"Manifesting Hope" Challenges & Opportunities

Africa oldest Republic has just gone through a “Smooth Political Transition”; Leadership of the country was passed on from Ellen Johnson Sirleaf (Mo Ibrahim Prize Winner) to George Manneh Weah (A Soccer Legend). But the challenges are insurmountable. Liberia has, in the last few years, undermined its development. Reflection is good, but forward thinking is more useful and vital. It is evident that an expanding economy does not automatically equate to poverty reduction (EY). We saw the inflated numbers on Liberia economic growth rate, from 2006 to 2011.

President Weah’s Administration must take a cue from the above. This reality has already manifested itself in the State of Nation address "Our economy is broken, our government is broke, our currency is in free fall, inflation is rising, unemployment is at an unprecedented high, and our foreign reserves are at an all-time low.”

Numbers crunch: According to the IMF, the Liberian government ran a fiscal deficit of US$155 million (7.4 percent of GDP) in FY2016/17. Technically, Liberia total debt for the 2017/2018 financial year is stock at USD 1.4 Billion (a whopping 63.6% of her GDP) comprising pre-HIPC (Heavily Indebted Poor Countries) debt of USD 868.88 million and post-HIPC debt of USD 532.25 million. Further breakdown, shows that USD 868.88 million is the total disbursement recorded as debt under the pre-HIPC program, and represents approximately 40% of Liberia current estimated GDP at USD 2.2 billion. While USD 532.25 million is the total loan ratified; it is money not yet received but approved for disbursement.

ALARM: of the total disbursed debt of USD 868.88 million, $602.2M is classified as “External” debt (Money due to outside creditors), and $266.7M is classified as “Domestic” debt (Money due to local creditors). The picture is alarming for two reasons; it shows that the Liberian Government is borrowing unsustainably. Secondly, it means that the Government ability to borrow will be significantly diminished thereby frustrating its efforts to finance major infrastructure projects.

The challenges further point to the following facts: Narrowed fiscal space, limited budget, unsustainable debt, Constraints placed by multilateral Development Institutions, Depreciating currency, Inadequate foreign exchange reserves, a burden on the exchange rate, inflation induced by 2017 elections capital flight, high unemployment; especially among young people, and Dependency on others (Mindset). Competitively, Liberia trails the rest of West Africa in the following economic activities: Manufacturing has stagnant since 1989, Fragility remains a challenge; exacerbated by the dropped in commodity (Iron ore, rubber, etc.) prices, and lingering capital immobility (Not much new money is flowing into Liberia).

Given the list of the above challenges, the question is what must be done differently to accelerate infrastructure development, and bring back online Liberia’s productive capacities? We must “STRATEGIZE, PRIORITIZE, & EXECUTE ASSERTIVELY”; by firstly Rebooting the Economy, secondly, Address the Plight of Youth, and thirdly, Accelerating Infrastructure Development.

According to the World Bank 2018 outlook on Liberia, the robustness of Liberia’s recovery will depend on the adequate diversification of the economy, development of strong institutions, and a smooth political transition. We have achieved the latter, and have done some work on developing transparent government institutions, notably the following: PFM Law, PPCC Act, LACC, IAA, FOI laws, and amended GAC Acts). The Weah administration will need to diversify the economy by accelerating infrastructure development, and implement the existing integrity frameworks substantively, not in “Form” as was done by the previous administration.

INFRASTRUCTURE DEVELOPMENT– There is a myth around the Corridor of Power that we can only fund infrastructure projects based on funding from the donor community. Additionally, others have suggested that because of the size of the Liberian economy, institutional investors will not be interested in financing Mega Projects across Liberia. These fallacies must be debunked now. Any project that is well packaged, structured and de-risked can be funded irrespective of location.

For many mega projects, such as hydro, seaports, airport, etc., the key is for the government to spend some money on developing feasibility studies, structuring the project financially, and hedging investors’ downside. By allocating the minimum .5% of the National budget on “Project Development” (Do not wait for technical assistance). Project development in this context has to do with packaging, structuring, and de-risking a project to attract external private funding or blended funding. In this regard, it has nothing to do with actual construction or implementation of the project.

