Liberia | Frontier Markets

FT’s Kevin Brown echoes some of the points we made regarding crude palm oil and specifically the fundamentals underlying the case for a secular bull market ahead. That said, he writes, while margins are fat at the moment for producers like Siam Darby and Golden Agri-Resources–the world’s first and second biggest listed producers respectively–given spot prices, production costs may be set to soar in the coming years as an increasing lack of plantable land in both Malaysia and Indonesia is leading to another bout of African land and resource grab–“not suprising since the Asian industry got its start by importing plants from Africa back in the 1960s”–in which development costs will increase. Nevertheless expect Siam’s talks with Cameroon (a country that has explicitly made palm oil production and research an investment priority) to ultimately succeed, while Golden Agri, fresh off its Liberian-deal last fall, will likely continue expansion as [African] governments are “eager for export revenues and jobs for unemployed workers.” But how this all factors into equity risk premiums is another matter. Meanwhile, a piece today touches on the same, broad theme, as US buy-out giant Carlyle is set to launch a $750m Africa fund, though in fairness the group’s co-founder and managing director (and former Jimmy Carter-adviser) David Rubenstein has been an African-bull for some time now. “The majority of Americans don’t pay enough attention to Africa,” one source close to Carlyle said. “It has been China that has been the catalyst for economic activity in Africa.” Rubenstein, by the way, is still long-term positive on his firm’s MENA investments, including presumably last year’s foray into Saudi Arabia.

Liberia is the fastest-improving country in Africa, according to the second Ibrahim Index of African Governance–a comprehensive index of governance standards in the region–published last Monday in Addis Ababa by Mo Ibrahim, a Sudanese-born former telecommunications magnate turned philanthropist.

“Obscured by many of the headlines of the past few months, the real story coming out of Africa is that governance performance across a large majority of African countries is improving,” said Mr Ibrahim.

From the Financial Times:

Liberia, which was rated as recording the fastest gains, is emerging from the legacy of a 14-year civil war that ended in 2003. President Ellen Johnson-Sirleaf, who became Africa’s first female elected head of state in 2005, has won the support of donors for her plans to boost economic growth and fight corruption.

The World Bank and International Monetary Fund cleared Liberia to enter a global debt relief programme earlier this year. Donors have, however, been concerned that few high-level officials have been prosecuted for corruption. Mrs Johnson-Sirleaf set up an anti-corruption commission last month in response to calls for tougher action.

Stability in the country is growing more credible by the day. The number of UN peacekeepers in the nation is due to fall from 13,000 to just under 10,000 by the end of 2010, by which time security is gradually to be taken over by a revamped national police force and a new army, both being recruited and trained by an American firm, DynCorp, which is subsidized by the U.S. This furthers the two’s historical ties: Liberia was founded in 1847 by freed American slaves. Chinese and EU aid is also apparent. China helped to resurface the once-decrepit William Tubman Boulevard, Monrovia’s main artery and named after the country’s longest-serving president, and is reported to be taking on further, similar projects throughout the country. And some 180 foreign charities, mostly from Europe, are said to now to be active

Corruption, however, remains the chief hurdle. “Reports of funds embezzled and assets spirited away are still frequent,” notes The Economist, but that may change now that “journalists can report such issues without fear of being locked up or of newspaper offices being torched.”

Before the civil wars, Liberia relied on rubber and rice, mining, forestry and financial services, and GDP per head plummeted from $800 per year in 1980 to around $100 towards the end of the wars. Now, however, the economy is expected to grow by 10% next year, although fast-rising food prices bite into living standards, the primary reason why the president had to end import tariffs on rice, Liberia’s staple. The government has singled out both rubber and mining for “urgent regeneration”. Per The Economist, “Firestone, the company that owns the largest rubber plantation in the world just outside Monrovia, the capital, signed [this past summer] an innovative agreement with the government, agreeing to pay taxes and invest in better housing for its workers. Liberia’s government sees this as a model for other large-scale farming enterprises damaged in the war.” Moreover, “in 2006, ArcelorMittal, the world’s largest steel company, negotiated a deal with Liberia’s government to restart operations in a mine in Nimba County with a new investment of $1.5 billion. This, says the company, will create some 3,500 jobs. A better regulated forestry industry may, it is hoped, create some 40,000 jobs.” And the UN has dropped sanctions against Liberian timber and diamonds.

Tourism is also expected to grow in the coming years. Robert Johnson, the founder of Black Entertainment Television and America’s first black billionaire, is building “an up-market seaside resort just north of Monrovia,” due to open in 2009.