The country’s overreliance on the extractive industry, which began more than 70 years ago, during the Open Door Policy of Liberia’s 18th President William V.S. Tubman and recently anchored as a major part of economic revitalization in the Poverty Reduction Strategy of the administration of Ellen Johnson Sirleaf has vastly eroded the importance of other industries, including agricultural production, tourism and manufacturing.
Liberia’s overreliance on the extractive industry has weakened the country’s economic architecture, made food imports superior to domestic production, limited skills training and transfers of technology and is undermining social cohesion.
As a matter of fact, mineral resource exploitation is not an economic panacea for Liberia, but it is an obstacle to sustainable development, a requirement in the post 2015 agenda. Over the past decade, although Liberia and most of Sub-Saharan Africa have experienced high economic growth rates and reduced poverty, yet high inequality and overreliance on the extractive industries has slowed the pace of socioeconomic development. Most Liberians live below the international poverty line of 1.25 US dollars a day compared to other Sub-Saharan African countries.
Economic growth in the extractive industry is inelastic, meaning it does not produce jobs and income in proportion to the size of the investment. For example, in 2013, the mining and panning industry grew by more than 40 percent, yet it produced only about 800 jobs, provided limited linkages to the economy, despite the fact that iron ore production is now the country’s largest export earner surpassing rubber. Iron ore exports grew from 22 million dollars in 2011 to 327 million dollars in 2013, representing 1,376 percent increase, yet it did not produce jobs in relation to its meteoric rise as the country’s largest export earner. The impact of mineral resource development cannot be adequately discussed in Liberia’s economic history without understanding the role of iron ore.
Iron ore was a significant economic activity in Liberia for most of the second half of the 20th century. From the late 1950’s until the start of the civil conflict, Liberia was one of the world’s leading producers of the mineral, at one time being the third largest after Australia and Brazil. Between 1970 and 1980, export earnings from the iron ore industry averaged US$300 million dollars annually. Overall, the mining industry was responsible for more than 40 percent of the country’s gross domestic product (GDP), 62% of foreign exchange earnings, and catapulted the country into near middle income status by the 1970s, characterized by what is mostly a paradox in modern economics, high growth and income, but without the concomitant socioeconomic development: growth without development.
Four companies operated iron ore mines in Liberia: Liberia Mining Company (LMC), the National Iron Ore Company (NIOC), Liberia American-Swedish Mining Company (LAMCO), and the Bong Mining Company (BMC). By the close of 1990, iron ore mining had been completely halted in Liberia due to the civil conflict, but also as a result of declining prices of iron ore due to decreased demand in the global economy. LMC closed down in 1977 as a consequence of the low quality of remaining reserves, having depleted most of the economically viable ore. From 1951 – 1977, LMC shipped US$540 million worth of iron ore whereas the Liberian Government received only 16 million dollars of income during the 27 years of mining operations. The company’s annual revenues exceeded the country’s total yearly budgeted expenditure well into the 60’s. In 1951, the year LMC started operations, similar uneven relationships existed between the state and other multinationals. For example, the post-tax profits of Firestone were three times the amount of revenues to the central government.
From the opening of the Port of Buchanan in 1963 up to 1989, iron ore exports from LAMCO were between 12 to 24 metric tons per annum (MPTA). LAMCO paid minimal incomes taxes due to several reasons, including transfer pricing, underreporting of revenues and overvaluing expenses.
Despite the inequality in the transactional relationships with the central government, yet iron ore mining companies provided employment, skills transfer and educational opportunities for some Liberians. Between 1981 and 1983, BMC and LAMCO contributed around 31.83 million US dollars in social services, such as health, education, housing, and other services to their employees. But despite these benefits, the nature of iron ore mining primarily conducted in economic enclaves did not cross fertilize other sectors, increase ancillary industries or provide significant wealth to a large number of individual Liberians.
Moreover, the massive growth in GDP, export earnings and revenues to the central government did not improve socioeconomic indicators across the broad spectrum of Liberian society. The asymmetrical gradations of income resulted in a small number of persons contributing to a disproportionate share of GDP, heightening income inequality and it pushed the country on a collision course, which resulted in 14 years of conflict.
The resurgence of mineral development in the country’s post-war efforts in economic revitalization has been fraught with serious challenges, including the convolution of the process to award mineral resources. As currently constituted, the process, to grant a Mineral Development Agreement (MDA) within the industry, does not provide a basis for Liberian equity participation and sometimes depart significantly from the Minerals and Mining Law of 2000, which is not entirely the fault of the Ministry of Lands, Mines and Energy (MLME). Extensive outside influence by international development partners has convoluted the process, disregarded the importance of active private Liberian equity participation, injected confusion and may, in fact, have done more to delay progress within the industry.
Over the past decade, the award and conclusion of mineral development agreements and exploration licenses resulted in major controversies - Western Cluster and Bong Mines - undermined the integrity of the process and significantly slowed developments in the industry. Beginning in 2003, with the end of the Liberian conflict and the coincidental rise in the demand for iron and steel products due to demand from India and China, Liberia’s iron ore has been pursued by established iron ore mining companies and venture capitalists.
That level of interest in iron ore production came immediately after 14 years of a devastating civil conflict that saw the breakdown of governance, institutions, rule of law and general dysfunction within the body polity. Consequently, in the rush to achieve rapid economic growth and development via iron ore development, the government did not make any systemic improvements or reforms to the mining regulatory regime. It did put in measures, clearly ineffective within the Public Procurement and Concessions Act to conduct competitive bidding for mineral resource development. Resultantly, the process to award exploration licenses and MDAs has unnecessarily resulted in missteps, miscalculations, and some lack of probity. Moreover, it has not included a system to provide maximum gains to citizens especially with the manifested lack of a framework to ensure that Liberians are provided opportunities to ride the growth curve of the industry through equity participation and commercial linkages to iron ore concessions.
The lack of a framework to accomplish the goal of equity participation by citizens and assurance of quality indigenous commercial links to concessions have been the missing ingredients in the resurgence of the iron ore industry in Liberia. If a framework is not developed to ensure that Liberians are involved at all levels of the industry from equity participants, meaningful employment and providers of goods and services in ancillary industries, growth in the industry will not accomplish the desired improvements in key social economic indicators.
Mineral resource exploitation has underperformed its potential in propelling economic growth and development and there must be a paradigm shift in the country’s development priorities. Agriculture and other sustainable economic activities such as tourism, manufacturing and services must be prioritized as they produce more jobs and income than the extractive industries in our current outdated model of economic development.
Finally, if the economic model of increasing output to show growth continues without processing or value added and with limited linkages to small and medium enterprises, mineral resource development will continue to be a curse.