LIBERIA: INVESTMENT CLIMATE STATEMENT 2009

UNCLAS SECTION 01 OF 06 MONROVIA 000076

SENSITIVE
SIPDIS

STATE FOR EEB/IFD/OIA - J. NATHANIEL HATCHER
PLEASE PASS OPIC AND USTR

E.O. 12598: N/A
TAGS: EINV EFIN ETRD ELAB ECON PGOV OPIC USTR KTDB LI
SUBJECT: LIBERIA: INVESTMENT CLIMATE STATEMENT 2009

REF: STATE 123907


1. 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 improved
sharply in 2008. The National Investment Commission announced $132
million in new investment in 2008, and total business registrations
in 2008 increased 12% from the previous year. (Note: All currency
amounts are in U.S. dollars. End note.)


2. Five years of peace have helped Liberia recover from the ravages
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 a 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 three serious challenges the Liberian government must
address as it works to ensure equitable economic growth and reduce
poverty: land tenure disputes, corruption, and the related factor
of a dysfunctional judicial system. 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
and a significantly improved judicial system.

Openness to Foreign Investment
--------------


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. However, lack of training, inadequate
salaries and a culture of corruption have created a judicial system
that actively hampers investment.


5. Liberia improved by 13 ranks on the IFC's "Doing Business"
ranking in 2008, reaching number 150 out of 181 countries. The
Liberia Better Business Forum, a public-private initiative
established in late 2007, is guiding proposals to further improve
the business climate. However, the government continues to wrestle
with finding the balance between an open, nationality-neutral
investment climate that would encourage the energy, ideas, and
capital that create jobs and provide lower prices and higher value
for consumers, 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
-- 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

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-- 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 $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 $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 force 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 delayed work permits
for expatriates and intervened in negotiations between
investors/management and their Liberian employees.

Conversion and Transfer Policies
--------------


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 not connected to global electronic banking networks and
traveler's checks and credit/debit cards are rarely accepted.


9. The Central Bank of Liberia regulates foreign exchange transfers.
Transfer of sums in excess of $10,000 must be reported to the
Central Bank of Liberia, and no more than $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
$5,000 over-the-counter cash wire transfers per month.

Expropriation and Compensation
--------------


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.

Dispute Settlement
--------------


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. In 2008 an unreasonable court finding caused a major
foreign rubber company to cease operations, and frivolous suits have
been used to harass other investors. Due to the backlog of cases,
it can be years before a hearing takes place. The Sirleaf
government is committed to judicial reform, an there are plans
underway to expand Alternative Dispute Resolution mechanisms, but
reform will take time.

Performance Requirements/Incentives
--------------


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 Government is revising the Code, but 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

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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 may 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. The National Investment
Commission of Liberia (NIC) implements the Code, and more details
are available on the NIC website: http://www.nic.gov.lr/

Right to Private Ownership and Establishment
-------------- -


13. 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."


14. 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. Many foreign businesses have entered into long-term leases, but
disputes over land ownership and squatters' rights remain
contentious, particularly for large concessions. Violence based
on land disputes erupted in Nimba County in late 2008.

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


16. Conflicts between customary and statutory land tenure systems
have not been reconciled. The official archives, including property
deeds and secured property interests, were looted during the war and
disputes over real estate ownership are difficult to adjudicate.
The lack of adequate facilities and salaries for judicial officers
also degrades enforcement of property rights as 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 national mining cadastre
that could eventually incorporate land title registrations. There
have been cases of fraud by government-licenses land surveyors.


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, Lisbon,
Vienna and Washington conventions and the Madrid Agreement. 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 the Industrial Property Office (IPO) manage these issues,
but lack the capacity to function effectively.


18. As of January 10, 2008, all imports of intellectual property
must be so identified on the import permit (rather than being
identified as "general merchandise"). All businesses dealing in
intellectual property must reflect that on their business
registration form.
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
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.

Transparency of the Regulatory System
--------------


19. The Liberian government is committed to improving Liberia's
ranking in the next "Doing Business" index by making regulations
more transparent, accountable, and effective. One focus is
completion of "one-stop shops" to facilitate imports and investment.
The government's implementation of GEMAP and agreement with policy
prescriptions advanced by the International Monetary Fund (IMF) are

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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. However, regulators can still be arbitrary or
heavy-handed.

