upward trend. 2030s as a result of the decline in gold production. In this model, price projections for gold follow the Nonetheless, growth is projected to pick up again in forecast outlined in the Commodity Markets Outlook the 2040s due to the expansion of iron ore production. (World Bank 2023) until 2025, stabilizing at US$1,600 As a result, the Liberian economy is forecast to per troy ounce as of 2050. The price of iron ore surged in undergo significant diversification away from the the 2000s and early 2010s, then sharply declined in 2014- mining industry during the 2030s and 2040s, with the 15. Future projections for iron ore prices align with mining sector’s contribution to GDP contracting from 21 percent in 2030 to 8 percent in 2050. 6 The same term, gold reserves, applies to a form in which central banks keep its gold, as a store of value or to face foreign payments. Here we are referring to mining resources, not monetary ones, hence the “underground” qualifier. Liberia Country Economic Memorandum 13 Chapter 1. Drivers of growth Figure 18: Assumptions on mining production and export Iron exports, % of GDP Production of gold, metric tons Historical Short Long-run simulations 16 12 Historical Short Long run simulations term term 14 Tuzon & Dudge F 10 production schedule 12 8 10 Percent 6 8 6 4 4 2 2 0 0 2000 2010 2020 2030 2040 2050 2000 2010 2020 2030 2040 2050 BACI Baseline (LTGM) BACI IMF Article IV (Sept 22) Baseline Source: World Bank’s estimates based on the LTGM Baseline Non-mining Projections In this scenario, Liberia’s education quality remains The baseline projection for non-mining economic stagnant amid persistently low enrollment rates. activity in Liberia assumes conservatively the Data from the Human Capital Index (HCI, World Bank continuation of recent trends until 2050. This 2018) indicates a lack of progress in education quality section provides a concise overview of these trends over time, prompting the baseline assumption of and explains their extrapolation into the future. constant quality until 2050. Although the average Furthermore, it outlines key economic characteristics number of years of pre-tertiary schooling among the of Liberia. For a more comprehensive understanding, workforce rose in recent years, reaching 4.4 years in readers can refer to the Technical Appendix, which 2015 (Barro and Lee 2013), it is projected to decline to offers a detailed description of the model and its 4 years for younger cohorts (aged 0 to 19 as of 2020). calibration to Liberia. Moreover, health conditions are assumed to remain constant, with adult survival rates at 78 percent and Population growth is anticipated to decelerate, while the proportion of children not stunted at 69 percent the working-age population is forecast to expand (HCI). The LTGM HC extension forecasts a baseline as a share of the total population. The baseline human capital level relatively stable until 2050, with scenario integrates demographic projections based a slight decline in the 2030s due to the influx of less on the 2022 population census and the International educated young people into the workforce. Labor Organization’s (ILO) labor market projections for Liberia, projecting a slowdown in annual population Investment in physical capital remained strong growth from 3 percent in 2020 to 2 percent by 2050. throughout the 2010s but is expected to stabilize at Concurrently, it anticipates a rise in the working-age 22 percent of GDP, even with anticipated increases in population (as a percentage of the total population) mining-related FDI. Total investment surged after 2010 from 55 percent in 2020 to 64 percent by 2050. Both as the country recovered from the Second Liberian trends are poised to bolster per capita growth. Civil War, peaking at 57 percent of GDP in 2013— with around three-quarters attributed to private Furthermore, building upon recent patterns, the investment. However, the average level of investment labor force participation rate is assumed to remain between 2000 and 2019, excluding the FDI peak from broadly constant, at 77 percent of the working-age 2011 to 2014, was more moderate. Looking ahead, population until 2050, in line with data from the World total investment is projected to remain at 20 percent of Bank World Development Indicators (WDI). GDP until 2050, with private investment representing 14 Liberia Country Economic Memorandum Chapter 1. Drivers of growth 12 percent. A significant portion of private investment optimistic due to rapid population expansion. GDP per is expected to stem from a surge in FDI in the mining capita growth is forecast to average 3.4 percent in the sector, aimed at tripling iron ore production. latter half of the 2020s but is expected to decline to 2.3 percent in the long term. Consequently, GDP per capita Finally, TFP growth has historically shown extreme is projected to approximately double from US$665 in volatility, but is projected to stabilize at an annual 2023 to approximately US$1,080 by 2050. rate of 1 percent. From 2023 to 2026, non-mining TFP growth is expected to align with the authorities’ In the long run, Liberia’s growth is projected to be projection of non-mining GDP growth. During this primarily driven by the non-mining sector, as the period, TFP growth is estimated to range between economy moves away from its heavy reliance on 0 and 2.5 percent. Subsequently, non-mining TFP the extractive industry. The non-mining sector, which growth is forecast to converge to 1 percent by 2030. is the main source of jobs and labor income, exhibits The 1 percent target is derived from historical non- more consistent and faster growth on average, mining TFP growth in Liberia which, despite its reaching 5 percent per year over 2025-2050 (refer to volatility, stabilized at that level in the 2000s following Appendix Figure 2, Panel I for detailed visualization). the Second Liberian Civil War. A breakdown of growth factors reveals that the expansion of the non-mining sector is propelled Baseline GDP Growth by robust investment and gains in TFP, which In the business-as-usual scenario, GDP growth is collectively contribute to a growth boost of over anticipated to average 5.5 percent per year in 2024- 2.7 percentage points. Conversely, the contribution 2029, before gradually slowing down to a sustainable of the mining sector gradually diminishes over time, rate of 4.5 percent in the long run. In the short term, declining from over 2 percentage points in the short Liberia’s GDP trajectory closely aligns with the existing term to 0.5 percentage points by the 2040s. The rapid medium-term forecasts. Relatively rapid growth in pace of population growth emerges as a significant the late 2020s can be attributed to significant mining impediment to per capita growth, exerting a projects and other demand-related shocks. However, considerable drag on growth of minus 1.4 percentage by the 2030s, Liberia’s economy is anticipated to points in the 2040s. Additionally, the depletion of gold decelerate to its long-term potential growth rate of 4 reserves presents a notable obstacle to growth, until percent. The outlook for per capita GDP growth is less the sector ultimately vanishes in the early 2040s. Figure 19: Baseline headline GDP growth and decomposition of GDP per capita growth Annual growth rate, percentage Contribution of each variable, ppts 9 6 Historical Short Long-run simulations 8 term 5 7 WDI 4 6 (World Bank) Baseline (LTGM) 3 5 Percent 2 Perent 4 2010-20 3 average 1 2 -1 1 -2 0 -3 -1 Old baseline Avg 2025-50 Avg 2025-29 Average 2030s Average 2040s -2 Reserves of gold Mining TFP & Investment Non-mining public investment -3 Non-mining private investment Working-age pop. growth Population growth 2010 2015 2020 2025 2030 2035 2040 2045 2050 Non-mining TFP growth GDP per capita growth Source: World Bank estimates based on the LTGM Liberia Country Economic Memorandum 15 Chapter 1. Drivers of growth Liberia’s current trajectory, as per the baseline proposed reform package focuses on enhancing the scenario, is not on track to meet the country’s productivity and growth of Liberia’s non-mining sector. ambitious growth targets. In the baseline projection, This strategic choice does not directly address the issue Liberia’s Gross National Income (GNI) per capita is of depleting gold reserves, a significant constraint to the expected to rise from US$570 in 2023 to US$944 by mining sector’s growth potential. Instead, the reforms 2050—substantially short of Liberia’s target to reach the aim to substantially elevate the relative productivity lower-middle-income threshold of $1,000 per capita by of the non-mining sector over an extended period, 2030. Importantly, this baseline scenario is not unduly thereby attracting extra investment away from mining pessimistic. In fact, Liberia’s income growth over 2025- and reducing reliance on the extractive sector. 2050 is anticipated to align with the median long- term growth rate of peer countries at similar stages The selection of growth drivers is informed by of development (referenced in Appendix Figure 2, the performance of countries with GNI per capita Panel III). Notably, Liberia’s projected growth rate is in similar to Liberia’s, encompassing both structural between those of the Democratic Republic of Congo and aspirational benchmarks (refer to Appendix (DRC) and Sierra Leone, two African countries with Table 1). Consequently, the impact of each reform comparable per capita incomes in 2020. According to is influenced by Liberia’s responsiveness to specific World Bank reports (2023b and forthcoming for the growth drivers and its comparative standing relative DRC and Sierra Leone, respectively), Liberia is expected to its peers. The reforms under consideration include: to outperform the DRC, with a 7 percent relative gain (a) growth in non-mining TFP, (b) development of in GNI per capita by 2050, versus a 20 percent loss human capital, (c) enhancement of investment, relative to Sierra Leone’s baseline growth path over the (d) increase in labor force participation, and (e) same period. Achieving lower-middle-income status improvement of infrastructure efficiency. The by 2030 will require concerted efforts to enhance discussion outlines two potential reform pathways: productivity, stimulate investment, improve human moderate and ambitious. Given the objective of capital, and foster a conducive business environment, achieving lower-middle-income status by 2030, among other initiatives. this analysis prioritizes the ambitious reform scenario, despite the challenges associated with 1.4.2 Growth scenario with reforms its implementation. Table 1 provides a snapshot of This section examines targeted reforms that Liberia these reforms, while the findings and implications are could deploy to bolster its growth potential. The detailed in Appendix Tables 2 and 3. Table 1: Overview of growth drivers under baseline and reform scenarios (1) Growth driver (2) Baseline (3) Moderate reform Ambitious reform A. Non-mining TFP (growth rate) 1% 1.5% 2% B. Human capital (growth rate) ≈ 0% 0.75% 1.75 % Expected schooling 4 years 7 years 10 years Quality of education 0.53 score 0.6 score 0.65 score Adult survival rate 78% As baseline 80% Non-stunted rate 70% As baseline 85% C. Investment (% of GDP) 22% As baseline 30% Private 12% As baseline 18% Public 10% As baseline 12% D. Labor force participation Female 73% As baseline As baseline Male 81% As baseline 85% E. Infrastructure Efficiency Index 0.6 As baseline 0.7 Source: World Bank estimates based on the LTGM. 16 Liberia Country Economic Memorandum Chapter 1. Drivers of growth Increasing non-mining TFP through advancements peer group. These reforms are expected to reach full in innovation, education, market efficiency, efficacy by 2025 for children aged zero to four at that infrastructure, and governance, could elevate time and for those born afterward, with tangible Liberia’s annual GDP growth by 1 percentage point impacts on growth materializing approximately 15 through to 2050—a considerable difference. This years later, as these better-educated and healthier scenario foresees a significant boost to non-mining individuals enter the labor force. Enhanced schooling TFP growth, which is anticipated to reach 2 percent rates are anticipated to add 0.7 percentage points per year by 2035—mirroring Botswana’s achievements to GDP growth in the 2040s alone. Incorporating in the 1960s and 1970s, when its income levels were improvements in the quality of education could comparable to those in Liberia today. This would place introduce an additional gain of 0.4 percentage Liberia alongside the top achievers in its peer group. The points. When educational and health reforms are immediate correlate of a 1 percentage point increase implemented together, they could collectively boost in non-mining TFP growth is a 1 percentage point rise GDP growth by 1.2 percentage points every year in non-mining GDP. While the overall growth impact during the 2040s, averaging an annual increase of 0.5 starts smaller (adding only 0.1 percentage point to GDP percentage points from 2025 to 2050. in 2025-2029), it gains momentum over time as the non-mining sector expands. Furthermore, enhanced Enhancing the business environment to spur private TFP fosters indirect benefits, including higher-quality investment, alongside increased public investment, and increased investments, which in turn contribute is projected to contribute approximately 0.7 to the non-mining sector’s advancement. As a result, percentage points to Liberia’s GDP growth through this reform is expected to accelerate GDP growth by an 2050. Currently, Liberia’s private investment levels rank average of 1.1 percentage points in the 2030s, with the above the 75th percentile among its peers, indicating growth differential widening to 1.4 percentage points exceptionally high levels of private sector activity. in the 2040s. Ambitious market reforms could potentially elevate private investment from its current baseline of 12 Improvements in health and education are projected percent to 18 percent of GDP, following a trajectory to elevate Liberia’s GDP growth by approximately similar to that of Uganda over the past two decades, half a percentage point through 2050, with the bulk though still significantly below Vietnam’s performance of this enhancement attributed to advancements in during the 1980s and 1990s. Public investment could education. Currently, Liberia’s educational participation also rise to 12 percent of GDP, aligning with Togo but rates and learning outcomes lag significantly behind lower than Ethiopia’s and far below China’s historical those of its peers, indicating considerable room for levels. These reforms are expected to drive substantial improvement through education system reforms. growth initially, potentially adding 1.2 percentage Such reforms aim to extend the average duration of points to GDP growth during the 2030s. However, pre-tertiary education from four to 10 years, reaching without simultaneous productivity-enhancing reforms, the median level among the peer group, and to the efficiency of these investments is likely to diminish elevate quality of education from a score of 0.5 to 0.65, over time, reducing growth increments to half a positioning Liberia in the 75th percentile among peers. percentage point by the 2040s. This highlights that On health, Liberia’s metrics are near the group average. investment alone cannot sustain long-term growth, Thus, it is assumed that health reforms could boost as diminishing returns on both public and private the proportion of non-stunted children and improve investments necessitate complementary reforms for adult survival rates to the 75th percentile within the sustained impact. Liberia Country Economic Memorandum 17 Chapter 1. Drivers of growth The potential for elevating female labor force A comprehensive reform package addressing all participation (FLFP) is relatively constrained in identified growth drivers simultaneously could Liberia, and the expected economic impact of accelerate Liberia’s GDP growth by 2.5 percentage reforms focused on increasing male labor force points per year through 2050, predominantly through participation (MLFP) would be minimal. With current enhancements in the non-mining sector. The holistic baseline assumptions placing FLFP at 73 percent and approach encompassing reforms in non-mining TFP MLFP at 81 percent, Liberia’s FLFP already exceeds growth, human capital development, investment the 75th percentile of its peer group, and its MLFP enhancement, labor force participation expansion, and surpasses the median. The proposed reform targets infrastructure efficiency improvement, is projected to an MLFP rate of 85 percent by 2035. While such an exert a profound influence on the country’s long-term increase would enlarge the labor force, in the absence economic trajectory. The cumulative effect of these of complementary reforms it would only enhance reforms is anticipated to culminate in the mid-2040s, economic growth by 0.1 percentage points through to with an additional annual growth spurt reaching 3.6 2050. This highlights the importance of holistic reform percentage points. This peak reflects the maturation strategies that encompass not just labor participation, of most reforms alongside the tangible impacts of but also productivity and sectoral diversification to educational advancements. Subsequently, the growth significantly impact economic growth. increment is expected to slightly adjust, stabilizing at around 3.3 percentage points by 2050, as outlined in Enhancing the efficiency of public investment Figure 20. management to improve infrastructure efficiency presents a modest, yet consistent opportunity to With ambitious reforms, Liberia is positioned to boost growth. At present, only 60 percent of public reach the lower-middle-income threshold before investment in Liberia effectively translates into useful 2040. By 2050, these reforms could elevate GNI per capital, below the median of similar countries. By capita to nearly US$1,775, marking an impressive setting an ambitious target to increase the efficiency cumulative growth of more than 300 percent— of new public capital to 70 percent by 2035, Liberia equal to nearly 90 percent more than in the baseline would position itself in the 75th percentile among scenario. A significant contributor in this projection is its peers. Such a reform would incrementally raise the expansion of the non-mining sector. This ambitious GDP growth by an average of 0.1 percentage points growth trajectory would not only transform Liberia’s annually through to 2050. economy but also position it prominently among its Figure 20: GDP per capita growth and decomposition of incremental growth in ambitious reform scenario Annual growth rate, percentage Contribution of each reform, ppts 7 4.0 Short Long-run simulations term Ambitious reforms 3.5 6 5.5% 3.0 5 2.5 Percent 4 2.0 Percent Moderate reforms 3.6% 1.5 3 2.3% 1.0 2 Baseline 0.5 1 0.0 2020 2025 2030 2035 2040 2045 2050 0 Private investment Public investment HC education 2020 2025 2030 2035 2040 2045 2050 HC health TFP Labor force participation Infrastructure e ciency Source: World Bank estimates based on the LTGM 18 Liberia Country Economic Memorandum Chapter 1. Drivers of growth peers. Specifically, Liberia’s projected growth would Emphasis on such reforms will not only enhance surpass the 75th percentile within the distribution of productivity and attract investment but also ensure comparable countries, ranking it alongside success that Liberia takes meaningful strides towards inclusive stories such as Cape Verde in the 1980s and 1990s, and development and poverty reduction. Botswana in the 1960s and 1970s. 1.5 Conclusion 1.4.3 Growth ambitions and structural reforms Liberia’s economy is deep into a natural resource This section highlights the importance of structural trap, primarily due to heavy reliance on a few key reforms in enhancing long-term GDP growth. It commodities such as rubber, iron ore, timber, and employs the World Bank’s Growth Ambition and gold for economic output and export revenues. Structural Reforms Tool, which aims to pinpoint This concentration on natural resources has made structural reforms that drive GDP growth by analyzing the economy highly vulnerable to price volatility, their effects on capital accumulation, labor utilization, perpetuating a cycle of economic instability which and TFP or efficiency individually. The cumulative deters investment in other sectors. This dependency impact of these supply-side channels is then assessed has also stifled the development of more stable and to provide a comprehensive view of potential diverse industries, leading to economic stagnation growth trajectories. The key areas of structural in non-extractive sectors such as manufacturing and reform considered include: regulatory quality, labor services. Additionally, the presence of a dual currency market regulation, taxation, financial development, system and high levels of dollarization have further trade openness, government effectiveness, and complicated the economic landscape. telecommunications infrastructure. Liberia needs to shift its economic model and For Liberia, telecommunications infrastructure, focus on reforms that boost productivity outside regulatory quality, and government effectiveness the mining sector. Sustainable growth can only emerge as the reform areas with the greatest be accelerated through enhanced investment and potential to help narrow the GDP per capita gap exports in non-mining sectors. This approach will with aspirational peers such as Côte d’Ivoire, Ghana, require strategic changes in policy and a concerted and Senegal over the next 20 years (Figure 21). In the effort to diversify the economy, improving resilience face of limited administrative capacity, it is imperative and reducing dependence on inherently haphazard for Liberia to prioritize the reforms most likely to help global commodity markets. propel the country into a higher income bracket. Figure 21: Impact of structural reforms on annual growth Individual impact and channel at work Aggregated impact 4.4 1.8 Telecom infrastructure 0.89 0.06 0.02 0.00 3.86 ( TE) 3.9 1.6 1.4 3.4 -0.13 1.49 1.2 Regulatory quality 2.9 ( TE, L) Financial 1.0 Government 2.4 development 0.8 e ectivenes ( K) ( TE) 1.9 0.6 1.53 0.4 Labor market 1.4 Trade regulations openness 0.2 ( L) 0.9 ( K) 0.0 0.4 -5 -4 -3 -2 -1 -0.2 1 2 3 4 5 -0.1 -0.4 Trade rate ( L) Telcom Regulatory Government Labor Trade Top Total infrastructure quality e ectiveness market openness tax rates Distance between Liberia and Cote d’Ivoire (0/10 = mi/max) index regulations Source: World Bank CEM3.0 Growth Ambition and Structural Reform Tool Liberia Country Economic Memorandum 19 CHAPTER 2 TRADE AS A CATALYST FOR GROWTH 20 Liberia Country Economic Memorandum 2. TRADE AS A CATALYST FOR GROWTH 2.1 Introduction as a trade hub, especially for maritime commerce. T rade plays a crucial role in driving productivity and However, infrastructural deficiencies, regulatory economic growth by facilitating both static and constraints, and limited industrial diversification have dynamic efficiency improvements. According to neo- historically impeded its trade efficacy. Moreover, classical trade theory, exports promote specialization Liberia’s dependence on a few primary commodities, based on a country’s comparative advantage, which in such as iron ore and rubber, renders its economy turn stimulates economic growth. Additionally, exports vulnerable to global price fluctuations. are linked to dynamic efficiency gains, which include increased competition, economies of scale, enhanced This chapter delves into the structure of Liberia’s utilization of capacity, knowledge dissemination, trade, examining both its exports and imports, and technological progress, and more efficient resource the role of international partnerships and regional allocation across the economy, as highlighted by trade agreements. It assesses the impact of trade scholars such as Helpman and Krugman (1985) and policies implemented in the last decade, analyzing Grossman and Helpman (1991). their effectiveness in promoting diversified trade and value addition. The focus then shifts to strategic Endogenous growth theory, further developed by initiatives that can be undertaken to overcome Romer (1987, 1990) and Aghion and Howitt (1998), existing trade barriers. These include enhancing port emphasizes imported inputs as a key growth infrastructure, improving regulatory frameworks, and catalyst. This approach posits that imports act as fostering trade education and digital transformation conduits for the diffusion of global technology and in customs processes. The potential for expanding into innovation. Importing inputs and capital goods is new markets through trade facilitation measures, and vital for firms and nations aiming to integrate into and the development of value chains in agriculture and upgrade within global value chains (GVCs). Greater manufacturing will also be explored. backward participation in GVCs not only allows firms and nations to absorb valuable foreign technology Liberia can optimize trade to fuel economic growth, and expertise but also enables them to import increase foreign exchange earnings, and reduce inputs that can be further processed and exported, poverty. This chapter aims to provide a comprehensive fostering opportunities for structural transformation, roadmap for policymakers to pursue these goals, as discussed by Taglioni and Winkler (2016). ensuring that trade becomes a cornerstone of Liberia’s economic resurgence. Trade has been one of the main drivers of economic growth in Liberia over the past decade, despite 2.2 Liberia’s trade performance and the reduction in export openness compared to the specialization early 2000s. The surge in iron ore and gold exports, This section provides an overview of Liberia’s trade accompanied by a significant reduction in imports performance and specialization, with a focus on following the withdrawal of UNMIL, contributed trade openness, growth, volatility, resilience, and positively to growth. The country’s geographic position key trading partners. The first section explores along the West African coast endows it with potential Liberia’s export dynamics, highlighting the nation’s Liberia Country Economic Memorandum 21 Chapter 2. Trade as Catalyst for Growth openness to global markets, recent growth trends, significant loss of services exports. Overall, Liberia is on and the volatility of its exports, which is closely tied a similar level to Sierra Leone on export openness, but to heavy reliance on commodities such as rubber falls behind Guinea and more aspirational peers such and iron ore. The second section addresses Liberia’s as Côte d’Ivoire and Ghana. export product diversification, which appears more varied compared with many of its peers; however, this Limited trade openness also contributes to Liberia’s perceived diversification may be skewed by the large low income per capita. There is a well-established number of maritime vessels linked to Liberia’s open positive correlation between trade openness and ship registry. The third section identifies and discusses economic growth, as evidenced by studies from Liberia’s principal export destinations, offering insights Dollar and Kraay (2004) and Harrison and Rodríguez- into the strategic trading relationships that shape its Clare (2009). These studies suggest that increased external economic interactions. The fourth and last trade openness is typically associated with higher section explores Liberia’s import patterns and the GDP per capita. Enhancing Liberia’s trade policies main countries7 from which it sources imports, helping and infrastructure to support greater integration with to map out the balance of trade and the nation’s international markets could therefore be pivotal to dependencies on foreign goods and services. boost its growth and standards of living. 2.2.1 Declining export openness and high volatility Liberia’s post-civil war export performance illustrates Despite its abundant natural resources, Liberia has an intriguing case of resilience and dependency on faced a significant decline in export openness over global market dynamics. Following the end of the civil the past two decades. Between 2021 and 2023, war, Liberia’s economy was in a dire state, with export exports accounted for about 25 percent of GDP, a values at a low of around US$300 million in 2003. The substantial reduction from over 40 percent in 2006- growth in exports over the subsequent years can be 2008.8 This downturn can largely be attributed to a credited to several factors, primarily the increase in sharp decline in services exports, which were heavily iron ore shipments. The deal with ArcelorMittal in impacted by the scaling down of services provided 2005 marked a pivotal moment, leveraging Liberia’s to UNMIL and by the COVID-19 pandemic. Although natural resources to jump-start economic recovery. goods exports recorded some growth from the early By 2008, exports had more than doubled to US$750 2000s onwards, it was not sufficient to offset the million, demonstrating the impact of international Figure 22: Export to GDP ratio versus GDP per capita Exports to GDP ratio, 2019-2021 Export of goods and services to GDP ratio 12 55.0 50.0 conts. 2017 intl. $, ave. 2019-21 Log of GDP per capita, PPP, 45.0 10 40.0 35.0 30.0 8 25.0 20.0 15.0 6 10.0 0 20 40 60 80 100 5.0 Exports of goods and services (% of GDP), 2019-2021 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Fitted line Ecowas SSA Liberia Structural Aspirational Liberia Guinea Sierra Leone Cote d'Ivoire Ghana ECOWAS Source: WB computations. Data: World Development Indicators, World Bank. Note: Structural peers include Guinea and Sierra Leone. Aspirational peers include Ghana and Cote d’Ivoire. Regional peers: ECOWAS and Sub-Saharan Africa. 7 GVC participation will be explored in more detail in Section 5.3. 8 Liberia was coming form an extremely low economic base, with nominal GDP of around US$750 million in 2003. 22 Liberia Country Economic Memorandum Chapter 2. Trade as Catalyst for Growth investments amid high global demand for iron ore. Goods and services export trends have diverged Exports declined during the financial crisis (2009-2012) since 2008. While goods exports have been subject before reaching another peak in 2014, when they nearly to considerable fluctuation, services exports have reached US$690 million. After a dip in 2015, where consistently declined, as depicted in Figure 31. 