A Message to the MRU Governments
Build Regionally, Innovate, Change and Sacrifice (BRICS)
A new economic reality is taking shape in many parts of Africa and the small bordering Manor River Union States of West Africa need to transform their own fragmented reality so that together they can influence events that are still unfolding on the continent. The economies of the Manor River Union States of Cote d’Ivoire, Liberia, Sierra Leone and Guinea (MRU) need to be integrated into a larger 40-million economically prosperous and competitive economy of scale. This requires coherent policy interventions. In the near term, this can only be accomplished by enabling a well-coordinated public-private-partnership-led conducive business climate that will lay a foundation for regional industrial development. To start with, we need bold and transformative policies derived from regional evidenced-based research. This can only come from policy makers and government advisors who are free-thinkers, anchored on timeless values and principles but savvy enough to take action to creatively replace obsolete methodologies, practices and traditions that belong to an era long gone. The values and practices that are collectively needed today are: Build-Regionally, Innovate, Change and Sacrifice.
The Need for a Paradigm Shift in Economic Policy Analysis among the MRU States
We have been told that excessive bureaucracy and a poor business environment have contributed to the MRU region being consistently ranked among the worst performers in the Ease of Doing Business Index, the African Economic Outlook and the African Competitive Report etc. published by the World Bank. Recently, Transparency International and others categorized the region as having the most corrupt states in the world. The narratives of these reports continue to totally miss the simple point of geography. Even after up to ten years from war we are consistently being told that we are fragile and post conflict. These reports for the most part focus on the experiences of the Bretton Woods foreign direct investment interests which have been made the only important barometer which preoccupy our policy makers. These reports are increasingly becoming self-reinforcing; talking-up the negative; defeating exactly what they were intended to achieve. They represent the annual and usual negative chorus that is consistently designed from a perspective that does not value regional investors, trade and integration. They examine each state separately. We must not just accept this! What these reports fail to realize is that no African state can reach their full economic potential by neglecting the states nearest their borders. The arbitrary and artificial political fragmentation of Africa into isolated and unviable economic entities can never succeed in tearing apart the natural synergy of economic endowments and inborn economic order between African states to its neighbors. No African state is an economic island that can choose its own neighbors or to ignore their neighbors’ economies. This is the case for the MRU States especially Liberia, Sierra Leone and Guinea as they are each comparatively small in population. Instead of focusing only on Foreign Direct Investments (FDI) from states thousands of miles away, we should now focus on Regional Direct Investment (RDI). This is why we need analysis and reports not just based on the priority of the traditional Foreign Direct Investment perspective but also from the Regional Direct Investment perspective. These reports must recognize the unfolding paradigm shift where Africa is moving from being just a mere commodity exporter going to develop other regions to a market-based regional industrial manufacturer that can consume finished products. How to harness and accelerate the buying power of the ever expanding regional middle class as a regional domestic source for regional industrial output should be the greater concern of our policy makers. This is the real challenge facing Africa’s policy makers and not what preoccupy the traditional Bretton Woods institutions.
Another reason why we should not accept such obsolete economic analysis offered by these reports is that, infrastructural projects are determined directly by parameters such as a country’s risk assessment which can either increase or reduce the cost of international finance. Whether or not large infrastructural projects are financed or the terms upon which they are financed are determined by what is contained in these Bretton Wood reports that conducts country and project risk assessments. If we just accept these Bretton Woods-based reports and accordingly are made to burden our economies and future generations with excessive interest rate payments, then either many well thought-out projects would remain beyond our reach or we will continue to give extraordinary concessions to multinational companies from these same Bretton Woods Countries. Each report has its own set of values or emphasis. Some investors like the Asians are prepared to acknowledge the corruption, inefficiencies and lack of transparency and work through them project by project from a long term perspective while others are waiting for these subjective values to reach a predetermined level before they invest. If our governments continue to only see themselves through the eyes of the Bretton Woods institutions, then we will forever remain stitched into categories like Third World, LDCs (Least-Developed Countries), Post Conflict States, Fragile States, etc.
Notwithstanding what our international partners have to say whether negative or hopeful, the most important lesson learned from the political crises and conflicts of the MRU neighborhood is that the most important investor to come to an African State is not from outside the region, whether OECD or Asia. Instead, the most important investor to ever come to an African state is from the States situated around its borders because such investments help to promote cross-border trade and enhance regional security. Therefore, we must invest in each other as a necessary priority. For example, if the Ivorian Government were to invest in South-Eastern Liberia and the Liberian Government were to invest in Western Ivory Coast, then both countries would have a permanent vested interest in discouraging conflicts across borders; ensuring social cohesion and dislodging any unconstitutional change of governments. Thus, regional strategic planning of regional cross border growth corridors is an imperative. Therefore, a new government-led cross border investment policy is needed among the four MRU States. This new policy must be built on mutual trust, cooperation and mutual sacrifice rather than mutual suspicion, force and coercion. We must move away from our individual national economic outlook approach to a regional economic outlook approach built on the values of mutual dependence, interwoven vested interests, shared political values, social cohesion and economic complementarity. This new policy direction is needed if the challenges to regional security and stability are not to overwhelm the current and future governments of the region.