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


20. The Liberian banking system provides basic banking services but
there is no effective capital market or options for portfolio
investment. Financial institutions are undercapitalized and unable
to meet the credit demands of the business community. Total assets
of the six commercial banks were approximately $158 million in 2008.
Minimum capital requirements were raised to $6 million in 2008, and
will be further increased to $10 million in 2010. The minimum
capital adequacy ratio was increased from 8% to 10% in 2008. Banks
have continued to reduce the proportion of non-performing loans
since 2003, but loan quality remains low.


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, which improve the
overall investment climate. In 2007, the Overseas Private
Investment Corporation committed $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 has
invested $1.67 million in Liberian small and medium-sized
enterprises, including farmer cooperatives, as of the end of 2008
and has about $1 million in the pipeline for the first half of 2009.
These projects provide sustainable jobs, technology transfer,
financial and general management training

Political Violence
--------------


23. There has been no significant political violence since the
signing of the Accra Comprehensive Peace Agreement in 2003 and the
deployment of 15,000 UN peacekeepers throughout Liberia. The former
Armed Forces of Liberia (AFL) was completely demobilized and with
USG assistance a modern, professional force is being trained. By
the end of 2010, the AFL will reach initial operational capability,
but will still rely on international support. The Liberian National
Police is also being restructured and includes an Emergency Response
Unit (ERU),which has the ability to respond rapidly and to address
sudden tactical police emergencies. The UN troops are gradually
being withdrawn as Liberia's security forces gain in strength and
experience and now number under 12,000. Increasing freedom and
transparency for the Liberian people has lead to vigorous pursuit of
perceived rights, which results in active, often acrimonious, but
non-violent political debate. That said, access to land remains a
volatile issue that has led to violent disputes on the local level.

Corruption
--------------


24. The government is tackling corruption, but it remains systemic.
In 2008, Transparency International rated Liberia 138th of 179
countries on its corruption perception index, up from 150th place
the previous year. The Mo Ibrahim African governance index showed
Liberia as "most improved" in 2008, and in the 2008 World Bank
Worldwide Governance Indicator Liberia showed more improvement over
the past two years in "control of corruption" than any other country
in the world. Although corruption is being addressed, travelers may
encounter officials who solicit bribes (often euphemistically
referred to as "cold water" or "my Christmas").


25. There have been improvements in the transparency of government
procurement, and the 40% increase in government revenues in
FY2007-08, on top of the 75% increase FY2006-07, reflects progress
in corralling revenue leaks. Since taking office, the Sirleaf
administration has boosted civil service salaries over 150% and
started paying salary arrears incurred by past governments.

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However, the starting government salary is still only $70 per month
and despite efforts at reform there are still delays in paying
government employees. The Sirleaf administration is wrestling with
how to maintain civil service parity while removing incentives to
corruption in positions of traditionally high rent-seeking
potential.

OPIC and Other Investment Insurance Programs
--------------


26. OPIC provides coverage for investors in Liberia. GSP
eligibility was restored in February 2006.

Labor
--------------


27. 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. 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.


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.

Foreign Trade Zones/Free Ports
--------------


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.

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


31. Investment and commercial activity continue to increase. The
National Investment Commission reported $132 million in new
investment in 2008, a 36% increase over 2007 and exceeding the
target of $100 million. 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 2007 (foreign and domestic) increased
12% over the previous year, from 6,764 firms in 2006 to 7,569 firms
in 2007. Of total business registrations in 2007, 564 were foreign
firms. Partial-year figures for January-September 2008 show 860
foreign firms registered in Liberia. (Note: businesses must
register annually. End note.) Although more detailed statistics
are still not available, more data are being produced every year.


THOMAS-GREENFIELD



Drafter: ECON: LKAbbott/DCarey/ASheriff,
1/13/2008

Cleared: USAID: MHomer
P/E: SKoutsis
DCM: BARobinson

Approved: AMB


the extractive industries, and agriculture, particularly iron ore,
rubber and oil palm. Foreign firms have invested in the GSM
cellular phone market, and have also expressed interest in the

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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. There is increasing interest in mining and oil
exploration. Firms interested in investment opportunities in
Liberia should contact the National Investment Commission at
http://www.nic.gov.lr/.