2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2010
Report

There is growing investor interest in Liberia, particularly in
agriculture, construction, the extractive industries and tourism.
UN sanctions were lifted on timber exports in 2006 and on diamond
exports in early 2007. Liberia is now Kimberly Process compliant.
The removal of sanctions opened the door to investment activity in
those sectors. Liberia has demonstrated consistent annual progress
since its 2007 debut in both the International Finance Corporation
(IFC) "Doing Business" ranking and the Transparency International
corruption index. Liberia climbed 18 places in 2009 on the IFC's
survey to 149, and jumped from 138 to 97 on TI's corruption meter.
The National Investment Commission announced $100 million in new
investment during the first half of 2009. And the total number of
businesses registered reached nearly 7,500 in 2009, an increase of
5.5% over the previous year. (Note: All currency amounts are in
U.S. dollars.)

Seven 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.
Employment in the formal economy is estimated at only 16% of the
available labor force, while most other Liberians are self-employed
in the informal sector or contribute to a family business or farm.
Most labor is unskilled, and the illiteracy rate is estimated to be
45%. While there are no landline phones, cell phone service is
widely available and coverage is being extended into rural areas.
Although satellite Internet access is available, it remains
unreliable and relatively expensive, especially for high-speed
connections. Major foreign investors typically are expected to
include support for schools, clinics, and other social services as
part of any concession agreement.

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
-------------------------------

The impact of years of violence and bad governance undermined
rule of law and created unchecked opportunities for corruption. The
government benefited from the Governance and Economic Management
Assistance Program (GEMAP), which sought to institute
accountability, responsibility, and transparency in the fiscal
management of the government in key state-owned enterprises. GEMAP,
which concluded in 2009, has had a positive effect in many areas
that influence foreign investment decisions, including 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.

Liberia improved by 18 spots on the IFC's "Doing Business"
ranking in 2009, reaching number 149 out of 183 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.

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
-- 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

The Act is still in force but has not been effective in
increasing Liberian participation in commercial industries, nor has
enforcement been consistent. (Note: The draft revision to the
Investment Code opens 15 of the 26 reserved sectors to foreign
investment over a threshold of $500,000 and adds video clubs to the
list of sectors reserved only for Liberians. The National
Legislature is expected to pass this amended Investment Code when it
resumes in mid-January 2010.) 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 hiring
decisions.

To obtain a concession for new investments requires a lengthy,
multi-step process, but much progress has been made to ensure that
procedures and requirements are transparent to potential investors.
First, the concession entity prepares a request for Expression of
Interest and an invitation to bid, based on the National Competitive
Bidding regulations. The President appoints an Inter-ministerial
Concession Committee (IMCC), including the Ministers of Justice and
Finance and the Chairman of the National Investment Commission, to
handle the bidding process and award the contract. The IMCC selects
a technical team, including representatives of the contracting
agency, to handle the technical aspects of the bid. A technical
evaluation committee, also from within the IMCC, will evaluate the
bidders and award the contract. The President sends the contract to
the legislature to be ratified.

The following table indicates Liberia's ranking according to
various metrics of transparency and good governance in 2009:

Measure Index/Ranking

Transparency Int'l Corruption Index 97
Heritage Economic Freedom 48.1
World Bank Doing Business 149
MCC Government Effectiveness 26%
MCC Rule of Law 35%
MCC Control of Corruption 88%
MCC Fiscal Policy 74%
MCC Trade Policy 12%
MCC Regulatory Quality 18%
MCC Business Start Up 40%
MCC Land Rights Access 8%
MCC Natural Resource Management 37%

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

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.
However, the Central Bank of Liberia conducts a foreign exchange
auction only once per week, and its US dollar sales, which rarely
exceed USD 1,000,000 are often oversubscribed, so large investors
may find it takes more than one week to exchange large sums of
money. ATMs are not connected to global electronic banking networks
and traveler's checks and credit/debit cards are rarely accepted.

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
------------------------------

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. The Government of
Liberia hopes to burnish its image as a destination for foreign
investment, so appropriation of foreign assets by the current
government remains highly unlikely.

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

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, and there are plans
underway to expand Alternative Dispute Resolution mechanisms, but
reform will take time. The Ministry of Commerce, in collaboration
with the IFC-sponsored Liberia Better Business Forum, has initiated
programs aimed at commercial law reform. Liberia does not have
general bankruptcy law to protect creditors' rights. There is a
provision in the Central Bank's New Financial Institutions Act of
1999, which deals with voluntary and compulsory liquidation of
financial institutions.