The key is to bring in professionals to package and structure the project plan (Make business or economic case), and allow private sectors players to take a concession; where the Government would take a stake. Government focus must be on the provision of the services to be provided, employment creation, and tax revenue generation. Furthermore, ensure that Government takes 30% ownership of the concession; be it service or infrastructure. By packaging and structuring the project, and utilizing a hybrid concession model; the project would stand on its own, with no need for Sovereign Guaranty or debt.

For instance, we currently need a “NATIONAL GRID” (Power Plant, transformers, and the associated transmission lines for distribution of power). The project would be structured to attract private sector investment through a concession; where the government would own 30% (at no cost to the Government). In this example, we could combine the Grid and the development of additional 1,000 MW of power. The concessionaire will be allowed to charge between 10 – 12 US Cent (.10 -.12) per kWh for energy produced and distributed through the grid; where (US 1-2 cent per each kWh generated would go to the Grid developer) and 8-10 US cent (.08 - .09) would go to the investor or developer for the 1,000 MW.

This way, the concessionaires could assign the cash flows, plus the project assets to secure project funding. Of course, the concessionaires will have to deploy some of their cash to attract other institutional investors, or co-investors. The Electricity Authority and the National Power Company would offer prospective investor or developer a Power Purchase Agreement (PPA) from the Government of Liberia and the West African Power Pool (WAPP). The National Electricity Corporation will then tag on additional 5 US Cent (.05), and sell to the consuming public (Industrial tariff could differ).

MONETIZING OUR SEAPORTS; Liberia seaports must be seen and managed as strategic assets. Unfortunately, we have not been able to leverage these ports as strategic assets. Apart from the Freeport, we have Harper, Greenville, and Buchannan seaports. Our inability to link these seaports to major concessions we have executed has limited our ability to generate significant cash flows from them. Instead of just granting the right of passage to the concessionaires, such as Arcelor-Mittal with Buchanan port, we needed to secure an off-take agreement from the concessionaires. This way, we could then attract another investor, who could invest in their expansion along with the development of a Commercial Business District. The same business case applies to Greenville port with the Golden Valorem, & Putu Concessions, the Harper Port with the Decoris concession, and an opportunity to develop a seaport in the western region for the Sime Darby and the Western Cluster concessions.

WATER & SANITATION; not just a Social Service: It took the Ellen Government six years to obtain a “No Objection” approval from the AfDB for the rehabilitation of the White Plains Water plant. As the first Financial Advisor on that project, I observed that it cost the Ellen government significant political capital due to the waiting period. Before the 1990 crisis, White Plain was producing close to 20 million gallons of water per day for Monrovia and its environs at US 3 cents per gallon. Do the math; at .03 X 20 million gallons, you will generate $600K per day. Assuming wastage and leakage, at half that amount, you could generate close to $9M per month from just producing and distributing clean water. It makes a business case to have attracted private capital and investor to under-take this sector for investment. The current $40 million AfDB rehabilitation does not consider the replacement of damaged pipes around Monrovia and its environs. The case for private investment in this sector remains an attractive option.

FORESTRY & LOGGING, foreign exchange booster: The merchantable value of logging in Liberia for 30 years is estimated at approximately USD 100 Billion. This sector, to a significant extent has been abandoned due to disagreement or refusal to fully implement the recommendations from international watchdogs, such as Global Witness. It is now time to engage these folks sincerely and dialogue on those suggestions which can be realistically implemented so we can fully bring back sustainable online logging as a significant source of Foreign exchange. We can convert these agreed recommendations into policy instruments, and procedures that would be embedded in the working processes of FDA, Finance, LRA, and other ministries and agencies that are associated with the sector.

EXPANSION OF RIA (an economic integrator) into an Airport Hub: This is a realistic project and an attractive undertaking that would garner immediate interest from institutional investors. The issue is how we define our aviation market or sector. I do not see our aviation market as just Liberia. I view it within the prism of Mano River Union (MRU). Our business case for a hub should include the passenger numbers from all member countries of the MRU. Additionally, we should consider scenario related to attracting an airline that is willing to use RIA as its hub. It is feasible to establish a regional carrier through a JV to ferry passengers from other MRU countries to RIA to be airlifted by the major airline. This is a daring move, but it is possible. Additionally, the hub goes along with the development of an airport city and creates derived demands for hospitality, tourism (The need for Liberia Tourism Authority), and event management.