9 goods exports fell to about 8 percent of GDP because In addition to the withdrawal of UNMIL,10 this drop of the dramatic fall in iron prices from US$150 to US$50 also reflects reduced competitiveness, shifts in global per ton, there has been a noticeable resurgence, with demand (especially since the COVID-19 pandemic), goods exports climbing back to around 25 percent and a lack of sufficient investment in sectors such as of GDP in the post-COVID-19 period. This recovery is tourism, financial services, and information technology. primarily due to mining exports, especially of gold, and to a lesser extent to agricultural exports, including rice To stabilize and grow the economy, Liberia may and cassava. need to strengthen its most successful sectors further, while exploring ways to diversify its export Liberia’s export dynamics are intertwined with base. This could involve developing other potential global commodity prices, which are often volatile export sectors, enhancing value-added processes, and and unpredictable. The decline in iron ore prices post- investing in infrastructure and skills training to support 2014 highlights the risks associated with dependence broader economic activity. on a single export commodity. The recent surge in gold exports suggests a shift in Liberia’s export base, 2.2.2 Increasing export concentration but still confined to the mining sector, which remains Liberia’s reliance on commodities has resulted in dominant. In 2022 and 2023, goods exports reportedly less-diversified exports compared with both its exceeded US$1 billion, with gold alone accounting for structural and aspirational peers, a trend that has over US$600 million. intensified over time. This is reflected in the Herfindahl- Figure 23: Exports of goods and services, Liberia, 2004-2021 Value in US$ million (LHS) and percentage (RHS) Index (2004=100) 1,100 80 1,200 Share in percentage of G&S exports 1,000 70 Nominal value in US$ million 900 1,000 800 60 Index (2004=100) 700 50 800 600 40 500 600 400 30 300 20 400 200 100 10 200 0 0 2021 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022 0 Goods exports (BoP) Service exports (BoP) 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Services (% of goods and services exports) Goods exports (BoP) Service exports (BoP) Source: WB computations. Data: IMF BOP and IMF WEO. Note: Data for Liberia in current US$ is available until 2019. 9 Between 2010 and 2013, the average price of international iron ore was around US$150 per ton. However, by 2015, it had dropped sharply to US$55 per ton. It was not until 2020 that the price rebounded to US$100 per ton (IMF 2022). 10 UNMIL withdrew from the country between 2012 and 2018. Hans Lofgren estimated that UNMIL consumption amounted to around US$470 million in 2012, including imported goods but also non-tradable goods and services such as housing, electricity, transport and telecommunications. https:// openknowledge.worldbank.org/server/api/core/bitstreams/9c635708- ac94-52bb-99ab-223f3dc15fb9/content Liberia Country Economic Memorandum 23 Hirschman Index (HHI)11 of product concentration, Once a staple of Liberia’s export economy, natural where a lower value signifies a more diversified export rubber now accounts for 10.2 percent of total exports. basket. Between 2009-2011 and 2019-2021, Liberia’s The decline in rubber exports reflects broader shifts HHI value increased from 0.2 to 0.25, thus moving in the agricultural sector, and possibly international from a moderate to high concentration of export competition and changes in commodity prices. products. Liberia’s export basket in 2019-2021 was Foodstuffs, primarily cocoa beans, and vegetables, more concentrated than that of its structural peer, including palm oil, contribute modestly to the export Sierra Leone, as well as of those of aspirational peers basket, accounting for 3.5 percent and 2.2 percent, Côte d’Ivoire, Ghana, and Senegal. However, it was respectively. These figures indicate that although they more diversified than the export baskets of Guinea play a reduced role, agricultural exports remain vital to and other Economic Community of West African States Liberia’s diversification efforts. (ECOWAS) countries such as Mali, Burkina Faso, Nigeria, and Guinea-Bissau. An analysis of Liberia’s exports by technology intensity highlights the dearth of technology- Liberia’s export basket has changed significantly over intensive manufacturing exports, once ships are the years, with iron ore and gold gaining prominence excluded (Figure 25). Throughout the past two over traditional exports such as natural rubber and decades, primary and natural resources-based products timber. Between 2016 and 2021, iron ore and gold, have dominated Liberia’s exports, highlighting the along with other minerals, represented almost half of extremely low level of technology in the country’s all goods exports—a trend driven by global demand production base. The proportion of primary products and foreign direct investment in Liberia’s mining in Liberia’s total goods exports, excluding ships, has sector. Iron ore exports have shown robust growth shown significant fluctuation. It rose from 11 percent since 2010, peaking in around 2018-2020. The value of in 2002 to 44 percent in 2011, then fell to 10 percent gold exports soared from 6 percent of GDP in 2020 to in 2015, rebounded to 37 percent in 2016, and has 14 percent of GDP in 2023. oscillated between 15 and 22 percent in recent years. Figure 24: Export product concentration in Liberia and peers HHI for Liberia and comparators Liberia product orientation Mali 110 LBR: CAGR of exports in 2011-2021 (%) Nigeria Guinea-Bissau Cocoa beans Palm oil Guinea 60 Gold Niger Wood in the rough Burkina Faso ECOWAS 10 Iron ore Liberia Ghana Diamonds Benin -40 Light oils and Gambia Latex, centrifuged Natural rubber preparations Sierra Leone Togo -90 Cote d'Ivoire Crude petroleum oils Cabo Verde Senegal -140 -15.0 -10.0 -5.0 - 0.0 5.0 10.0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 2019_21 2009_11 World: CAGR of exports 2011-2021 (%) Source: WB computations. Data: BACI International trade database (Gaulier and Zignago, 2010). Note: excludes transport equipment (ships and vessels, HS2=86-89) for Liberia. 11 The Herfindahl-Hirschman Index (HHI) is a commonly used measure of market concentration and is often used to evaluate the potential competitive impact of mergers and acquisitions. It provides a mathematical representation of the degree of concentration in a market based on the market shares of all firms within the industry. HHI values range from 0 to 1: 0 to 0.15 indicate a highly competitive market; 0.15 to 0.2 suggest a moderately concentrated market; and above 0.25 indicate a highly concentrated market. 24 Liberia Country Economic Memorandum Figure 25: Technological classification of goods exports, Liberia, 2002-2022 Technological classification of total exports in Liberia (in %) Technological classification of total exports in Liberia (in %, excluding ships) 100 100 90 90 80 80 70 70 60 60 Percent Percent 50 50 40 40 30 30 20 20 10 10 0 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 0 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 High technology Low technology Medium technology (chips) Primary products Resource based High technology Low technology Primary products Resource based Source: WB computations. Data: BACI, World Bank. Based on the Lall (2000) classification: https://unctadstat.unctad.org/en/classifications/dimsitcrev3products_ldc_hierarchy.pdf Note: Primary products: meat, fish, vegetables, petroleum, ores, among others. Resource-based products: agro-based and other products. Low-technology products: textiles, garments and footwear, among others. Medium-technology products: automotive, process, and engineering products. High-technology products: electronic and electrical products, among others. Similarly, the share of natural resources-based products exports, up from 30 percent in the previous decade. surged from 3 percent in 2004 to 44 percent in 2013, Switzerland12 stands out as the largest single export then dropped to 22 percent by 2017 (right panel). These market for Liberia within Europe, taking in 15 percent swings were largely due to volatile commodity prices, of exports to Europe. Poland, France, Denmark, and including for iron ore and gold, and dwindling demand Bulgaria collectively account for another 22 percent. for natural rubber. Medium-technology exports, as shown on the left panel chart, are predominantly The share of primary goods in exports to Europe comprised of ships, with trucks and ammunition also more than halved, from 14.3 percent in 2011 to making significant contributions. 5.7 percent in 2021. This decline could be indicative of either reduced production of such goods in 2.2.3 Exploring new export markets Liberia, changes in demand in Europe, or increased Liberia’s engagement with its top export partners competition from other nations. In stark contrast, there showcases its expanding influence and strategic was a significant uptick in the share of resource-based positioning in international trade. Most of Liberia’s products in exports to the same markets, from 1.5 key export destinations are European countries, with percent to 22.2 percent during the same period. Lebanon and Malaysia as significant exceptions. In Figure 26: Export growth 2011-21, percent, Liberia vs. world, 2021, the growth in Liberia’s exports to its top-ten top 8 markets (excl. ships) 80 markets outpaced the growth in global exports to the Switzerland LBR: CAGR of Exports 2011-2021 (%) 70 same markets for the period from 2011 to 2021, with 60 Lebanon Bulgaria the only exception of the Czech Republic—indicating 50 40 France an expansion of Liberia’s market share in these 30 Denmark countries. This suggests robust demand for Liberian 20 Poland Malaysia exports, likely driven by commodities such as iron ore, 10 0 gold, and possibly rubber and agricultural products. -10 Czechia -20 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 The European Union, the UK, and Switzerland are World: CAGR of exports 2011-2021 (%) Liberia’s primary export destinations. From 2019 Source: WB computations. Data: BACI International trade database (Gaulier and Zignago, 2010). to 2021, Europe (including EU, Switzerland, and UK) 12 Switzerland is not a part of EU or the eurozone but participates in the collectively accounted for over 38 percent of Liberia’s single market. Liberia Country Economic Memorandum 25 Chapter 2. Trade as Catalyst for Growth The East Asia and Pacific (EAP) region has become 2.2.4 Extinction of existing export products in an increasingly important export destination for traditional markets Liberia, driven by strong demand from China. The Liberia’s goods export growth heavily relied on share of resource-based products in exports to the existing export products, primarily targeting new EAP region expanded significantly, from 2.3 percent markets. However, the intensive margin experienced in 2009-2011 to 8.1 percent in 2019-2021—primarily a significant decline, negatively impacting Liberia’s fueled by China, which rose from accounting for overall export growth by 139 percent between 2009- 3.3 percent of Liberia’s exports to 11.2 percent. 2011 and 2019-2021. This signifies a notable decrease Exports to other Asian markets, notably Malaysia in existing trade relationships, mainly due to the and South Korea, also grew, albeit to a lesser extent. disappearance of several existing export products in Malaysia’s presence as the only Asian country in Liberia’s traditional export markets. Notably, Liberia addition to China among Liberia’s top ten export exhibited the highest extinction rate among its partners emphasizes its strategic role. Geographical structural and aspirational peers, equal to 199 percent diversification is crucial for reducing dependency on of existing products in traditional markets. Moreover, traditional markets such as Europe and mitigating the extinction of exports of old products in old markets risks associated with economic downturns in any was not adequately offset by the growth in exports of single region. There are substantial opportunities the same products to new markets. to further capitalize on the relationship with China, such as exploring the export of new products On the other hand, Liberia experienced the highest (e.g., cassava), negotiating better trade terms, or growth among its peers at the extensive margin, increasing investment in industries where Chinese accounting for more than 238 percent of its total demand is high. exports. In comparison with peer countries (Table 2.1), Liberia relied less on expanding exports of North America and Sub-Saharan Africa, once key existing products in established markets and more on export markets for Liberia, have become markedly introducing old products into new markets. Typically, less prominent. The share of Liberia’s total goods in mature economies, export growth tends to occur exports directed to the US dropped from 22 percent at the intensive margin. However, in lower-income in 2009-2011 to 7 percent in 2019-2021; exports to countries like Liberia, growth at the extensive margin Canada dwindled from 5.5 percent to 2.4 percent often plays a more significant role, as suggested by Reis over the same timeframe. The trend was even more and Farole (2012). This dynamic highlights the strategic pronounced in Sub-Saharan Africa (SSA), whose share importance of market diversification in enhancing of Liberia’s exports plummeted from 22.7 percent to export performance in developing economies. 7 percent. The share of exports to Mozambique, once Figure 27: Decomposition of export growth, Liberia, 2009-11 Liberia’s largest export destination, declined by 4.4 to 2019-21 (in percentage) percentage points. In addition, South Asia’s role as an 300 Intensive margin = -138.9 Extensive margin = 238.3 250 export destination diminished, with reduced shares 200 223.4 of exports to India and Pakistan. In contrast, the 150 100 MENA region, particularly Lebanon and the United 50 105.9 0.3 14.6 0 Arab Emirates, has been absorbing an increasing -50 - 44.9 proportion of Liberian exports. Lebanon is one of -100 -150 -199.3 the country’s top ten export partners, underscoring -200 Increase of old Fall of old Extinction of Increase of Increase of Increase of its strategic importance. Turkey has also emerged as product in product in exports of existing new new old products old markets old markets products to products in products in in new a significantly stronger trade partner. existing markets new markets old markets markets Source: WB computations. Data: BACI International trade database (Gaulier and Zignago, 2010). Note: excludes transport equipment (ships and vessels, HS2=86-89) for Liberia. 26 Liberia Country Economic Memorandum Chapter 2. Trade as Catalyst for Growth 2.2.5 Shifting composition of imports and source transport infrastructure or vehicle fleet expansion, countries economic actors have been shifting their focus to Analyzing the changes in Liberia’s import basket other priorities. The stable importation of capital goods between 2009-11 and 2019-21 reveals significant is crucial for ongoing development projects, signifying shifts in the types of goods the country brought in. a continued commitment to enhancing Liberia’s The most notable change was the substantial increase productive capacities. in the import of fuels and lubricants, which rose from 6 percent of total imports in 2009-11 to 17 percent in Although the proportion of consumer goods in total 2019-21. The shares of food and beverages, industrial imports rose significantly, it still falls short of the supplies, and consumer goods in Liberia’s import levels seen in comparable countries. The share of basket also expanded moderately. The share of capital consumer goods in Liberia’s imports increased from goods was stable at around 8-9 percent, consistent 6 percent in 2010 to 26 percent in 2021. However, it with the level of investment in large-scale equipment remains notably lower than the averages observed in and machinery essential for economic development. countries with a similar economic structure to Liberia Conversely, there was a strong decline in the share of (50 percent), in the ECOWAS bloc (48 percent), in the transport equipment, from 80 percent to 65 percent, SSA region (44 percent), and in Liberia’s aspirational which nevertheless remained the dominant category peers (38 percent). of imported goods. Figure 29: Share of consumer goods in total imports in Liberia and comparators Changes in the import basket reflect the evolving 60 economic landscape and shifting national priorities. 50 The significant increase in the importation of fuels and 40 lubricants suggests heightened demand for energy, Percent 30 likely driven by growth in industrial activity or an expanding transport sector that requires additional 20 fuel. The rise in imports of food and beverages, as 10 well as of industrial supplies, may indicate a growing 0 2010 2015 2020 2021 domestic market with rising consumer demand and Liberia Structural Aspirational ECOWAS SSA industrial activity. Conversely, the decrease in transport Source: WB Staff computations. Data: BACI International trade database (Gaulier and Zignago, 2010). equipment imports could indicate market saturation, Note: Consumer goods from UNCTAD_SOP_hs6 classification. The classification includes capital or that after a period of substantial investment in goods, consumer goods, intermediate goods and raw materials Figure 28: Imports by broad economic category in Liberia 2009-2011 2019-2021 Food and beverages Consumer goods 1% Consumer goods Food and beverages 1% 3% 2% Fuels and lubricants 6% Fuels and lubricants 17% Industrial supplies Industrial supplies 3% Capital goods (except 5% transport equipment) 9% Transport equipment Capital goods (except Transport transport equipment) equipment 65% 8% 80% Source: WB computations. Data: BACI International trade database (Gaulier and Zignago, 2010). BEC classification includes food and beverages, industrial supplies, fuels and lubricants, capital goods, transport equipment, consumer goods and other goods. Liberia Country Economic Memorandum 27 Chapter 2. Trade as Catalyst for Growth The EAP region, and especially China, has emerged perform well in Liberia, but it is crucial to ensure that as a prominent source of key imports for Liberia, firms do not face unnecessary constraints and can including capital goods, consumer goods, and capitalize on new opportunities. Sectoral features intermediate goods. China consistently accounted include: a large international market valued at over US$1 for more than 20 percent of Liberia’s capital goods billion per year, fewer than five competitor countries, imports between 2009-11 and 2019-21, while its and a sizeable comparative advantage for Liberia. share of consumer goods imports increased nearly These sectors might currently account for a small share fourfold (from 3.2 percent to 12 percent), and that of of national exports, but are highly productive and intermediate goods imports rose from 1.6 percent to possess significant potential. Investing resources or 2 percent over the same period. Japan also became policy focus in these sectors is considered low-risk, as it an important source of capital goods, with its share is unlikely to support low-productivity firms. While it is of Liberia’s imports in this category rising from 15.6 unclear if these sectors generate externalities or rents, percent to 21.7 percent. Conversely, South Korea’s they are poised for growth—especially in a scenario share of Liberia’s capital goods imports more than of reduced trade costs—because they are globally halved, from 42.6 percent to 20 percent. competitive and are not constrained by domestic demand. Their growth potential is further enhanced 2.3 Identifying export opportunities if externalities or rents do exist. Companies in these Liberia’s export basket is highly concentrated, with sectors tend to be already successful and may have a handful products accounting for 95.2 percent of insight into how public infrastructure or trade policy all goods exports in 2021. The top exported products can foster market expansion or innovation. include natural rubber (11 percent), gold (27 percent), iron ore (23.2 percent), cocoa beans (2.4 percent), Low-risk opportunities for Liberia include a range palm oil (2 percent), timber (1.3 percent), and cruise of agricultural and mineral products. As a low-risk ships and light vessels (29.3 percent), which are not way to maximize their export potential, Liberia could manufactured in Liberia but are reflected in its trade aim to increase sales of exported products with a statistics due to the country’s free maritime registry revealed comparative advantage (RCA) in which it and flag of convenience.13 currently has a small share of global trade (Figure 38). Candidates include cocoa beans, coconuts and palm An export opportunity analysis highlights ways kernels, palm oil and its fractions, frozen fish, wood in in which the country can increase and diversify the rough, wood sawn or chipped, unwrought gold, its exports. Opportunities can be divided into two and iron ore—all products for which Liberia’s global categories: low-risk and high-risk, as detailed below market share does not exceed 0.4 percent. While the country also has RCA and limited global market 2.3.1 Low-risk opportunities share in waste and scrap of aluminum, copper, and Low-risk opportunities concern sectors in which titanium, it should be verified whether relevant Liberia already has high productivity and a significant exports originate from domestic production facilities, international market share. These industries already or are in fact re-sold imports from nearby countries (for example, Liberian titanium may originally come 13 The flags of Panama, Liberia, and the Marshall Islands account for 50 from Sierra Leone). percent of the world’s ships. Following the civil war, during which many ships abandoned its flag in favor of the Panamanian flag, Liberia negotiated preferential treatment in China for ships under Liberian flag. This boosted the number of foreign ships opting for the Liberian flag, as well as the country’s shipping revenues. 28 Liberia Country Economic Memorandum Chapter 2. Trade as Catalyst for Growth Figure 30: Liberia’s top exported products featuring RCA 2.4 GVC participation and determinants of trade Market share (% of global sector), 2021 Iron ores and concentrates (HS 2601) Precious and semi-precious stones (HS 7103) Aluminium, waste and scrap (HS 7602) Copper, waste and scrap (HS 7404) Titanium ores and concentrates (HS 2614) This section evaluates Liberia’s performance in Global Diamonds (HS 7102) Gold, unwrought (HS 7108) Natural rubber (HS 4001) 1.2 Insurance services (HS S253) Wood in the rough (HS 4403) Coconut, palm kernel (HS 1513) Frozen sh (HS 0303) 1.0 Value Chain (GVC) participation and examines the Wood sawn or chipped (HS 4407) 0.8 factors that determine its export competitiveness. Cocoa beans (HS 1801) Palm oil fractions (HS 1511) 0.6 Drawing on analytical frameworks from Reis and Farole (2012) and Taglioni and Winkler (2016), the analysis 0.4 will identify opportunities for increased trade and key 0.2 constraints that hinder Liberia’s competitiveness. It will - 0 2 4 6 8 10 12 also focus on identifying features that foster export RCA (including market potential), 2021 Source: dataset compiled by Mike Nyawo and Tristan Reed, based on BACI and Comtrade data. sophistication and upgrading, benchmarking Liberia’s Note: Depicts Liberia’s 20 most exported products, excluding ships, vessels, and related equipment. Weights are Liberia’s exports values in 2021. RCA is computed following Balassa, B. (1965) and performance relative to comparator countries. normalized using a “double difference”, so that productivity in the production of animals equals 1 within each country, and so that the productivity of every industry in the United States equals 1. Harmonized System Classification is the 2007 revision (“HS3”). 2.4.1 Liberia’s increasing participation in GVCs 2.3.2 High-risk opportunities Liberia’s engagement in GVCs has deepened over the High-risk opportunities concern products for which past decade, accounting for nearly 45 percent of the Liberia has low documented levels of export and country’s exports of goods and services in 2021. GVC no current RCA, but that are technologically similar participation is defined as the involvement in trade to established exports and have large and robust flows that cross at least two country borders. Excluding international markets. These include agricultural items sectors such as transport equipment, recycling, or such as cassava, arrowroot, nuts, bran, cinnamon, and activities involving re-export and re-import, the share coffee, as well as fishing products (fresh fish, fish fillets, of Liberia’s total exports deriving from GVC participation and dried or salted fish), and petroleum gases (Figure rose from 34.6 percent in 2010 to 44.3 percent in 2021. 31). Expanding fishing exports is particularly relevant, Comparatively, Liberia has a lower GVC participation as Liberia can count on existing production facilities rate than resource-rich peers such as Guinea (59.3 and abundant natural resources (e.g., more than 600 percent), Sierra Leone (49.7 percent), and Ghana (44.6 species of fish in its coastal waters). Products that are percent), but a higher rate than Cote d’Ivoire (32.3 within Liberia’s reach from a technological standpoint percent) and Senegal (37.2 percent), which are less but have not benefitted from growing demand in dependent on natural resource exports. recent years, should still be monitored regularly for changes in demand. Examples include cocoa shells Liberia is highly reliant on pure forward GVC and vanilla. participation, a key indicator in international trade. Figure 31: High-risk opportunities for export growth from Liberia’s Total GVC participation can be broken down into product space three categories: pure forward, two-sided, and pure Manioc, arrowroot (HS 0714) 30 Petroleum gases 20 (HS 2711) Bran (HS 2302) Ferrous waste and scrap (HS 7204) backward participation. Pure forward GVC participation Nuts, edible Cinnamon (HS 0906) 10 (HS 0801) Collector’s pieces (HS 9705) measures the share of domestic value added that is re- Global imports, CAGR, %, 2019-21 Co ee Wrist-watches (HS 9705) Coral and similar (HS 0901) Fish, fresh (HS 0302) exported by Liberia’s bilateral trading partners, rather materials (HS ...) Fish, dried, salted (HS 0305) 0 Fish live (HS 0301) Fish llets (HS 0304) Petroleum oils -10 Molluscs (HS 2709) Vanilla (HS 0905) (HS 0307) Stamps, postage (HS 9704) than consumed within those countries. Typically seen -20 -30 in commodity-exporting nations, high levels of pure Antiques (HS 9706) -40 forward participation reflect the use of commodities in -50 Cocoa, shells (HS 1802) various downstream production processes that often -60 0.020 0.025 0.030 0.035 0.040 0.045 span multiple international borders. Liberia’s pure forward Product space density, 2021 GVC participation rate increased from approximately 25 Source: dataset compiled by Mike Nyawo and Tristan Reed, based on BACI and Comtrade data. Note: Depicts Liberia’s 20 most exported products, excluding ships, vessels, and related percent in 2010 to nearly 28 percent by 2021. equipment. Harmonized System Classification is the 2007 revision (“HS3”). Liberia Country Economic Memorandum 29 Chapter 2. Trade as Catalyst for Growth Liberia’s backward and two-sided GVC participation GVC participations increased over the past decade in rates increased noticeably over the past decade. Liberia. Specifically, backward participation rose from 6 A fundamental feature of firms engaged in GVCs is percent in 2010 to 11 percent in 2021, and two-sided the strategy of importing-to-export, as highlighted participation doubled, reaching 6 percent in 2021. This by Baldwin and Lopez-Gonzalez in 2013. This indicates that the country is integrating more with approach allows firms to bypass the development of international markets not only by exporting, but also comprehensive supply chains from the ground up. by importing intermediate goods. This can enhance Instead, they can utilize imported inputs directly in Liberia’s access to advanced technologies and higher- their export production. Backward GVC participation— quality inputs, which are crucial for boosting the measured as the proportion of imported inputs competitiveness of domestic industries. utilized in export production—is typically lower in countries that specialize in commodities. However, it Sectors including fishing, textiles and apparel, and begins to increase in countries that have moved into some manufacturing rely heavily on imported inputs limited manufacturing. This shift indicates a transition for their export production, involving both pure towards more complex industrial activities and can backward and two-sided participation. This trend signify a developmental progression in the economic extends to certain resource-intensive manufacturing structure of a nation. Both backward and two-sided sectors such as wood, metals, and food and beverages. Figure 32: GVC participation rates for Liberia and comparator countries (in percent) 2010 2021 0.60 0.60 0.50 0.50 0.40 0.40 0.30 0.30 0.20 0.20 0.10 0.10 0.00 0.00 Cote d'Ivoire Ghana Guinea Liberia Senegal Sierra Leone Cote d'Ivoire Ghana Guinea Liberia Senegal Sierra Leone Pure forward participation Pure backward participation Two-sided participation Pure forward participation Pure backward participation Two-sided participation Source: WB computations. Data: EORA based on Borin, Mancini and Taglioni (2021). Note: Pure forward participation measures the share of domestic value added that is re-exported by a country’s bilateral trading partner (rather than consumed there). Two-sided participation is the portion of imported inputs used in export production that is re-exported by a country’s bilateral trading partner (rather than consumed there). Pure backward participation measures the portion of imported inputs used in export production that is directly consumed in the partner country. The sum of pure backward and two-sided participation is the traditional measure of backward GVC participation. The EORA data has some peculiarities after 2015 and is not considered highly reliable for Liberia. The computations exclude the following sectors: 10 (transportation equipment), 12 (recycling), 15 (maintenance & repair), 19 (transport), 24 (private households), and 26 (reexport, reimport). Figure 33: GVC participation by sector, Liberia, 2015 0.6 0.5 0.4 0.3 0.2 0.1 0 Education and health Hotels and restraurants Public administration Retail trade Construction Agriculture Food & beverages Electricity, gas and water Electrical and machinery Telecommunications Wood and paper Mining and quarrying Metal products Wholesale trade Transport Maintenance and repair Other manufacturing Private households Others Fishing Recycling Transport equipment Re-export & Re-import Finacial intermediation Petroleum, chemical Textiles and wearing Pure forward participation Pure backward participation Two-sided participation Source: WB computations. Data: EORA based on Borin, Mancini and Taglioni (2021). Note: See footnote of figure 32 for the definitions of the three components of GVC participation. 