STATEMENT

 BY

MONIE R. CAPTAN

INCOMING PRESIDENT, Liberia Chamber of Commerce

MAY 11, 2010

(SALUTATIONS)

I wish to begin firstly by expressing my sincere thanks to the members of the Liberia Chamber of Commerce for electing me to serve as their President for this year. I acknowledge that this is a serious responsibility at a critical period in Liberia’s economic recovery. I promise to live up to the challenge this responsibility confers upon me with the utmost of commitment. I also look forward to a close and constructive working relationship with the Government, the Labor Congress, local and international partners.

The Liberia Chamber of Commerce has evolved from an organization of business entities established for the promotion of commerce, data dissemination, advocacy, and arbitration, to that of an institution playing a capable partnership role in regard to such national issues as sustainable development, good governance, decent work, peace, security, HIV/AIDS, international investment, and economic policy reforms.  As a member of the National Tripartite Committee, representing employers, the LCC continues to play an integral role in drafting the Decent Work Bill, which is intended to bring about overdue and needed reforms in the Liberian Labor Law that would enhance the dignity of the working man and woman.  The LCC is host to the Africa Growth and Opportunity Act (AGOA) Resource Center, where the business community is provided information on how to benefit from export opportunities to the USA, a member of the National HIV/AIDS Commission, and participated in the hearings and consultations on the reform of the Revenue Code leading to a new revenue code. Recently, The LCC was selected as the institutional Host for the ACCESS program, which is under the International Trade Center, and geared towards business development for women entrepreneurs.

This evolution of the LCC, comes with a strengthened institutional capacity and support, devolving upon the LCC recognition both nationally and internationally as an important stakeholder in Liberia. This recognition places an important responsibility on the LCC, for which it must be ever mindful of and commited to in its national programs. One of my primary focus and goal will be to strengthen the institutional capacity of the LCC to make it an even more effective and relevant institution in the country in which the private sector will have a clear voice on national issues and contribute equally as a national stakeholder and responsible development partner.

One of the repeated themes coming from the many speeches of government officials is that the private sector is the engine of growth for our economy. I want to take this opportunity in the presence of the President of the Republic of Liberia, Her Excellency Mrs. Ellen Johnson Sirleaf, to speak on how this engine of economic growth can be strengthened to accelerate growth.

It is true that we speak of and seek investment, and in the process however, we overlook the need for “re-investment”. Re-investment comes from existing businesses investing some of their profit back into the economy thus expanding trade, employment, tax revenue, development, and confidence.  The last of these, confidence, remains the most wanting, and yet the critical percipitator for economic growth.

Confidence, for those of us in the business community, starts first with the perception that the Government understands and empathizes with the conditions of businesses which leads to the building of a working relationship with the common goal of overcoming obstacles to growth. That means, the Government must be approachable, accessible, and willing to be engaged.  However, and too often, not many Government officials are accessible, for whatever reason, justified or otherwise; but this is the impression that is given. This gap in communication has not helped confidence levels that respond to overall government receptiveness.

A second confidence issue which has prevailed from one administration to another is the precarious and uncertain status of foreign business owners who are afforded only a yearly residence permit and work permit, subject to renewal every year. The renewal is not the only issue, but also the insecurity posed by a possible denial or threat of denial, sheer harrassment, or arbitrary policies, especially when they have invested in the country and exposed themselves to such risks. There is a saying, “they want our money, but they don’t want us.”  This encourages repatriation of capital and not re-investment. Madam President, Your Government has the opportunity of correcting this imprudent policy of the past.

Some specific practices within some government agencies have led to cumbersome, tedious and frustrating procedures and sometimes unfair treatment of businesses. Some cases in point are: the continuous and repreated demand for the same records due to a total lack of proper record keeping, constant sending of various audit teams with no effort to consolidate the missions or review annual audits submitted (for example: one is confronted one day with an audit team for employees withholding, the other day for real estate, and another day for customs, and yet another for turnover tax), the unwillingness to sometimes allow deduction for losses carried forward, the lack of synchronization of procedures, and the placing of the burden of budgetary shorfalls on businesses through unreasonable tax assessments, excessive penalties and interests. All these practices have directly impacted on the confidence in some government agencies and at times has lent credence to the impressions of anti-business sentiments.   

Ease of trade is the best promotion of trade. Exhorbitant custom tariffs and clearing procedures have proven to be a major impediment to many businesses. The problem with the high tariffs is that they are not rationalized. Many goods required for the implementation of the poverty reduction strategy attract unusually high rates. Some areas worth mentioning are transportation, ICT, and building materials.  A few cases worth mentioning: nails cost 10 cents per kg plus 7% GST, plywood 20% plus 7% GST and another 20% excise tax, exercise books 45% plus 7% GST, other school books 50% plus 7% GST, condoms 9.5% (GST inclusive), powder soap 57% (GST inclusive). At the same time, custom tariffs for cigars are less than exercise books and children clothing.  Walking sticks and cigarette wrappers attract the same custom rate. Shoe polish is less than medicated soap. Some of these high tariffs were placed on goods as protective tariff for those that were manufactured in Liberia, such as plywood, soap, and exercise books. Since these industries closed down as a result of the war, the protective tariffs in the form of high excise taxes remain unchanged, while there exist no cheaper locally produced equivalent. That is why today, the total custom charges on plywood is as high as 47% and exercise books 52%. The effect of this situation is that only the lowest and cheapest quality of these products are imported to balance off the excessive charges.

