West Africa: Red Tape and Risk Hinder Liberia’s Businesses-October 19, 2011

As the Liberian presidential elections head towards an imminent run-off between current leader Ellen Johnson Sirleaf and Winston Tubman, infrastructure development is weighing heavily on Sirleaf’s mind. In a recent interview with Kira Kay of PBS Newshour, Sirleaf said she spent her first term laying the basic groundwork for better infrastructure. A process that took longer than she anticipated, she admits.

Among the many infrastructure hurdles Liberia faces, ease of doing business is certainly one of them. This year the nation ranks 155 out of 183 countries in the World Bank’s Ease of Doing Business Rankings. That’s worse than the country’s rank in the two previous years.

“Lack of collateral is the biggest challenge,” says Dalberg associate Jason Wendle in a recent blog post for Venture Capital for Africa. “Banks see the SME market as attractive but they have difficulty assessing the risk and there are few assets in place needed to secure the investment.”

Post-conflict countries are viewed as risky environments for investment, which result in high interest rates and short payback periods. This is particularly a problem for agricultural-based companies, like Lu’s, which depend on seasons and long growth times. Cocoa’s gestation period takes four to five years.

Compounding the problems of accessing finance is a lack of specialized technicians, public support services and corruption. Todd Moss, director of the Emerging Africa Project, at the Center for Global Development can add to the list: no electricity grid, few roads, a generation of kids that didn’t go to school.