In a week adversely affected by renewed US equity market weakness, the two largest deals were from Peru and Indones… https://t.co/7FOIYbA0Rr
Liberian mining risks
Liberia's House of Representatives on 22 November voted in favour of a recommendation that mining company ArcelorMittal should reinstate all workers who were dismissed between 2015 and 2016 during a slump in the global iron ore market.
- Although widespread contract renegotiations are unlikely, there is a higher risk of arbitrary taxation for foreign companies as the Liberian government struggles to finance its pro-poor development agenda.
- Rising living costs and continuing depreciation of the Liberian dollar will likely trigger increasingly violent anti-government protests.
- Despite President Weah's anti-graft presidential campaign, instances of corruption are increasing under the new government.
The vote in Liberia's lower house of parliament against ArcelorMittal, which allegedly had contravened its contract, is the latest in a series of attempts by the government to squeeze the private sector amid a worsening economic climate. This has been evidenced by the introduction of new, indirect taxes and fees separate from companies' contracts, such as a forthcoming levy by the Environmental Protection Agency on chemicals for use in mining operations entering Liberia via the Freeport of Monrovia. Although ArcelorMittal is likely to be able to seek legal recourse over the House of Representatives' decision that the workers should be reinstated, it serves as an indicator of the government's increasingly hard-line attitude towards foreign companies.
In addition to this push to increase government revenue, instances of bribery and corruption are growing under the administration of President George Weah, who came to power in January 2018 and campaigned on a strong anti-graft ticket. A source within the private sector told IHS Markit that allegedly businesses have been receiving demands of up to USD50,000 from members of Weah's inner circle in order to secure a meeting with the president, as well as personal requests for cash from ministers written on official headed paper. On 23 November, the managing director of the National Housing Authority and four other senior employees were detained after a recording was leaked to the press appearing to implicate them soliciting bribes in the region of USD100,000 from a construction company. The independent Afrobarometer government perception survey, published in November, concluded that almost half of Liberians (47%) believe corruption has worsened in the past year.
The final withdrawal of the United Nations' peacekeeping mission in Liberia (UNMIL) in March 2018, following its gradual drawdown, has left a large hole for the services industry, leading to increased levels of unemployment in the absence of new foreign investment. This, combined with the progressive depreciation of the Liberian dollar against its US counterpart over the past two years, has led to increased economic hardship with the poorest members of society being worst hit. While initially the protest risk reduced following euphoria at Weah's election as president in December 2017, with his taking office on 22 January 2018, street protests in downtown Monrovia, the capital, have been increasing in response to issues such as power shortages as well as the alleged disappearance of two containers of freshly printed Liberian bank notes in September, and high student tuition fees that were later abolished. Fighting between political opponents, which was absent during the presidential election campaign, is also resurfacing. One person was reported killed and several injured on 17 November after fighting broke out when supporters of the ruling Coalition for Democratic Change (CDC) party interrupted a by-election rally by an opposition Unity Party member in Monrovia.
In early November, Turkish gold mining company MNG sustained significant damage to its site in Bong county after a vehicle belonging to a Chinese contractor was involved in a crash with a motorbike that killed several people. The incident prompted extensive looting of MNG property; police stationed at the site failed to overcome looters armed with machetes.
Outlook and implications
Contrary to early messaging by the new government, the Weah administration is becoming increasingly hostile to existing foreign companies, and significant tax breaks and exemptions to entice new investors to the country are unlikely. Foreign investors are likely to remain the target of a government desperately seeking cash to fund populist policies such as the abolition of university tuition fees. While contract renegotiations are unlikely, the government will probably use channels, such as the Department of Immigration, Ministry of Labour and Environmental Protection Agency, to seek additional revenues through the introduction of fees and tariffs that do not fall within the remit of existing contracts.
Although protests to date have been largely peaceful, the risk of violence is increasing in the six-month outlook as the economic situation remains volatile and living costs go up. A key indicator for an upsurge in protests would be if the government, which currently has a "pro-poor rice" scheme in place, is forced to substantially increase the cost of a 25-kg bag of basic-quality rice, currently subsidised at USD10 per bag. A further indicator would be a rise in transport costs due to fuel shortages since October, caused by petroleum retailers who reacted to the imposition of a ceiling price on fuel products, and attempts to retroactively collect a tax associated with the 2016 Road Fund Act. Violent protests would be likely in Monrovia and other key cities, including Ganta and Buchanan, with the potential to attract several thousand people. Police have responded appropriately to peaceful demonstrators to date, but larger-scale protests would place a strain on limited resources. In the absence of new foreign investors to plug the gap left by UNMIL, expectations will remain high for existing companies to provide employment and basic services. This increases the risk of protesters and looters armed with stones and incendiary devices targeting mining and agribusiness concession sites, triggered by events such as the road accident in Bong county where already disgruntled communities would feel further aggrieved.
Corinne Archer is a country risk analyst at IHS Markit
- Spanish regional elections
- Capital Markets Weekly: Peru and Indonesia lead limited issuance, US corporate issuance indicates adverse market trends
- Weekly Pricing Pulse: Another week of pain in commodity markets ends on a high
- Haiti corruption and protest risks
- Mexican mining draft law
- Ethiopia anti-corruption arrests
- Capital Markets Weekly: Russian Euro-denominated sale, bank secularization plans and financings prominent in quieter week
- Weekly Pricing Pulse: Oil suffers another rout
After declining for most of the week, markets rally as positive headlines flow from the G20 summit… https://t.co/EwZMIjXrrq
Haiti's opposition-promoted protests increase chances of government change over coming year; delays to legislative… https://t.co/r7mfBOqfkQ