Not only have the high tariffs led to high consumer prices and less purchasing power, but importers have had to also reduce their import volume due to the high tariffs and low demand occasioned by lower purchasing power. The net effect of this situation is a constriction of trade volume, lack of growth and job creation, reduced tax revenue, and a reduction in new enterprises.  Lower tariff rates, although imply a reduction in the tax rate, would actually lead to increased imports, which in volume would compensate for any revenue loss  and may even lead to a revenue increase, while at the same time facilitating the PRS.

A forth factor in stimulating growth is lower tax rates. We commend the Government for the farsightedness in reducing the corporate income tax from 35% to 25% in its Economic Stimulus Taxation Act of 2009, known as An Act Amending the Liberia Revenue Code of 2000. However, since the enactment of this legislation, it has never been published, implemented and no word has been heard of it. The public is left perplexed as to the Government’s commitment to its economic stimulus program. As you will recall, Madam President, you informed the Nation of the enactment of this legislation, which you described as “supportive” of your program, in your 2010 State of the Nation address to the National Legislature. Predicated upon these developments, business plans were adjusted to reflect the new tax regime, which today leaves the business community in a state of uncertainty and unpredictability.

The closure of bonded warehouses at a time when an economic stimulus package is needed is indeed a signal of highhandedness with regard to the treatment of the “engines of growth”. Bonded warehouses have provided relief from cash flow constraints and allowed a healthy import of goods into the country. The current closure of bonded warehouses has contributed to a reduction in the importation of goods, thus reducing supply which has led to price increases. Furthermore, bonded warehouses were used to facilitate the transhipment of goods to other Mano River Union countries. Since all goods leaving the port are levied custom fees, transhipment of goods through Liberia has come to a halt, providing new opportunities to our neighbours and losses to our business community. 

Borrowing, which has driven modern economies, is still parochial in Liberia. Lending rates are exhorbitant and the repayment periods short. This situation is even more critical for Small and Medium Enterprises, and the perennial question remains, where do you get the start up capital for business? The risk exposure for recollection is related to unfavorable and unrealistic lending terms.

Lastly, but not exhaustively is the weakness of the judicial system to settle matters in a fast and efficient manner. In most circumstances, businesses are not encouraged to seek legal redress due to the fact that it is time consuming, expensive, and frustrating. Therefore, the obligation of contracts is frought with uncertainty in business transactions as enforcement could prove very daunting. This is not encouraging for a good business environment.

Having enumerated these concerns Madam President, I would like to make some specific recommendations for your consideration:

1)    That key line ministers participate in a quarterly forum with the LCC to review and discuss the state of the business environment with the view of overcoming obstacles to growth. Those ministers/officials should include the Minister of Commerce, Minister of Finance, Minister of Justice, Minister of Planning, CBL Governor, NIC Chairman,  and a Representative of the Ministry of State.

2)    That the GOL resolve to review the annual renewal requirement for alien residence permit and work permit with the view of increasing the renewal period for foreign business owners, their spouses and children, spouses of Liberians, and those born in Liberia. This status would be subject to Government’s further qualification conditions and could be fashioned on the US residence permit, known as the Green Card.

3)    That the GOL continue to review and streamline its procedures, avoid passing the burden of its breaucratic ineffeciencies to the business community, and avoid selective implementation of the revenue code. The budget should reflect realistic revenue projections and avoid shifting the pressure on the SMEs to make up budgetary shortfalls that they are not responsible for.            

4)    That the GOL undertake a rationalization of its Custom tariff with the view of reducing the high cost of essential goods to the public, review outdated protective tariffs, and ensure that the rationalization process achieve convergence with national development objectives as stated in the PRS.

5)    That the GOL publish and implement the Act Amending the Liberia Revenue Code of 2000, or make public its current status to give certainty to the business community. Furthermore, it is recommended that the Government undertake a study of the aggregate tax burden on businesses with a view of establishing an aggregate tax threshold.

6)    That the GOL allow the re-opening of bonded warehouses, subject to whatever necessary requirements determined by the Government.

7)    That the GOL seek to establish a fund with the assistance of its international partners, for  the establishment of a loan guarantee fund that would be used to provide guarantee to lending institutions that are prepared to offer reasonable lending terms to credible and qualified SMEs. This will mitigate the usual concern of high risk exposure, allow favorable lending terms thus improving repayment performance.  

8)    That the GOL pursue the development of a new Commerical Code and Fast Track Court for Commercial cases.

Madam President, we at the Chamber of Commerce are prepared to do our part as good corporate citizens to create a sustainable development process in Liberia. At the institutional level, we will actively promote corporate social responsibility among all of our members. We believe that sustainable development must be driven by open trade and by a market economy system characterised by free competition. It is this free competition that guarantees economic growth, job creation and prosperity. 

Madam President, Your hardwork has paid off as the Nation stands with high expectation of the fast approaching HIPC completion point. We congratulate you for this achievement which has been recorded as one of the fastest HIPC completion. However, while HIPC will provide new funding opportunities for the Government, it must not underrate the need to develop the private sector into a sustainable engine of economic growth and development. The battle against poverty and underdevelopment will not be won soley by aid or concessionary loans, but by our domestic capacity to compete in a sustainable manner.  The engine of growth must roar with robustness as the Nation strives to take off, bringing a new dawn of economic growth and prosperity.  The time for action is at hand.

I close with a quotation from Thomas Gray, “Commerce challenges the fate and genius of nations.”

I THANK YOU.