30 Liberia Country Economic Memorandum Chapter 2. Trade as Catalyst for Growth However, high import tariffs, particularly on products by improving basic and digital infrastructure (e.g., such as textiles, can significantly undermine the connectivity, trade facilitation), and (iv) improve the competitiveness of firms that participate downstream quality of institutions (especially by ensuring political in these value chains, by increasing the cost of stability, but also standards certification). imported inputs and potentially reducing the global marketability of the final products. Based on this framework, this section outlines strategic steps to support Liberia’s transition 2.4.2 Fundamental and policy-related determinants from a limited involvement in commodity-based of trade export value chains to a deeper, more diversified This section examines certain fundamental aspects participation in regional and global value chains. of Liberia’s economy—namely, factor endowment, Key areas of focus include refining trade policy and market size, geography, and quality of institutions— domestic regulatory environments, improving trade and how they shape the country’s trade and GVC facilitation and logistics, increasing FDI, and addressing participation. The policy framework adopted for the prospects for and barriers to regional integration. this research (Figure 34) classifies countries based Importantly, although governments may want to on four broad fundamentals – endowments, market prioritize certain areas, they ultimately need to address size, geography, and institutions. Considering its all core constraints to increase trade competitiveness endowments, Liberia is categorized as a commodity and value chain participation, as demonstrated by exporter. For an economy to move from a success stories in global trade (e.g., Vietnam). commodities-based model to participation in limited manufacturing, the policy framework highlights Leveraging natural resource endowment with FDI the importance of (i) attracting FDI to overcome Liberia possesses a rich array of natural resources, scarcity of domestic capital, (ii) ensuring access to including minerals and fertile land that supports foreign inputs and markets (e.g., by reducing import agricultural production. However, the contribution of tariffs, liberalizing services trade, and pursuing trade natural capital to Liberia’s overall wealth has diminished, agreements such as the AfCFTA), (iii) facilitating trade dropping from 70 percent in 2004 to 43 percent in Figure 34: Different policy priorities underpin the transitions across types of GVC participation Commodities to limited Limited manufacturing to advanced Advanced manufacturing and manufacturing manufacturing and services services to innovative activities Fundamentals Policy priorities Foreign direct investment: adopt supportive investment policy and improve the business climate Finance: improve access to banks Finance: improve access to equity nance Endowments Labor costs: avoid rigid regulation and Technical and managerial skills: Advanced skills: educate for exchange rate misalignment educate, train and open to foreign skills innovation and open to foreign talent Access to inputs: reduce tari s and NTMs; reform services Standardization: harmonize or mutually accept standards Market size Market access: pursue trade agreements Market access: deepen trade agreements to cover investments to cover investment and services Trade infrastructure: reform customs; liberalize transport services; invest in ports and roads Advanced logistics services: Invest in multimodal transport infrastructure Geography Basic ICT connectivity: liberalize ICT services; invest in ICT infrastructure Advanced ICT services: expand high-speed broadband Governance: promote political stability Governance: improve policy predictability; pursue deep trade agreement Institutions Standards certi cate: establish Intellectual property rights: Contracts: enhance enforcement conformity assessment regime ensure protection Source: World Bank (2020, p. 187). Note: ICT = information and communication technology, NTMs = non-tariff measures. Liberia Country Economic Memorandum 31 Chapter 2. Trade as Catalyst for Growth 2018 (World Bank 2021a). This decline is largely due in the same period. To bolster growth, productivity, job to decreased productivity of cropland and falling creation, and value addition, Liberia must now focus values of metals and minerals, impacted by global on attracting FDI in non-mining sectors. commodity price reductions from 2014 to 2018 (World Bank 2022). Liberia’s natural resource endowment per Overcoming limits in market size through trade policy capita is lower than Ghana’s, comparable to those of Domestic market size plays a critical role in Guinea and Côte d’Ivoire, and higher than those of determining a country’s trade type and value chain Sierra Leone and Senegal (Figure 43, left panel). participation. Typically, small countries face constraints in their input and output markets, leading to greater In recent years, Liberia has successfully leveraged in trade openness. Limitations in industrial capabilities natural resources to attract foreign capital, which has and a sparse pool of domestic suppliers often compel played a crucial role in boosting trade and integration such countries to rely heavily on imports for their into GVCs. From 2015 to 2021, Liberia recorded an production of exports, thus increasing their backward average net FDI inflow equal to 4.5 percent of its GDP. integration into GVCs, as evidenced by Fernandes, This rate is comparable to those of Ghana and Guinea, Kee, and Winkler (2022). In Liberia, the relatively small and exceeds those of most regional peers, except for manufacturing sector accounts for the country’s higher Sierra Leone (Figure 43, right panel). In contrast, the level of backward participation in GVCs compared with average FDI inflow in the SSA region, excluding high- some of its peers. However, relative to countries such income countries only stood at 2 percent of GDP in the as Cambodia or Ethiopia, Liberia’s GVC involvement same period. appears modest. Given Liberia’s small domestic market and strong focus on natural resources, diversification However, FDI has focused predominantly on high- efforts should emphasize the importance of accessing technology mining, creating few employment international markets to enhance economic resilience opportunities for Liberia’s abundant low-skilled and growth. workforce. Investment constraints are partly due to the country’s fragile state, low capacity for Favorable trade policies play a critical role in implementing reforms, and significant barriers to enabling countries to expand their effective market accessing finance. For instance, domestic credit to the size, impacting both sourcing and selling activities. private sector stagnated around 15 percent of GDP Research underscores the positive effects of low tariffs over the past decade, a level substantially lower than on GVC participation and their FDI spillovers, for several the Sub-Saharan African average of 35 to 40 percent reasons: (i) firms are less constrained by domestic Figure 35: Natural capital endowment per head and FDI, Liberia and comparators Natural capital endowments (US$ constant 2018) FDI in percentage of GDP (2015-2022) Ghana Sierra Leone Liberia Ghana Guinea Liberia Cote d'Ivoire Guinea ECOWAS ECOWAS Sierra Leone SSA, excl. high income Senegal Cote d'Ivoire 0 1,000 2,000 3,000 4,000 5,000 6,000 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Source: Changing Wealth of Nations (2021) Source: WB illustration. Data: WDI. 32 Liberia Country Economic Memorandum Chapter 2. Trade as Catalyst for Growth market size, allowing for greater scalability (Crespo and percent, and those on fish stand at 16 percent. The Fontoura 2007; Fernandes, Kee, and Winkler 2022); (ii) latter might reflect protectionist measures to benefit businesses can access low-cost and high-quality inputs, the country’s fish industry. In contrast, cotton is subject enhancing competitiveness and efficiency; (iii) firms to the lowest tariff among agricultural products face increased international competitive pressures, (5 percent), potentially encouraging domestic which drive innovation and efficiency (Havranek and production of clothing and textiles—which attract Irsova 2011); and (iv) there are stronger incentives the highest tariffs among non-agricultural products, to adopting the latest technologies, furthering at 20 percent and 16 percent, respectively. Tariffs on technological advancement within the country (Meyer transport equipment and non-electrical machinery and Sinani 2009). are relatively low, at 8.5 percent and 6.8 percent, respectively, while those on electrical machinery reach Despite its small market size, Liberia maintains 11.3 percent. Liberia has been a member of the World relatively high tariffs on average, which hinder Trade Organization (WTO) since 2016. its ability to access foreign goods at competitive prices. While detailed data on Liberia’s average tariffs Liberia’s production for both the domestic market are limited, the most recent figures indicate that the and export may also be affected by non-tariff average Most Favored Nation (MFN) tariffs over the measures (NTMs). Albeit less direct than tariffs, NTMs past three years stood at around 12 percent. This rate are another significant protectionist barrier. They aligns with that of Liberia’s structural peers in Western include any policy actions—other than ordinary and Central Africa, but remains higher than both the customs tariffs—that can influence the prices and/or SSA average and the rates of its aspirational peers quantities of internationally traded goods. According (Figure 36). to Niu et al. (2018), while the average tariff in SSA more than halved between 1997 and 2015 to about Liberia’s average tariff on agricultural products (15.9 7.6 percent, the estimated ad-valorem equivalent percent) exceeds that levied on non-agricultural of NTMs grew nearly fivefold, attaining 38 percent in products (11.4 percent). Within the agricultural 2015. This indicates that while tariffs directly raise the sector, the highest tariffs concern animal products, cost of imported products in SSA by about 7.5 percent at 24.5 percent, while those on coffee, tea, fruits and on average, NTMs account for a 38 percent increase to vegetables, and dairy products range from 17 to 18 their price. Figure 36: Tariffs in Liberia and comparators Simple average MFN applied tariffs, Liberia and peers Average tariffs and ad-valorem equivalent estimates of non-tariff measures (NTMs) in SSA 12.5 80 12.0 60 Tari s + NTMs 11.5 11.0 Percent 40 10.5 Ad-valorem equivalent of NTMs 10.0 20 Tari s 9.5 2010 2012 2014 2016 2018 2020 2022 0 Liberia Structural Aspirational ECOWAS SSA 1997 2000 2003 2006 2009 2012 2015 Source: WB Staff Computations. Data: WTO. Source: Niu et al (2018). Note: MFN, Simple average duty. Structural peers include Guinea and Sierra Leone. Aspirational peers include Ghana and Cote d’Ivoire. Liberia Country Economic Memorandum 33 Chapter 2. Trade as Catalyst for Growth NTMs significantly raise the cost of both end hold a less substantial position in its import and export products and raw materials, with impacts not only portfolios, suggesting a less strategic application of on trade, investment, and GVCs, but also on poverty such measures. and income distribution. Given the extensive trade in parts and components within production networks, NTMs in Liberia include a variety of taxes and charges GVCs are particularly vulnerable to NTMs, which could on imports and exports, restrictions, and technical even discourage the formation of production networks measures. The most common NTMs include mandatory altogether. This is particularly problematic for firms that import and export permits for all goods shipped to must adhere to multiple regulatory regimes and could and from the country, alongside additional charges deter them from engaging in international trade and levied on these transactions. Furthermore, the country investment. Additionally, small enterprises, especially imposes various licensing and permit requirements, those in economically disadvantaged regions, face certifications, inspections, and authorizations. These significant challenges due to the substantial initial measures collectively influence the ease and cost of costs imposed by NTMs. These barriers often prevent doing business across borders. them from entering global markets, further limiting their growth and development potential. Liberia has fewer trade restrictions across all major services than most of its peers. The country is While NTMs apply to a wide range of products notably open to both imported services and foreign in Liberia, they cover a smaller proportion of the service providers, particularly in healthcare, finance, IT, country’s total imports and exports by value relative distribution, communication, and transport services. to its peers. Liberia imposes import-related NTMs Such openness is not common among Liberia’s on 46 percent of product lines, which however only structural and aspirational peers, who are generally account for 20 percent of the total value of its imports. more restrictive in these areas. Liberia’s relative In terms of exports, NTMs impact 38 percent of product openness is also evident in tourism and professional lines that account for less than 40 percent of export services, potentially influenced by the country’s global value—a stark contrast to aspirational countries, leadership in open ship registry. Construction services where such measures affect 93 percent of exports. are an exception, as they are subject to relatively This indicates that Liberia’s NTMs target products that stronger restrictions. Figure 37: NTM usage, Liberia and peer countries, 2014 Import measures Export measures 60 100 90 50 80 70 40 60 30 50 40 20 30 20 10 10 0 0 Liberia Aspirational ECOWAS SSA Liberia Aspirational ECOWAS SSA NTM coverage ratio NTM frequency index NTM coverage ratio NTM frequency index Source: WB calculation based on TRAINS NTM database. Note: data for structural peers is missing. Aspirational peers = Ghana and Cote d’Ivoire. SSA=Sub-Saharan Africa. The Frequency Index captures a country’s share of traded product lines subject to at least one NTM. The Coverage Ratio captures a country’s share of trade subject to NTMs. Unlike the Frequency Index, it is weighted by import values, rather than using traded product lines. 34 Liberia Country Economic Memorandum Chapter 2. Trade as Catalyst for Growth Figure 38: Services Trade Restrictions Index (STRI) in Liberia and comparators (2021) 90 80 70 60 50 40 30 20 10 0 Communications Computer Construction Distribution Finance Health Professionals Tourism Transport All sectors SSA ECOWAS Aspirational (2020) Structural Liberia Source: WB Computations. Data: WB-WTO STRI Database. Borchert, Gootiiz, Magdeleine, Marchetti, Mattoo, Rubio and Shannon (2019). Note: data for aspirational peers is from 2020. The STRI ranges from 0 to 100, where 0 indicates that none of the restrictions underlying the index is applied, and 100 means that the subsector/mode is completely closed to foreign services and service suppliers. To obtain an overall STRI that combines the modes of supply in a subsector-level index, trade restrictions by different modes were weighted according to their importance for the supply of the respective services in each subsector and then aggregated. Structural peers include Guinea and Sierra Leone. Aspirational peers include Ghana and Cote d’Ivoire. Regional peers: Western and Central Africa and Sub-Saharan Africa. Reducing the geographical disadvantage through trade within the countries’ respective borders. Factors such facilitation and connectivity as the availability of trade facilitation, connectivity, and Geographical distance significantly affects a tariffs contribute significantly to trade costs. country’s involvement in GVCs, as trade in parts and components is sensitive to transportation times and Figure 39: Ad valorem trade costs (%), Liberia and comparator, 2018 logistics efficiency. Extended distances from major 400 GVC centers—such as China, Germany, and the United 350 States—negatively impact a country’s backward and 300 forward GVC participation (Fernandes, Kee, and Winkler 250 2022). A nation’s proximity to such hubs is a crucial 200 determinant of its role within GVCs: those located 150 100 nearby are more likely to engage in manufacturing 50 GVCs, while those further away often concentrate on 0 commodities. Countries that participate in advanced China Germany Nigeria South Africa United States Liberia Structural Aspirational Regional AFW SSA manufacturing, services, or innovative GVCs are Source: WB illustration. Data: ESCAP-World Bank trade costs database. typically closer to these hubs (World Bank 2020). Note: Trade costs encompass international transport costs and tariffs direct and indirect costs associated with differences in languages and currency, sas well as cumbersome import or export procedures. Liberia is equidistant from Europe and South Africa, See: https://www.unescap.org/sites/default/d8files/Trade%20Cost%20Database%20-%20 User%20note.pdf and its coastal location offers ease of access to Structural peers include Guinea and Sierra Leone. Aspirational peers include Ghana and Cote d’Ivoire. Regional peers: Western and Central Africa and Sub-Saharan Africa. Nigeria’s substantial market and growth prospects. However, the cost of trade between Liberia and major Enhancing trade facilitation, particularly through global markets such as China, Germany, and the US streamlined border processes, significantly remains significant due to their relative distance. Liberia’s lowers trade costs. Shepherd (2022) estimates that trade costs, as measured by bilateral ad valorem rates, approximately one-third of the increase in GVC are lowest with Germany (113.7 percent) and China trade in intermediate goods from 2015 to 2019 can (134 percent). Surprisingly, despite their proximity, the be attributed to improvements in trade facilitation, ad valorem cost for goods trade between Liberia and largely linked to more widespread implementation Nigeria in 2018 was extremely high, at 286 percent. of the WTO Trade Facilitation Agreement (TFA). This This entails that for all tradable goods, on average, the underscores the significant potential of refining trade cost of trading between Liberia and Nigeria was 286 facilitation policies and regulations to ease access to, percent higher than the cost of trading the same goods and reduce the cost of, imported intermediates. Liberia Country Economic Memorandum 35 Chapter 2. Trade as Catalyst for Growth Although Liberia endorsed the WTO-TFA in 2017 and evaluate the efficiency of border operations and the is largely compliant with it, the country still faces effectiveness of relevant policy initiatives—including relatively high trade costs. Liberia has implemented digital data exchange between border inspection almost 70 percent of its WTO-TFA commitments: 36 agencies, streamlining and standardization of trade percent of them fall under Category A, 33 percent under processes, reduction of unnecessary documentation, Category B, and 1 percent under Category C (for more and availability of mechanisms to appeal decisions by details on the categorization of commitments, refer to customs and other border authorities. Box 2). This performance is on par with Guinea and the broader Sub-Saharan Africa region, and surpasses that Liberia suffers from significant deficiencies in areas of peers such as Sierra Leone, Côte d’Ivoire, and Ghana, of trade facilitation that include automation, border which have met 6 percent, 47 percent, and 53 percent agency collaboration, governance, impartiality, and of their obligations, respectively (Figure 40). procedural formalities. The country scored poorly on both domestic components—such as delegation of Figure 40: WTO TFA implementation in Liberia and comparators, 2022 control to customs authorities and cooperation among Liberia national border agencies—and external components, Sierra Leone which involve cooperation with other countries. On Guinea governance and impartiality, Liberia struggles with Ghana the structure and functioning of customs, as well as with accountability and ethics policies. In terms Cote d'Ivoire of formalities, the country shows particularly weak SSA performance in automation—encompassing the Global electronic exchange of data, use of automated risk 0 10 20 30 40 50 60 70 80 90 Category A current Category B current Category C current management systems, automated border procedures, Source: WB illustration. Data: WTO Trade Facilitation Agreement Database. and electronic payments. Additionally, Liberia lags in streamlining procedures, such as implementing single As of 2022, Liberia’s performance on trade submission points for all required documentation facilitation was only better than Sierra Leone’s (single windows). However, the country outperforms among its structural, aspirational, and regional some peers on the fees and charges imposed on peers. Liberia achieved an average score of 0.68 out imports and exports. of a possible 2 on trade facilitation indicators, which Figure 41: Trade facilitation indicators for Liberia and comparators, 2022 Score by component for Liberia Average for Liberia and comparators Fees and charges Senegal Involvement of the trade community Benin Appeal procedures Ghana Advance rulings Nigeria Information availability Mali Procedures Togo Documents Côte d'Ivoire Governance and impartiality Gambia External border agency co-operation Liberia Automation Burkina Faso Internal border agency co-operation Sierra Leone 0 0.2 0.4 0.6 0.8 1 1.2 0 0.2 0.4 0.6 0.8 1 1.2 Source: WB illustration. Data: OECD Trade Facilitation Indicators (TFIs). Note The TFIs take values from 0 to 2, where 2 designates the best performance that can be achieved. The variables in the TFI dataset are coded with 0, 1, or 2. These seek to reflect not only the regulatory framework in the concerned countries, but delve, to the extent possible, into the state of implementation of various trade facilitation measures. See: https://www.oecd.org/trade/topics/ trade-facilitation/ 36 Liberia Country Economic Memorandum Chapter 2. Trade as Catalyst for Growth Since 2010, Liberia’s Logistics Performance Index transportation costs and restricts access to markets, (LPI) score has remained relatively stagnant, especially during the rainy season. Additionally, the hovering around 2.4. This level of performance aligns sector struggles with limited and unreliable electricity with its regional counterparts within SSA, but contrasts access, forcing agribusinesses to invest heavily in with the progress observed among aspirational peers. expensive generators. Conversely, Liberia’s structural peers experienced a decline in their average LPI scores from 2010 to 2018, Strengthening institutional quality followed by an increase in 2023. Overall, while Liberia’s While Liberia enjoys relative political stability, it LPI score has only shown modest improvement over falls short of its peers on government effectiveness the years, its aspirational and structural peers, along and regulatory quality. Government effectiveness is with the broader ECOWAS and SSA regions, have made measured by the perception of public services quality, more progress. civil service quality and independence from political pressure, effectiveness of policy formulation and Liberia excels in the punctuality of shipments, implementation, and credibility of the government’s outperforming all structural, aspirational, and commitment to its policies. Regulatory quality regional counterparts on this metric. This superior encompasses the government’s ability to formulate performance is likely tied to the country’s open ship and implement sound policies and regulations that registry, the second-largest in the world. However, encourage private sector development. Liberia faces challenges in other aspects of trade and transport infrastructure—such as customs procedures, Engaging in comprehensive trade agreements is a tracking and tracing capabilities, and overall strategic avenue for Liberia to enhance institutional logistics competence. On a positive note, arranging quality. Deep preferential trade agreements, in competitively priced shipments has become easier particular, can improve institutional standards and over time, with the relevant LPI score rising from 3.08 trade integration by addressing complex areas in 2010 to 3.25 in 2023. such as capital mobility, investment, visa processes, competition, and intellectual property rights—thereby Supply-side constraints, particularly around facilitating deeper involvement in GVCs (Orefice and connectivity and geographical challenges, hamper Rocha 2014; Kowalski et al. 2015; Johnson and Noguera progress in the agricultural sector. Inadequate 2017; Laget et al. 2018; World Bank 2020). road infrastructure, especially in rural areas, raises Figure 42: Logistics Performance Index, Liberia and peers, Figure 43: Logistics Performance Index by sub-indicator, Liberia 2010 to 2023 and peers, 2018 3.0 Customs 3.5 3 2.5 2.5 Timeliness 2 Infrastructure 2.0 1.5 1 0.5 1.5 0 1.0 Tracking & tracing International shipments 0.5 0.0 Liberia Structural Aspirational ECOWAS SSA Logistics competence 2010 2012 2014 2016 2018 2023 Liberia Structural Aspirational ECOWAS SSA Source: WB Computations. Data: WB LPI. Source: WB Computations. Data: WB LPI. Note: Structural peers include Guinea and Sierra Leone. Aspirational peers include Ghana and Note: Structural peers include Guinea and Sierra Leone. Aspirational peers include Ghana and Cote d’Ivoire. Regional peers: Western and Central Africa and Sub-Saharan Africa. Cote d’Ivoire. Regional peers: Western and Central Africa and Sub-Saharan Africa. Liberia Country Economic Memorandum 37 Chapter 2. Trade as Catalyst for Growth However, Liberia is only a party to one preferential ECOWAS provisions span 20 policy areas, but only trade agreement, the Economic Community of West measures pertaining to eight of them are legally African States (ECOWAS). As a member of ECOWAS, enforceable. By comparison, the Common Market for Liberia is part of a customs union comprising 15 Eastern and Southern Africa (COMESA) addresses 29 preferential trade allies. In contrast, Ghana and Cote policy domains, and sets out legally binding provisions d’Ivoire are parties to four major trade agreements and in 11 of them; while the East African Community (EAC) collaborate with over 40 preferential trade partners. covers 34 policy areas, with legally enforceable rules in With regard to the depth of trade agreements, 12 of them. 38 Liberia Country Economic Memorandum CHAPTER 3 LEVERAGING LIBERIA’S AGRO-PROCESSING POTENTIAL Liberia Country Economic Memorandum 39 3. LEVERAGING LIBERIA’S AGRO-PROCESSING POTENTIAL 3.1 Introduction Strengthening the entire value chain, from farm to D eveloping the agro-processing sector can help market, is essential to the agro-processing sector’s Liberia catalyze inclusive economic growth, growth. This involves building linkages between enhance value addition in the agricultural sector, farmers, processors, and retailers to ensure efficient and create employment opportunities. By increasing flow of goods and information. Initiatives to improve agricultural productivity, developing agro-processing quality standards, packaging, and branding can clusters, strengthening value chains, fostering an enhance the competitiveness of Liberian processed enabling environment, and leveraging technology, products in domestic and international markets. Liberia can transform its agricultural wealth into sustainable development gains. This approach not Creating a conducive policy environment is crucial only supports rural development and job creation for encouraging investment in agro-processing. This but also positions Liberia to capitalize on the includes simplifying regulatory procedures, offering tax growing global demand for processed food products, incentives, and supporting research and development. thereby enhancing its export portfolio and reducing Policies aimed at enhancing access to finance for dependency on a narrow range of commodities. The agro-entrepreneurs, particularly small and medium- strategic development of Liberia’s agro-processing sized enterprises (SMEs), are also vital. Integrating sector is a pathway to more inclusive and diversified technology and innovation in agro-processing can economic growth. This chapter delves into strategic improve efficiency, reduce costs, and open new avenues for harnessing Liberia’s agro-processing market opportunities. Digital technologies can potential, aiming to boost the economy and achieve streamline supply chains, enhance product traceability, diversification beyond traditional export commodities. and facilitate access to market information. Investing in research and development for new processing The foundation of a robust agro-processing industry techniques and product development is also key to is a productive and resilient agricultural sector. staying competitive. Investing in agricultural research, extension services, and access to quality inputs can significantly increase 3.2 Diversification and upgrading productivity. Initiatives to improve land use practices, opportunities water management, and pest control are vital for Sustaining economic growth for three decades ensuring a consistent and high-quality supply of raw requires the steadfast implementation of a strategy materials for processing. for socio-economic transformation. Historical evidence shows that countries that successfully Establishing agro-processing clusters can create transitioned from low-income status deepened economies of scale, reduce costs, and attract their integration into the global economy and investment. Such clusters, located near agricultural advanced in technological sophistication. They production sites, can serve as hubs for innovation, skills also established a level playing field across and development, and technology transfer. Supporting within sectors, fostering innovation and enhancing infrastructure, such as roads, energy, and water supply, productivity. is critical to the success of the clusters, as is access to financing and markets. 