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

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
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. However,
given Liberia's limited productive capacity following years of civil
conflict, requirements for Liberian employment and local raw
materials are not strictly enforced.

Investment incentives may include exemption from customs duty
and tax exemption on all profits re-invested in fixed assets and 50%
of the remaining profits. There is also provision for loss
carry-over and accelerated depreciation of fixed assets. Many large
foreign investors negotiate further tax incentives on an ad hoc
basis. 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
----------------------------------------------

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, and the
government has established a Land Commission to address questions of
land tenure.

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. There was no
reported land dispute in 2009 and the government established the
National Land Commission in August 2009.

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

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, has established an office for implementing a
national mining cadastre that could eventually incorporate land
title registrations. There have been cases of fraud by
government-licensed land surveyors.

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.

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. In 2009, the Liberia Copyright Office
recorded 89 businesses, including songwriters, movie producers, and
authors, holding intellectual property rights. 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
-------------------------------------

The Liberian government continues to improve Liberia's ranking
in the "Doing Business" index by making regulations more
transparent, accountable, and effective. For example, in 2009, the
government opened "one-stop shops" to streamline bureaucratic
procedures such as those for licenses and permits, with an eye to
facilitating 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):
http://ppcc.gov.lr . 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, and limited capacity means existing regulations are
not always enforced.

Proposed legislation is not formally published for public
comment, but the National Legislature has held some public hearings
on issues of widespread interest, such as the Investment Code.

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

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. While credit
is allocated on market terms to foreign and domestic investors
alike, the historically high rates of non-performing loans mean
banks grant only short-term (less than 18 months), high-interest
loans that constrain capital investment and limit new business
development. Total assets of the eight commercial banks were
approximately $279 million in 2009. Minimum capital requirements
were raised to $8 million in 2009, 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 and loan quality
is improving as banks expand their operations in the rural areas of
Liberia.

The Liberian market offers the private sector few credit
instruments. Liberia cannot issue debt instruments until it reaches
Completion Point under the Highly Indebted Poor Countries (HIPC)
Initiative, which is expected in 2010. Private companies also do
not issue debt, in part because there is no government benchmark,
and in part because there is a perceived lack of appetite for such
investment instruments.

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.

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 to support small and medium
enterprises. This program should strengthen the financial sector
and improve access to capital by growing Liberian firms. The United
States African Development Foundation (USADF) has invested $1.67
million in Liberia to stimulate job creation and improve income
levels by supporting cooperatives and enterprises, including farmer
cooperatives. USADF's portfolio in Liberia consisted of 10
investment projects in 2009. These projects provide sustainable
jobs, technology transfer, financial and general management
training.

Competition from State-Owned Enterprises
----------------------------------------

Liberia has approximately 15 state-owned enterprises,
parastatals and regulatory agencies. The history of SOEs in Liberia
is characterized by a high level of corruption, cronyism and
mismanagement. However, President Sirleaf's administration has
embarked upon a series of vigorous reforms since taking office in
2006. A number of SOEs, including some autonomous agencies, have
been granted minimal budget allocations that will ensure their
eventual dissolution. The GEMAP framework and other initiatives are
improving financial and operational performance at several SOEs,
notably the National Port Authority (NPA), Roberts International
Airport (RIA), the Forestry Development Authority (FDA) and the
Liberia Petroleum Refinery Corporation (LPRC).

The government plans a two-pronged restructuring strategy for
SOEs before 2012. Firstly, it intends to dissolve or privatize SOEs
that have become obsolete, unnecessary or appropriate for private
ownership. Secondly, there are ongoing plans to improve efficiency
and economic governance at those remaining SOEs.

Corporate Social Responsibility
-------------------------------

Foreign investors typically are expected to offer social
services to local communities where they operate as a gesture of
goodwill. Concession contracts often specifically outline what
services an investor is expected to provide, such as road building,
school construction or maintenance of health clinics. Even after a
concession is ratified by the legislature, some investors find that
communities expect them to negotiate separately with local leaders
for additional services, a process that can be cumbersome or lead to
delays.

A consortium of large foreign investors launched a Corporate
Responsibility Forum in Liberia in 2009. While the initiative is
still in the early stages, it provides information and resources to
foreign investors on how to follow generally accepted CSR principles
such as the OECD Guidelines for Multinational Enterprises.

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

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, which now number
8,500, are gradually being withdrawn as Liberia's security forces
gain in strength and experience. 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. Access to land remains a volatile
issue that has led to violent disputes on the local level.

