Is the UN undermining Liberia’s private sector?

Probably not, but it could be dying from neglect.

During the countless meetings I’ve had these past two weeks, I’ve tried to figure out whether UN projects, and the NGOs they support, procure supplies and goods from Liberian businesses. Often the answer’s yes, but with a twist: most suppliers are Monrovia-based, and often of foreign origin.

From a UN perspective, this makes sense: they need reliable suppliers who provide quality goods and bulk discounts. Small and medium size Liberian firms have been pommeled for fourteen years, and just can’t deliver the goods, literally. Especially those outside the capital.

Besides, the free marketeer in me says, they ought to learn to compete with the big boys, because the UN won’t be here forever. We can’t have a coddled set of firms that die the moment the mission departs.

But local business, especially in the county capitals, could probably use a boost after so many years of punishment. They’re already getting one in the form of big investments in roads and power, and that’s good. But could the UN mission and NGOs–tens of thousands strong–not develop a strategy to do more?

A few small steps that would not be so hard:

  • Ask NGOs and UN field offices to develop a plan for procuring more locally-produced or supplied goods.
  • Help small and medium size firms bid on larger contracts, by allocating a percentage of big contracts to small firms, or to associations of small firms.
  • Allocate a percentage of UN and NGO contracts to locally-owned firms, especially outside the capital.

Best of all, each of these steps is slowly self-expiring, given the gradual UN draw down. So coddling comes to a gradual close, as the firms are helped to stand on their feet.

CGD’s Vijaya Ramachandran might disagree. In this article on African business, she sees roads and power as key. I agree, but would like to see us go a couple of small steps further.

4 thoughts on “Is the UN undermining Liberia’s private sector?

  1. most suppliers are Monrovia-based, and often of foreign origin.

    I’ll take a wild guess and say that this is primarily a euphemism for “Lebanese” – would that be the case? If so, then the question is a little more complex than a relatively simple issue of encouraging market development – there are clearly political questions to be answered before any economic measures are likely to take root.

    If it’s not a euphemism, then I’ll shut up and sit at the back for a while :D

  2. That would require increasing the UN’s budget. If the UN had the opportunity to increase its budget, might it not be more sensible to fund training/credit/other programs that help these local firms address whatever shortcomings make them unable to compete on the open market? If that wouldn’t be more sensible, is preferential treatment for these firms really going to make them better off after the UN leaves? Would a conditional cash transfer program, pension fund, training for former child soldiers, etc. be a better idea than preferential treatment for local businesses?

    It’s important to remember that something like what you’re advocating here amounts to telling Liberia that it should deliberately use its resources inefficiently. I happen to think that there are a lot of instances where that advice makes sense- after all, that’s what industrial policy is. But I think we need a good, well-reasoned justification before we can start saying that. The default position should be that Liberian businesses should stop producing things they don’t have a comparative advantage in. There has to be some good reason to believe that Liberian businesses are facing a capacity constraint that could be overcome with preferential treatment from the UN before we start allocating Liberian resources away from their most efficient use.

  3. @ben: You make a good point, but I think you’re assuming that foreign aid has a higher return that investing in a local private sector. I assumed the opposite of course.

    My reasoning is that a middle class and a thriving local private sector is essential to long term political stability, is an important counter balance to political power, and is crucial to the development of a local tax base (among other things). These things are priceless, in my eyes.

    Also, I think you’re focused on static comparative advantage. It’s an elegant theory, but all evidence suggest trade and growth work very differently (see work by Helpman, Grossman, and Krugman, for instance).

    My argument is motivated in part by dynamic comparative advantage, which suggests that a temporary advantage can lead to a sustainable advantage.

    Liberia supported traders in farm implements and food, and producers of a variety of products, before the war. They can support them in the future. The UN has an opportunity to make that happen 5 years from now rather than ten.

  4. But if we want to give a boost to the private sector (which I agree is a good idea for all the reasons you mention), we should think carefully about the best way to do that using whatever resources we have. Let’s find out what the contraints are that prevent them from competing and help them address those constraints, rather than just giving them a temporary subsidy and hoping that helps.

    Also, I don’t think dynamic comparative advantage implies that anyone can have a comparative advantage in anything they want. If there’s a good reason to believe that Liberia could have a future in these industries (and there may well be, I have no idea), by all means giving them a short-term boost is an appropriate use of industrial policy. But we need to think that through carefully before we start allocating scarce resources there.