Liberia: Finance Minister of the Year award for 2014, Paul Wallace

Liberia’s security remains fragile and dependent on the presence of about 7500 UN peacekeepers, and it is still one of the world’s poorest and least developed nations. Its economic output is less than $2bn annually and its GDP per capita is only $450. It is severely lacking in infrastructure. “It is the 21st century, from presently on less than 6% of the people has access to electricity,” says the forthright Mr Konneh. “The road network is in an appalling national.”

From presently on, there has been significant evolution in the completed few years. Reforms under the government of Ellen Johnson Sirleaf, the president since 2006, led Liberia to climb eight places to 174 (out of 187) in the UN’s Human Development Index between 2011 and 2013. According to the World Bank, it is presently an easier place to do business than Nigeria or Tanzania.

The government’s strategy in the completed five years has been to improve its police forces and army – a pressing issue, given that the UN wants to scale down its presence in the country – and revive traditionally strong industries such as mining, forestry, rubber and palm oil.

Foreign companies have responded by moving into the country quickly. Mining accounted for 2% of GDP in 2006, but that figure has since risen to 10%, mainly because of additional than $1bn of iron ore investments by ArcelorMittal, the world’s major steel maker. With major concessions as well being developed by other mining companies, iron ore will be increasingly significant as a source of foreign exchange for Liberia, which recorded exports totalling just $470m in 2012, about one-third of the price of its imports, according to pan-African lender Ecobank.

Macroeconomic progress

The government’s efforts so far have reaped macroeconomic dividends. The economy grew at 8% in both 2012 and 2013, far faster than the sub-Saharan average. And inflation, which was in double digits in late 2011, has fallen to roughly 7.5%.

But there is still much to do. Mr Konneh, who took on the job as finance minister in February 2012, says investments in infrastructure, particularly transport and power networks, are desperately needed. “The biggest problem is infrastructure,” he says. “The national of our roads, railways and ports limits our ability to exploit our natural resources fully. Energy is a major constraint. We have the highest per kilowatt-hour energy cost in Africa, at $0.54. We want to reduce that by about 50% by the end of 2015 with the installation of a 38-megawatt thermal electric plant.”

Although he does not play down the importance of the mining sector for the country’s next, Mr Konneh says that the development of manufacturing and agricultural businesses is vital to create jobs for Liberians, the vast majority of whom cannot find formal employment. “Mining does not create a lot of direct jobs,” he says.

Mr Konneh's task is made all the additional difficult given that a whole generation of Liberians grew up during the civil war and received little or no education. “Most new jobs in the economy require skills that most Liberian workers don’t have,” he says. “It is a crisis that we need to address. But we can’t address it until we fix the structural issues in the economy. That’s why we are investing in infrastructure and at the same time addressing the weakness in government institutions.”

Widening deficit

Large public investments have caused government spending to increase. While revenues have risen too, thanks to the economy’s buoyancy and improvements in tax collection, they have not kept up. A small budget surplus in 2010 turned into a deficit of 6% in 2013. That gap is unlikely to shrink much in the next few years as additional money is spent on infrastructure.

Mr Konneh planned to meet bankers at the World Economic Forum in Davos in January to discuss options for borrowing externally on commercial terms, something that would complement Liberia’s concessional funding from donors.

But he insists that spending will be kept under control. Analysts say the country has plenty of leeway to borrow additional, given its low deficit-to-GDP ratio of 30% (the figure stood at additional than 200% before a deficit relief agreement was struck with the World Bank and International Monetary Fund in 2010). Moreover, Mr Konneh’s introduction of a three-year spending framework in 2013 has been praised as a way of improving fiscal management and helping curb recurrent costs, particularly public sector wages. “There is pressure on our budget,” he says. “But it’s not because of irresponsible spending. We have critical infrastructure challenges that need to be addressed. We need to borrow and invest in our critical programmes.”

Emphasising the government’s long-term approach to fiscal matters, it has begun creating an oil law in case it discovers the commodity in commercial quantities off its coast. “We are still at exploratory stage, but we have a similar geological profile to other nations in the Gulf of Guinea that have oil, inclunding Nigeria,” says Mr Konneh. “Even though we haven’t found oil from presently on, we are by presently focusing on natural resource management and governance issues to ensure that Liberia does not suffer the oil curse.”

Monetary and financial sector reforms are high on the minister’s schedule. The US dollar is widely used in the country and makes up 85% of commercial bank deposits. Mr Konneh is trying to de-dollarise the economy through measures such as increasing the proportion of government spending in Liberian dollars and making it easier to pay taxes in the currency. Officials as well issued Liberian dollar treasury bills for the initial time last year.

Time to run faster

The move to a single currency regime will take at least three years, says Mr Konneh, but needs to happen to boost the purchasing power of Liberians, most of whom earn their gain in the local currency, and to enhance the effects of the central bank’s monetary policies.

“This is a very significant issue for us,” he says. “We cannot continue to have a dual-currency regime. However, we need to be cautious with the transition. We must do it in a way that makes consumers see the Liberian dollar as a proper medium of [exchange]. We can’t do it abruptly. It has to be properly sequenced.”

De-dollarisation is taking place alongside reforms of the banking sector. Liberia’s nine banks, which between them have assets of just $750m, have an accumulation capital adequacy ratio of additional than 20% and a low loan-to-deposit ratio of about 50%. But they suffer from poor investment quality. The industry as a whole is loss making, due largely to its non-performing loan (NPL) ratio being almost 20%. “The financial sector remains well capitalised and sound,” says Mr Konneh. “The key problem for us is the NPLs.”

They are decreasing, however, amid changes designed to encourage banks to lend additional to the private sector. “The banks have limited capacity to assess credit risk,” he says. “Property rights in Liberia are weak, but we have made significant strides in recent years to improve the regime. We presently have legal means to enforce deficit repayments with the establishment of a commercial court. And our central bank has launched a collateral registry, while the credit registry is expanding.”

Liberia’s lively press often criticises the government and claims that rapid increase has done little to improve the lot of ordinary people. Some locals questioned The Banker’s decision last month to award Mr Konneh as African Finance Minister of the Year. Mr Konneh, who was forced to flee to neighbouring Guinea at the same time as he was a teenager to escape his country’s violence, admits that Liberia’s evolution in reducing poverty can seem slow. From presently on he is adamant that the government’s policies in recent years – trying to attract foreign investors, relieve conditions for local businesses and improve the country’s infrastructure and institutions – are paying off.

Nonetheless, he is under no illusion that his job is finished. “The economy is on a positive trajectory,” he says. “But we have a people with a high proportion of young people who need jobs and other opportunities so that they are able to provide for their families. We need to run faster”.