LIBERIA: 2008 INVESTMENT CLIMATE STATEMENT

UNCLAS SECTION 01 OF 06 MONROVIA 000032

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS USTR
DEPARTMENT FOR EEB/IFD/OIA AND AF/W

E.O. 12598: N/A
TAGS: EINV EFIN ETRD ELAB KTBD OPIC USTR PGOV LI
SUBJECT: LIBERIA: 2008 INVESTMENT CLIMATE STATEMENT


1. SUMMARY: There is growing investor interest in Liberia,
particularly in agriculture, construction, the extractive industries
and tourism. UN sanctions on timber exports were lifted in 2006 and
on diamonds in early 2007 as Liberia became compliant with the
Kimberly Process. The removal of sanctions opens the way to renewed
investment activity in those sectors. Liberia debuted on the
International Finance Corporation (IFC) "Doing Business" ranking and
the Transparency International corruption index in 2007, and the
government is determined to improve Liberia's initial ratings by
focusing on short-term "quick wins" and longer-term legislative
changes, particularly of the Investment Code and the Revenue Code.
Liberia also joined the Multilateral Investment Guaranty Agency
(MIGA) in 2007. The National Investment Commission announced US$97
million in new investment in 2007, and total business registrations
in 2006 increased 63% from the previous year, with indications of
even greater growth in 2007.


2. Liberia is a recent post-conflict nation and is still recovering
from the ravages of 14 years of civil war. Much of Liberia's
infrastructure -- including roads, electrical grid, and
communication systems -- remains in ruins but progress, supported by
the substantial infusion of international development assistance,
continues. Facilities for foreign visitors are adequate in the
capital, Monrovia, but virtually non-existent in the rest of the
country. There is tremendous demand for jobs, with employment in
the formal economy estimated at about 15% of the available labor
force. Most labor is unskilled, and the illiteracy rate is
estimated to be between 60% and 85%. While there are no landline
phones, cell phone service is widely available and coverage is being
extended into rural areas. Although Internet access is available,
it remains relatively expensive, especially for high-speed
connections. It is likely that major foreign investments will be
expected to include support for schools, medical, and other social
services as part of any concession agreement.


3. There are two challenges the Liberian government must address as
it works to ensure equitable economic growth and reduce poverty. A
nationality-neutral investment policy will encourage the energy,
ideas, and capital that create jobs and provide lower prices and
higher value for consumers. Expanded investment in promising
sectors such as agriculture, forestry, mining, or tourism, and the
ability to provide affordable housing for more Liberians, depends on
rapid clarification of the tangled land tenure regimes. END
SUMMARY

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Openness to Foreign Investment
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4. The impact of years of violence and bad governance undermined
rule of law and created unchecked opportunities for corruption. The
government has benefited from the Governance and Economic Management
Assistance Program (GEMAP),which seeks to institute accountability,
responsibility, and transparency in the fiscal management of the
government and key state-owned enterprises. GEMAP has had a
positive effect in many areas that influence foreign investment
decisions such as mining and forestry policies, and transparency in
the procurement process.


5. Liberia debuted in 2007 at number 170 out of 178 countries on
the IFC's "Doing Business" ranking, spurring resolve to do better in

2008. The Liberia Better Business Forum, a public-private
initiative established in late 2007, is guiding proposals to improve
the business climate. The administration of President Sirleaf
created a cabinet-level working group to complete "quick wins,"
(administrative actions it can take) and to identify longer-term
reforms that will require legislative action. Steps have already
been taken to simplify the business registration process and there
are proposals for "one-stop-shops" to facilitate transactions such
as customs clearance and tax payments. However, the government
continues to wrestle with finding the balance between an open,
nationality-neutral investment climate and "empowering" domestic
businesses.


6. Seeking to empower Liberian businesses, the government in 1975
promulgated a "Liberianization Policy," an Act to amend the General
Business Law. The Act set aside 12 business activities exclusively
for Liberians. An amendment in 1998 increased the number of sectors
reserved for Liberians to 26. These businesses include:

-- Block making with cement, clay or like materials
-- Supply of sand, stone and granite
-- Operation of gas stations
-- Peddling
-- Ice cream manufacturing
-- Commercial printing
-- Travel agencies