What do I mean by packaging, structuring, and de-risking mega projects for private sector investment: Packaging the project includes componentizing the project to crystalize and provide an understanding of each project component, Identify, analyze, and assess the project exposures (Risks), and detail how each element would interface and be executed (Will it be economically and socially feasible); Structuring the Project includes conducting the feasibility study/studies, EIA, ESG, completing the conceptual design (where necessary), Identifying, sourcing, and committing EPC contractors, “Operators” secure off-take agreement, and or get the private sector players involve where necessary; and De-risking the project includes Hedging investors’ downside, and providing coverage against “Default”, political risk, and currency mismatch where necessary.

BOND ISSUANCE & SOVEREIGN CREDIT RATING: This is an attractive option and the fastest means to raising funds for infrastructure development. Issuing bonds by the Government of Liberia appear to be a risky undertaking, given how porous our governance arrangements are. Couple with the high occurrence of corruption in our society. However, we can take solace in the fact that the Central Bank of Liberia (CBL) is doing an excellent job at handling the issuance and sale of “Treasury Bills”; of course the sale of the treasury bills are limited to bank financial institutions operating in Liberia.

For bonds issued by Liberia to be attractive to outside investors, the country must be assigned a “Sovereign Credit Rating” by one or all of the major credit rating agencies; such as Standard and Poors, Moody's, and Fitch. Bond issuance could be unique for roads (because they are difficult to monetize), like the “Coastal Highway” proposed by President Weah. However, we should stay away from the issuance of blanketed Bond that has no designated project, and where the proceeds are expected to be disbursed through the National budget (High exposure for severe corruption).

According to Investopedia, a sovereign credit rating is the credit rating of a country or sovereign entity (CBL, LEC, LAA, NPA, the Monrovia City Corporation, or a County). Sovereign credit ratings give investors insight into the level of risk associated with investing in a particular country, including its political risk. Accordingly, at the request of the country, a credit rating agency will evaluate the country's economic and political environment to determine a representative credit rating. Obtaining an excellent sovereign credit rating is usually essential for developing countries to access funding in international bond markets.

Another common reason for obtaining sovereign credit ratings, other than issuing bonds in external debt markets, is to attract foreign direct investment (FDI), and to give investors’ confidence in investing in a particular country. Therefore, a solid rating from one of these agencies can provide further transparency and demonstrate a country’s good standing. The requirements are steep, it costs money, and the process can be painstakingly difficult. However, with the right team of professionals, it can be made possible for Liberia (This is one of the secrets to Ivory Coast & Ghana fast development).

ASSERTIVE EXECUTION; to assertively and successfully execute the above opportunities, the President should establish an Economic Advisory Council, (Three Members only); Advisor for Economic Revitalization, Advisor on Concessions, and Advisor on Finance & Investment. The Advisor on Investment & Finance shall be responsible for strategically packaging, structuring, and attracting prospective investors for a “hybrid Public-Private Partnerships.” The objective is to monetize key services and infrastructure projects, such as Water & Sanitation, and Energy, reposition our Seaports to cash flow, expand RIA airport into a Hub, and encourage the development of cluster cities around both the airports and seaports. The Advisor on Concessions shall be responsible for reviewing existing concessions; iron ore, agriculture, ports, forestry, etc. There are currently few concessionaires that are not in compliance with the terms of their concession contracts. The aim is to garner their attention, renegotiate where necessary for a higher stake (30% minimum-Free Carry Interest) for the Government, and bring the idle concessions back online. The Advisor on Economic Revitalization shall be responsible for looking into the current treasury function at CBL, review the printing of the new currency, evaluate our current tax regime and its implementation by LRA, and identify opportunities for “Domestic Resource Mobilization.”