Corruption
----------

The government is tackling corruption, but it remains systemic.
In 2009, Transparency International rated Liberia 97th of 180
countries on its corruption perception index, up from 138th place
the previous year. Among sub-Saharan African nations, Liberia
ranked 13th in 2009 compared to 30th in 2008. The 2009 Mo Ibrahim
African governance index showed Liberia as "most improved" in West
Africa since 2005, and the 2009 World Bank Worldwide Governance
Indicator cited Liberia for progress over the past two years in
"control of corruption," political stability and absence of
violence. Although corruption is being addressed, travelers may
encounter officials who solicit bribes (often euphemistically
referred to as "cold water" or "my Christmas").

There have been improvements in the transparency of government
procurement, and the 34.5% increase in government revenues in
FY2008-09, on top of the 47.7% increase in FY2007-08, reflects
progress in corralling revenue leaks. Since taking office, the
Sirleaf administration has boosted civil service salaries over 200%
and continued payments of salary arrears incurred by past
governments. However, the starting government salary is still only
$80 per month, and despite efforts at reform delays in paying
government employees persist. The Sirleaf administration faces the
dual pressure of controlling government expenditures while at the
same time providing civil service salaries that constitute a living
wage that will limit corruption.

Liberia is signatory to two important international instruments:
the UN Convention Against Corruption (UNCAC) and the African Union
Convention on Preventing and Combating Corruption (AUCPCC). In
2006, the government, along with Liberia's international partners,
designed the national anti-corruption strategy, which paved the way
for the establishment of the Liberia Anti-Corruption Commission
(LACC) in 2008.

Bilateral Investment Agreements
--------------------------------
Liberia has a few bilateral trade agreements, but some of the
agreements have remained inactive for years. The country does not
have a definite trade policy, which has prevented it from joining
regional and international trade organizations. Liberia attained
World Trade Organization observer status in 2007, but a transparent
trade regime has become a pre-requisite for full WTO membership.

In October 2009, the government began a series of
capacity-building programs, in collaboration with ECOWAS, to
formulate a trade policy that would qualify Liberia for WTO
membership. The draft Policy is currently being reviewed by a
Technical Committee, headed by the Ministry of Commerce and
Industry. In February 2007, Liberia signed the Trade and Investment
Framework Agreement (TIFA) with the United States to reduce trade
and investment barriers between the two countries. Liberia is
eligible for trade benefits under the African Growth and Opportunity
Act (AGOA), though the country did not make use of AGOA trade
preferences in 2009. Liberia has long-standing trade agreements
with the European Economic Community (EC), ECOWAS, and neighboring
Manor River Union (MRU) countries.

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

OPIC provides coverage for investors in Liberia. The U.S.
restored Liberia's eligibility for the Generalized Systems of
Preferences in February 2006.

The Liberian dollar is a fully-convertible currency and operates
on a free float with no predetermined path. It is therefore
unlikely that OPIC would ever be required to pay an inconvertibility
claim. However, there is some risk of currency depreciation in
2010, as Liberia lacks strong foreign exchange reserves and
continues to run a large current account deficit.

Labor
-----

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 16%.

Employees enjoy freedom of association, and 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. The Ministry of Labor
requires employers to demonstrate a goodwill effort to hire a
qualified Liberian before it will grant work visas to foreigners,
and some foreign investors find this process to be a lengthy one.

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. 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 Trade Zones
------------------------------

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
----------------------------------------

Investment and commercial activity continue to increase. The
National Investment Commission reported $100 million in new
investment by July 2009, achieving its 2009 target of $100 million
during the first half of the year. Business registration data
confirm the sharp increase in investment activity. According to
statistics from the Bureau of Domestic Trade at the Ministry of
Commerce, partial year figures of total businesses registrations as
of December 15, 2009 (foreign and domestic) increased 5.5% over the
previous year, from 7,056 firms in 2008 to 7,445 firms. The Ministry
registered 984 foreign owned businesses in 2009, about 15% increase
over the 2008 figure. (Note: businesses must register annually.)

Detailed investment statistics are not available. However,
according to International Financial Statistics, the stock of
foreign direct investment in Liberia from 2004 (when statistical
estimates resumed after the civil conflict) through 2009 is $641
million. According to an IMF estimate of $880 million for 2009 GDP,
FDI stock is 73% of GDP and 2009 FDI flows represent 11% of 2009
GDP. Liberia has limited, if any, foreign direct investment abroad.

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