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Energy Security and Investment: Recipe for Economic Development in Liberia

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Developing economies are fast moving to achieve energy security as a recipe for economic development and sustainability. They have instituted reforms on energy policy and investment in green energy aimed towards cheap, available, and sustainable energies in consonance with the Paris-Agreementon climate change and environmental protection. Unlike Liberia, energy consumption is dominated by biomass with a share of more than 80% of the used primary energy sources with woody biomass being used for domestic cooking and heating.

In 2004, it was estimated that over 95% of the population depends on firewood and charcoal for cooking and heating needs and palm oil for lighting. The most recent Census (2008 data, published in 2009) shows that 70% of the urban population use charcoal for cooking and 5% of the rural population; 91% of the rural population use firewood for cooking and 21% of the urban population. In Monrovia, the percentage of households using charcoal is even higher, 85%. Around 2% of the population has access to clean fuels and technologies for cooking (World Bank, 2014).

These conditions are largely a consequence of the destruction of Liberia’s hydroelectric dam and the diminished capacity of the Liberia Electricity Corporation, which provided as much as 191 MW of power before the war.

Liberia’s low supply of electricity presents significant challenges to the attainment of economies of scale for firms and economic sectors. Scale economies are generally intense in the use of electricity. Firms in vegetable and agro-processing, for example, are not competitive in the absence of reliable and affordable electricity supply. This may partly explain why value-addition industries are currently stymied in Liberia and have created significant barriers to growth relative to revenue generation.

Aside from its cost implications, the electricity constraint may also be impacting economic diversification, which has been touted as a major strategy toward achieving inclusive growth. The International Finance Corporation’s (IFC’s) Liberia Sector Prioritization has noted that “processing will increase the value of primary exported commodity but Liberia has been unable to capture this opportunity”. The reality is that both the development of agro-processing value chains and the manufacturing of local consumables for the mining sector are heavily intense in electricity. These outcomes appear to be hindered by the lack of adequate electricity infrastructure, raising the opportunity costs of gains from multi-sector integration and dampening the potential for job creation and poverty alleviation (Liberia Constraints Analysis, 2013).

This means that significant sectors of the economy are affected by the ripple effect of energy insecurity despite the upgrading of the facility at Mount Coffee capacity of 88MW hydroelectric and 36MW Diesel facility on Bushrod Island, the condition remains a worrying challenge; deeply affecting domestic productions and the service industry. It is worth noting that multinationals consider primarily the host country’s infrastructure components especially the energy sector which guarantees investment portfolio.

This challenge could simply be attributed to insufficient transmission and distribution infrastructure, administrative weakness in the management of the electricity supply, energy regulatory policy, and the overdependence on hydro generation without seasonal water storage. These challenges have continued to cause uncertainty of electricity supply in Liberia thereby mounting persistent tensions- protests and roadblocks- on the streets of Monrovia and its environs in their stubborn quests for state authority to be deeply committed to the provision of stable, effective, and efficient electricity.

Energy security is to ensure that energy supplies are available, sufficient, affordable, and sustainable; conserving and raising energy efficiency; rationalizing pricing and taxation systems; improving energy sector governance; and diversifying energy supplies with continuous availability of energy in sufficient quantities, and at reasonable prices (World Bank, 2017). When fully diversified, this can potentially lead to the sustainability of energy supplies and onward economic development by creating the corridors for investment.

Energy security can ensure a great impact on big firms, increase the productivity of Small and medium enterprises and as well as improve service industries in Liberia. One major sector that relies squarely on energy consumption is the hospitality industry. Though it is regarded as a catalyst for economic growth by contributing to GDP growth through taxes and has a huge capacity for employment, the sector consumes much electricity. Access to cheap, stable, and affordable electricity can statistically influence revenue generation, employment opportunities, and the expansion of the economy. For example, Liberia’s industrial zones will depend on energy security for local production.

Investment Potentials in Liberia

There is an increasing requirement for energy security as a means of creating sustainable economic corridors in Liberia. At present, the largest growth sectors of the Liberian economy include financial institutions: commercial banking, investment banking, leasing, and insurance, and mining, real estate, agribusinesses, local manufacturing industries, and tourism and hospitality; telecommunication, amongst others play cardinal roles in ensuring the macroeconomic stability of Liberia.

Firms in the mining and manufacturing industries continue to incur losses due to reliance on private electric power for production and operation. This situation has significantly affected investment potentials in Liberia, where the government of Liberia for the past years has recorded minimum growth in the Gross domestic product as a result of losses in revenue generation. For example, committing energy support to multinational corporations like Arcelor Mittal, Golden veroleum, Firestone, Bea Mountain, and the service industry can deeply resuscitate the country’s struggling economy by increasing the potentials of the private sector.

A strong energy system serves as the basis for growing much of the domestically driven economy and also provides a bridge for foreign investors to enter the country and provide high growth margins in direct relationship to the industries that they serve. An effort to transition to a digital economy requires adequate investment in energy and to ensure the stable provision of electricity. Energy security is essential in driving Liberia’s macroeconomic framework by encouraging investment in manufacturing industries for local production and export strategy, boost the hospitality industry and tourism, and as well promote foreign direct investment; which similarly lays the foundation for industrial zones in Liberia.

Could Transco – CLSG Project Ease the Demand for Electricity Supply in Liberia?