THE PLIGHT OF YOUTH – It is no secret that youth constitutes over 65% of our population. It is also no secret that unemployment among youth is severe, and opportunities are limited. For me, this is one of the President’s primary “Indicators.” Beyond more assertive policy instruments, President Weah Administration should institute the followings; establish a Philanthropy Fund for Youth & Sport within the Office of the President. It is not meant to usurp the Mandate of the Ministry of Youth & Sports. The strategy is to leverage the goodwill among well-wishers around the world; especially those in countries where he has played; UAE, England, France, Italy, etc.

For instance, we can set the annual amount at $10M; the Government of Liberia shall contribute 10% per annual. Out of this Fund, 70% shall be used to fund soccer, basketball, and track & field (Of course, football shall take a significant share of the 70% since it is where our strength lies). Furthermore, the salaries of National Team Coaches and the Technical Staff shall be payable from that Fund, allowing us to reconstitute the Senior National Team, and the rest of the teams (Under 21, 18, 14, & 12). There is also a need to constitute the National Youth Volunteer Corps: The other 30% of the Fund shall be allocated towards the National Youth Volunteer Corps. The Volunteer Corps shall employ about 1,000 high school graduates every year for six months. In the medium term, the government shall enact a scholarship guarantee scheme for higher education.

WORLD BANK & IMF PERSPECTIVE: From the perspective of the World Bank, “Medium-term growth prospects remain positive. Real GDP growth is projected to recover driven by improvements in agriculture and services, and to some extent mining (particularly gold production). Growth is estimated to reach an average of 3.6% by 2019”. But the World Bank points out that recovery will be underpinned by the potential benefits of improved infrastructure development, namely more access to road transport networks and cheaper sources of electricity.

For IMF, “Maintaining macroeconomic stability is critical. Emphasizing adherence to fiscal policy, and rules governing the release of contingent expenditure will be crucial to avoid unintended financing gaps, while protecting high-priority social spending”. This is the “Double Whammy” (The Balancing Act). IMF, on one hand, wants monetary policy stance to remain tight in the face of inflationary and exchange rate pressures. While on the other hand, they are cautioning the government to “Protect social spending”. This is only possible if 80% of our productive capacity is brought back online, and the government deploys innovative approaches to financing infrastructure projects (Off-Balance Sheet Financing). IMF is also insisting that recourse to external borrowing should remain restrained as the risk of debt distress is already elevated, and warned that new borrowing should be on concessional terms and, to the extent possible, replaced with enhanced utilization of already signed and ratified loans.

The incoming administration of President Weah must be wary of the Agenda for Transformation and the Vision 2030. The implementation modalities surrounding their implementation are very convoluted. There is a limited identification of the earmarked projects that would make the “Vision” a reality, and most importantly, the strategy on funding is blurred; with only a wish list of expenditures. Unfortunately, the donor community is relying on these documents to pitch funding request on behalf of Liberia. The World Bank is coordinating with all donors; including IMF and friendly nations when it comes to the Liberia Trust & Reconstruction Fund. Fatigue is setting in, and their defined priorities might not align with the Government priorities.

In conclusion; with impacting economic growth through infrastructure development, come opportunities. With opportunities, "Reconciliation" becomes achievable. “I have no doubt that despite the daunting challenges to be experienced as a “Nation in Distress” it is important for the government to define its role. The government must provide a supportive business environment that inspires confidence and trust, as well as opportunities for institutional investors to invest. The government should not be misled into believing that investment in infrastructure development can be achieved only through budgetary allocations, or only through direct borrowing, or by begging (Donors). Rumors are swirling around the corridors of the Mansion that a British Investment Consultant has advice the Government to deposit $150M so he can raise $10B. Be careful with “Quick Fixed Solutions.” It is near impossible to achieve such a feat; innovatively or otherwise in the absence of a credit rating profile on Liberia.

My optimism is that “Hope” ignites aspirations, and “Hope” can be manifested. However, the Weah Administration must quickly adopt a “National Agenda,” which we could all coalesce around and that would inspire Liberians to patriotism, self-discipline, hard-work, and nation-building. We are far, far behind when compare to most of our neighbors in the sub-region, but with assertive leadership, we can “Leapfrog.”