40 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential Liberia’s economy remains founded on resource- which indicates the level of knowledge and capabilities based and primary products. Based on the two-digit required for their production, has been on a declining Harmonized System (HS) classification, Liberia has a trend in Liberia, thereby limiting the country’s growth clear Revealed Comparative Advantage (RCA) in only six potential. More complex products, such as electronics out of 102 products and services, including gold, iron or pharmaceuticals, demand more advanced ore, rubber, palm oil, cocoa, and wood. The country’s knowledge and industrial capabilities, compared RCA scores have also been improving in relation to with simpler products such as raw materials or basic fish, coffee, copper, soaps and paints, animal feed, and agricultural goods. The Economic Complexity Index articles of iron or steel. However, their proportions in (ECI), which measures the diversity and sophistication Liberia’s total exports remain below their shares in of a country’s productive capabilities based on its global exports. export portfolio, is not only low but decreasing in Liberia—pointing to a growing reliance on simpler, less Liberia’s economic future faces significant sophisticated products and shrinking opportunities constraints, unless the country becomes able to for smart growth. Currently, Liberia ranks last out of produce and deliver more varied and complex 133 countries in terms of economic complexity and goods and services. The complexity of products, dropped 43 places between 2017 and 2021. Figure 44: Liberia’s revealed comparative advantage, by product, 1995-2021 RCA>=1 RCA<1 45.0 1.6 40.0 1.4 35.0 1.2 30.0 1.0 25.0 0.8 20.0 0.6 15.0 0.4 10.0 0.2 5.0 0.0 0.0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 RCA thresold Copper Fish Animal feed Iron ores Rubber Cocoa Gold Palm oil Wood Co ee Articles of iron Soaps and paints Source: WB Computations. Data: The Atlas of Economic Complexity Note: RCA is a measure of whether a country is an exporter of a product, based on the relative advantage or disadvantage a country has in the export of a certain good. This uses Balassa’s definition, which says that a country is an effective exporter of a product if it exports more than its “fair share,” or a share that is at least equal to the share of total world trade that the product represents (RCA greater than 1) https://atlas.cid.harvard.edu/what-is-the-atlas. Figure 45: Economic Complexity Index (ECI) score and ranking for Liberia and comparators, 1995-2021 ECI score ECI ranking 0.0 130 -0.5 120 110 -1.0 100 -1.5 90 80 -2.0 70 -2.5 60 -3.0 50 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Côte d'Ivoire Ghana Guinea Liberia Senegal Côte d'Ivoire Ghana Guinea Liberia Senegal Source: The Atlas of Economic Complexity Note: The ECI ranks countries based on how diversified and complex their export basket is. https://atlas.cid.harvard.edu/what-is-the-atlas Liberia Country Economic Memorandum 41 Chapter 3. Leveraging Liberia’s Agro-processing Potential Like many developing countries, Liberia faces the already has. Liberia scores -1.22, placing it 126th out of dual challenge of lacking both complexity in its 133 countries. Only a few complex products are within economy and easy opportunities to upgrade its its close reach, making diversification tough without productive capacity. The country scores very low on substantial enhancement to the country’s capabilities. the Complexity Outlook Index (COI), which assesses the proximity of a country’s existing productive Liberia’s low degree of economic complexity and capabilities to more complex products. The COI is poor connections to upgrading opportunities are indicative of how easily a country can diversify its clearly illustrated in its product space diagram14 economy; a high COI score suggests the ability to (Figure 47). This analysis identifies 19 Liberian products produce a range of complex products that require that had a clear comparative advantage in 2021. Except capabilities or know-how similar to those the country for two products on the center-left of the diagram, Figure 46: Economic Complexity Outlook (ECO) score and ranking for Liberia and comparators, 1995-2021 ECO ECO ranking 0.4 140 0.2 130 0.0 120 -0.2 110 -0.4 100 -0.6 90 -0.8 -1.0 80 -1.2 70 -1.4 60 -1.6 50 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Côte d'Ivoire Ghana Guinea Liberia Senegal Côte d'Ivoire Ghana Guinea Liberia Senegal Source: The Atlas of Economic Complexity Note A low complexity outlook reflects that a country has few products that are a short distance away, so will find it difficult to acquire new know-how and increase their economic complexity. https://atlas.cid.harvard.edu/what-is-the-atlas. Figure 47: Liberia’s low-complex products identified in the periphery of the product space Source: The Atlas of Economic Complexity Note: The chart depicts the connectedness between products based on similarities in the know-how required to produce them. The product space visualizes the paths that countries can take to diversify. Products are linked by their proximity to each other, based on the probability of co-export of both products https://atlas.cid.harvard.edu/what-is-the-atlas 14 The product space visualizes the paths that countries can take to diversify. It depicts the connectedness between products based on similarities in the know-how required to produce them. 42 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential associated with the shipping industry that uses Liberia • Expanding into the manufacturing of wood as a flag of convenience, all others are peripheral. If products: This pathway would capitalize on Liberia’s the shipping industry were excluded, the number of rich forestry resources. Transitioning from raw products with a clear comparative advantage would wood exports to manufactured wood products, drop to 14. This contrasts with a structural comparator such as furniture or building materials, could add such as Guinea, which counts 20 products in which it considerable value to exports. The main challenge has a comparative advantage, and with aspirational relates to ensuring sustainable forestry practices benchmarks such as Côte d’Ivoire (42), Ghana (88), and to prevent environmental degradation and Senegal (113). deforestation, which could have negative long-term impacts on the ecosystem and the economy. Liberia’s diversification strategy can pursue various • Focusing on agro-processing: This pathway seems pathways that build on the country’s immediate the most immediately viable and builds on existing strengths and address its long-term development agricultural practices. By adding value to agricultural goals. Each pathway presents unique opportunities products—such as transforming natural rubber and challenges: into rubber products, refining palm and coconut • Developing a steel industry from iron ore oils, producing high-value cosmetic products from production: This pathway takes advantage of Liberia’s local kernels, or transforming cereal and cassava abundant iron ore reserves. Developing a steel products—Liberia could significantly enhance its industry would involve substantial investments in economic profile. This strategy would not only infrastructure, particularly in electricity—a significant increase the market value of its commodities but also hurdle given the country’s energy predicament. The create jobs and improve technological capabilities level of investment, coordination, and political will within the country. required make this a high-risk, high-reward strategy, which could significantly boost the economy if For a sustainable economic transformation, Liberia successful. However, heavy reliance on global steel could consider a combined approach that integrates markets could introduce volatility and risk. these pathways while managing the associated risks. Figure 48: Liberia’s pathways to economic complexity and diversification Wood and advanced rubber processing cluster Steel industry cluster Agro-processing cluster Source: The Atlas of Economic Complexity Note: The chart depicts the connectedness between products based on similarities in the know-how required to produce them. The product space visualizes the paths that countries can take to diversify. Products are linked by their proximity to each other, based on the probability of co-export of both products https://atlas.cid.harvard.edu/what-is-the-atlas Liberia Country Economic Memorandum 43 Chapter 3. Leveraging Liberia’s Agro-processing Potential An initial emphasis on agro-processing could generate actual cultivation, harvesting, and transportation. In the capital and technological base to gradually contrast, commercial farms and farmer cooperatives venture into more capital-intensive industries, such are often involved in both the cultivation and initial as steel manufacturing. Simultaneously, promoting processing stages. Multinationals tend to focus on sustainable practices in the forestry and agricultural stages beyond cultivation, notably processing and sectors will be crucial to ensuring environmental marketing (Kaiser Associates Economic Development sustainability alongside economic development. Partners, 2014). Implementing robust policy frameworks and investing in essential infrastructure, particularly in energy Agro-processing encompasses the transformation and transportation, will be critical to support these of products from agriculture, forestry, and fisheries. transformative strategies. The industry can operate based on global-to-local patterns, where imported agricultural commodities 3.3 Leveraging the potential of agro- are processed and sold within the local market processing (backward linkage to GVCs), or local-to-global This section explores agro-processing as a patterns, focusing on processing locally produced catalyst for economic growth and diversification, commodities for export (forward linkage to GVCs). In employment generation, social development, and Liberia, the industry primarily emphasizes the latter. structural transformation in Liberia. Liberia boasts a Additionally, a significant informal sector follows a diverse agricultural sector that produces a wide range local-to-local pattern, processing locally produced of goods, including rubber, palm oil, cocoa, coffee, rice, commodities for domestic consumption. This cassava, coconuts, moringa, honey, fish, poultry, and aspect of the industry is crucial, as it supports local wood. However, most products are either sold locally economies, provides employment, and enhances or exported with minimal value addition. food security by making processed goods accessible and affordable to the local population. 3.3.1 Value-adding activities in agribusiness Liberia participates in agricultural GVCs through The challenge for Liberia, as for many countries with the supply of primary products such as cocoa a similar economic structure, lies in balancing these beans, palm oil, and rubber, with a limited patterns while fostering growth and formalization degree of domestic processing. Such participation within the sector. Formalization could bring about predominantly relies on smallholders who engage better regulation, improve standards and quality of in the cultivation stage, encompassing input supply, products, and potentially open new markets. Moreover, addressing the needs of the sector by providing Figure 49: Types of agribusiness value chains training, resources, and access to finance could help Type of value chain Examples Characteristics integrate it more fully into the national economy, Fresh fruit and vegetables • One stage of “processing” typically low boosting overall productivity and sustainability. • • Staple food products (maize, rice) technology processing (for example packaging, Primary agricultural • Meat cutting) products (consumable) • Nuts • Limited product transformation before • Tea end-consumer • Confectionary • Two stages of processing-although can A critical step to enhance Liberia’s agro-processing • Biscuits be vertically integrated Processed agricultural products (consumable) • • Beverages Dairy products • Substantial and complex product transformation sector involves selecting a limited number of value Branded/differentiated products Coffee chains to focus on. Liberia produces a diverse array of • • • Chocolate Textiles (cotton, leather) • • Two stages of processing-although can be vertically integrated agricultural goods, with nearly a dozen product lines Animal food (maize) • Processed agricultural Substantial product transformation • Biofuels (feedstock) products (unconsumable) • Pharmaceuticals (palm oil, extracts) • • Often linked to waste products from showing significant potential for growth. However, the Industrial use (rubber, various, consumable agricultural products (for capacity to develop them simultaneously is limited. This • byproducts) example biofuels, animal feed) • End-use in nonconsumable/nonfood products Source: Kaiser Associates Economic Development Partners (2014, p. 164) in Farole implies a need for careful planning and policy-making and Winkler (2014). that supports targeted investment and development 44 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential efforts, based on specialization and efficient allocation value chain, or that the value chain underperforms on of resources within the agricultural sector. Using well- that criterion. Conversely, the highest score implies defined criteria, the following section will propose a that the criterion poses little constraint to the value methodology to identify the five value chains with the chain, or that the value chain excels in that aspect. greatest potential. Figure 50: Agricultural value chains The results suggest that market opportunities exist for most value chains, whether locally or Primary processing (intermediate Consumable Food internationally. The value chains considered perform input) manufacturing especially well on criteria such as consumption trends Nonconsumable and market growth opportunities, followed by land Distribution Sales Cultivation intensity. Furthermore, most value chains contribute Nonfood manufacuring positively to food security, equity, and job creation, (various) either directly or indirectly. Primary processing (end product) Palm oil, cocoa, rubber, cassava, and rice emerged as the value chains with the greatest potential Source: Kaiser Associates Economic Development Partners (2014, p. 165) in Farole and Winkler (2014). for upgrades in production and processing. This is due to a combination of existing infrastructure, 3.3.2 Selection of promising value chains market demand, historical cultivation success, and Using a modified version of the scoring methodology economic and social impacts. Conversely, despite developed by Kazadi and Ryan (USAID 2016), this high potential, fisheries and poultry face notable study evaluated 12 agricultural value chains. The challenges, particularly around ensuring an adequate selection of Liberia’s most promising agricultural and consistent supply of inputs for processing— value chains was based on 23 criteria, grouped into due to variance in production, logistical issues, and six categories: input market potential, output market environmental variables. Other commodities could potential, processing and value addition concepts, generate benefits for the economy, but necessitate socioeconomic impact, and environmental impact more substantial investment, improved technologies, (see Appendix 4.1 for details). Each criterion was rated and enhanced policy support to overcome the on a scale from one to five, where the lowest score associated challenges. indicates that the criterion significantly constrains the Figure 51: Summary of agricultural value chains’ potential Ranking of value chains Market growth opportunities vs Availability of production Oil Palm 81.0 5 Rubber Cassava Cocoa 81.0 Availability of production Rubber 77.0 4 Oil Palm Cassava 76.0 Rice 73.0 3 Rice Cocoa Fisheries 68.0 Poultry 61.0 2 Aquaculture Coconuts Honey 61.0 Poultry Co ee Moringa 59.0 1 Marine Fisheries Co ee 58.0 Moringa Honey Aquaculture 57.0 0 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 Coconuts 57.0 Market growth opportunities Source: WB Computations. Data: Scoring methodology Liberia Country Economic Memorandum 45 Chapter 3. Leveraging Liberia’s Agro-processing Potential Palm oil value chain Palm oil has emerged as a significant export for Palm oil is a highly versatile product that can be Liberia since 2016. According to the International transformed into a wide array of goods. With minimal Trade Center (ITC), which combines direct export processing, cooking oil is extracted from the fruit of figures with mirror data, the export value of palm oil the oil palm tree, then purified through filtration. Palm and derived oil fat products stood at nearly US$76 kernel cake, a byproduct of the oil extraction process, million in 2022. This includes US$71 million from crude is used directly as animal feed or further processed palm oil (HS151110), US$2.9 million from palm kernel into pellets or meals. Moderate processing of crude (HS151321), and US$1.7 million from palm oil fractions oil yields soap, candles, paints, coatings, cleaning and processed products (HS151190). The ITC assesses products, lotions, creams, palm olein, and palm the value of the global market for palm oil at US$46 stearin. Shampoos, conditioners, and lubricants can billion, with the segments for crude oil, palm kernel, be obtained through moderate-to-high processing, and palm fractions and processed products valued which involves emulsification and blending with other at US$12 billion, US$1.2 billion, and US$33 billion, cosmetic ingredients, or chemical modifications to respectively. The export growth potential for Liberia’s enhance performance under industrial conditions. palm oil sector is projected at 40 percent overall— Products that require significant processing include broken down as 94 percent for fractions and processed confectionery fats, biodiesel, and various cosmetic products, 55 percent for palm kernel, and 38 percent products. for crude palm oil. The regional market for the fractions and processed products segment is becoming Oil palm is an important tree crop in Liberia, covering increasingly important, with untapped potential for more than 1 million hectares. About 21 percent of exports to Senegal, Côte d’Ivoire, and Ghana. farming households produce palm oil, and more than 220,000 people are employed in the oil palm sector FDI has been a primary driver of change in Liberia’s (National Oil Palm Strategy 2021-2025). The production palm oil industry. Between 2009 and 2010, the of palm oil increased from 11,000 metric tons (Mt) in government awarded concessions to develop 2017 to 21,000 Mt in 2023, reflecting tremendous plantation estates and support out-grower schemes efforts by the government to improve productivity in to companies including Golden Veroleum, Sime Darby, the sector. The sector’s main stakeholders are farmers, Equatorial Palm Oil, and Maryland Oil Palm Plantation. co-operatives, large multinational corporations and In 2019, Sime Darby exited the market by selling concessionaires, intermediaries, and independent oil its concession to Mano Palm Oil Industries (MPOI). palm processing companies. Currently, Golden Veroleum Liberia (GVL) operates Figure 52: Quarterly palm oil production, annual exports, and RCA Quarterly production of crude palm oil Palm oil exports and RCA 29,000 40.0 7.0 Revealed comparative advantage 26,000 35.0 6.0 Production (metric tons) 23,000 30.0 Exports (US$ million) 5.0 20,000 25.0 4.0 17,000 20.0 3.0 14,000 15.0 2.0 11,000 10.0 8,000 5.0 1.0 5,000 0.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Dec-16 Jun-17 Nov-17 Apr-18 Sep-18 Mar-19 Aug-19 Jan-20 Jun-20 Dec-20 May-21 Oct-21 Mar-22 Sep-22 Feb-23 Jul-23 Dec-23 Exports (US$ million) Revealed comparative advantage Source: Central Bank of Liberia (CBL) Source: The Atlas of Economic Complexity 46 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential in Sinoe, River Cess, River Gee, Grand Kru, and Maryland pressure. Energy-related challenges highlight the need counties. Mano Palm Oil Industries is active in Grand for better energy infrastructure and efficiency measures Cape Mount, Bomi, and Gbarpolu counties. Equatorial across the industry, to ensure sustainable growth and Palm Oil has operations in Grand Bassa, Sinoe, and environmental compliance. River Cess counties. The influx of FDI has reshaped the Figure 53: Palm processing score card sector, fostered growth, and expanded production Available production Promotes sustainability capacity across these regions. Forest protection 5.00 Consistent production Raw material inputs 4.00 Environmentally sustainable Consumption trends 3.00 However, challenges persist around environmental Inclusivity and equity 2.00 Market growth and social sustainability, forest protection, energy Job creation 1.00 Market competition - intensity, and logistics. The expansion of palm oil Food security Import substitution plantations in Liberia has often entailed the clearing of Access to nance Proven concept primary rainforests, threatening the habitat of various Capital requirement Logistics for sourcing inputs Know-how and technology Land intensity wildlife species and disrupting ecological balance. Skill suitability Labor intensity Likelihood of success Energy intensity To move towards greater sustainability, the palm Source: WB computations. Data: Scoring methodology oil industry in Liberia needs to continue integrating responsible environmental practices, improving The government approved a National Oil Palm community engagement, and ensuring compliance Strategy and Action Plan (NOPSAP) to guide public with international sustainability standards. On the and private institutions, producers, and technical social front, the expansion of palm oil plantations and civil society organizations toward common has prompted land disputes with local communities objectives. The overarching goal of the NOPSAP 2021 and indigenous people. Ensuring that land rights -2025 is to turn the oil palm sector into a strategic are respected, and that local communities benefit engine for inclusive economic growth in rural areas from palm oil production, is crucial for sustainable across the country. The strategy is organized around development. Liberia’s oil palm sector can continue seven objectives: (i) ensuring compliance with national to implement guidance from the Roundtable on standards that guide the production, processing, and Sustainable Palm Oil (RSPO) and best practices from marketing of palm oil; (ii) developing an enabling the Free, Prior, and Informed Consent negotiation regulatory framework for the oil palm sector; (iii) rolling procedure (FPIC). out a five-year financing mechanism for sustainable oil palm development; (iv) improving livelihoods for While the energy intensity of palm oil processing smallholder farmers and communities; (v) establishing depends on the methodologies adopted and the a conflict resolution mechanism and a grievance scale of operation, access to reliable and affordable redress mechanism; (vi) drafting an integrated land electricity constrains the development of the use plan in conformity with the Land Rights Act (2018), industry. For instance, the refining, bleaching, and with a focus on the acquisition of deeds for customary deodorization processes in palm oil production require land; and (vii) integrating sustainable conservation significant amounts of heat and electricity. Similarly, practices in oil palm production, in conformity with the saponification process to make soap from palm oil the National Reducing Emissions from Deforestation involves energy-intensive heating and, occasionally, and Forest Degradation (REDD+) Strategy. Liberia Country Economic Memorandum 47 Chapter 3. Leveraging Liberia’s Agro-processing Potential  Box 2 Policies to develop the palm oil industry: The case of Indonesia Indonesia’s rise as the world’s largest producer of palm oil is a result of several key policies and initiatives that the government implemented over the years. These aimed at promoting both large-scale commercial plantations and smallholder participation. Key policies and initiatives have included: • Transmigration Policy: Originating in the 1900s and intensifying from the 1970s onward, the Indonesian government’s transmigration policy moved millions of people from densely populated areas, such as Java, to less populated regions such as Sumatra and Kalimantan. This policy was integrated with the development of palm oil plantations, providing labor and helping to alleviate overpopulation. Many transmigrants received small plots of land, part of which was to be planted with oil palms. • Land Allocation and Licensing: The government facilitated the expansion of palm oil cultivation by allocating large tracts of land for development and simplifying the process to obtain cultivation rights (HGU - Hak Guna Usaha). This helped attract both domestic and foreign investment into the sector. • Research and Development: The government invested in agricultural research, including the development of high- yielding palm oil varieties. Institutions such as the Indonesian Oil Palm Research Institute played a crucial role in improving crop yields and farming practices. • Favorable Investment Climate: Tax holidays, duty exemptions on imported agricultural equipment, and the removal of restrictions on FDI encouraged investment in the palm oil sector. • Smallholder Programs: The government promoted the inclusion of smallholders in the palm oil industry through initiatives such as the Plasma-Nucleus scheme, whereby large companies provide seedlings, technology, and access to markets, while smallholders contribute land and labor. • Mandatory Biodiesel Policy: To stimulate domestic demand, the government implemented a mandatory biodiesel blending policy, which required diesel fuel to contain a certain percentage of palm oil-derived biodiesel. This not only bolstered the internal market, but also helped stabilize palm oil prices. • Export and Quality Regulations: The government has periodically adjusted export tariffs and taxes to control the market and maintain competitive pricing. It also sets quality standards to ensure that Indonesian palm oil remains a desirable product in the international market. These policies collectively contributed to the rapid expansion and success of the palm oil industry in Indonesia, making it a significant driver of the country’s economic growth. However, such growth has been accompanied by environmental and social challenges, such as deforestation, loss of biodiversity, and disputes over land rights, prompting ongoing discussions about sustainable practices in the palm oil industry. Cocoa value chain Cocoa beans are processed into a variety of products, Cocoa plantations cover more than 121,400 with different levels of refinement and uses. For hectares in Liberia. The country has more than example, cocoa powder is made by crushing cocoa 30,000 smallholder cocoa farmers, and the sector beans and removing the cocoa butter, a natural fat employs 12.6 percent of all agricultural workers. Cocoa used extensively in the production of chocolate, production increased from 1,950 metric tons in 2018 cosmetics, cocoa-based beverages, and skincare to 4,900 Mt in 2023, for an average annual increase of products. Cocoa husks, the outer shells of the cocoa 17 percent. The main stakeholders include farmers, bean, are often used as mulch in gardening, or as a cooperatives, large multinational corporations and fibrous material in certain countries. Various candies concessionaires, and intermediaries. and sweets incorporate chocolate or cocoa powder as a primary ingredient. 48 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential Cocoa beans emerged as a significant export for organic cocoa production has a competitive edge that Liberia in 2008, peaking at US$85 million in value could attract more FDI from commercial players, e.g., in 2016 before declining to US$40 million in 2021. to set up processing facilities and engage in direct According to the ITC, Liberia exported US$39 million partnerships with local farmers. worth of cocoa beans in 2022, while the global market for this product is valued at US$9.6 billion. The export However, the Liberian cocoa industry faces serious growth potential for Liberia is projected at more than challenges, including production volatility, a 150 percent. Liberia does not yet export cocoa paste, shortage of skilled workers, high energy intensity, whose global market is valued at nearly US$500 and poor logistical infrastructure. Production declined million—with promising destinations such as Spain, markedly between 2016 and 2023, exacerbating the the US, and Malaysia. difficulties of cocoa processors in securing reliable inputs. Moreover, certain phases of cocoa processing FDI flows into Liberia’s cocoa industry have been are very energy-intensive. For example, roasting cocoa relatively modest compared with those into mining beans requires substantial thermal energy to achieve and palm oil, but the sector is gaining attention due appropriately high temperatures. Similarly, chocolate to its potential for growth and development. Foreign production involves continuous mixing and aeration of resources are often deployed in Liberia’s agriculture the chocolate mass, absorbing considerable amounts in the form of grants and technical assistance, rather of thermal and mechanical energy over extended than direct commercial investments. Organizations periods (often several hours or days). such as the World Bank, the EU, USAID, and the African Development Bank have supported projects that Certain policy shifts have also generated indirectly benefit the cocoa sector15 by improving uncertainty—in particular, the government’s agricultural practices and infrastructure. Various NGOs, attempts to monopolize cocoa exports through often funded by foreign donors, promote sustainable the Liberia Agricultural Commodity Regulatory agriculture practices among cocoa farmers. Such Authority (LACRA). This proved controversial, with programs can help attract larger investments, as they many stakeholders, including the National Liberia develop local infrastructure and capabilities. Building Cocoa Exporters Association (NALICEA), expressing on a global trend towards ethical and sustainable concerns that such a monopoly could jeopardize the sourcing of agricultural products, Liberia’s largely investments made by smallholders and cooperatives Figure 54: Quarterly cocoa production, annual exports, and RCA Quarterly production of cocoa Cocoa exports and RCA 4,000 90.0 45.0 40.0 Revealed comparative advantage 3,500 80.0 70.0 35.0 Expoprts (US$ million) 3,000 Expoprts (US$ million) 30.0 60.0 2,500 25.0 50.0 2,000 20.0 40.0 15.0 1,500 30.0 10.0 1,000 20.0 5.0 500 10.0 0.0 0 0.0 -5.0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Dec-16 Jun-17 Nov-17 Apr-18 Sep-18 Mar-19 Aug-19 Jan-20 Jun-20 Dec-20 May-21 Oct-21 Mar-22 Sep-22 Feb-23 Jul-23 Dec-23 Exports (US$ million) Revealed comparative advantage Source: Central Bank of Liberia (CBL) Source: The Atlas of Economic Complexity 15 For example, the Liberia Cocoa Sector Improvement Programme (LICSIP), co-funded by the European Union and implemented by Solidaridad, aims to enhance the livelihoods of cocoa farmers, by providing them with access to a revolving fund for investments in sustainable cocoa production. Liberia Country Economic Memorandum 49 Chapter 3. Leveraging Liberia’s Agro-processing Potential over the years. These issues highlight the need for flexibility, durability, and resistance to the weather strategic interventions to stabilize and strengthen and to chemicals. Vehicle tires are the most widely Liberia’s cocoa sector. recognized rubber products, while other automotive Figure 55: Cocoa processing score card components include hoses, belts, gaskets, and seals. Consumption trends Market growth opportunities In the industrial sector, rubber is used to make Consistency of production 5.00 Availability of production 4.00 Land intensity conveyor belts for manufacturing and distribution Labor intensity Contribution to food security Skill suitability 3.00 Inclusivity and equity facilities, as well as gaskets and seals for various 2.00 Forest protection Market competition machines, and durable rubber mats and flooring that 1.00 0.00 provide grip. Consumer goods made from rubber Access to nance Environmentally sustainable range from footwear to waterproof clothing and Energy intensity Import substitution opportunity Input imports Job creation potential rain gear, and sports equipment such as balls and Promote sustainability Technology and know-how racquet grips. Other consumer products include Logistics for sourcing inputs Likelihood of success Capital requirement toys, erasers, and more. In the medical field, rubber Proven concept for VA Source: WB computations. Data: Scoring methodology is essential for manufacturing gloves (used in both medical and industrial settings), tubing, and various Liberia’s strategy in the cocoa sector is geared types of medical equipment seals, along with towards boosting its productivity, quality, and contraceptives such as diaphragms and condoms. international competitiveness. This strategy, In construction, rubber is used in roofing materials developed with input from the government, that resist weathering and UV light, as well as in international donors, NGOs, and private enterprises, window and door seals that enhance insulation aims to increase cocoa production by enhancing and moisture barriers, and in durable, easy-to-clean farming techniques and introducing high-yielding, flooring materials. Rubber is also vital for insulating disease-resistant cocoa varieties. It includes providing electrical wires and cables and is used in components farmers with training and access to quality inputs, of electrical appliances that require resistance to heat such as seeds and fertilizers. A key area of focus is and conductivity. enhancing the quality of Liberian cocoa to achieve higher market prices and meet international standards. Since the establishment of the Firestone This entails training farmers in essential post-harvest plantation in 1926, rubber has been a fundamental processes such as fermentation and drying—critical component of the Liberian economy. According for flavor development in cocoa beans. Additionally, to the Food and Agriculture Agency (FAO), rubber Liberia is developing domestic capacity to process plantations covered about 134,300 ha of land in cocoa beans into more prized products such as cocoa Liberia in 2022, across both large company-owned butter, powder, and artisanal chocolates, aiming to plantations and small-scale farms managed by retain more value within the country and reduce households and individuals. Prominent large-scale dependency on raw cocoa exports. The strategy also plantations include those run by Firestone and emphasizes sustainable farming practices that protect the Salala Rubber Corporation in Margibi County, the environment, such as agroforestry, and the pursuit the Liberia Agricultural Company in Grand Bassa, of international certifications such as Organic and Guthrie in Bomi, the Liberia Company (LIBCO) in Fair Trade, enhancing both the sustainability of cocoa Nimba, Cavalla (originally part of the Firestone farming and its appeal in international markets. concession) in Maryland, and the Sinoe Rubber Corporation (SRC) in Sinoe County. Between 2018 Rubber value chain and 2023, rubber production rose from 46,800 metric Rubber is processed into a diverse array of products tons to 64,200 metric tons, for an average annual for use across multiple industries, thanks to its growth rate of 6 percent. 