My colleagues at BMI inform me that Liberia is ‘one to watch’ in Sub-Saharan Africa. It has bright economic prospects, thanks to sound macroeconomic policy, burgeoning investment in the mining sector and forthcoming debt relief.
The Liberian economy demonstrated resilience amid the global recession, boding well for its future prospects. BMI estimates that real GDP growth came in at a respectable 4.7% in 2009, making Liberia a regional outperformer; average growth in Sub-Saharan Africa stood at an estimated 2.2%. While many nations saw foreign investors withdraw from operations amid plummeting commodity prices and hence reduced returns, the major players in Liberia stayed put, albeit scaling back their investment plans. This bears testament to the attractiveness of the market: not only does it benefit from plentiful natural resources, but the political environment is broadly stable.
(Chart below shows real GDP growth, %. Source: IMF, BMI forecasts)
China’s interests in Liberia are not limited to the mining sector. In April 2010, China’s Deputy Minister of Commerce led a delegation of Chinese officials in a four-day official visit to Liberia, with the objective of promoting bilateral trade and economic cooperation between the two nations. This is in line with a broad trend across Sub-Saharan Africa wherein fast-growing emerging market giants - not just China but also India and Brazil, for example - are building links with African countries in a bid to secure supplies of natural resources. In this regard, Liberia offers diamonds, coffee, cocoa, rubber and timber, in addition to the aforementioned metals.
The natural resources provide the initial draw for investors, but the authorities are also working hard to improve the business environment in order to attract interest from abroad. Indeed, Liberia was among the top ten reformers globally in the World Bank’s 2010 Doing Business survey. At present, Liberia is ranked 149th globally of 183 nations - and 23rd out of 46 Sub-Saharan African nations - by the World Bank in terms of its business environment. It is relatively easy to start a business and trade across borders; registering property and enforcing contracts are more difficult to achieve.
While the ongoing foreign investment is clearly conducive to real GDP growth, Liberia’s economy is also benefiting from sound macroeconomic policy. As the International Monetary Fund (IMF) noted in a press release on April 19, 2010, ‘performance under the Fund supported economic program has been strong… fiscal and monetary objectives through end-December 2009 have been achieved’. Importantly, the nation is approaching completion point under the Heavily Indebted Poor Countries (HIPC) initiative - if this is reached, it will entail a lightening of the debt load which has been weighing on the fiscal coffers. Outstanding public sector external debt equated to a massive 473% of GDP in 2008, according to IMF estimates. Recent developments bode well for Liberia reaching HIPC completion point. In addition to the aforementioned achievement of macroeconomic objectives, the Liberian authorities have cut foreign debt to US$1.7bn in August 2009 through a US$1.2bn buyback of outstanding government arrears.