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-- Advertising agencies
-- Graphics and commercial arts
-- Distribution in Liberia of locally manufactured products (this
provision shall not prevent manufacturers or producers from
transporting or otherwise distributing their products to Liberian
citizens or qualified persons for resale)
-- Cinemas
-- Production of poultry products
-- Importation or sale of second-hand or used clothing
-- Retail sale of rice
-- Ice making or sale of ice
-- Operation of water purification or bottling plant valued at less
than US$100,000 or the sale/distribution of water purified in
Liberia
-- Importation and sale of used cars
-- Tire repair
-- Auto repair shops with investments of less than US$50,000
-- Entertainment centers not connected with established hotels
-- Retail sale of animal and poultry food
-- Taxi and trucking
-- Shoe repair
-- Retail sale of timber and planks
-- Bakeries
-- Retail sale of pharmaceuticals


7. The Act is still in effect but has not been effective in
increasing Liberian participation in commercial industries, nor has
enforcement been consistent. The Liberianization Act mandates that
qualified Liberians be employed at all levels, including upper
management of foreign-owned companies. Some businesses owned by
non-Liberians operate in contravention of the law. Using the
Liberianization law, the Ministry of Labor has sometimes held up
work permits for expatriates and intervened in negotiations between
investors/management and their Liberian employees. The Liberian
Business Association, an umbrella organization established in 1975,
advocates strict implementation of the Liberianization policy. Some
other business groups are more open to the benefits of a
nationality-neutral investment policy.

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Conversion and Transfer Policies
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8. Both Liberian and U.S. dollars are legal tender. Most business
and government transactions (such as taxes) are conducted in U.S.
dollars; most street transactions are in Liberian ("Liberty")
dollars. The Investment Code allows the transfer of funds
associated with investments, including profits. There are no
restrictions on converting or transferring investment funds. ATMs
are unavailable and traveler's checks and credit/debit cards are
rarely accepted.


9. The Central Bank of Liberia regulates foreign exchange
transfers. Sums in excess of US$10,000 must be reported at the port
of entry and no more than US$7,500 in foreign currency banknotes can
be moved out of the country at one time. Larger sums must be
transferred via bank draft or other financial instruments; persons
without a Liberian bank account are limited to two outgoing US$5,000
over-the-counter cash wire transfers per month. (Regulation
Concerning Transfer of Foreign Currency, CBL/SD/16/2001,
http://www.cbl.org.lr/doc/others/otherreg2001 /
transferforeigncurrencynew.pdf )

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Expropriation and Compensation
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10. The Embassy is aware of one claim by a U.S. firm of
expropriation (looting) by LURD rebels who attacked Monrovia in
2003, before the current government was elected. The claimant has
not been in touch with the Embassy since 2004.

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Dispute Settlement
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11. Liberia's legal system is similar to the criminal and civil law
in the United States, but laws are not implemented consistently or
predictably. Investors cannot rely on the court system as a fair
arbiter of disputes. Judges and other judicial officers are poorly
paid, courthouses are in disrepair, and administrative support is
weak. Judgments can be purchased, and foreign firms tend to be at a
disadvantage. Due to the backlog of cases, it could be years before
a hearing takes place. The Sirleaf government is committed to
judicial reform, and there are plans underway to expand Alternative
Dispute Resolution mechanisms, but change will take time.


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Performance Requirements/Incentives
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12. The Investment Incentive Code of the Republic of Liberia (the
Code),adopted in 1966 and revised in 1973, prohibits
nationalization of private enterprises and aims to attract foreign
investment. The National Investment Commission of Liberia (NIC)
implements the Code. The Government is revising the Code, which has
been submitted for legislative deliberation in 2008. More details
are available on the NIC website:

http://www.libnic.net/incentive_code.pdf


13. Under the current Code, approved projects must ensure the
employment of Liberians at all levels and expand employment and
training activities as the enterprise grows. In addition, investors
must permit Liberians to purchase shares or otherwise participate in
the ownership of the enterprise, include a local value-added content
of not less than 25% of the value of gross output and utilize
Liberian origin raw materials and other supplies. An approved
investment should use imports only when local products are not
available in sufficient quantity and/or its quality or price is not
comparable to the intended import, as determined by the Government.
Investment incentives include exemption from customs duty and tax
exemption on profits re-invested in fixed assets, with exemption of
the remaining profits from 50% of the income tax that would be
otherwise payable. There is also provision for loss carry-over and
accelerated depreciation of fixed assets.