50 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential Rubber first became a significant export crop for and rubber bands. The plant is expected to contribute Liberia in 1935, with its export value peaking at significantly to local employment, with plans to hire US$300 million in 2011 before declining to just over 300 Liberians initially and more as operations under US$200 million in 2022. According to the ITC, expand. Moreover, the Cooper Farm aims to enhance the country’s exports of rubber products were worth value added by transitioning from exports of raw cup- US$179 million in 2022, encompassing US$148 million lump rubber (produced by placing small half-cups on from technically specified natural rubber (HS400122), the trees and letting them bleed) to manufacturing US$28 million from natural rubber in primary forms and exporting finished rubber products, such as re- or flat shapes (HS400129), and US$3.1 million from treaded tires and others, while creating more jobs smoked sheets of natural rubber (HS400121). The ITC and stimulating local economic growth. Also, Liberia values the global market for natural rubber at US$14 recently celebrated the opening of its first 100-percent billion, with the segments for technically specified locally owned rubber processing plant, which aims to natural rubber, rubber in primary forms, and smoked enhance local value addition and potentially reduce sheets amounting to US$11 billion, US$1.6 billion, exports of unprocessed rubber. and US$1.5 billion, respectively. The assessed export growth potential for Liberia stands at 103 percent for The development of Liberia’s rubber sector rubber in primary forms, 28 percent for smoked sheets, has brought about similar challenges to those and 22 percent for technically specified natural rubber. experienced in the palm oil sector, particularly Moreover, sports footwear with rubber or plastic soles around environmental and social issues. The (HS640411) represents a promising diversification expansion of rubber plantations has significantly avenue within the industry, with a global market contributed to deforestation, threatening local estimated at US$18 billion and key export destinations biodiversity, and sparked numerous land disputes in the US and Europe. with local communities and indigenous people. It is essential for the industry to respect land rights FDI has been a primary driver of change in Liberia’s and ensure that local communities are among the rubber sector. Recent investments include notable beneficiaries of rubber production. developments to boost local processing capabilities and employment. For example, Jeety Rubber LLC’s The local rubber industry needs to adopt responsible US$35 million plant, set to begin operations in Margibi environmental practices, such as complying County, aims to transform about 25,000 tons of natural with international sustainability standards and rubber annually into tires, hand gloves, rain boots, enhancing efficiency in energy use and logistics. Figure 56: Quarterly rubber production, annual exports, and RCA Quarterly production of rubber Rubber exports and RCA 29,000 350.0 35.0 26,000 300.0 30.0 Revealed comparative advantage Production (metric tons) 23,000 250.0 25.0 Expoprts (US$ million) 20,000 200.0 20.0 17,000 150.0 15.0 14,000 100.0 10.0 11,000 8,000 50.0 5.0 5,000 0.0 0.0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Dec-16 Jun-17 Nov-17 Apr-18 Sep-18 Mar-19 Aug-19 Jan-20 Jun-20 Dec-20 May-21 Oct-21 Mar-22 Sep-22 Feb-23 Jul-23 Dec-23 Exports (US$ million) Revealed comparative advantage Source: Central Bank of Liberia (CBL) Source: The Atlas of Economic Complexity Liberia Country Economic Memorandum 51 Chapter 3. Leveraging Liberia’s Agro-processing Potential Greater community engagement, and fair treatment of West African cuisine, is produced by fermenting, and involvement of local populations are also drying, and frying cassava, and can be used as both crucial steps towards more ethical and sustainable a side dish and a cooking ingredient. Cassava chips, rubber production practices. These efforts require either fried or dried, are enjoyed as snacks or side dishes. comprehensive policy support and the collaboration Additionally, cassava can be fermented to produce of local businesses, international buyers, and regulatory ethanol, a biofuel, and byproducts such as peels and agencies to enforce standards that protect both the pulp are utilized in animal feed. Cassava starch is also environment and the rights of local communities. employed to make glue and other industrial adhesives, and ongoing research is exploring its potential as a Figure 57: Rubber processing score card Available production base for biodegradable plastics. Promotes sustainability Consistent production 5.00 Forest protection Raw material inputs Environmentally sustainable 4.00 Consumption trends Cassava is the second-most consumed staple food 3.00 Inclusivity and equity 2.00 Market growth crop in Liberia, and the primary source of protein. Job creation 1.00 Market competition More than 60 percent of farming households in Liberia Food security - Import substitution engage in cassava production. According to FAO, Access to nance Proven concept cassava was cultivated on 77,000 hectares across the Capital requirement Logistics for sourcing inputs country in 2022, with an estimated output of 637,800 Know-how and technology Land intensity metric tons. Cassava starch, a crucial ingredient Skill suitability Labor intensity Likelihood of success Energy intensity in the food and beverage industry, accounts for Source: WB Staff Computations. Data: Scoring methodology 64.1 percent of Liberia’s overall cassava market. It is followed by cassava flour (19.6 percent), commonly The government’s policy in the rubber sector remains used as a sweetener in various processed food items; suboptimal. The Liberian government’s recent strategy cassava chips (14.9 percent); and cassava syrup (1.3 for the rubber industry, formalized through Executive percent). Cassava is also extensively used as animal Order No. 124 in December 2023, aims to boost local feed in most tropical regions, including for pigs, cattle, processing and value addition by prohibiting the sheep, and poultry. export of unprocessed natural rubber. This includes barring the transportation of unprocessed rubber Liberia’s cassava value chain holds significant out of plantations during night-time hours. While the growth potential, especially through international policy intends to harness the added value of processed expansion. Domestic consumption of cassava is rubber goods to enhance the local industry and create expected to remain stable, providing a dependable jobs—thus potentially fostering a more sustainable base for the industry. The cassava starch market is economic model for the sector—it also introduces anticipated to grow at an annual rate of 5.9 percent, market distortions and inefficiencies that could potentially exceeding US$200 million in value by 2032. adversely impact rubber growers. Similarly, the market for cassava flour is projected to increase by an average of 3.6 percent annually, Cassava value chain reaching a value of US$51 million by 2032. The markets Cassava is a versatile root crop suitable for a range for cassava chips and syrup are expected to grow at of nutritional and industrial uses. Tapioca, made from compounded annual rates of 4 percent and 2.8 percent, extracted cassava starch, serves as a thickening agent respectively. However, to boost revenue, market in cooking and baking. Cassava flour, a gluten-free players must consider expanding globally. Liberia’s alternative to cereal flour, derives from the entire root cassava exports are minimal—only US$9 million in and is refined to eliminate impurities, enhancing its 2022, with Canada a major importer—underscoring suitability for high-quality food products. Gari, a staple the need for efforts to meet both regional and global 52 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential Figure 58: Liberia’s cassava market outlook, 2024-2034 Cassava market outlook by segment Cassava market outlook by application 350 350 300 300 Value in US$ million Value in US$ million 250 250 200 200 150 150 100 100 50 50 0 0 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Cassava starch Cassava our Cassava chips Cassava syrup Total Food & beverage Animal feed Others Total Source: WB computations, Data: Market Research Future demand. Moreover, by investing in processing facilities The cassava industry faces the same challenges to produce flours, starches, and convenience foods, as other agricultural subsectors in Liberia, such as market players can enhance their international reach production volatility, high energy demand, and and profitability. Technologies such as mobile apps for inadequate logistical infrastructure. From 2016 to agricultural information and e-commerce platforms 2023, production declined by 8 percent, hindering can also enhance productivity, connectivity between the consistent supply of inputs to processors. The farmers and buyers, and market growth. processes for making cassava products vary in complexity and energy requirements. For instance, Although the Liberian cassava industry benefits from producing cassava flour typically involves peeling, donor-funded projects, FDI inflows are minimal. washing, grating, dewatering, and drying the cassava The International Institute of Tropical Agriculture roots, while cassava chips require peeling, slicing, and (IITA) has established several cassava processing hubs drying. The most energy-intensive steps are usually throughout Liberia, strategically developed to support drying and, to a lesser extent, grating. Artificial drying local farmers. Such hubs facilitate the production methods demand more energy than sun drying of High-Quality Cassava Flour (HQCF), odorless fufu, but can reduce the processing time and potentially and gari, with some of their output exported to enhance the quality and storage life of the chips. international markets such as China and Australia. The production of cassava syrup involves extracting Donor-funded activities also include training for local starch and hydrolyzing it into simpler sugars, before farmers, to enhance yields and ensure a consistent concentrating it into syrup. The hydrolysis and supply of cassava to the processing hubs. Another concentration stages often require significant heating, significant initiative is the Cassava Transformation and therefore energy. For products such as fermented project (CASTRAP), funded by the European Union, flours, snacks, and beverages, the energy intensity can which aims to boost the competitiveness of Liberia’s vary widely, based on the complexity of the processing cassava sector and integrate it into regional markets. It methods and the level of refinement. focuses on sustainable production and value addition, emphasizing entrepreneurship and market access. Liberia has developed a National Cassava Sector CASTRAP’s activities spans several counties in Southeast Strategy (NCSS) through collaboration between the Liberia, and the project collaborates with numerous government and sectoral stakeholders. The NCSS local stakeholders and international partners along the outlines six key objectives: (i) establishing robust cassava value chain. institutions and coordination mechanisms for effective Liberia Country Economic Memorandum 53 Chapter 3. Leveraging Liberia’s Agro-processing Potential policy formulation and alignment; (ii) conducting for food programs in economically challenged regions). comprehensive sector analyses, to facilitate informed Rice is the most widely consumed staple food in decision-making on empowerment opportunities and Liberia, accounting for more than 20 percent of incentives; (iii) enhancing and expanding access to total food consumption, and nearly half of the inputs as well as research and development, to ensure calorie intake of the average adult. It also accounts adequate and sustainable production and processing for about 15 percent of the overall spending of an throughout the value chain; (iv) empowering average household. Approximately 35 percent of smallholder farmer organizations and cultivating an Liberian households work in farming and grow their entrepreneurial mindset; (v) expanding access to own food—predominantly rice and cassava. However, finance throughout the value chain; and (vi) enhancing such households typically manage small plots with an access to technology for processing to ensure quality, average size of 1.6 hectares; less than 3 percent of them consistency, and volume of output. cultivate plots larger than 5.0 hectares. Consequently, output is modest: the average rice harvest amounts to Figure 59: Cassava processing score card 2 tons per household, or less than half a ton per person. Available production Promotes sustainability 5.00 Consistent production In response to rising demand driven by population Forest protection Raw material inputs Environmentally sustainable 4.00 Consumption trends growth, the area cultivated for rice has expanded, Inclusivity and equity 3.00 Market growth especially between 2017 and 2020. However, amid 2.00 Job creation 1.00 Market competition persistently low (and sometimes declining) yields, as Food security - Import substitution well as storage and distribution challenges, annual Access to nance Proven concept production has stagnated at about 180,000 metric Capital requirement Logistics for sourcing inputs tons of milled rice equivalent since 2008. Notably, rice Know-how and technology Land intensity yields in Liberia are lower than in its neighbors; over Skill suitability Labor intensity Likelihood of success Energy intensity the past five years, the country’s average yield stood Source: WB Computations. Data: Scoring methodology at about 1.1 metric tons per hectare—20 percent less than in Sierra Leone, 30 percent less than in Guinea, Rice value chain and less than half the yields recorded in Ghana and The global rice market is enormous, and can be Côte d’Ivoire. segmented by rice type, grain size, and processing method, among other characteristics. Paddy rice, Driven by population growth, domestic or un-milled rice, retains its husk and requires further consumption of rice provides a stable foundation processing before consumption. Milled rice, or white for the sector. Over the past decade, rice imports rice, is fully processed to remove the husk, bran, and have increased by 6.5 percent annually, reaching germ. Brown rice has only the husk removed, retaining 390,000 metric tons in 2023. Concurrently, the self- the bran and germ which make it richer in fiber. sufficiency rate declined from a high of 48 percent in Parboiled rice is partially boiled in the husk, resulting 2011 to approximately 33 percent in 2023. Liberia’s in firmer and less sticky grains. Rice is also categorized rice imports primarily come from India (40 percent), by grain size: long-grain rice remains firm and separate Switzerland (20 percent), China (15 percent), the after cooking; medium-grain rice is slightly stickier UAE (13 percent), and the US (10 percent). While and softer, while short-grain rice is very sticky and soft. rice cultivation spans approximately 250,000 hectares, In the global market, rice is often accompanied by a predominantly in upland areas, the country also has specification indicating the percentage of broken grains, 600,000 hectares of mostly unutilized lowland areas such as “15-25 percent broken” or “100 percent broken” (MOA 2015). A study by the United States Agency for (with the latter primarily used as a cost-effective option International Development (USAID) indicates that the 54 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential Figure 60: Liberia’s rice market outlook, 2024-2034 Rice market outlook: baseline scenario Rice market outlook: scenario with reform to achieve 50% self-sufficiency 35.0 800 800 50 700 700 34.7 47 600 600 34.4 44 500 500 Percent 34.1 400 41 Percent 400 300 300 33.8 38 200 200 33.5 35 100 100 0 33.2 0 32 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Production Imports Domestic Consumption Self su ciency rate Production Imports Domestic Consumption Self su ciency rate Source: WB Computations, Data: FAOSTAT production costs for a 25 kg bag of paddy and milled Policy interventions play a role in shaping market rice, grown using traditional upland farming methods, dynamics. Since 2008, the government has waived stand at US$4.95 and US$7.49, respectively. By duty tariffs on imported rice—thus making imports transitioning to lowland areas and adopting improved vastly more competitive, especially in urban markets. farming techniques, yields could substantially Moreover, in response to inflationary pressures increase—from 1.1 metric tons per hectare to 3 metric stemming from the Russia’s invasion of Ukraine, the tons per hectare. This improvement could reduce government subsidized imported rice in 2021 and production costs for a 25 kg bag of paddy and milled 2022, further influencing local market conditions. rice to US$3.86 and US$5.84, respectively—enhancing Figure 61: Rice processing score card the competitiveness of locally produced rice by Available production allowing for higher producer margins and covering Promotes sustainability 5.00 Consistent production Forest protection Raw material inputs additional downstream costs, such as transportation Environmentally sustainable 4.00 Consumption trends and margins for traders and retailers. Inclusivity and equity 3.00 Market growth 2.00 Job creation Market competition 1.00 Liberia’s rice industry faces a myriad of challenges Food security - Import substitution that hinder its development. These include low Access to nance Proven concept yields, limited adoption of modern technologies, high Capital requirement Logistics for sourcing inputs electricity costs, inadequate logistical infrastructure, Know-how and technology Land intensity Skill suitability Labor intensity policy distortions, and the impacts of climate change. Likelihood of success Energy intensity Without significant advancements in farming Source: WB Computations. Data: Scoring methodology methods and the development of irrigation systems, transitioning to lowland farming may not yield The government is formulating a comprehensive the anticipated benefits, with the risk of modest sectoral development plan, which includes productivity gains and elevated production costs. strategies to transition rice cultivation from the Furthermore, the high cost and limited availability of uplands to more fertile lowland areas, and to attract electricity significantly impede the growth of the rice- private investment into the value chain. Investing in milling sector. Compounding these challenges are agricultural research and development is crucial, as it inadequate road infrastructure and a lack of appropriate could yield innovations tailored to Liberia’s conditions. storage facilities, which exacerbate post-harvest losses This might include developing rice varieties that are and raise costs. more resistant to local pests and diseases or better Liberia Country Economic Memorandum 55 Chapter 3. Leveraging Liberia’s Agro-processing Potential adapted to the Liberian climate. Expanding extension on certain cross-cutting areas could benefit other services, to provide more comprehensive training sectors as well. The scoring framework adopted to and support, will be essential to enhance agricultural assess agricultural value chains facilitates the ranking practices and increase yields. Moreover, revisiting of criteria from most to least binding—by measuring, certain trade policies may help shield local producers for each criterion, the distance from the frontier, from overwhelming foreign competition—e.g., by defined as a fully functioning value chain that achieves reinstating import duties on rice, taking an approach the maximum score on all criteria. The analysis reveals like Nigeria’s. that the most significant constraint to development of value chains is the availability and consistency of the Enhancing infrastructure such as irrigation systems, supply of raw materials, closely followed by challenges roads, and storage facilities can promote a shift to related to the availability and skills of workers, more productive lowland farming, significantly access to finance and energy, forest protection and increasing yields. Such a shift would reduce environmental sustainability, and logistics for sourcing production costs, potentially making Liberian rice inputs, including imports (Figure 62). more competitive against imports. It is also essential to promote sustainable agriculture that minimizes To address the most pressing constraints, the environmental damage while maximizing output. government has created a Special Agro-Industrial Such efforts will require collaboration among Processing Zone (SAIPZ) in Grand Bassa county. government departments, international partners, and The initiative aims to foster inclusive and sustainable local stakeholders, to ensure that measures are tailored agro-industrial development in Liberia, and in the to the needs of Liberia’s rice sector and effectively process, reduce staple food imports, create jobs, and executed. alleviate poverty, by creating integrated zones where agricultural production and processing are co-located. 3.3.3 Policy implications This contributes to reducing transportation costs, While targeted policy interventions are crucial to minimizing post-harvest losses, and adding value to raw develop the five value chains highlighted, a focus agricultural products. Key features of the SAIPZ include Figure 62: Ranking of constraints to the development of agricultural value chains Consistency of production 58.3 Availability of production 58.3 Labor intensity 56.7 Skill suitability 55.0 Forest protection 53.3 Access to nance 53.3 Energy intensity 53.3 Input imports 51.7 Promote sustainability 50.0 Logistics for sourcing inputs 48.3 Likelihood of success 46.7 Proven Concept for VA 43.3 Capital requirement 41.7 Technology and know-how 38.3 Job creation potential 36.7 Import substitution opportunity 35.0 Environmentally sustainable 33.3 Market competition 33.3 Inclusivity and equity 30.0 Contribution to food security 26.7 Land intensity 26.7 Market growth opportunities 23.3 Consumption trends 21.7 Source: WB computations. Data: Scoring methodology 56 Liberia Country Economic Memorandum Chapter 3. Leveraging Liberia’s Agro-processing Potential Figure 63: Bird’s eye view of the special agro-industrial processing zone Source: Feasibility study and master plan for the Buchanan Special Agro-Industrial Processing Zone the development of essential infrastructure such as Togo’s PIA’s diverse industrial landscape, spanning roads, energy supply, and water management systems, manufacturing, logistics, and agribusiness, provides a along with incentives to attract private investment. blueprint for Liberia to replicate, fostering economic The expected outcomes are: (i) enhanced productivity diversification and employment across sectors. and output of import substitutes, including cassava, Embracing sustainable development principles, rice, palm oil, cocoa, and rubber; (ii) increased share of including environmental stewardship, social equity, and agricultural products processed locally; (iii) increased inclusive growth, is essential, as is forging partnerships private investments in the zone; (iv) strengthened food with private developers to unlock expertise, resources, security in the country, (v) 156,000 new jobs, especially and operational efficiencies to accelerate the special for youth and women. zone’s development. Notably, Togo’s PPP agreement with ARISE (Africa Interests and Sourcing Enterprise) As Liberia endeavors to develop the SAIPZ, it can underscores the potential for successful public-private glean invaluable insights from Togo’s successful collaboration in industrial platform development. experience with the PIA (Plateforme Industrielle d’Adétikopé) industrial platform. Emulating The implementation of the Reducing Emissions Togo’s strategy of robust government support and from Deforestation and Forest Degradation (REDD+) investment in industrial growth is paramount. This framework provides Liberia with opportunities to entails crafting favorable policies, offering financial manage environmental risks. However, the country’s incentives, actively marketing the SAIPZ to both local = legal and policy framework presents significant and international investors, and equipping the area barriers to the effective implementation of REDD+. For with infrastructure encompassing roads, electricity, instance, the reliance on private agreements within water supply, and telecommunications. Furthermore, the existing resource tenure system may prompt title Liberia Country Economic Memorandum 57 Chapter 3. Leveraging Liberia’s Agro-processing Potential disputes, potentially excluding Liberia from certain affected products to the EU account for approximately emission rights crediting schemes. Moreover, the lack 6 percent of its total exports worldwide. In contrast, of a comprehensive cadaster to document customary for Cote d’Ivoire and Ghana, the shares of exports to land rights undermine the ownership claims of the EU that are subject to the regulation amount to communities over their land and natural resources, 79 percent and 43 percent, respectively (primarily crucial for realizing the benefits of REDD+. consisting of cocoa and rubber). Figure 64: Impact of EU deforestation regulation on Liberian exports % of total merchandise exports to EU and worldwide REDD+ can also help Libera mitigate the negative 80 impacts of the EU Deforestation Regulation, effective 70 since June 2023. This piece of legislation prohibits the 60 sale within the EU of seven commodities sourced from Percent 50 degraded or deforested areas. Its impact on Liberia 40 can be evaluated through two measures: exports 30 of affected products to the EU as a share of Liberia’s 20 total merchandise exports to the EU, and as a share of 10 0 Liberia’s total exports worldwide. Around 19 percent of Burkina Cote Ghana Guinea Lao PDR Liberia Sierra Faso d'Ivoire Leone Liberia’s exports to the EU consist of palm oil, rubber, A ected products exports to EU (% of total merchandise exports to EU) A ected products exports to EU (% of total export to world) cocoa, and wood, which fall within the scope of the Source: Measuring Trade-Climate Risks and Opportunities. Trade Competitiveness Diagnostic EU Deforestation Regulation. The country’s exports of Toolkit 2023 Update. Maliszewska, Jung, Chemutai, and Stojanov. Products include: cattle, cocoa, coffee, maize, palm oil, rubber, soy, and wood. 58 Liberia Country Economic Memorandum CHAPTER 4 MICROECONOMIC FOUNDATIONS OF GROWTH Liberia Country Economic Memorandum 59 4. MICROECONOMIC FOUNDATIONS OF GROWTH 4.1 Introduction when specialized inputs are sourced internationally, Firms are the principal drivers of economic growth as is common with IT, medical, or chemical products. and productivity and need an environment that It is also necessary to legally register equipment as enables them to thrive and create wealth and jobs. belonging to the business, to distinguish it from This chapter underscores the pivotal role of the private personal assets. Recruiting workers, protecting sector in catalyzing economic growth, generating intellectual property and trade names against theft or employment, and driving poverty alleviation in infringement, and navigating competitive pressures Liberia. It posits that firms, as the primary engines are further challenges. Additionally, understanding the of productivity and growth, require a supportive procedures for potentially winding down a business is ecosystem that enables them to flourish, creating important, given the high failure rate of new ventures. wealth and job opportunities. The narrative emphasizes the importance of a dynamic and competitive Almost every step that a business takes is influenced private sector as the cornerstone of sustainable by at least one piece of legislation or regulation and development. Further, the chapter addresses the requires engagement with one or more public offices obstacles and bottlenecks impeding the development for consultation or authorization. Local activities, of the private sector in Liberia, including complex such as renting a workspace, might require municipal regulatory frameworks, pervasive bureaucracy, approval, while hiring, even on a short-term basis, corruption, and limited access to financial resources. could involve interactions with labor offices at various It stresses that entrepreneurship and innovation are governmental levels. Whether needing a local worker indispensable to the growth of the private sector and, or a foreign expert, the bureaucratic process varies by extension, the economy. It underlines the critical significantly. Importing or exporting goods usually need for governance structures that are transparent, necessitates a visit to customs or financial ministries. In accountable, and efficient in promoting public trust, certain countries, new businesses are mandated to join ensuring effective service delivery, and facilitating a Chamber of Commerce. While such organizations sustainable development. consist of established businesses and can theoretically offer support and networking, the requirement The business environment is defined by the legal, to join them may increase the risk of idea theft or regulatory, and administrative framework within competitive interference. This complexity highlights which firms operate. This can be illustrated through the multifaceted nature of legal and regulatory hurdles some of the steps and challenges of starting a business. that aspiring business owners must navigate. Initially, registering the business with an official body is crucial to gain legal recognition, which aids in However, while not always easy to navigate, tax filing, eligibility for tax incentives for innovation, regulations are essential for ensuring fairness opening bank accounts, and obtaining loans. Securing and safety in the business ecosystem. Labor laws, a physical space for operations, purchasing materials for instance, are crucial for safeguarding workers’ and equipment, and establishing utility connections rights, regardless of age, gender, or employment (electricity, gas, water, and internet) are fundamental type. Environmental regulations play a vital role in steps. For businesses involved in trade, obtaining preventing the importation and distribution of harmful import and export permits is essential, especially substances, protecting both nature and public health. 