Liberia and Aid Dependency

During a recent visit to Washington, D.C., Liberian president Ellen Johnson Sirleaf told a crowd assembled at the Council on Foreign Relations that “Liberia should not need aid in 10 years […] we’ve got the resources … We’re going to go from dependency to self-sufficiency.” As Elizabeth Dickinson notes in her FP column, the Liberian government’s budget has steadily increased over the years, from a mere $80 million in 2005 to $350 million in 2010. To break its dependency on aid, Sirleaf explained, the country plans to attract increasing levels of foreign investment and private capital.

As I mentioned in a recent post, major natural resource companies are slated to invest in Liberia, including Chevron, BHP Billiton and Arcelor-Mittal, all of which are negotiating deals with the Liberian government. In her remarks at the Council on Foreign Relations, Sirleaf referred to China’s equally big appetite for natural resources “to keep their economy going.” She noted how flexible Chinese investments in Liberia were key to her country’s reconstruction and development, particularly when it comes to financing and building infrastructure.

Sirleaf’s commitment to strengthening her country’s political and economic foundations is clear, and her personal charisma and favorable reputation abroad have helped Liberia’s post-war reconstruction effort. Sirleaf has the ear of the World Bank and IMF, and is skilled at negotiating with UN agencies and foreign governments. Nevertheless, in spite of Sirleaf’s efforts to rebuild her country since the end of the war, Liberia remains a long ways away from being independent from foreign aid.

The Financial Times just launched a series examining “whether Africa is finally turning the corner.” In the first installment, the paper published an interesting interactive graph that compares African countries’ foreign aid support as a percentage of government spending, from 1980 to 2008. In 2008, foreign aid to Liberia represented 771% of government spending, up from 652% in 2007, 369% in 2006 and 218% in 2005. The second highest ratio – 221% – goes to Guinea-Bissau.


Considering these figures, Sirleaf’s hopes for independence from foreign aid within 10 years seem overly optimistic. Spending by the UN peacekeeping operation in Liberia, UNMIL, is likely included in FT’s calculation of total aid, which may inflate the numbers. Still, by contrast, foreign aid as a percentage of government spending in the Democratic Republic of Congo – which has the world’s largest peacekeeping force – was 126% in 2008, a far cry from Liberia’s 771%.

The Heritage Foundation, which releases an annual Index on Economic Freedom, downgraded Liberia in 2010, ranking it 40th out of 46 countries in sub-Saharan Africa. The report cited concerns over the country’s “burdensome bureaucratic red tape” and “negative investment climate.” As Liberia continues in its struggle to bring real social and economic change to its people, the country has also been working to clear the $4.9 billion debt burden it inherited from decades of poor governance – which the IMF has been aiming to waive since 2007 under the Heavily Indebted Poor Countries initiative.

Ellen Johnson Sirleaf’s goal of increasing foreign investments and freeing Liberia from foreign aid within the next 10 years is laudable. But it is also worth noting that foreign direct investment (FDI) is not a panacea, particularly in fragile, post-conflict states. As a 2008 policy brief entitled “Post-Conflict Countries and Foreign Investment” by scholars at the United Nations University notes:

“If FDI is left to its own devices, it is unlikely to generate growth, lead to meaningful technology transfer or create the internal links necessary for development. Any potential contribution by FDI to economic growth of the host country depends upon creating links with the local economy […] Encouraging a form of FDI that benefits post-conflict countries relies upon prioritizing quality of investment, rather than focusing purely on the size of investment flows. FDI can only be justified if it is high value and makes a real contribution to the host economy, in terms of job-creation and spill-over of knowledge or technology.”

Liberian political and business leaders will have to work hard to ensure that foreign investment in their country can generate positive returns for the country’s 3.5 million people. Until then, Liberia’s reliance on a combination of foreign aid and “roads-for-resources” deals with China and natural resource companies threaten Sirleaf’s vision of true independence.