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Right to Private Ownership and Establishment
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14. Land ownership is restricted to Liberian citizens. Chapter
III, Article 22 of Liberia's Constitution states "Every person shall
have the right to own property alone as well as in association with
others, provided that only Liberian citizens shall have the right to
own real property within the Republic. Private property rights,
however, shall not extend to any mineral resources on or beneath any
land or to any lands under the seas and waterways of the Republic.
All mineral resources in and under the seas and other waterways
shall belong to the Republic. Non-citizen missionary, educational
and other benevolent institutions shall have the right to own
property, as long as that property is used for the purposes for
which acquired; property no longer so used shall escheat to the
Republic." The 2006 Forestry Reform Law states that natural forests
are owned by the Republic, with two exceptions (Chapter II, Section
2.1). Rights to land ownership and to use of resources such as
minerals and timber are likely to evolve in coming years.


15. Foreigners may establish businesses in areas not reserved for
Liberians. Many foreign businesses have entered into long-term
leases, but disputes over land ownership and squatters' rights
remain contentious, particularly for large concessions. The murder
in 2007 of the foreign manager of one of the largest rubber
plantations highlighted tensions over land use.

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Protection of Property Rights
--------------


16. The archive of many official records, including property deeds
and secured property interests, was looted during the war and
disputes over real estate ownership are difficult to adjudicate.
Conflicts between customary and statutory land tenure systems have
not been reconciled. The lack of adequate facilities and salaries
for judicial officers also degrades enforcement of property rights.
Judges sometimes decide cases in favor of the highest bidders. The
Ministry of Lands, Mines and Energy, which is in charge of survey
and validation of land claims, is planning to implement a mining and
land cadastre to account for land throughout the country.


17. Liberia is a member of the World Intellectual Property
Organization (WIPO) and a contracting party to international
conventions and treaties on the protection of intellectual and
industrial property rights, including the Berne, Paris, Madrid,
Lisbon, Vienna and Washington conventions. The Act adopting the New
Copyright Law of Liberia, approved in July 1997, provides the legal
and administrative framework for protection of intellectual and
industrial property rights. The Copyright Office (CRO) and
Industrial Property Office (IPO) manage these issues, but lack the
capacity to function effectively.


18. Holders of intellectual property rights have access to judicial
redress but enforcement is minimal. Infringement of intellectual
and industrial property rights is prevalent. Movies and music are

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duplicated. Counterfeit drugs, apparel, cosmetics, and computer
software and hardware are sold openly. Broadcasters do not tend to
pay royalties for use of protected material.

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Transparency of the Regulatory System
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19. The Liberian government is committed to improving Liberia's
ranking in the next "Doing Business" index by making regulations
transparent, accountable, and effective. One focus is completion of
a "one-stop shop" to facilitate imports and investment. The
government's implementation of GEMAP and agreement with policy
prescriptions advanced by the International Monetary Fund (IMF) are
showing results. New regulations are improving the transparency of
the government's Public Procurement and Concession Commission
(PPCC). Harmonization of the regulatory environment across
ministries and agencies with conflicting rules and regulations is
ongoing.

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Efficient Capital Markets and Portfolio Investment
-------------- --------------


20. The Liberian banking system provides basic banking services but
there is no effective capital market and portfolio investment.
Financial institutions are undercapitalized and unable to meet the
credit demands of the business community. Total assets of the five
commercial banks were approximately US$158 million in 2006. Banks
have reduced the proportion of non-performing loans since 2003, but
loan quality is still very poor.


21. The weak judicial system means financial institutions find it
difficult to recover bad loans through the courts. In addition,
there is no effective credit rating system, and many firms lack the
business records necessary for credit approval. The obstacles to
domestic travel and communication increase the risk in accepting
collateral outside Monrovia and the lack of reliable land title
hampers access to credit.


22. The United States has programs to support investment in small
and medium Liberian companies, some of which provide services, such
as lodging, communications, and construction, that improve the
overall investment climate. In 2007, the Overseas Private
Investment Corporation committed US$20 million to the Liberia
Enterprise Development Finance Corporation (LEDFC) to support small
and medium Liberian enterprises. LEDFC, which works closely with
the commercial banks, is the first non-bank financial institution
licensed by the Central Bank of Liberia. This program should
strengthen the financial sector and improve access to capital by
growing Liberian firms. The African Development Foundation had
invested US$1.5 million in Liberian small- and medium-sized
enterprises as of the end of 2007 and has about US$750,000 more in
the pipeline for the first half of 2008. These projects provide
jobs, technology transfer, and management training.