60 Liberia Country Economic Memorandum Chapter 4. Microeconomic Foundations of Growth Furthermore, interactions with regulatory bodies through better enforcement of contracts and can provide entrepreneurs with crucial information fostering a more competitive marketplace allow and direction. Thus, while the path to opening a more productive firms to emerge and grow. This new business can be challenging, the regulatory process ensures that resources are allocated to the landscape is also designed to support sustainable and most efficient and innovative firms. ethical business practices, ensuring that economic 3. Facilitating the exit of unproductive firms: progress does not come at the expense of social and Streamlining business de-registration, and environmental welfare. modernizing insolvency and bankruptcy regulations, help maintain a healthy business ecosystem. Finally, regulation is necessary to foster and Resources can be reallocated from failing ventures safeguard competitive markets. On the one hand, to more promising opportunities, enhancing overall enhancing the business environment and stimulating productivity and innovation. the private sector aims to decentralize economic 4. Encouraging investment in new firms: By power away from the government. On the other simplifying legal and procedural barriers to entry— hand, laws and regulations that promote competition e.g., streamlining foreign investment entry, company prevent the consolidation of excessive economic establishment, and business start-up procedures— power within a few private entities. This balanced this pathway aims to foster entrepreneurship and approach ensures a level playing field, encouraging innovation. The digitalization of company registries innovation, efficiency, and access to quality products and licensing processes, along with supportive and services for consumers, while preventing the policies and programs for entrepreneurs, are key to negative outcomes associated with both government reducing bureaucratic inertia and making it easier and private monopolies. for new firms to start and thrive. 4.2 A conceptual framework for pathways Each of these channels plays a crucial role in to growth creating a more vibrant, innovative, and productive This chapter delineates four high-level pathways economic landscape. By addressing both the entry toward greater productivity growth and investment and exit of firms, as well as the operational and growth in Liberia: challenges faced by businesses, this framework 1. Upgrading productivity and growth of existing offers a holistic approach to economic development firms: Relevant measures include reducing and competitiveness. Coordinated efforts from operational risks, simplifying regulation in areas policymakers, regulatory bodies, and stakeholders such as business licensing and tax, and expanding across the business community are needed to ensure access to essential inputs (land, utilities, finance, that the legal, procedural, and institutional frameworks and construction permits). Technology adoption, are conducive to growth and innovation. the establishment of special economic zones, and SME support policies are also crucial for enhancing 4.3 Firm-level productivity: setting the competitiveness and innovation among established priorities companies. Contrasting with Liberia’s economic performance 2. Facilitating the growth of more productive firms: in the aftermath of the Ebola epidemic, data from By improving trade policies, international investment the 2017 World Bank Enterprise Surveys (WBES) agreements, and competition policies, this channel suggests that small formal firms were relatively seeks to create a more dynamic and competitive productive at that time. Despite challenges such business environment. Enhancing market efficiency as a shortage of skilled labor and limited access to Liberia Country Economic Memorandum 61 Chapter 4. Microeconomic Foundations of Growth capital, median labor productivity was notably high optimize the benefits of international trade for Liberian for very small firms. However, as firms increased in size, firms (second pathway). productivity levels declined significantly, falling below those of aspirational peers such as Ghana and Senegal. The WBES’s failure to capture much of the informal Very few firms reported labor productivity exceeding sector explains the contrast between the relatively US$15,000 per employee, highlighting a significant good performance of at least some formal firms in gap in efficiency and output compared with Liberia’s Liberia, and the country’s poor macroeconomic West African counterparts. This underscores the critical indicators in the wake of the Ebola epidemic. need to address constraints to investment in existing The WBES surveyed approximately 150 Liberian firms (first pathway), especially for medium-sized and enterprises within the formal manufacturing and large enterprises. services sectors, omitting agriculture and government services. The results suggest that the informal sector Surprisingly, although Liberian exporters grew at and government services suffered the most from a rapid pace, they lagged non-exporting firms on the epidemic and the ensuing shocks. Encouraging productivity. Typically, engagement in international investment in new firms and reducing the barriers to trade offers firms opportunities to scale up, enhance formalization is paramount to foster a more resilient efficiency standards, procure materials at lower costs, and inclusive economic landscape (fourth pathway). and access up-to-date and superior technologies. Nonetheless, participation in global markets also Facilitating the exit of unproductive firms (third entails navigating customs and trade regulations, pathway) does not seem to be a priority in Liberia. Out often requiring firms to secure export and import of the 151 firms surveyed in 2017, only four (2.6 percent licenses. According to the 2017 World Bank Enterprise of the total) reported a drop in activity, which ranged Surveys, only 5 percent of the Liberian firms surveyed from 13 percent to 45 percent annually. Notably, some were exporters—equal to just one-third of the SSA of these firms had relatively high productivity before average, and less than half the level observed in low- experiencing a downturn. Considering the country’s income countries. Although exporting firms in Liberia overall economic weakness at the time, other firms expanded at an annual rate of 33 percent from 2009 may have struggled and proceeded to exit the market to 2017, outpacing the 24 percent growth rate of efficiently. Nevertheless, streamlining business de- non-exporting firms, their labor productivity was registration procedures, and modernizing insolvency 13 percent lower than that of non-exporters. This and bankruptcy regulations, contribute to a vibrant paradox underscores the complex interplay between business ecosystem by facilitating the reallocation of trade engagement and productivity, and the need to resources from failing enterprises to more viable ones. Figure 65: Firm-level productivity and productivity growth Distribution of firm-level productivity Link between labor productivity and growth 100 200 Frim level Plastics & rubber Sector 25 90 Investing rm 80 Construction Large sector 2009 Annual growth (Percentage) 20 150 Exporting Exporting/Not-exporting 70 Manifacturing Size Percent 60 Macro sector 15 Garments 50 100 Food Basic metals 10 40 Medium 30 Hotel and restaurants 5 20 50 10 0 0 0 [0, 1,000] [1,000, 2,000] [6,000, 7,000] [4,000, 5,000] [2,000, 3,000] [5,000, 6,000] [3,000, 4,000] [7,000, 8,000] [9,000, 10,000] [10,000, 11,000] [11,000, 12,000] [16,000, 17,000] [12,000, 13,000] [13,000, 14,000] [8,000, 9,000] [17,000, 18,000] [19,000, 20,000] [20,000, 21,000] [14,000, 15,000] [15,000, 16,000] [18,000, 19,000] Small Not investing rm -50 Large Wood Services 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 Labor Productivity (in US$) Source: World Bank Enterprise Surveys (2009 and 2017) 62 Liberia Country Economic Memorandum Chapter 4. Microeconomic Foundations of Growth 4.3.1 Upgrading the growth of existing rms declined in Sierra Leone and Guinea (although real To boost productivity growth, Liberia needs to sales and employment also improved), pointing to remove barriers to investment in current businesses. differences in the quality of the business environment With greater access to critical resources such as across those countries. electricity and telecommunications, lower finance costs, and streamlined tax and land regulations, Liberian A majority of Liberian firms were also investing at the firms could attain or exceed the productivity levels of time, suggesting a positive outlook on the future. their regional counterparts. While progress has been According to the WBES, 56.3 percent of firms in Liberia made on access to electricity and telecommunications were investing in 2017—a finding consistent with their in recent years, access to credit has not improved. high utilization rate of existing productive capacity (82 percent), which shows they were operating near their The 2017 WBES indicates that Liberian businesses full potential. Liberia topped both its structural and are resilient and adaptable. Despite major disruption aspirational peers in the region. to economic activity and pressures on the healthcare system due to the Ebola epidemic, businesses achieved Although firm-level data for subsequent years is not remarkable growth. Between 2014 and 2016, real available, there are indications that Liberia’s business sales and employment rose by 27.3 percent and 19.8 environment has not significantly improved since percent, respectively, while labor productivity grew 2017. According to the World Development Indicators by 8.7 percent. During the same period, productivity (WDI), domestic credit to the private sector stood at 14.8 Figure 66: Firm performance in Liberia and selected benchmark countries Real annual sales growth (%) Annual employment growth (%) Liberia-2017 27.3 Liberia-2017 19.8 Sierra Leone-2017 17.0 Sierra Leone-2017 18.1 Guinea-2016 10.6 Guinea-2016 11.0 Ghana-2013 9.2 Gambia, The-2018 9.3 Gambia, The-2018 8.3 Senegal-2014 7.1 Senegal-2014 4.1 Côte d'Ivoire-2016 6.4 All 3.6 Sub-Saharan Africa 6.4 Sub-Saharan Africa 3.2 Ghana-2013 5.7 Côte d'Ivoire-2016 1.6 All 4.7 Benin-2016 -6.5 Benin-2016 2.3 Source: World Bank Enterprise Surveys Figure 67: Firm investment and capacity utilization, Liberia and selected benchmark countries Capacity utilization (%) Percentage of firms buying fixed assets Liberia-2017 82.0 Liberia-2017 56.3 Senegal-2014 79.9 Gambia, The-2018 54.9 All 73.5 Benin-2016 52.8 Sub-Saharan Africa 71.9 Ghana-2013 49.6 Côte d'Ivoire-2016 70.7 Sierra Leone-2017 46.6 Benin-2016 70.7 All 39.0 Guinea-2016 68.2 Sub-Saharan Africa 38.4 Ghana-2013 65.8 Côte d'Ivoire-2016 33.6 Gambia, The-2018 65.7 Guinea-2016 27.2 Sierra Leone-2017 58.0 Senegal-2014 20 Source: World Bank Enterprise Surveys Liberia Country Economic Memorandum 63 Chapter 4. Microeconomic Foundations of Growth Figure 68: Obstacles most cited by firms in Liberia Figure 69: Domestic credit to private sector (% of GDP) Access to finance 35.0 Electricity 29.9 30.0 Tax rates 14.2 22.5 Access to land 8.6 25.0 Customs and trade regulations 7 Corruption 5.4 20.0 Practices of the informal sector 4.4 15.0 Tax administration 4 Transportation 2.9 10.0 Crime, theft and disorder 0.8 Inadequately educated workforce 0.2 5.0 Labor regulations 0.1 0.0 Political instability 0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Courts 0 Benin Cote d'Ivoire Ghana Guinea-Bissau Guinea Business licensing and permits 0 Gambia, The Liberia Sierra Leone Senegal Source: World Bank Enterprise Surveys (2017) Source: World Development Indicators (WDI) percent of GDP in 2022, 2 percentage points below its The rate of electricity access rose from 24.2 percent level in 2017. In the WBES 2017, 52.4 percent of Liberian in 2017 to 29.8 percent in 2021 but remains among firms cited access to finance or to reliable electricity as the lowest in the region. The Liberia Electricity the principal obstacles to their operations—a share Corporation (LEC) faces several hurdles, including well above the SSA average (39.4 percent) and the inadequate transmission and distribution (T&D) global average (23.2 percent). infrastructure, elevated commercial losses, and financial instability. Investment in T&D has not kept pace SMEs and firms in the services sector are more likely with generation capacity enhancements, leading to to cite access to finance as their primary obstacle. underutilization—particularly during the wet season, Thirty-nine percent of firms in services and 31 percent when the Mount Coffee hydropower plant operates of SMEs reported access to finance as a major obstacle, at its peak. Although recent efforts have yielded some compared with only 12 percent of manufacturing firms. improvement, the LEC’s financial health remains Conversely, 25 percent of manufacturers cited access precarious, due to substantial system losses, a limited to electricity as their top obstacle, versus 21.1 percent customer base, reliance on expensive thermal power of firms in the service sector. This specific suggests during the dry season, and significant administrative that sector-specific interventions are called for. For expenses. A recent initiative to lower electricity tariffs firms in services, improving access to finance through aims to enhance affordability, yet careful consideration credit facilities, microfinance, and financial literacy is needed to ensure it does not compromise the LEC’s programs could spur growth and development. In financial sustainability. Addressing these challenges manufacturing, investments in energy infrastructure requires accelerating T&D investment, diversifying and reliability are key. energy sources to include more renewables, expanding Figure 70: Access to electricity in Liberia and selected benchmark countries (% of population) Access to electricity in Liberia (% of population) Access rate in 2021 (% of population) 50.0 Ghana 86.3 Cote d'Ivoire 71.1 40.0 Senegal 68.0 Gambia, The 63.7 30.0 Africa Western and Central 54.2 Sub-Saharan Africa 50.6 20.0 Guinea 46.8 Low income 44.8 10.0 Benin 42.0 Guinea-Bissau 35.8 0.0 Liberia 29.8 2007 2009 2011 2013 2015 2017 2019 2021 Sierra Leone 27.5 National Rural Urban Source: World Development Indicators (WDI) 64 Liberia Country Economic Memorandum Chapter 4. Microeconomic Foundations of Growth Figure 71: Access to internet in Liberia and selected benchmark countries Individuals using the Internet (% of population) Secure Internet servers (per 1 million people) 60.0 60.0 94.4 50.0 50.0 40.0 40.0 30.0 30.0 20.0 20.0 10.0 10.0 0.0 0.0 2010 2012 2014 2016 2018 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Benin Cote d'Ivoire Ghana Guinea-Bissau Guinea Benin Cote d'Ivoire Ghana Guinea-Bissau Guinea Gambia, The Liberia Sierra Leone Senegal Gambia, The Liberia Sierra Leone Senegal Source: World Development Indicators (WDI) the customer base, improving operational efficiency, 4.3.2 Facilitating the growth of more productive carefully adjusting tariffs, and exploring public-private rms partnerships. In addition to enhancing investment in existing firms across the board, Liberia should pay close attention to Liberian citizens and businesses face severe the barriers faced by its most productive companies. limitations in access to telecommunication services. Refining trade and competition policies, as well as Only 28 percent of the population has internet international investment agreements, can foster a access—far below the standards of structural and more dynamic and competitive business environment aspirational peers—as the country can count on just six in which such firms can thrive. Similarly, combating secure servers per million people. Telecommunication corruption would ensure stronger enforcement of challenges are a critical barrier for approximately 13.5 contracts and enhance market efficiency, allowing percent of Liberian firms, with the share rising to 19.1 more productive firms to emerge and expand. percent among medium-sized enterprises, and to 16 percent in the manufacturing sector. Upgrading Exporting and non-exporting firms in Liberia Liberia’s telecommunications infrastructure—through encounter distinct obstacles. In the WBES 2017, investment, policy reforms, and partnerships with the approximately three-quarters of exporting firms private sector—could bring about greater business emphasized customs and logistics as their chief efficiency, broader access to information and markets, concerns, while only one in ten non-exporting firms and enhanced standards of living. cited trade and logistics-related hurdles. This indicates Figure 72: Most important obstacles cited by exporting and non-exporting firms in 2017 (% of firms) Exporters Non-exporters Customs and trade regulations Access to nance Transportation 18.6 55.9 Electricity 23.0 30.7 Tax rates 8.1 Tax rates 14.4 Electricity 6.9 Access to land 8.8 Access to nance 5.4 Customs and trade regulations 5.5 Tax administration 2.9 Corruption 5.5 Corruption 2.2 Practices of the informal sector 4.6 Access to land 0.0 Tax administration 4.0 Practices of the informal sector 0.0 Transportation 2.4 Crime, theft and disorder 0.0 Crime, theft and disorder 0.8 Source: World Bank Enterprise Surveys. Liberia Country Economic Memorandum 65 Chapter 4. Microeconomic Foundations of Growth that regulatory and infrastructural inefficiencies in the informal sector as the third- and fourth-most considerably impact the ability of Liberian firms to enter significant barriers to their operations. Approximately and succeed in the global market. To boost Liberia’s 22 percent of such leading firms reported these export potential, it is crucial to streamline customs obstacles, versus only 3 percent of the least productive procedures, reform trade regulations, and enhance firms. Addressing these challenges would allow logistics and transportation infrastructure. Such productive businesses to operate in a more predictable improvements could lower the barriers for exporters and secure environment, in which all firms can have and inspire more firms to venture into international more confidence in contract enforcement and access markets, aiding the diversification and expansion of to government services. Liberia’s economy. Perceptions of corruption in Liberia have been on The government is working towards streamlining the rise. The Bertelsmann Transformation Index (BTI), and automating the application and issuance of key which assesses the progress made by developing certificates, licenses, and permits for cross-border and transitioning countries towards democracy and trade through a National Single Window (NSW). a market economy, indicates that corruption levels The procedures for importing and exporting goods in Liberia have increased in recent years, alongside across Liberia’s borders are predominantly paper- a stagnation of progress in competition policy. In based, cumbersome, and not documented in a trade response to these challenges, the government has information portal, making them opaque and prone introduced a legislative package aimed at bolstering to governance challenges. Government agencies, anti-corruption efforts. This includes amendments constrained by limited budgets, struggle to perform to the 2008 Liberia Anti-Corruption Commission Act their trade-related duties efficiently. Moreover, the (LACC), and the introduction of the Witness Protection National Trade Facilitation Committee (NTFC), which Act and the Whistleblower Protection Act of 2021. Such serves as the primary forum for identifying and changes grant the Anti-Corruption Commission direct developing trade facilitation reforms has not fully prosecutorial authority, and oversight of all aspects of operational. asset declaration and verification. Reducing corruption would enhance contract The Competition Act of Liberia (2016) marked enforcement and market efficiency, thus enabling a pivotal effort to foster competitive markets, the most productive firms to emerge and grow. safeguard consumer rights, and promote ethical The top 10 percent of Liberian firms by productivity business practices. The law addresses a range of identified corruption and the practices of competitors anti-competitive behaviors, including horizontal, Figure 73: Most important obstacles cited by top 10% and bottom 10% of firms by productivity in 2017 (% of firms reporting them) Top 10% of firms by productivity Bottom 10% of firms by productivity Access to nance 41.5 Access to nance 38.7 Electricity 21.2 Electricity 25.6 Tax rates 11.8 Tax rates 14.3 Customs and trade regulations 11.0 Customs and trade regulations 11.8 Transport 8.4 Transport 4.0 Informal competitors 3.0 Informal competitors 2.9 Access to land 2.9 Access to land 2.1 Corruption 0.2 Corruption 0.4 Crime, theft and disorder 0.0 Crime, theft and disorder 0.3 Tax administration 0.0 Tax administration 0.0 Labor regulations 0.0 Labor regulations 0.0 Inadequately educated workforce 0.0 Inadequately educated workforce 0.0 Source: World Bank Enterprise Surveys. 66 Liberia Country Economic Memorandum Chapter 4. Microeconomic Foundations of Growth Figure 74: BTI scores for competition and anti-corruption policy, Liberia and comparator countries Liberia Liberia and comparators 7 6 5 6 4 5 3 4 2 3 1 2 0 Benin Ghana Senegal Sierra Guinea Côte Guinea- Liberia 2006 2008 2010 2012 2014 2016 2018 2020 2022 Leone d'Ivoire Bissau Competition policy Anti-corruption policy Competition policy Anti-corruption policy Source: The Bertelsmann Transformation Index (BTI) Note: The BTI scores the quality of competition and anti-corruption policies on a scale 1 to 10 (10=very good; 1=failed/weak) vertical, and unilateral conduct, along with abuses activities. Nevertheless, the anticipated Whistle- of dominance. Horizontal conduct pertains to blower and Witness Protection Act aims to facilitate agreements or practices involving competitors on the reporting of such practices through alternative the same level of the supply chain—e.g., price fixing, means. Furthermore, the Competition Act formalizes market allocation, and bid rigging. Such practices that as a member of ECOWAS, Liberia is expected to are deemed detrimental to free competition and harmonize its competition policies with those of the are, therefore, prohibited. Vertical conduct involves regional body. interactions between entities at different levels of the supply chain, such as manufacturers and retailers. The 4.3.3 Encouraging investment in new rms Act prohibits specific vertical arrangements, such To reach its ambitious growth targets, Liberia must as refusal to supply and enforcement of minimum ensure increased investment in new enterprises. The resale price, which could limit competition and country should prioritize minimizing the obstacles disadvantage consumers. Unilateral practices such as encountered by new businesses upon market entry, tying, bundling, exclusive agreements, and predatory so as to encourage entrepreneurship and innovation. pricing also attract significant penalties. Notably, This includes streamlining inward foreign investment the Competition Act lacks a corporate leniency and business startup procedures, digitalizing company policy, which typically offers reduced penalties registries and licensing processes, and rolling out for companies that self-report anti-competitive supportive policies and programs for entrepreneurs. Figure 75: Business density in Liberia and comparator countries New business density in Liberia and comparators (# business per 1,000 adults) Business density in Liberia and comparators (#LLCs per 1,000 adults) 4.0 Côte d'Ivoire 4.5 3.5 3.0 Senegal 3.9 2.5 Benin 3.7 2.0 1.5 Guinea 2.4 1.0 Sierra Leone 2.3 0.5 0.0 Ghana 1.9 2006 2008 2010 2012 2014 2016 2018 2020 Africa Western and Central Guinea Liberia Lower middle income Liberia 0.2 Rwanda Senegal Sierra Leone Togo World Source: World Bank’s Entrepreneurship Database (https://www.worldbank.org/en/programs/entrepreneurship). Liberia Country Economic Memorandum 67 Chapter 4. Microeconomic Foundations of Growth The rate of business creation in Liberia is among the needed to create new formal businesses; (ii) enhancing lowest in the world. The age distribution of businesses access to capital for startups and SMEs through surveyed in the 2017 WBES indicated a prevalence of microfinance programs and government-backed older businesses (31 percent had been operating loans and investment funds, or through incentives to for 10 to 15 years) over younger enterprises (12.5 private sector investment in startups; (iii) developing percent were less than five years old), underscoring clear and fair legal and regulatory frameworks that stagnation or decline in the rate of new business protect business owners and investors, encompassing startups. Moreover, data from the World Bank’s safeguards for intellectual property rights, contract Entrepreneurship Database (WBED) reveals that the enforcement, and dispute resolution mechanisms; (iv) rate of new limited liability corporations (LLCs), or their focusing on education and training for young people equivalent, registered annually in Liberia only stands at and potential entrepreneurs in business management, 2 per 10,000 adults. Such a rate is remarkably low: it digital literacy, and technical skills relevant to emerging amounts to 165 times less than the global average, 100 industries; (v) supporting research and development, times less than the rate of Rwanda, and 37 times less technology parks, and incubators to promote than the average of Western and Central Africa. At the technology adoption, including in traditional sectors; end of 2020, the total number of LLCs in Liberia was and (vi) incentivizing and supporting businesses that 15 times smaller than in structural comparators such address social and environmental challenges, with as Guinea and Sierra Leone, and 25 times smaller than a view to both solving community problems and in aspirational benchmarks such as Côte d’Ivoire and opening up new markets. Senegal. This indicates potential barriers to entry for Figure 76: Global Entrepreneurship Index (GEI), Liberia and new entrepreneurs, or a lack of support and resources comparators necessary for the survival and growth of new ventures. Opportunity perception Risk capital 1.00 Startup skills 0.90 0.80 0.70 Liberia needs to significantly improve its Internationalization 0.60 Risk acceptance 0.50 entrepreneurial ecosystem to support innovative, High growth 0.40 0.30 Networking 0.20 productive, and rapidly growing new ventures. Such 0.10 0.00 firms require skilled employees, access to technology, Process innovation Cultural support well-functioning infrastructure, access to finance, Product innovation Opportunity startup and a supportive regulatory framework. However, Competition Technology absorption the country does not currently offer an environment Human capital Ghana Liberia United States conducive to entrepreneurship. Notably, Liberia Source: The Global Entrepreneurship and Development Institute placed 126th out of 137 countries on the 2019 Global Entrepreneurship Index (GEI), with a score only equal Liberia can draw inspiration from an array to 17 percent of that obtained by the US, the top- of successful initiatives that have fostered ranked country. The main drivers of such a gap include entrepreneurship across Africa. For example, the shortcomings in internationalization, risk acceptance, Business Ideas for Africa platform compiles business startup skills, process innovation, technology concepts, policies, and practices that have supported absorption, and human capital. Strategic measures entrepreneurial growth in various markets on the to build a better environment for entrepreneurship continent,16 and that could be adapted to Liberia’s and business creation could include: (i) reducing the economic, social, and cultural context. paperwork, lowering the fees, and shortening the time 16 https://businessideas4africa.com/ 68 Liberia Country Economic Memorandum Chapter 4. Microeconomic Foundations of Growth  Box 3 Promoting entrepreneurship in