Infrastructure has contributed significantly to the growth of West African economies during the past decade. Improvements in ICT infrastructure, particularly, contributed around one percentage point to the improved growth performance of the region in the mid-2000s relative to the mid-1990s. At the same time, deficient power infrastructure held back West Africa’s growth performance by around 0.1 percentage points per capita. However, infrastructure could contribute even more in the future than it has in the past. If West Africa’s economies could upgrade their infrastructure to the level of middle income countries in Africa, per capita growth rates could be boosted by as much as five percentage points.
Liberia’s 14 year civil war left the country’s infrastructure destroyed, looted or degraded. The country’s 170 mega-watts power generation capacity and national grid was completely wiped out and household access in Monrovia fell to 0.1 percent. Piped water access slided from 15 percent of the population in 1986 to less than 3 percent according to the 2008 National Census. And the national road network was left in a complete state of disrepair.
Since the return of peace, there have been a number of positive developments. The Free Port of Monrovia has undertaken essential rehabilitation works, resumed normal operations and transferred to private management; in the process, reaching a level of performance that is at least as good as that of neighboring ports along the West African coast. Liberia has gone through a relatively successful mobile telephony liberalization process awarding several new licenses, and seeing its mobile penetration surge from less than 1 percent in 2003 to around 40 percent in 2009. At the same time, mobile telephone charges in Liberia are among the lowest in Africa, with the price of a standard monthly basket of services at around US$5 less than half the cost in neighboring (and similarly liberalized) Cote d’Ivoire.
Looking ahead, the country faces a number of critical infrastructure challenges.
Perhaps the starkest of these challenges lies in the power sector. The country’s installed power generation capacity is little more than 2 mega-watts per million population barely a tenth of the benchmark level for other low-income countries in Africa. While the cost of generating power at US$0.77 per kilowatt-hour is exceptionally high by any standards; and power tariffs of US$0.43 per kilowatt-hour are about three times the average level of US$0.14 per kilowatt-hour for Africa, which is already very high by global standards. Making investments in more cost-effective power generation options is therefore an important strategic objective for the country, without which further electrification will simply be unaffordable for the wider population.
While Liberia has made good progress in securing donor finance for road reconstruction, and important projects are underway. Nevertheless, existing capital spending is about half the level that would be required to complete the rehabilitation process within a five year period. While existing maintenance spending is about half what would be needed to secure the preservation of these new investments into the future. Many countries have addressed this problem through road user charges feeding into a road fund, and this approach is also being considered in Liberia.
If Liberia is to catch-up on infrastructure within the next decade, the country would need to Addressing Liberia’s infrastructure challenges will require sustained expenditure of between US$350-600 million per year. This is based on achieving an illustrative set of infrastructure targets, and considers only public infrastructure needs without taking into account the private infrastructure needs of the concessions associated with mineral, forestry and agriculture. A range is given because different technologies and standards can be used to meet these targets; with significant impact on costs. Power and transport have the largest weight in this overall price tag, each accounting for around one third of the total. This cost looks daunting relative to existing GDP of around US$868 million in 2009, but less so relative the country’s vast mineral and natural resource wealth.
In recent years, Liberia has been spending some US$90 million a year on infrastructure when all sources public and private, budget and off-budget are borne in mind. This is equivalent to some 10 percent of GDP a relatively high level of effort compared to other African countries, though still only about half of the approximately 20 percent of GDP that China has spent on infrastructure in recent years. About 80 percent of total infrastructure spending has been investment, and almost half has gone to the transport sector. ODA is by far the largest source of investment, followed by private investment; while public investment has been minimal. A further US$17 million has been lost to inefficiencies, mainly due to the absence of road user charges and under-pricing of power, and it should be possible to recapture at least part of these resources through careful policy choices.
Comparing spending needs against existing spending and potential efficiency gains leaves an annual funding gap of US$250 to US$500 million per year, most of it associated with power and transport. While the funding gap is very large relative to the economy, there are a number of options for making it more manageable.
The first observation is that this shortfall need not be entirely funded by the public sector. Liberia has already established a strong track record on Foreign Direct Investment, and has in recent years captured 2 percent of GDP as private investment for infrastructure (essentially all for the ICT sector). Although not all components of the required infrastructure platform are suitable for private finance (in particular not roads, water or sanitation), other components may be (for example, in ICT, power generation, and ports).
The second observation is that a number of large multi-national companies have taken on the country’s numerous mineral, forestry and agricultural concessions, and are themselves investing heavily in the necessary transport and energy platforms to support their operations. Liberia has a policy of ensuring that such investments are done in such a way as to benefit the broader national economy, and hence could potentially contribute to meeting the overall need.
Nevertheless, given the size of the funding gap, it will likely be necessary for Liberia to consider a period longer than a decade to reach the illustrative infrastructure targets here outlined. Under business as usual assumptions on spending and efficiency, it would take at least forty years for Liberia to reach these goals. However, with a combination of increased finance, improved efficiency, and cost-reducing innovations, it should be possible to catch-up in a much shorter period.
In the medium term, therefore, Liberia will need to make difficult decisions regarding the prioritization of infrastructure investments. For that reason, it will be important to have a clear understanding of how infrastructure contributes to the national development and poverty reduction strategies, to provide a clear and objective basis for prioritization. Recent work on the identification of key development corridors, for the country, could help to support such decisions. Where resources are limited, there is a danger in spreading infrastructure investments too thinly to make a real economic and social impact, and the need to think strategically about bundling and sequencing investments for maximum returns.