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Political Violence
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23. There has been no significant political violence since the
signing of the Accra Comprehensive Peace Accord in 2003 and the
deployment of 15,000 UN peacekeepers that remain dispersed
throughout Liberia. The former Armed Forces of Liberia (AFL) was
completely demobilized and with USG assistance a modern,
professional force is projected to reach full operational status by

2010. The Liberian National Police is also being restructured.
Increasing freedom and transparency has lead to vigorous pursuit of
perceived rights, which results in active, often acrimonious, but
non-violent political debate.

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Corruption
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24. The government is tackling corruption but it remains systemic.
In 2007, Transparency International rated Liberia 2.1 on the
Corruption Perception Index, tying it for 150th of 179 countries.


25. Since taking office, the Sirleaf administration has boosted
civil service salaries 150% and started paying salary arrears
incurred by past governments. There have been improvements in the
transparency of government procurement, and the 75% increase in
government revenue in Liberian FY2006-07 reflects progress in
corralling revenue leaks. However, the starting government salary
is still only US$55 per month and despite efforts at reform there
are still delays in paying government employees. The Sirleaf

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administration is wrestling with how to maintain civil service
parity while removing incentives to corruption in positions of
traditionally high rent-seeking potential. Although problems with
corruption have improved, travelers may encounter officials who
solicit bribes.

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OPIC and Other Investment Insurance Programs
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26. OPIC provides coverage for investors in Liberia. GSP
eligibility was restored in February 2006.

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Labor
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27. Labor legislation was revised in 2007, repealing a decree that
prohibited workers from striking and repealing section 1508 (3),
which permitted employees to be dismissed without cause. The
Liberian labor force is predominantly illiterate and unskilled, and
most Liberians lack basic computer skills. The literacy rate is
believed to be about 15% for those below age thirty-five. Many
skilled professionals have emigrated. The employment rate in the
formal sector is approximately 15%.


28. Employees enjoy freedom of association, they have the right to
establish, and become members of organizations of their own choosing
without previous authorization or coercion. In this regard, no
employer shall discriminate against an employee because of
membership in a labor organization. While labor laws and policies
themselves do not distort or impede investment, labor disputes are
subject to arbitrariness with Liberian employees favored in legal
disputes with foreign investors, regardless of the merits of the
case. Disputes between management and labor organizations at large,
established rubber plantations in 2007 resulted in strike actions,
several of them violent.


29. According to Liberian law, labor organizations and associations
have the right to draw up their constitutions and rules, to elect
their representatives in full freedom, to organize their
administration and activities, and to formulate their programs. The
labor law specifies that no industrial labor union or organization
shall exercise any privilege or function for agricultural workers
and no agricultural labor union or organization shall exercise any
privilege or function for industrial workers.

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Foreign Trade Zones/Free Ports
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30. In 1976, the government of Liberia created the Liberia
Industrial Free Zone Authority (LIFZA) to promote industrial and
corporate growth, but no FTZs are active now. Almost no
manufacturing is done in Liberia.

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Foreign Direct Investment Statistics
--------------


31. The National Investment Commission reported US$97 million in
new investment in 2007 and has set a target of US$100 million a year
for future years. Business registration data confirm the sharp
increase in investment activity. According to statistics from the
Bureau of Domestic Trade at the Ministry of Commerce, total
businesses registrations in 2006 (foreign and domestic) increased
63% over the previous year. There were 564 foreign business
registrations in 2006. Partial-year figures for January-September
2007 show 860 foreign firms registered in Liberia. (Note:
businesses must register annually. End note.) Although more
detailed statistics are still not readily available, more data are
being produced every year.


32. Recent investment has focused on construction, the extractive
industries, and agriculture, particularly rubber and oil palm.
Foreign firms have invested in the GSM cellular phone market, and
have also expressed interest in the privatization of the Liberia
Telecommunications Corporation. There is extensive replanting of
rubber trees and general rehabilitation and expansion of tree crop
plantations. Under the Kimberly Process, Liberia has resumed export
of diamonds. The lifting of UN timber sanctions in 2006 and signing
of the forestry chain-of-custody agreement in December 2007 opened
the way to export of timber products in 2008. There is increasing
interest in mining and oil exploration. In late 2007, Mittal Steel,
the world's largest steel company, announced it was increasing its
investment in Liberia by 50%, to US$1.5 billion.


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33. Firms interested in investment opportunities in Liberia should
contact the National Investment Commission (e-mail:
WEBMASTER@NIC.gov.lr)

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