Africa Digitized processes for simpler business formation and registration Business formation and registration can be cumbersome, requiring certificates and permits from several government departments. Some African governments have simplified such tasks through digitized processes that can be conducted online. Togo has one of the quickest procedures in Africa for starting a business. The government introduced online registration and abolished the requirement to notarize company documents, reducing the time needed to register a company to just three days. Nigeria shortened registration timeframes and introduced an online platform for stamp duty payment. Egypt reduced the time required to start a business from 16 days to 11 days. Morocco combines stamp duty payment with the application for business incorporation, making it possible to start a business in nine days. Kenya, Rwanda, Djibouti, and Côte d’Ivoire have simplified the tax filing process through electronic payment systems. The Senegal Start- up Act, passed in December 2019, promotes digital technology to ease business registration. Industrial sheds The lack or high cost of business premises—i.e., of space with basic facilities, such as connection to electricity—can be a severe constraint. Several African governments are addressing this problem by setting up so-called “industrial sheds”. The Kenyan government, for instance, has set up such facilities to cater to its “Jua Kali” (informal sector) artisans. Ethiopia has also built several industrial parks to provide working premises for manufacturers. Import incentive schemes Many manufacturing and processing enterprises use imported raw materials. However, government policies may stand in the way—e.g., by imposing high import duties on raw materials or other critical goods, such as computers. Several African governments have opted to reduce import tariffs and simplify customs clearance procedures. Malawi has enacted a duty-free import regime on equipment and raw materials for producers of horticultural goods for export. Ghana has simplified the importing process through a paperless customs clearance system. Entrepreneurship in the school curriculum Incorporating entrepreneurship curricula in education systems puts entrepreneurial knowledge in the hands of young people and fosters an innovation mindset. For example, the Chandaria Business Innovation Center, at Kenyatta University in Kenya, offers six months-long programs for entrepreneurship training and research. Tunisia has also invested heavily in entrepreneurship education programs; there is evidence that equipping learners with basic knowledge of business creation has boosted the number of start-ups in the country. Market opportunities and networking Most entrepreneurs have a specific market in mind for their products, which must be reached with as little restriction as feasible. Namibia, Côte d’Ivoire, Rwanda, South Africa, and Mauritius have outstanding infrastructure with well-developed roads. Cheap, easy, and fast transport of goods and services encourages investors to come in and to expand. A network of suppliers, customers, and other business associates is also key. To create it, several African governments offer mentorship programs. Examples include the Youth Enterprise Development Strategy (YEDS) in South Africa, the Youth Enterprise with Innovation in Nigeria (YouWin), and the Youth Enterprise Development Fund (YEDF) in Kenya. Access to funding for startups and SMEs Many small businesses in Africa lack funds for premises, equipment, or salaries. Financial institutions often deny them loans because of a lack of credit history. Certain African governments have thus taken steps to help entrepreneurs Liberia Country Economic Memorandum 69 Chapter 4. Microeconomic Foundations of Growth  Box 3 Promoting entrepreneurship in Africa (cont.) access start-up capital. For example, the Youth Enterprise Development Fund (YEDF) and the Uwezo Fund in Kenya provide loans to youth-entrepreneurs. In Nigeria, the N-Power program, Government Enterprise and Empowerment Programme (GEEP), and the Small and Medium Enterprises Development Agency (SMEDAN) facilitate access to funding. Uganda introduced the Youth Venture Capital Fund in 2011. Promotion of female entrepreneurship In Africa, long-standing cultural norms frequently hamper women’s participation in activities outside their homes, despite the crucial role women they play in propelling entrepreneurship. However, many African governments have set up policies and initiatives to encourage female entrepreneurship. One channel involves public education: successful female entrepreneurs can be showcased as role models to reduce bias towards women. Cameroon has set up formal networks to support female entrepreneurs such as the Cameroon Women Entrepreneurs Network and the Association for Women Empowerment Cameroon. The Kenyan government helps female entrepreneurs to obtain credit and market their goods and services through initiatives such as the Women Enterprise Fund. While Liberia has had success in attracting FDI, it percent of GDP). This success reflects the enduring needs a strategy to bring investment into industries impact of past approaches to FDI, particularly the other than mining . Annual FDI inflows into Liberia, open-door policy implemented during the 1950s and which have predominantly focused on the mining 1960s under President Tubman, which has shaped the sector and on agricultural concessions, varied between country’s economic landscape. 1 percent and 4 percent of GDP from 2018 to 2022— in line with the SSA average and the global median. The regulatory framework for foreign investment in The country’s FDI stock remains exceptionally high Liberia encompasses the Investment Act of 2010, compared with the global average, underscoring the the Revenue Code, the Public Procurement and nation’s openness to foreign investment. Both inward Concessions Act, and the National Competitive and outward FDI stocks (226 percent and 126 percent Bidding Regulation. Such laws collectively outline of GDP, respectively) vastly exceed those of benchmark the requirements, rights, and obligations of foreign countries such as Sierra Leone (inward stock at 68.2 investors, and define the investment climate within percent of GDP), as well as the averages for West Africa the country. The regulatory landscape for FDI has been (inward stock at 27.2 percent of GDP, and outward stock stable in recent years, with no significant new laws or at 3.6 percent of GDP) and Sub-Saharan Africa (inward judicial decisions. A notable gap in the investment stock at 35.4 percent of GDP, and outward stock at 10.7 framework concerns the absence of a centralized online Figure 77: FDI stock in Liberia and comparator countries Trends in Liberia Liberia and comparators 300 250 FDI stock (in percent of GDP) FDI stock (in percentage of GDP) 200 250 150 200 100 150 50 100 0 Nigeria West Africa Africa Developing World Sierra Leone Liberia 2018 2019 2020 2021 2022 countries Inward Outward Inward Outward Source: UNCTAD World Investment Report 2023 70 Liberia Country Economic Memorandum Chapter 4. Microeconomic Foundations of Growth  Box 4 Liberia’s open-door policy: An analysis Since its inception in 1926, with the signing of the Firestone Tire and Rubber Company agreement, Liberia’s open- door policy has been a cornerstone of private sector development in the country. The policy marked a significant shift from previous strategies aimed at protecting indigenous businesses from external influences. It encompasses a range of measures and approaches designed to encourage foreign investment, including: • Generous investment incentives. • Openness of all private industries to foreign investors. • Availability of land concessions for the mining, timber, and rubber industries. • No restrictions on the recruitment of foreign technical and managerial staff. • Ability to repatriate all profits and savings. • Free flow of foreign exchange. The policy has attracted a diverse group of foreign firms, including from Lebanon, Europe, the US, India, China, and other West African countries, particularly for timber, rubber, and mining concessions. Investment incentives and related challenges. Incentives are offered for the initial five years of major investment projects, including 90 percent duty-free privileges, and an exemption from income tax on 50 percent of revenues. Such measures have occasionally been at the center of controversy—regarding, for example, the sudden revocation of duty exemptions in 1987, and a general reluctance by the government to grant tax breaks to local enterprises. Impacts on public revenue and local enterprises. The generous incentives to foreign firms have caused the loss of significant revenue for the government, affecting its ability to meet various obligations. Moreover, certain industries remain monopolized by state-run enterprises, limiting the scope of the open-door policy. The policy’s emphasis on free entry for expatriate employees and complete profit repatriation has had a mixed impact, particularly on local SMEs. Overall, while successful in attracting foreign investment and promoting economic growth, the open-door policy has demonstrated some shortcomings, particularly around public revenue generation and support for local businesses. A balanced approach, which continues to welcome foreign investment while ensuring fair treatment and opportunities for local enterprises, may be necessary to sustain long-term economic development. portal (“one-stop-shop”) that consolidates investment- simplifying the process for investors to establish related laws, rules, procedures, and reporting or expand operations. The efficacy of promotion requirements. Such a platform would significantly is intertwined with the quality of the underlying ease the process for current and prospective investors, investments and of investment-related policies. providing them with accessible and comprehensive For facilitation, an effective one-stop shop that acts as regulatory information. a single point of authority is crucial, as highlighted by the OECD in 2014. 4.4 Upgrading the institutional framework for investment promotion and facilitation Liberia’s attempts to improve its business Investment promotion and facilitation are critical environment have been largely unsuccessful to enhance the investment climate and foster over the past decade, with governance indicators economic development. Promotion involves stagnating or deteriorating. Critical metrics such as positioning a country as an attractive destination regulatory quality, government effectiveness, rule for investment, while facilitation focuses on of law, and control of corruption have seen minimal Liberia Country Economic Memorandum 71 Chapter 4. Microeconomic Foundations of Growth progress, and remain weak by international standards. business environment, regulatory framework, and Obtaining permits, licenses, and registrations entails investment climate—potentially exacerbating the extensive administrative procedures, long processing perception of risk and uncertainty and deterring times, and high costs. While progress has been made potential investments. Establishing effective IPAs can in relation to starting a business, resolving insolvency, help bridge the information gap, thereby facilitating and securing credit, it has not been enough to make a smoother and more confident investment decisions. substantial impact on the business environment. IPAs also engage in broader advocacy efforts to improve the host country’s investment climate. They Corruption and cronyism remain a drag on economic may lobby for regulatory change or policy initiatives growth. Business leaders often report difficulties in that address specific barriers to investment—e.g., engaging with government representatives to discuss visa regulation reform, or the introduction of training new investments or policies that affect the business programs tailored to the needs for skilled labor in climate, with some indicating that meetings are priority sectors. contingent upon bribing officials. Decisions impacting the business sector frequently reflect political Despite its central role in managing large-scale cronyism over considerations of market efficiency. investments, the operational framework of Liberia’s This environment enables certain businesses to National Investment Commission (NIC) does not operate outside legal boundaries by aligning with align with the typical functions of an IPA. As Liberia’s relevant political interests, while those attempting to main investment promotion agency, the NIC develops comply with the law often find minimal support from investment strategies, policies, and programs government agencies. In certain cases, compliant tailored to draw in foreign investors. It also plays a businesses become targets for officials seeking bribes pivotal role in negotiating investment contracts or other unofficial payments. and concessions and is responsible for overseeing the implementation of the 2010 Investment Act. Investment Promotion Agencies (IPAs) aim to However, in practice, the NIC predominantly works address the challenges arising from information on the negotiation of investment agreements, rather asymmetries and transaction costs in international than the broader spectrum of investment promotion markets. According to Morisset and Andrews-Johns and facilitation. This narrow focus limits the NIC’s (2004), investors seeking to enter foreign markets often effectiveness in creating a conducive environment for lack essential information about the host country’s broader investment activities. Figure 78: Regulatory quality and government effectiveness in Liberia and comparator countries Regulatory quality in Liberia and comparators Regulatory quality in Liberia and comparators 0.70 0.40 0.40 0.10 0.10 -0.20 -0.20 -0.50 -0.50 -0.80 -0.80 -1.10 -1.10 -1.40 -1.40 -1.70 -1.70 -2.00 -2.00 1996 1999 2002 2005 2008 2011 2014 2017 2020 1996 1999 2002 2005 2008 2011 2014 2017 2020 Benin Côte d'Ivoire Ghana Guinea Gambia, The Benin Côte d'Ivoire Ghana Guinea Gambia, The Guinea-Bissau Liberia Senegal Sierra Leone Guinea-Bissau Liberia Senegal Sierra Leone Source: The Worldwide Governance Indicators, 2022 Update (www.govindicators.org) The Worldwide Governance Indicators (WGI) is a research dataset summarizing views on the quality of governance from a large number of corporate, citizen, and expert survey respondents in both developed and developing countries. The WGI does not reflect the official views of the World Bank, its executive directors, or the countries they represent. WGI data is not used by the World Bank Group to allocate resources. 72 Liberia Country Economic Memorandum Chapter 4. Microeconomic Foundations of Growth The NIC’s limitations point to a pressing need and outcomes helps ensure that it consistently meets to reevaluate its structure. By covering a more the expectations of both investors and policymakers. comprehensive range of investment promotion activities, the NIC can enhance its effectiveness in Coordination among the institutions involved in attracting and supporting foreign investment. A investment promotion is a considerable challenge restructured NIC could offer more robust services such in Liberia. Alongside the NIC, crucial stakeholders as investor targeting, aftercare, and advocacy. Stronger include the Ministry of Finance and Development mechanisms for communication with the business Planning (MFDP), the Ministry of Commerce and community are essential, especially with a view to Industry (MOCI), the Ministry of Labor (MOL), the informing policy formulation. Morisset (2003) points Ministry of Justice (MOJ), the Ministry of Foreign out that the IPAs that have been most successful Affairs (MOA), the Liberia Business Registry (LBR), the in attracting investments allocate considerable Liberia Revenue Authority (LRA), the Central Bank resources to policy advocacy, highlighting the of Liberia (CBL), the Liberia Land Authority (LLA), importance of engaging with investors beyond the the Liberia Intellectual Property Office (LIPO), the initial investment phase. Copyright Society of Liberia (COSOL), and the Liberia Environmental Protection Agency (EPA). To enhance The importance of frequent performance the effectiveness of its investment promotion efforts, evaluations is a key lesson from the success of IPAs in Liberia could consider establishing a dedicated the Association of Southeast Asian Nations (ASEAN) institution like Senegal’s Agency for Investment region. Such assessments ensure that IPAs remain Promotion and Major Works (APIX) (Box 4). Such an effective and responsive to the needs of investors and agency could be tasked with setting the agenda for the changing dynamics of the global economy. The business environment reforms, coordinating and Malaysian Investment Development Authority (MIDA) overseeing their implementation, and facilitating is an exemplary model in this regard. Recognized for its the integration of investor feedback and findings robust client charter and Key Performance Indicators from performance reviews into policymaking. (KPIs), MIDA exemplifies how structured performance This centralized approach would help to mitigate metrics can lead to more effective investment fragmentation and overlapping of responsibilities promotion and facilitation. According to the OECD in among agencies, leading to a more efficient and 2013, MIDA’s approach to regularly assessing its services investor-friendly business environment. Liberia Country Economic Memorandum 73 Chapter 4. Microeconomic Foundations of Growth  Box 5 Institutional Framework for Boosting Investment—The Case of Senegal Senegal offers a range of services to potential investors can find under specific queries they may have. These include a one-stop shop for business creation, a counter dedicated to the Senegalese diaspora (which is highly relevant to Liberia, since the country has a large diaspora with an interest in investing back home), facilitation of land transactions through the Centre de Facilitation des Procédures Administratives (CFPA), access to regional platforms and offices to foster private investment beyond the main urban centers, and access to the Industrial Free Zone of Mbao, where 19 industrial units host a range of manufacturing and services businesses. Institutional efforts to attract investments are based on a dual structure, with a political level and an implementing agency: • At the political level, the Presidential Investment Council (Conseil Présidentiel de l’Investissement) brings together representatives from various relevant ministries. • At the implementing level, the APIX (Agence Nationale chargée de la Promotion de l’Investissement et des Grands Travaux, i.e., the National Agency for the Promotion of Investment and Major Works), founded in 2000, has the mandate, dedicated staff, and resources to foster private investment and assist investors seeking opportunities in the country. It also has a distinct mandate to steer major infrastructure projects (e.g. a new airport, or a road through the capital city connecting the port to the airport). The APIX serves multiple roles. It is a one-stop shop, the single door for potential investors to explore opportunities, learn about applicable rules and regulations, and seek assistance. It also acts, inter alia, as an investment promotion agency, arranging trade and investment missions abroad; as a policy reform sounding board, tasked with identifying and proposing reforms of the business environment; and as an expert adviser to the government in the drafting and completion of Memoranda of Understanding with large investors, where mutual rights and obligations are formally laid out. The APIX has a board of directors is composed of 12 members, representing ministries, state agencies, employer groups (such as the Conseil National de l’Entrepreneuriat, CNE), and employee unions (such as the umbrella Confédération Nationale des Travailleurs du Sénégal, CNTS). The chairman of the board of APIX is appointed by the President of the Republic, as are government ministers. With a population of just over 17 million people in 2022, Senegal attracted US$2.6 billion in FDI that year, according to UNCTAD’s World Investment Report 2023. If Liberia, with a population of 5.3 million in 2022, had attracted investment at an equivalent rate, the volume would have approached US$800 million. Instead, FDI inflows into Liberia in 2022 amounted to less than US$100 million,17 suggesting that the country could learn from Senegal’s experience. 17 Senegal’s FDI inflows dwarf Liberia’s, while the country has had almost no outflows in recent years: investors who come in tend to stay. Conversely, outflows have been significant in Liberia, according to UNCTAD data. 74 Liberia Country Economic Memorandum REFERENCES Chapter 1: Drivers of growth BACI (2010) Gaulier, G. and Zignago, S.: International Trade Database at the Product-Level. The 1994-2007 Version. CEPII Working Paper, N°2010-23 Barro, Robert and Jong-Wha Lee, 2013, “A New Data Set of Educational Attainment in the World, 1950-2010.” Journal of Development Economics, vol 104, pp.184-198. Berg, Andrew & Ostry, Jonathan D. & Zettelmeyer, Jeromin, 2012. “What makes growth sustained?,” Journal of Development Economics, Elsevier, vol. 98(2), pages 149-166. Boakye, Daniel; Dessus, Sébastien; Foday, Yusuf; Oppong, Felix. 2012. Investing Mineral Wealth in Development Assets: Ghana, Liberia and Sierra Leone. Policy Research Working Paper; No. 6089. © http://hdl.handle.net/10986/9320 License: CC BY 3.0 IGO. Devadas, Sharmila and Pennings, Steven Michael, Assessing the Effect of Public Capital on Growth: An Extension of the World Bank Long-Term Growth Model (October 9, 2018). World Bank Policy Research Working Paper No. 8604, Available at SSRN: https://ssrn.com/abstract=3263801 Hansen, J. and Gross, I., 2018. “Commodity price volatility with endogenous natural resources,” European Economic Review, Elsevier, vol. 101(C), pages 157-180. International Monetary Fund (2022): Liberia: Staff Report for the 2022 Article IV Consultation and Staff-Monitored Program. Country Report No. 2022/296 Jeong, Hyeok. 2017. “Korea’s growth experience and long-term growth model,” Policy Research Working Paper Series 8240, The World Bank. Jones, B. F. & Olken, B. A., 2005. “The Anatomy of Start-Stop Growth,” NBER Working Papers 11528, National Bureau of Economic Research, Inc. Jones, C.I., 2016. “The Facts of Economic Growth,” Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 3-69, Elsevier. World Bank. 2018. The Human Capital Project. © World Bank, Washington, DC. http://hdl.handle.net/10986/30498 License: CC BY 3.0 IGO. World Bank 2023. Commodity Markets Outlook: Under the Shadow of Geopolitical Risks, October 2023. Washington, DC: World Bank. License: Creative Commons Attribution CC BY 3.0 IGO. World Bank 2023b Democratic Republic of the Congo Country Economic Memorandum (CEM) - Pathways to Economic Diversification and Regional Trade Integration: Fostering Economic Diversification and Regional Integration for Faster Growth, Job Creation and Poverty Reduction Chapter 2: Trade as Catalyst for Growth Aghion, P., & Howitt, P. (1998). Endogenous growth theory. Cambridge, MA: MIT Press. Agosin, M. (2007), “Export diversification and growth in emerging economies”, Serie Documentos de Trabajo N 233, Universidad de Chile, Santiago. Aguiar, A., Farole, Chepeliev, M., T., Liverani, A., and van der Mensbrugghe, D. 2022. “EU Green Deal and Circular Economy Transition: Impacts and Interactions.” Paper presented at the 25th Annual Conference on Global Economic Analysis (Virtual Conference). Baldwin, R. and J. Lopez-Gonzalez (2013), “Supply-Chain Trade: A Portrait of Global Patterns and Several Testable Hypotheses.” NBER Working Paper 18957, National Bureau of Economic Research Cambridge, MA. Borchert, Gootiiz, Magdeleine, Marchetti, Mattoo, Rubio and Shannon (2019) – “Applied Services Trade Policy: A Guide to the Services Trade Policy Database and Services Trade Restrictions Index”, WTO Staff Working Paper (ERSD-2019-14 Brenton, P. and Chemutai, V. 2021. The Trade and Climate Change Nexus: The Urgency and Opportunities for Developing Countries. Washington, D.C.: World Bank Group. Chepeliev, M., and Corong, E. 2022. “Revisiting the environmental bias of trade policies based on an environmentally extended GTAP MRIO Data Base.” Center for Global Trade Analysis, Purdue University. Liberia Country Economic Memorandum 75 Chor, D., 2010. Unpacking sources of comparative advantage: A quantitative approach. Journal of International Economics 82, 152–167. Dodaro, S. (1991), “Comparative advantage, trade and growth: Export-led growth revisited”, World Development, Vol., Issue 9, 1153-1165. Dollar, David and Aart Kraay (2004), “Trade, Growth, and Poverty,” Economic Journal, Volume 114, Issue 493, Pages F22-F49. Echandi, R., M. Maliszewska, and V. Steenbergen (2022), African Continental Free Trade Area Leveraging Trade and Foreign Direct Investment to Boost Growth and Reduce Poverty. Washington, DC: The World Bank. Egger, P., Larch, M., 2008. Interdependent preferential trade agreement memberships: An empirical analysis. Journal of International Economics 76, 384–399. https://doi.org/10.1016/j.jinteco.2008.08.003 Egger, P., M. Larch. S. Nigai, and Y. Yotov. 2018. “Trade Costs in the Global Economy: Measurement, Aggregation, and Decomposition.” Working Paper, WTO. European Parliament. 2023. REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing a carbon border adjustment mechanism. April 20, 2023. Fernandes, Ana, Hiau-Looi Kee, and Deborah Winkler (2022). “Determinants of Global Value Chain Participation: Cross-Country Evidence,” World Bank Economic Review, Volume 36, Issue 2, pp. 329-360. Fernandes, Ana and Paunov Caroline (2012). “Foreign direct investment in services and manufacturing productivity: Evidence for Chile,” Journal of Development Economics, Volume 97, issue 2, pp. 305-321. Gaulier, G. and Zignago, S. (2010). “BACI: International Trade Database at the Product-Level. The 1994-2007 Version. CEPII Working Paper,” N°2010-23.Grossman, G., and E. Helpman (1991). Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press. Harrison, A. and A. Rodríguez-Clare (2009), “Trade, Foreign Investment, and Industrial Policy for Developing Countries”, NBER Working Paper No. 15261. Head, K., Mayer, T., 2014. Chapter 3 - Gravity Equations: Workhorse,Toolkit, and Cookbook, in: Gopinath, G., Helpman, E., Rogoff, K. (Eds.), Handbook of International Economics. Elsevier, pp. 131–195. Helpman, E., and P. Krugman (1985). Market Structure and Foreign Trade. Increasing Returns, Imperfect Competition, and the International Economy. Cambridge, MA: MIT Press. Henn, C., Papageorgiou, C., Romero, J.M. et al. 2020. Export Quality in Advanced and Developing Economies: Evidence from a New Data Set. IMF Economic Review 68, 421– 451. Hollweg, C. H., & Sáez, S. (2019). Services for Trade Competitiveness. World Bank Publications - Books, The World Bank Group. Hummels, D., and P. Klenow. 2005. The Variety and Quality of a Nation’s Exports. American Economic Review 95: 704–723. IMF (2022). Liberia. Selected Issues. Country Report No. 22/297. Johnson, R., and G. Noguera. 2017. “A Portrait of Trade in Value-Added over Four Decades.” Review of Economics and Statistics 99 (5): 896–911. Kowalski, P., J. Gonzalez, A. Ragoussis, and C. Ugarte. 2015. “Participation of Developing Countries in Global Value Chains: Implications for Trade and Trade-Related Policies.” Trade Policy Papers 179, Organisation for Economic Co-operation and Development, Paris. Laget, E., A. Osnago, N. Rocha, and M. Ruta. 2018. “Deep Trade Agreements and Global Value Chains.” Policy Research Working Paper 8491, World Bank, Washington, DC. Lederman, D., and W. F. Maloney (2007), “Trade Structure and Growth,” In Natural Resources: Neither Curse Nor Destiny, D. Lederman and W.F. Maloney (eds.), Palo Alto: Stanford University Press. Levchenko, A.A., Zhang, J., 2014. Ricardian productivity differences and the gains from trade. European Economic Review 65, 45–65. Maliszewska, Maryla, Maksym Chepeliev, Carolyn Fischer, and Euijin Jung. 2023. “How developing countries can measure exposure to the EU’s carbon border adjustment mechanism,” June 13, 2023, https://blogs.worldbank.org/trade/how-developing-countries- can-measure-exposure-eus-carbon-border-adjustment-mechanism Maliszewska, M. and D. Winkler (forthcoming). Levering trade for more and better jobs in developing countries, Washington D.C.: World Bank. 76 Liberia Country Economic Memorandum Mancini, M., A. Mattoo, D. Taglioni, and D. Winkler (forthcoming). Sub-Saharan Africa’s Participation in Global Value Chains: 1995-2021, The World Economy, Special Issue on Global Value Chains in Africa. Mandel, B. 2011. “The Dynamics and Differentiation of Latin American Metal Exports.” Staff Report No. 508. August, 2011. Federal Reserve Bank of New York. Mulabdic, A., Yasar, P., 2021. Gravity Model–Based Export Potential (No. 9557), Policy Research Working Paper Series. The World Bank. Nayyar, Gaurav, Mary Hallward-Driemeier, Elwyn Davies. 2021. At Your Service?: The Promise of Services-Led Development. Washington, DC: World Bank. Nyawo, M. (2023), Armenia Trade Competitivness Diagnostic. World Bank. Orefice, G., and N. Rocha. 2014. “Deep Integration and Production Networks: An Empirical Analysis.” World Economy 37 (1): 106–36. Reis, J. G.,; & Farole, T. (2012). Trade Competitiveness Diagnostic Toolkit. World Bank. http://hdl.handle.net/10986/2248 Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98(5), 71–102. Romer, P. M. (1987). Growth based on increasing returns due to specialization. American Economic Review, 77(2),56–62. Schott, P. 2004. Across-product Versus Within-Product Specialization in International Trade. Quarterly Journal of Economics 119: 646–677. Shepherd, B. 2022. “Modeling Global Value Chains: From Trade Costs to Policy Impacts.” World Economy, 45(8): 2478-2509. Sutton, J., and D. Trefler. 2011. Deductions from the Export Basket: Capabilities, Wealth and Trade. NBER Working Paper No. 16834 Taglioni, D. and D. Winkler (2016). Making Global Value Chains Work for Development, Washington, DC: The World Bank. Tinbergen, J., 1962. Shaping the world economy; suggestions for an international economic policy. Wei, S.