Furthermore, the policy focus of the MRU integration agenda should be shifting northwards. Economic marginalization and shared security concerns at the northern borders of the region should compel cross border policy-makers to produce a Grand Northern Infrastructure Development project that will tie together the northern regions of the MRU to an unprecedented extent. The northern regions of each state form a frontier zone in which events and policies in neighboring states can sometimes exert more of an influence on the day-to-day lives of its residents than those emanating from the southern capital cities. Thus, the governments in Monrovia, Freetown, Conakry and Abidjan must look within the region to make cross border investments in the north as a matter of national and regional security. These investments should attract special concessional arrangements outside of the usual concession regimes due to their impact on fostering regional stability. Already the Ivorian-Liberian cross border power project and the Cote d’Ivoire, Liberia, Sierra Leone and Guinea (CLSG) projects under the West African Power Pool are infrastructure investments in the right direction. It is more of these projects and in other sectors that are needed to secure our shared future.
Therefore addressing the question of ‘ease or cost of doing business’ from the perspective of an OECD Foreign Direct Investor in isolation without measuring the more important regional cross border investment climate is superficial because it leaves the question of regional security, regional trade; local and economic transformation unmeasured. It is indisputable that a regional direct investor has a greater impact per capita on wealth creation; regional security and sustainable transformation than a faraway foreign direct investor whose investment, while important and even bigger in terms of investment capital, fails to provide the sustainable economic transformation that is so needed. Thus, we need reports that are tailored to examine the specific obstacles to regional direct investment and trade because they intrinsically transform the economy on a more sustainable and longer term basis.
Towards an Industrial MRU Economic Powerhouse
Industrialization is a pre-condition for rapid and sustainable development. The rich, developed nations are where they are today primarily as a consequence of industrialization. Though they pursued different models, they were all able to focus on the areas they enjoyed competitive strengths. That explains why countries like Japan and South Korea that are hardly endowed with minerals were able to emerge as global industrial giants. The lack of mineral resources in Japan was not an excuse for not industrializing. The MRU region is endowed with many primary commodities such as iron ore, oil, bauxite, cacao, rubber, gold, etc., and yet coordinated industrial development planning is not taking place among us. To move to the level of the industrialized countries, the MRU states should introduce the policy of Economic Complementarity.
At the heart of this regional industrial strategy should be the policy of economic complementarity. The region needs to develop an industrialization policy that contains elements of the region’s four fragmented national development agendas with a special focus on economic complementarity. This requires the development of a coordinated sub regional infrastructural investment strategy targeting wider and new large-scale industrial ventures with a regional market outlook and economies of scale. This strategy will outline the competitive advantages of each state and will focus on sectors that can regionally and internationally be competitive. For instance, Liberia is the region’s largest rubber latex exporter. Why would Sierra Leone, seek to duplicate and invest in rubber plantations instead of investing that money in value addition of this raw material that Liberia is already producing in abundance? What we need is a regional rubber industrial manufacturer of rubber-based products to supply the local and international markets. A coordinated regional tax policy to gradually reduce the import of second hand rubber-based products from Asian markets such as used tires should be on the regional agenda of tax policy makers. This requires policy coordination with a focus on regional economic planning and complementarity.
Furthermore, we need a transitional coordinated policy of import substitution as a way to stimulate local industrial production for the domestic and international markets. This policy is needed to protect local budding industries from cheap and low quality imports. This policy should also be combined with an export-based industrialization strategy geared towards securing foreign markets for local industries while beefing up the region’s foreign exchange reserves. Imagine a three state (Liberia, Sierra Leone and Guinea) special economic industrial zone created near the Manor River which would be developed to produce hydropower for the manufacturing companies located in that zone. Surely, this would transform the northern economies of these three states where there has been long economic isolation from the more prosperous coastal cities of Monrovia, Freetown and Conakry.
The region must carefully leverage the opportunities derived from having Ivory Coast as a member of the MRU States. The three smaller states (Liberia, Sierra Leone and Guinea) should consider the benefits of having Sub Saharan Africa’s second largest economy in GDP terms and identify those opportunities that can trigger regional industrial development. Ivory Coast has five states on its borders including Burkina Faso, Mali, Ghana, Liberia and Guinea. Its economy is also logistically integrated with other non-contiguous French-speaking States in West and Central Africa as well as with French speaking Europe. Furthermore, these logistical opportunities are buttressed by its growing trade with the 160-million Nigeria market. Thus, the smaller MRU States should strategically tap into Ivorian trade networks in order to gain access to the larger domestic and regional markets of ECOWAS and Central Africa for the goods they produce. This is an opportunity that both the public and private sectors of the region must be awaken to if the policy of strategic regional industrialization and economic complementarity are to take root in our relations.