It is no secret that the electricity demand is the top-notch priority in the Mano river regions specifically Liberia, Sierra Leone, and Guinea. Development practitioners argue that anything that is not tangibly sustainable is equally not developmental, which is the case of energy insecurity in these regions. As cardinal on ECOWAS’ agenda, the development of the West African Power Pool (WAPP) Master plan commits to addressing these daunting challenges.

Transco-CLSG, an ECOWAS regional supranational company is implementing and developing the Interconnection power line for the region. This project involves the construction of a 1,357-km-long double circuit high voltage (225 kV) line to connect the national networks of the four countries. As part of the project, a high voltage power line is being built to connect the four countries and increase the efficiency of the power supply for economic growth in the region. This project would potentially break the stubborn barriers to the accessibility of electricity as a result of perceived administrative ineptitude.

The project will help establish a dynamic electric power market in the West African sub-region and secure power supply for participating countries that have a comparative advantage in importing power rather than producing it at high costs using their national systems. The project, estimated at an overall cost of UA 331.51 million, net of taxes, is being implemented and soon to be commissioned. An estimated 24 million inhabitants are expected to have reliable electric power at a competitive cost and contribute to improving the welfare of the beneficiaries and lead to the development of social and income-generating activities. The project will raise the average electricity access rate in the four countries from 28% in 2012 to 33% by 2017 (ADB Group, 2013).

This can be easily translated that over 80% of Liberia’s population can potentially benefit from this multinational project, thus contributing to rural sector support programs for the locals. The Transco-CLSG project, when implemented, has the potential to contribute to Liberia’s economic recovery by expanding the investment potentials of multinationals that heavily rely on energy. Also, local industries will increase production capacity which can impact the domestic economy.

However, there are mingling doubts and insinuations that the current team of the Liberia Electricity Corporation (LEC) to effectively manage the distribution of electricity from CLSG’s substations to the end-users, referencing its inadequate and inefficient management of the sector. Best practice examples and conventional wisdom will somehow hold to the doubts frequently being expressed due to the latter. Painstakingly, the situation exacerbates as day follows night. Frequent protests and roadblocks in demand of power supply remain cumbersome.

Renewable Energy: A Potential Alternative

Renewable energies could play a role in future energy supply, in particular, wind power in curbing the systemic electricity problem in Liberia. Renewable Energies – wind, solar, or biomass, in particular – are an option that could contribute to reducing dependence on the 88MW, TRANSCO CLSG electrification project, and other smaller turbines in Liberia. Renewable energies can further reassure the confidence of the multinationals to direct their investments to the country without much reliance on electricity.

According to (IEA, 2015), as populations expand, living standards improve, and consumption rises, the total demand for energy is expected to increase by 21% by 2030. That means significant efforts should be directed to diversification backed by innovation. Evidence is drawn from Ethiopia as the first country in Africa to builda power plant that converts waste into energy which turns 1,400 tons of waste per day into energy.

At the same time, growing concerns over climate change are prompting governments worldwide to seek ways to supply energy while minimizing greenhouse gas emissions and other environmental impacts. They also strongly influence how effectively the energy sector underpins growth across the economies with natural gas combined cycle or coal power plants. As many economies continue to struggle to regain momentum, policymakers are increasingly interested in the potential benefits of renewable energy deployment on economic growth and job creation. Investment in renewable energies will not only respond to the demand for electricity in Liberia, but it will also ensure energy security and development, rise in the Gross domestic product, welfare, employment, trade balance (including trade in energy products, domestic production, and trade-in equipment).

Therefore, the article recommends that Liberia looks deeply into green energy as an alternative to electricity distribution in the country. To strengthen the country’s investment potentials, many efforts be exerted towards energy security as a way of widening the foreign direct investment. The 4th industrial revolution requires individuals, systems, and institutions to be innovative as a means of sustainability.

Opening the renewable energy sector to private firms will boost domestic revenue; promote agribusiness and other potential sectors of the economy. State authority should be deeply committed to creating conducive atmospheres and provide tax incentives as a means of encouraging private investment in the sector. While the management of CLSG power-project substations are outsourced to the private sector which ensures efficiency and effectiveness as it is done in many developing economies. These efforts are geared to ensuring adequate energy security as a driver to the sustained economic development of Liberia.

References:
Assets.mcc.gov. 2020. [online] Available at: https://assets.mcc.gov/content/uploads/2017/05/Liberia_CA_withCover.pdf [Accessed 16 September 2020].

Energypedia.info. 2020. Liberia Energy Situation – Energypedia.Info. [online] Available at: https://energypedia.info/wiki/Liberia_Energy_Situation [Accessed 16 September 2020].
www.africa2trust.com. 2020. Investment Opportunities – Liberia – Africa’s No. #1 Business & Tourism Portal. [online] Available at: https://www.africa2trust.com/InvestmentOpportunities/?l=1&c=13 [Accessed 16 September 2020].

Group, A., 2020. Multinational – Côte D’Ivoire-Liberia-Sierra Leone And Guinea Electricity Networks Interconnection Project (CLSG) – Appraisal Report. [online] Banqueafricaine de développement – Bâtiraujourd’hui, unemeilleureAfriquedemain. Available at: https://www.afdb.org/fr/documents/document/multinational-cote-divoire-liberia-sierra-leone-and-guinea-electricity-networks-interconnection-project-clsg-appraisal-report-34270 [Accessed 16 September 2020].

About the author: Amara Quardu Muhammad Kamara is currently pursuing double masters in Development Studies and Project Management at Mount Kenya University, Kenya, and the University of Kigali, Rwanda. He can be reached at amaraquardumohammed@gmail.com

By Amara Quardu Muhammad Kamara

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