-J., 1996. Intra-National versus International Trade: How Stubborn are Nations in Global Integration? National Bureau of Economic Research Working Paper Series No. 5531. https://doi.org/10.3386/w5531 World Bank (2020). World Development Report 2020: Trading for Development in the Age of Global Value Chains. Washington, DC: The World Bank. World Bank, 2022. Country Economic Memorandum: Leveraging Global Value Chains for Growth in Turkey. World Bank Publications. World Bank World Integrated Trade Solution, http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/ QueryDefinition.aspx?Page=RawTradeData Chapter 3: Leveraging Liberia’s Agro-processing Potential Adjei-Nsiah, S., Zu, A. K. S., & Nimoh, F. (2012). Technological and Financial Assessment of Small-Scale Palm Oil Production in Kwaebibrem District, Ghana. Journal of Agricultural Research, 7(12), 1783-1791. Atlas of Economic Complexity. (2025). What is the Atlas? Harvard University. Retrieved from https://atlas.cid.harvard.edu/what-is- the-atlas. Central Bank of Liberia (CBL). (2025). Quarterly Palm Production, Annual Exports, and RCA. Monrovia, Liberia. Farole, T., & Winkler, D. (2014). Making Foreign Direct Investment Work for Sub-Saharan Africa: Local Spillovers and Competitiveness in Global Value Chains. Washington, DC: World Bank. Ferrer, G. (1996). The Economics of Tire Remanufacturing. INSEAD Working Paper No. 96/58/TM (Revised version of 96/39/TM). Fontainebleau, France: INSEAD. Food and Agriculture Organization (FAO). (2022). Liberia Agricultural Statistics. Rome, Italy: FAO. International Trade Center (ITC). (2022). Liberia’s Trade Growth Potential in Palm Oil and Cocoa. Geneva, Switzerland. Kazadi, J. & Ryan, P. (2016). Scoring Methodology for Agricultural Value Chains. USAID Report. Liberia Ministry of Agriculture (MOA). (2015). Liberia Agricultural Sector Development Strategy. Monrovia, Liberia. Mahinda Consulting Engineers. (2021). Feasibility Study and Master Plan for the Buchanan Special Economic Zone and Special Agro-Industry Economic Zone. Commissioned by the Ministry of Finance and Development Planning of the Republic of Liberia. National Oil Palm Strategy and Action Plan (NOPSAP). (2021). Liberia’s Strategic Plan for the Oil Palm Industry 2021-2025. Monrovia, Liberia. Liberia Country Economic Memorandum 77 The Heritage Foundation. (2023). 2023 Index of Economic Freedom. Washington, DC: The Heritage Foundation. Retrieved from https://www.heritage.org/index. United States Agency for International Development (USAID). (2024). Liberia Rice Production and Trade Analysis. Washington, DC. Wilkinson, J., & Rocha, R. (2009). The Agro-Processing Sector: Empirical Overview, Recent Trends, and Development Impacts. United Nations Industrial Development Organization (UNIDO), Vienna. World Bank. (2023). Measuring Trade-Climate Risks and Opportunities: Trade Competitiveness Diagnostic Toolkit 2023 Update. Washington, DC: World Bank Group. World Bank. 2024. Liberia Country Climate and Development Report (CCDR). Washington, DC: World Bank Group. Chapter 4: Microeconomic Foundations of Growth Bertelsmann Stiftung. 2024. Bertelsmann Transformation Index (BTI) 2024: Governance in International Comparison. Gütersloh, Germany: Bertelsmann Stiftung. Collier, P., and al. 2003. Breaking the Conflict Trap: Civil War and Development Policy. Washington, DC: World Bank; New York: Oxford University Press. Competition Act of Liberia. 2016. An Act to Promote and Maintain Competition in the Economy of Liberia. Monrovia, Liberia: Government of Liberia. FAO (Food and Agriculture Organization) and WFP (World Food Programme). 2024. Hunger Hotspots: FAO-WFP Early Warnings on Acute Food Insecurity, June to October 2024 Outlook. Rome, Italy. Farah-Yacoub, J. P., C. M. G. von Luckner, and C. M. Reinhart. 2024. “The Social Costs of Sovereign Default.” NBER Working Paper 32600, National Bureau of Economic Research, Cambridge, MA Global Entrepreneurship Monitor (GEM). (2023). Global Entrepreneurship Monitor 2022/2023 Global Report: Adapting to a “New Normal”. London, UK: Global Entrepreneurship Research Association. Retrieved from https://www.gemconsortium.org. Morisset, J. 2003. Does a Good Investment Climate Matter? The Role of Investment Promotion Agencies in Attracting FDI. Policy Research Working Paper No. 3028, World Bank, Washington, DC. Morisset, J., & Andrews-Johnson, K. (2004). The Effectiveness of Promotion Agencies at Attracting Foreign Direct Investment. Washington, DC: World Bank Group. Steenbergen, V. (2022). What Makes an Investment Promotion Agency Effective? Findings from a Structural Gravity Model. Policy Research Working Paper 10276, Finance, Competitiveness, and Innovation Insight, World Bank Group, Washington, DC. Tyson, J. E. (2017). Private Sector Development in Liberia: Financing for Economic Transformation in a Fragile Context. London, UK: Overseas Development Institute (ODI). United Nations Conference on Trade and Development (UNCTAD). (2023). World Investment Report 2023: Investing in Sustainable Energy for All. Geneva, Switzerland: United Nations. Retrieved from https://unctad.org. World Bank. 2009. Liberia Enterprise Surveys. Washington, DC: World Bank Group. World Bank. (2017). Enterprise Surveys: What Businesses Experience – Liberia 2017 Country Profile. Washington, DC: World Bank Group. Retrieved from https://www.enterprisesurveys.org. World Bank. 2024. Liberia Country Climate and Development Report (CCDR). Washington, DC: World Bank Group. World Bank. (2020). Liberia Investment, Finance, and Trade Project (P171997) – Project Appraisal Document. Washington, DC: World Bank Group. World Bank. 2024. World Bank’s Entrepreneurship Database. Washington, DC: World Bank Group. Retrieved from https://www. worldbank.org/en/programs/entrepreneurship. World Bank. 2024. World Development Indicators (WDI). Washington, DC: World Bank Group. Retrieved from https://databank. worldbank.org/source/world-development-indicators. World Bank. 2022. The Worldwide Governance Indicators (WGI). Washington, DC: World Bank Group. Retrieved from https://info. worldbank.org/governance/wgi. 78 Liberia Country Economic Memorandum APPENDIX (Additional Tables and Figures) Appendix Table 1: Sample selection A. Countries when they had Liberia’s current income level B. Peers ($600, 2015 constant US$) Region ISO Year GNI PC   Region ISO Year GNI PC   Region ISO Year GNI PC EAP CHN 1983 530   SSA BFA 2002 503   SSA CIV 1960 1107 EAP IDN 1960 615   SSA BWA 1965 510   SSA GHA 1960 1245 EAP KHM 1993 633   SSA CAF 1960 678   SSA SLE 1970 507 EAP LAO 1984 564   SSA CMR 1960 887   SSA GIN 1986 564 EAP MMR 2006 529   SSA COD 1982 993   SSA GNB 1970 717 EAP THA 1960 683   SSA CPV 1980 641   SSA BEN 1960 701 EAP VNM 1984 634   SSA ETH 2011 524   SSA NGA 1960 1282 ECA BIH 1994 797   SSA GMB 1966 570           ECA UZB 1987 811   SSA GNQ 1995 540           MENA EGY 1960 570   SSA KEN 1960 911           MENA MAR 1966 765   SSA LBR 2000 748           MENA SYR 1960 548   SSA LSO 1973 522           MENA TUN 1965 961   SSA MDG 1960 891           SAS AFG 2010 515   SSA MLI 1979 522           SAS BGD 1960 614   SSA MWI 2009 508           SAS BTN 1986 514   SSA NER 1960 787           SAS LKA 1961 595   SSA RWA 2008 507           SAS NPL 1991 501   SSA SDN 1960 510           SAS PAK 1968 521   SSA SOM 2014 504                     SSA TCD 1960 517                     SSA TGO 1961 530                     SSA TZA 1988 515                     SSA UGA 2003 505           Notes: The sample includes three two of countries. First, it comprises countries that once had a Gross National Income (GNI) per capita between $500 and $1,000 (constant 2015 US$), similar to Liberia today. Second, is aspirational (GHA, CIV, NGA) and structural peers (SLE, GIN, GNB, BEN). GNI per capita is constructed as GNI (NY.GNP.PCAP.KD) over population (SP.POP.TOTL). Liberia Country Economic Memorandum 79 Appendix Appendix Table 2: Summary of simulations Average growth rate, Percentage   2025-50 2025-29 2030s 2040s I. Headline GDP         Baseline 4.5% 6.0% 3.8% 4.6% Incremental growth from ambitious reforms (one-by-one), ppts:     A. Non-mining TFP growth 1.0% 0.1% 1.1% 1.4% B. Human capital growth 0.5% 0.0% 0.0% 1.2% C. Investment         Public investment 0.1% 0.1% 0.2% 0.1% Private investment 0.6% 0.2% 1.0% 0.4% D. Labor force participation 0.1% 0.1% 0.2% 0.0% E. Public infrastructure 0.1% 0.0% 0.1% 0.1% Combined reforms package 2.5% 0.4% 2.7% 3.3% Baseline with high iron prices 4.6% 6.0% 3.8% 4.6%           II. Non-mining GDP         Baseline 5.0% 5.9% 5.0% 4.6% Incremental growth from ambitious reforms (one-by-one), ppts:     A. Non-mining TFP growth 1.1% 0.1% 1.2% 1.4% B. Human capital growth 0.6% 0.0% 0.0% 1.3% C. Investment         Public investment 0.1% 0.1% 0.2% 0.1% Private investment 0.6% 0.3% 1.1% 0.4% D. Labor force participation 0.1% 0.1% 0.2% 0.0% E. Public infrastructure 0.1% 0.0% 0.1% 0.1% Combined reforms package 2.7% 0.6% 2.9% 3.5% Baseline with high iron prices 5.1% 5.9% 5.1% 4.7%           III. Mining GDP (Iron + Gold)         Baseline 2.1% 6.3% -2.2% 4.0% Incremental growth from ambitious reforms (one-by-one), ppts:     A. Non-mining TFP growth 0.4% 0.0% 0.2% 0.6% B. Human capital growth 0.1% 0.0% 0.0% 0.3% C. Investment         Public investment 0.1% 0.0% 0.1% 0.1% Private investment 0.3% 0.0% 0.3% 0.4% D. Labor force participation 0.0% 0.0% 0.1% 0.0% E. Public infrastructure 0.0% 0.0% 0.0% 0.1% Combined reforms package 1.0% 0.0% 0.7% 1.6% Baseline with high iron prices 2.2% 6.4% -2.0% 4.2% 80 Liberia Country Economic Memorandum Appendix  Appendix Table 3: Summary of simulated GDP/GNI per capita GDP per capita A. Constant 2015 US$   B. Index (2020 = 100)   2020 2030 2050   2020 2030 2050 I. Total               Baseline 609 773 1,081   100 127 178 Reforms package (A-E) - 802 2,005   - 132 330 II. Non-mining               Baseline 499 602 954   100 121 191 Reforms package (A-E) - 631 1,844   - 127 369 III. Mining               Baseline 110 170 127   100 155 116 Reforms package (A-E) - 170 162   - 156 148 IV. Iron               Baseline 61 75 118   100 123 194 Reforms package (A-E) - 75 153   - 123 251 IV. Gold               Baseline 49 95 9   100 196 19 Reforms package (A-E)   96 9   - 196 19                 GNI per capita C. Constant 2015 US$   D. Index (2020 = 100) 2020 2030 2050   2020 2030 2050 I. Total               Baseline 559 676 944   100 121 169 Reforms package (A-E) - 714 1,775   - 128 317 II. Non-mining               Baseline 459 527 833   100 115 182 Reforms package (A-E) - 562 1,632   - 123 356 III. Mining               Baseline 101 149 111   100 148 110 Reforms package (A-E) - 152 143   - 151 142 IV. Iron               Baseline 56 65 103   100 117 184 Reforms package (A-E) - 67 135   - 119 241 IV. Gold               Baseline 45 83 8   100 187 18 Reforms package (A-E) - 85 8   - 190 18 Liberia Country Economic Memorandum 81 Appendix Appendix Figure 1: Historical and future mining prices Panel I: The price of iron ore Panel II: The price of gold $/metric tons (constant 2015 US$) $/troy ounce (constant 2015 US$) Note: The forecast is generated by an AR(1) model estimated with data from 1960 to 2022. Price data is from CMO (August 2023) deflated with the Manufacturing Unit Value Index and assuming zero inflation for 2023-24. Appendix Figure 2: Baseline growth path I. Non-mining GDP growth II. Mining GDP growth Annual growth rate, Percentage Annual growth rate, Percentage Source: World Bank’s staff estimates. III. Distribution of GDP PC growth over 20 years (Starting when countries had Liberia’s current income) Source: World Bank’s staff estimates. 82 Liberia Country Economic Memorandum Appendix Appendix Figure A: Reforms to non-mining TFP growth I. Distribution of non-mining TFP growth over 20 years II. Simulated non-mining TFP growth (Starting when countries had Liberia’s current income) Annual growth rate, Percentage Source: World Bank’s staff estimates with Penn World Table 10.0. Source: World Bank’s staff estimates. III. Headline GDP (LTGM simulation) IV. Non-mining GDP (LTGM simulation) Annual growth rate, Percentage Annual growth rate, Percentage Annual growth rate, Percentage Source: World Bank’s staff estimates. Liberia Country Economic Memorandum 83 Appendix Appendix Figure B: Reforms to human capital I. Distribution of schooling rates in 2020 II. Distribution of education quality in 2020 (or most recent) (or most recent) Source: World Bank Human Capital Index. Source: World Bank Human Capital Index. III. Distribution of adult survival rates in 2020 IV. Distribution of fraction of children not stunted in 2020 (or most recent) (or most recent) Source: World Bank Human Capital Index. Source: World Bank Human Capital Index. VI. Simulated human capital growth VII. Headline GDP (LTGM simulation) Annual growth rate, Percentage Annual growth rate, Percentage Source: World Bank’s staff estimates with Penn World Table 10.0. Source: World Bank’s staff estimates. VIII. Non-mining GDP (LTGM simulation) Annual growth rate, Percentage 84 Liberia Country Economic Memorandum Appendix Appendix Figure C: Reforms to investment (Public and private) I. Distribution of private investment II. Distribution of public investment Percent of GDP Percent of GDP 2,450 60 50 1,950 1951 2,200 40 Percent 1,450 30 1945 23% 20 950 1,100 10 650 4% 450 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 Historical BAU Reforms Barclay-Tubman open door policy Baseline Reform Source: World Bank’s staff estimates with Penn World Table 10.0. Source: World Bank’s staff estimates. III. Simulated investment growth VII. Headline GDP (LTGM simulation) Annual growth rate, Percentage Annual growth rate, Percentage Source: World Bank’s staff estimates. Source: World Bank’s staff estimates. Liberia Country Economic Memorandum 85 Appendix Appendix Figure D: Reforms to labor force participation I. Distribution of male labor force participation II. Distribution of female labor force participation Percent of male working age population Percent of female working age population .035 75th PCTL .06 Baseline Median Ambitious reform Baseline (>75th PCTL) .03 .05 Distribution IND (excl. MENA & SAS) NGA BOL KEN UGA CMR MDG NGA UGA KEN CMR INDBOL MDG .025 AFG IND BTN NPL LKA BGD .04 NPL LKA AFG IND .015 .02 Density Density SYR TUN TUN EGY .03 MAR MAR PHL LAO CHN LAO MMR VNM .02 .01 IDN THA KHM IDN SDN GMB TCDTGO LSO CAF KEN NER TZA T TGO GNQ GO GIN SDN BEN CPV CAF CMR MDG .01 .005 SOM SLE GNB GMB UGATCD KEN MLI TZA SOM GNB CPV GIN FA BFA FA SLE UGA CMR ETH W WA RWA NGA BWA W WA MWI BFA FA FA LSO LBR ETH NER W WA RWA GNQ BW WA BWANGA MLIMWI BEN LBR MDG 0 0 50 55 60 65 70 75 80 85 90 10 20 30 40 50 60 70 80 90 Male workforce participation (WDI) Female workforce participation (WDI) SSA EAP MENA SAS Peers SSA EAP MENA SAS Peers Source: World Bank’s staff estimates with Penn World Table 10.0. Source: World Bank’s staff estimates. III. Simulated labor force participation path VII. Headline GDP (LTGM simulation) Percent of total working age population Annual growth rate, Percentage 80 70% 79 78 77% 77 Percent 76 75 74 73 72 71 70 2020 2025 2030 2035 2040 2045 2050 Baseline Moderate reforms Ambitous reforms Source: World Bank’s staff estimates. Source: World Bank’s staff estimates. 86 Liberia Country Economic Memorandum Appendix Appendix Figure E: Reforms to the quality of public infrastructure I. Distribution of IEI II. Simulated IEI path Share of public capital providing useful capital services Share of public capital providing useful capital services 80% Mali Nigeria Baseline Guinea-Bissau 75% Guinea Moderate reforms Niger Ambitous reforms 70% Burkina Faso 70% ECOWAS Liberia Ghana 65% Benin 61% Gambia Sierra Leone 60% Togo Cote d'Ivoire Cabo Verde 55% Senegal 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 50% 2019_21 2009_11 2020 2025 2030 2035 2040 2045 2050 Source: World Bank’s staff estimates with Penn World Table 10.0. Source: World Bank’s staff estimates. III. Headline GDP (LTGM simulation) VII. Headline GDP (LTGM simulation) Annual growth rate, Percentage Annual growth rate, Percentage Source: World Bank’s staff estimates. Source: World Bank’s staff estimates. Liberia Country Economic Memorandum 87 Appendix Table 3.2: Liberia’s goods exports, export share, and RCA, by sector, 2019-21 vs. 2009-11 Average Average 2009-11 to Average Average 2009-11 2019-21 2019-21 2009-11 2019-21 Exports Exports   (US$ % of total (US$ % of total CAGR, % RCA RCA   million) million) 01-05 Animal 1.0 0.2 2.7 0.3 0.13 0.0 0.1 06-15 Vegetables 2.4 0.4 34.7 3.8 0.39 0.1 0.7 1511 - Palm oil 0.7 0.1 24.4 2.6 0.55 0.3 9.0 16-24 Foodstuffs 14.8 2.7 28.7 3.1 0.09 0.4 0.6 1801 - Cocoa beans, whole or broken 14.4 2.6 27.5 3.0 0.08 19.1 41.2 25-27 Minerals 191.2 34.4 359.1 38.9 0.08 1.0 2.1 2601 - Iron ore 8.2 1.5 328.5 35.5 0.59 1.1 27.8 2709 - Crude petroleum 122.0 21.9 19.4 2.1 -0.21 1.4 0.3 2710 - Refined petroleum 60.5 10.9 12.6 1.4 -0.18 1.3 0.3 28-38 Chemicals 2.7 0.5 1.0 0.1 -0.12 0.0 0.0 39-40 Natural Rubber 250.4 45.0 143.3 15.5 -0.07 5.4 2.4 4001 - Rubber 246.5 44.3 142.5 15.4 -0.07 136.3 133.5 41-43 Leather, Skins 0.1 0.0 0.0 0.0 -0.19 0.0 0.0 44-49 Wood & Manuf. 16.3 2.9 21.4 2.3 0.03 0.6 0.7 4403 - Wood in the rough 8.1 1.5 18.6 2.0 0.11 8.5 16.9 50-63 Textiles, Clothing 0.6 0.1 1.5 0.2 0.12 0.0 0.1 64-67 Footwear 0.1 0.0 0.0 0.0 -0.23 0.0 0.0 68-70 Stone Ceramic Glass 0.3 0.0 0.1 0.0 -0.09 0.0 0.0 71 Precious Stones and Metals 15.5 2.8 309.2 33.5 0.45 0.5 6.0 7108 - Gold, unwrought 3.8 0.7 296.5 32.1 0.72 0.3 10.5 72-83 Metals 15.5 2.8 9.1 1.0 -0.07 0.2 0.1 84-85 Machinery 11.5 2.1 8.8 1.0 -0.03 0.0 0.0 86-89 Transport Equip, excl. ships 30.5 5.5 2.9 0.3 0.3 0.1 1.1 90-97 Miscellaneous 3.5 0.6 1.5 0.2 -0.10 0.1 0.0 Total excl. ships 556.5 100.0 924.1 100.0       Ships (8901, 8905) 499.6   379.2   -0.03 47.0 58.6 Total, incl.ships 1,056.1   1,303.3         Source: WB staff computations. Data: BACI International trade database (Gaulier and Zignago, 2010). Note: green indicates larger values. 88 Liberia Country Economic Memorandum Appendix Table 3.3: Liberia’s services export basket, 2006-08 vs. 2012-14 vs. 2018-20 average 2006-08 2012-14 2018-20 2019-21 Services category avg. value % of total avg. value % of total avg. value % of total avg. value % of total (m. $) (m. $) (m. $) (m.$) Services 397.4 100.0% 177.2 100.0% 10.8 100.0% 9.1 100.0% Transport 18.1 4.6% 0.0 0.0% 0.0 0.0% 0.0 0.0% Sea transport 17.1 4.3% 0.0 0.0% 0.0 0.0% 0.0 0.0% Air transport 1.1 0.3% 0.0 0.0% 0.0 0.0% 0.0 0.0% Travel 137.8 34.7% 0.0 0.0% 1.9 17.6% 1.9 20.8% Travel, Business 137.8 34.7% 0.0 0.0% 1.9 17.6% 1.9 20.8% Other services 241.4 60.8% 147.7 83.4% 9.7 89.8% 8.0 87.5% Insurance and pension services 0.0 0.0% 5.2 2.9% 9.2 85.6% 9.2 101.4% Other business services 4.2 1.1% 0.0 0.0% 0.0 0.0% 0.0 0.0% Government goods and services n.i.e. 237.2 59.7% 141.6 79.9% 0.4 4.0% 0.5 4.9% Source: UNCTAD Stats. Note: Services (BPM6) compiled from various international and national data sources. Blue indicates larger values, white medium values and red low values. Table 3.4: Liberia’s export shares and growth, by destination market, share and growth, 2019-21 vs. 2009-11 (excluding ships, hs4=8901 and 8905) Million US$ Share, percent Region 2009-11 2019-21 2021 2009-11 2019-21 CAGR, % 2021 EU+UK 176 319 475 30.3% 38.3% 3.0% 42.4% France 10 99 159 1.8% 11.8% 26.9% 14.2% Germany 21 68 104 3.9% 8.2% 9.8% 9.3% Poland 2 37 71 0.4% 4.4% 33.9% 6.3% Spain 48 28 56 7.9% 3.4% -10.1% 5.0% Netherlands 10 23 21 1.7% 2.8% 6.6% 1.8% Sub-Saharan Africa 108 59 15 22.7% 7.0% -13.7% 1.4% Angola 0.46 16 0.85 0.00 2.0% 48.0% 0.1% Cote d’Ivoire 20 16 0.03 1.9% -7.5%   Mozambique 33 10 1 5.6% 1.2% -17.8% 0.1% Ghana 6.16 8.12 1.4% 1.0% -4.3%   Mali 0.01 5.81   0.0% 0.7% 124.5%   Other countries 182 263 448 32.1% 31.5% -0.2% 39.9% Switzerland 3 125 343 0.4% 15.1% 55.3% 30.6% USA 126 56 74 22.3% 6.8% -13.8% 6.6% Turkey 3 53 4 0.6% 6.2% 34.1% 0.3% Canada 30 20 21 5.5% 2.4% -9.8% 1.9% Bosnia Herzegovina 0.02 7.41   0.0% 0.9% 101.5%   East Asia & Pacific 43 118 75 7.2% 14.2% 8.9% 6.7% China 20 93 21 3.3% 11.2% 16.7% 1.9% Malaysia 15 17 44 2.5% 2.0% -2.5% 3.9% Rep. of Korea 0.75 2.76 2.46 0.1% 0.3% 11.8% 0.2% Indonesia 5 2 3 0.9% 0.3% -13.3% 0.3% Liberia Country Economic Memorandum 89 Appendix Million US$ Share, percent Region 2009-11 2019-21 2021 2009-11 2019-21 CAGR, % 2021 Thailand 0.15 2.07 0.84 0.0% 0.2% 31.5% 0.1% South Asia 37 7 13 6.2% 0.8% -22.5% 1.2% India 12 7 13 2.2% 0.8% -12.0% 1.1% Afghanistan 0.09 0.0%     Nepal 0.03 0.08 0.53 0.0% 0.0% 6.5% 0.0% Pakistan 12 0.03 0.21 1.9% 0.0% -54.7% 0.0% Sri Lanka   0.02   0.0%     MENA 10 68 95 1.5% 8.2% 23.4% 8.4% Lebanon 1 46 63 0.2% 5.5% 48.6% 5.6% United Arab Emirates 18 29 2.1%   2.6% Egypt 8 4 0.01 1.3% 0.5% -11.7% 0.0% Morocco 0.00 0.35 2.94 0.0% 0.0% 67.2% 0.3% Tunisia 0.08 0.26   0.0% 0.0% 11.9%   Source: WB staff computations. Data: BACI International trade database (Gaulier and Zignago, 2010). 90 Liberia Country Economic Memorandum Appendix Table 3.5: Liberia’s export shares and growth, by destination market, share and growth, 2019-21 vs. 2009-11   2009-11 US$ 2009-11 to to 2019- Shares, million 2019-21     21     %     2009- 2019- 2009- 2019- CAGR, % 2021   CAGR, % 2021 Type Region 2011 2021 2011 2021 High technology 9.0 3.8 -10.3% 2.6   1.00% 0 -100.0% 0   EU+UK 0.9 0.2 -18.9% 0.8   0.09% 0.01% -20.2% 0.05%   East Asia & Pacific 0.4 0.1 -12.6% 0.1 0.05% 0.01% -14.5% 0.00%   MENA 0.0 -100.0% 0.1 0.00% -100.0% 0.00%   RoW 3.5 0.3 -25.9% 0.2 0.39% 0.03% -28.6% 0.01%   South Asia 0.2 0.8 17.5% 1.3 0.02% 0.07% 13.9% 0.08%   Sub-Saharan Africa 3.9 2.3 -6.5% 0.2   0.42% 0.18% -9.8% 0.01% Low technology 2.4 2.9 2.4% 1.8   0.00% 0.00%   0.00%   EU+UK 0.5 0.5 2.5% 0.9   0.04% 0.04% 0.7% 0.06%   East Asia & Pacific 0.1 0.3 10.2% 0.0 0.01% 0.03% 10.5% 0.00%   MENA 0.1 0.0 -30.7% 0.2 0.01% 0.00% -31.6% 0.01%   RoW 0.4 0.5 2.6% 0.1 0.04% 0.04% -0.2% 0.01%   South Asia 0.1 0.1 -6.2% 0.1 0.01% 0.00% -9.4% 0.00%   Sub-Saharan Africa 1.2 1.5 2.6% 0.4 0.11% 0.12% 0.6% 0.03% Medium technology 538.0 353.4 -5.1% 476.0   48.00% 29.00% -6.1% 30.00%   EU+UK 413.7 229.7 -7.1% 338.2 36.59% 18.63% -8.1% 21.31%   East Asia & Pacific 13.4 105.2 29.4% 125.9 1.18% 8.34% 27.7% 7.94%   MENA 0.1 0.0 -14.5% 0.0 0.01% 0.00% -16.4% 0.00%   RoW 53.9 11.8 -17.3% 1.4 4.69% 1.04% -17.1% 0.09%   South Asia 26.9 0.1 -50.6% 0.0 2.51% 0.01% -52.0% 0.00%   Sub-Saharan Africa 30.0 6.6 -17.2% 10.4   3.15% 0.55% -19.7% 0.65% Primary products 392.5 185.2 -9.0% 222.8 39.00% 16.00% -10.5% 14.00%   EU+UK 136.2 67.4 -8.4% 68.4   14.31% 5.75% -10.8% 4.31%   East Asia & Pacific 18.7 22.0 2.1% 48.7 1.94% 1.95% 0.0% 3.07%   MENA 0.0 4.4 252.5% 1.2 0.00% 0.44% 248.3% 0.07%   RoW 158.0 77.2 -8.6% 101.3 16.08% 6.58% -10.6% 6.39%   South Asia 1.5 0.4 -15.7% 1.1 0.16% 0.04% -16.5% 0.07%   Sub-Saharan Africa 78.1 13.8 -19.5% 2.0   6.27% 1.27% -18.1% 0.13% Resource based 48.0 376.7 29.4% 450.4 5.00% 33.00% 26.6% 28.00%   EU+UK 14.7 249.3 42.4% 402.8   1.49% 22.24% 40.1% 25.38%   East Asia & Pacific 22.2 94.5 19.8% 24.7 2.34% 8.11% 16.8% 1.56%   MENA 0.0 1.4 115.3% 6.2 0.00% 0.13% 116.6% 0.39%   RoW 4.7 6.8 4.6% 1.9 0.47% 0.55% 1.8% 0.12%   South Asia 4.8 5.4 1.4% 11.0 0.47% 0.46% -0.2% 0.70%   Sub-Saharan Africa 1.5 19.2 38.0% 3.7   0.13% 1.74% 38.0% 0.23% Other   66.1 247.4 17.9% 433.6   7.00% 22.00% 15.4% 27.00% Total   1056.1 1169.4 1.3% 1587.1   100.0% 100.0% 0.0% 100.0% Source: WB staff computations. Data: BACI International trade database (Gaulier and Zignago, 2010). Liberia Country Economic Memorandum 91 Appendix Table 3.6: Liberia’s top 5 import partners, by BEC, share and growth, 2019-21 vs. 2009-11 Country 2009-11 2019-21 CAGR, % 2021 Capital goods China 21.0% 23.7% 1.5% 24.7% Japan 15.6% 21.7% 4.3% 18.1%   Rep. of Korea 42.6% 20.0% -9.1% 14.9%   Germany 1.4% 2.8% 9.4% 5.8%   Cyprus 0.0% 1.5% 251.1% 1.4%   Total, capital goods 88.1% 74.6% -2.1% 70.1% Consumer goods China 3.2% 12.0% 17.8% 16.4% Brazil 0.1% 2.3% 48.7% 2.5%   India 0.1% 1.5% 38.7% 1.4%   Greece 0.6% 1.4% 10.6% 2.2%   Turkey 0.1% 0.8% 31.4% 0.6%   Total, consumer goods 8.6% 20.6% 11.5% 25.6% Intermediate goods China 1.6% 2.0% 2.9% 1.5% Turkey 0.1% 0.3% 12.7% 0.2%   India 0.1% 0.2% 6.5% 0.1%   Saudi Arabia 0.0% 0.1% 38.7% 0.1%   Malaysia 0.0% 0.1% 24.1% 0.0%   Total, intermediate goods 2.4% 3.3% 4.1% 2.7% Source: WB staff computations. Data: BACI International trade database (Gaulier and Zignago, 2010). Note: Consumer goods are from UNCTAD_SOP_hs6 classification. The classification includes capital goods, consumer goods, intermediate goods and raw materials. 92 Liberia Country Economic Memorandum Appendix Table 3.7: Liberia tariff profile Final bound duties MFN applied duties Imports Duty- Duty- Share Duty- AVG Max Binding AVG Max Product group free (%) free (%) in % free (%) Animal products 33.2 0 45 100 24.5 0 35 Dairy products 23.2 0 45 100 17.0 0 35 Fruit, vegetables, plants 24.2 0 45 100 17.8 0 35 Coffee, tea 27.8 0 50 100 18.5 0 35 Cereals & preparations 21.3 0 50 100 13.6 0 35 Oilseeds, fats & oils 20.2 0 45 100 11.4 0 35 Sugars and confectionery 21.6 0 45 100 12.4 00 35 Beverages & tobacco 26.6 0 50 100 17.5 0 35 Cotton 15.0 0 15 100 5.0 0 5 Other agricultural products 18.4 0 28 100 9.6 0 20 Fish & fish products 35.9 0 40 100 16.0 0 20 Minerals & metals 26.6 0 40 100 11.6 2.0 20 Petroleum 24.0 0 30 100 7.7 19.0 10 Chemicals 26.9 0.1 50 100 7.1 5.0 35 Wood, paper, etc. 32.0 0.4 50 100 11.7 3.9 20 Textiles 28.1 0 50 100 16.1 0.3 35 Clothing 30.0 0 30 100 20.0 0 20 Leather, footwear, etc. 30.3 0 40 100 12.3 1.3 20 Non-electrical machinery 20.7 0 40 100 6.8 0 20 Electrical machinery 21.6 0.4 40 100 11.3 0.7 20 Transport equipment 22.6 0 40 100 8.5 1.9 20 Manufactures, n.e.s. 30.2 0 50 100 14.5 2.0 20 Source: World Trade Organization Liberia Tariff Profile Table 3.8: Liberia’s top ten NTMs on exports and imports by coverage ratio NTM affected NTM Coverage NTM Frequen- product - NTM affected Measure Ratio cy Ratio Count Trade Licensing or permit requirements to export (P130) 33.6 3.56 45 951,625.03 Certification required by the exporting country (P620) 15.67 1.19 15 443,801.38 Additional charges n.e.s. (F690) 12.94 18.98 689 2,127,272.55 Internal taxes and charges levied on imports (F700) 12.94 18.98 689 2,127,272.55 Inspection requirement (P610) 12.84 0.79 10 363,617.99 Export prohibition (P110) 9.51 0.32 4 269,439.06 Authorization requirement for TBT reasons (B140) 7.58 10.69 388 1,246,056.42 Custom inspection, processing and servicing fees (F610) 6.59 0.39 14 1,084,229.58 Export taxes and charges (P500) 6.08 27.08 342 172,199.90 Export technical measures, n.e.s. (P690) 4.41 10.21 129 124,909.29 Source: TRAINS NTM database, World Bank. Liberia Country Economic Memorandum 93 Appendix Table 3.9: Preferential trade agreements Cote Liberia Sierra Leone Guinea Ghana Togo Malawi Rwanda   d’Ivoire Total PTA Participation 1 1 2 4 4 2 5 5 Number of Partners 14 14 52 80 42 14 28 23 Deepest Agreement ECOWAS ECOWAS ECOWAS ECOWAS ECOWAS ECOWAS COMESA EAC Source: World Bank Deep Trade Agreement database. Note: ECOWAS = Economic Community of West African States. Note: COMESA = Common Market for Eastern and Southern Africa; EAC = East African Community. Table 3.10: Decomposition of export growth, Liberia and peers, 2009-11 to 2019-21   LBR SLE CIV GHA BFA GMB NGA MLI Increase of old product in old markets 105.9 113.8 310.0 160.7 88.1 50.3 -32.8 101.5 Fall of old product in old markets -44.9 -34.0 -174.6 -56.0 -8.5 -45.0 103.2 -3.4 Extinction of exports of existing products to existing markets -199.3 -84.6 -121.1 -19.9 -7.3 -97.8 56.5 -6.5 Intensive margin -138.3 -4.8 14.3 84.9 72.4 -92.5 126.9 91.6 Increase of new products in new markets 0.3 0.4 0.0 0.0 0.0 0.0 0.0 0.0 Increase of new products in old markets 14.6 9.1 3.0 0.6 7.7 30.8 -0.2 1.4 Increase of old products in new markets 223.4 95.3 82.7 14.5 19.9 161.6 -26.7 7.0 Extensive margin 238.3 104.8 85.7 15.1 27.6 192.5 -26.9 8.4 Source: WB staff computations. Data: BACI International trade database (Gaulier and Zignago, 2010). Note: excludes transport equipment (ships and vessels), HS2=86-89) for Liberia. LBR=Liberia, SLE=Sierra Leone, CIV=Cote d’Ivoire, GHA=Ghana, BFA=Burkina Faso, GMB=Gambia, NGA=Nigeria, MLI=Mali. 94 Liberia Country Economic Memorandum Appendix Appendix 4.3: Rapid assessment’s scoring methodology 1. Input Market Potential: • Available Production Supply: Evaluate the current agricultural production output and its sufficiency to meet demand. • Consistent Production Supply: Assess the reliability and stability of agricultural production over time, considering seasonal and annual variations. • Raw Material Inputs for Processing Importation Opportunity: Assess the opportunity to import additional raw agricultural commodities needed to drive value addition and processing. 2. Output Market Potential: • Consumption Trends: Analyze trends for processed agricultural products both domestically and internationally, identifying growth opportunities. • Market Growth Opportunities: Assess potential growth in national and international markets based on current trends and forecasts. • Market Competition: Evaluate the competitive landscape, comparing national products against imports and identifying competitive advantages or challenges. • Import Substitution Opportunity: Measure the potential to replace imports with domestically produced processed agricultural goods, enhancing self-sufficiency and reducing import dependency. 3. Processing and Value Addition: • Proven Concept for Value Addition: Identify successful models or pilot projects demonstrating the feasibility of adding value to targeted raw agricultural commodities. • Low Road Access and Infrastructure for Sourcing Raw Agricultural Commodities: Assess the accessibility of road infrastructure to source raw agricultural commodities needed for value addition and processing. • Low Land Intensity for Value Addition and Processing Centers: Assess the land requirements for value addition and processing centers, aiming for efficient land use. • Low Labor Intensity for Value Addition and Processing Centers: Evaluate the labor requirements for value addition and processing centers, aiming for efficiency. • Low Energy Intensity for Value Addition and Processing Centers: Evaluate energy requirements for value addition and processing centers, aiming for efficiency. • Likelihood of Success: Assess overall feasibility and potential for successful implementation. 4. Capacity and Resources: • Farmer Skill Suitability: Consider the match between required skills and existing local skill sets, at production level. • Technical Know-How and Technology: Evaluate availability and accessibility of technical expertise and required technologies. • Project Investment Capital Requirement: Evaluate initial capital investment relative to potential market returns and funding capacity. • Access to Finance: Evaluate availability of financial resources for initial investment and ongoing operations. 5. Socio-Economic Impact: • Contributes to National Food Security Goals: Assess alignment with and support for national food security objectives. • Job Creation and Livelihoods: Evaluate the potential for job creation at value addition level, including impacts on livelihoods and community development. • Inclusivity and Equity: Evaluate the impact on promoting gender equality, empowering women, engaging youth, and including marginalized groups. 6. Environmental Impact: • Environmentally Sustainable: Measure environmental sustainability, including practices to minimize negative impacts. • Forest Ecosystem Contribution and Protection: Assess the role in enhancing or safeguarding national forests, focusing on biodiversity enhancement, sustainable forestry, and forest protection. • Promotes Environmental Sustainability: Assess support for broader environmental protection and social well-being goals, including climate change mitigation and biodiversity enhancement. A Scoring System with a scale from 1 to 5 for each criterion was implemented, with 1 representing low alignment or potential and 5 representing high alignment or potential. Liberia Country Economic Memorandum 95