We must take careful note of the countervailing factors mitigating against regional industrialization including language barriers, lack of ethnic cohesion, regional infrastructure deficit, and a large uneducated and unskilled labor force- all essential ingredients mitigating against achieving regional industrialization. To combat these factors, coherent and coordinated policy intervention is needed to make French and English mandatory in the educational curriculums of the region and to develop a regional youth employment and industrial development strategy. Furthermore, to strengthen the MRU’s competitiveness, we must have the courage to develop a regional vision and strategy. This vision and strategy must be communicated at every level of public interaction so as to change from a national to a regional entrepreneurial mindset and outlook. We must equip our labor force with practical skills relevant to an industrial economy. Thus, we need to invest more in technical learning institutions nationally linked to the doctrine of regional and economic complementarity.
A key area that has been neglected for long is the regional infrastructure deficit. First a regional strategic road, rail, communications and ports development and investment plan is necessary in order to bring these to the public and private sectors as a regional imperative. The region’s infrastructure policy makers need to work with the MRU Secretariat in Freetown to identify major projects such as highways, railways, a regional broadband cable, dry and sea ports, airports, pipelines, oil refineries and power generating plants and source funding for feasibility studies. This is long overdue. We must each sacrifice and commit at least ten percent of our annual national budgets for five consecutive years to a project-driven coordinated investment development plan that prioritizes regional infrastructure and economy of scale industrial development. For without a complimentary, sound, and sustainable industrial base, joining the league of Africa’s new renaissance states will remain but a distant mirage.
We further need to redevelop and reorient our financial sector so that these institutions are reengineered for development projects of a cross border nature. This will contribute to the rapid growth of new regional indigenous businesses. Currently, the local financial sector needs to be transformed and harnessed from mere deposit-taking institutions to fully active participants in the regional infrastructural agenda. Firstly, the Central Banks of the region need to send a clear and unambiguous policy signal to the private banking sector that they should invest and develop a MRU regional strategic outlook. Secondly, regulators need to foster an alliance between banks and telecommunication companies to enable open source mobile banking that will deliver seamless financial inclusion and a regional payment system for trade across the region. Thirdly, the region needs its own Development Finance Institutions to provide affordable, long-term financing to indigenous enterprises. The region is in desperate need of a MRU Development Bank comprising donor, public and private equity that can capitalize the identified regional infrastructure projects. For example the four States should jointly request the World Bank to establish a 4- billion dollar Global Infrastructure Facility as these states transition from what is termed post-conflict emergency status to transformational development status. The GIF would be set up with contributions from the four MRU States, the World Bank, Sovereign Wealth Funds and Pension Funds. The facility would benefit the SWFs and PFs as they would get higher returns by investing through GIF as compared to direct investment into projects. The move will also help to bridge the regions national current account gap, which is running very high in relation to GDP and putting pressure on the local currencies.
Furthermore, the region’s fiscal and monetary policy-makers should create and implement a policy to jointly promote long-term and low-cost funding for the infrastructure sector. In this regard, they can introduce Infrastructure Debt Funds (IDF) as a new category of financial intermediaries to finance such loans. Such investment vehicles can be sponsored by regional commercial banks and institutional investors including insurance and pension funds. These can invest through units and bonds issued by the IDFs which would essentially act as vehicles for financing new infrastructure companies, thereby creating fresh headroom for banks to lend to infrastructure projects.
Furthermore, each MRU State must focus on strengthening their legal and judicial systems to effectively safeguard property rights and remove all forms of tariff and non-tariff barriers that create obstacles to trade. Also, as a region, we could consider creating a special uniform legal framework for corporate regional entities that will facilitate and encourage cross border economic ventures within the region. Additionally, as members of the larger sub-regional body of ECOWAS, we must implement the ECOWAS Trade Liberalization Scheme (ETLS), especially along each other’s borders. The ETLS is a trade protocol that aims at opening the sub regional market to businesses in member countries through liberalized trade schemes. Although the protocols have been ratified by all the 15-member countries of ECOWAS, trade barriers, in the form of levies, import duties and physical blockades, are still rampant in the sub region, especially the contiguous borders of the MRU. In order to enforce the implementation of the ETLS in member countries, ECOWAS as a sub-regional body should require all member states to have a Minister of ECOWAS Integration. The role of this individual will be to enforce the observance and implementation of ECOWAS Protocol in his/her country.
Clearly, the biggest threat to regional security is not political insecurity but policy inertia on the part of the governments of the region to appreciate that the restless youth in the region need job security. These jobs can only be delivered when small States with their individual unviable market regionally integrate and implement a regional industrial policy based upon which the promise of a brighter future can be realized. We need to see a model of the MRU development vision and plan that will etch in our minds a new future where suspicion, conflict, barriers and borders are replaced by highways of peace and justice; greater freedoms to communicate, trade and to establish commercial enterprises; producing a new commonwealth market of prosperity where the DNA of its economy is restructured, transformed and driven from within. Our new and joint mantra is to Build-Regionally, Innovate, Change and Sacrifice.
By N. Michael M. Allison Esq.. founder and Managing Director of BRICS (MRU) Consultants, a regional legal and business advisory consultancy.
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