Economy of Liberia

The economy of Liberia is extremely underdeveloped, with only $3.222 billion by gross domestic product as of 2019, largely due to the First and Second Liberian Civil War. Liberia itself is one of the poorest and least developed countries in the world, according to the United Nations.<br>Liberia's economy was among the more developed and fastest-growing in Sub-Saharan Africa, but after the 1980 coup d'Ã©tat, it declined, and the civil war destroyed much of Liberia's economy and infrastructure, especially the infrastructure in and around the nation's capital, Monrovia. The war also caused a brain drain and the loss of capital, as the civil war involved overthrowing the Americo-Liberian minority that ruled the country.<br>Liberia is richly endowed with water, mineral resources, forests, and a climate favorable to agriculture, but poor in human capital, infrastructure, and stability. Liberia has a fairly typical profile for Sub-Saharan African economies. The majority of the population is reliant on subsistence agriculture, while exports are dominated by raw commodities such as rubber and iron ore. Local manufacturing, such as it exists, is mainly foreign-owned.

Top Sectors in Liberia

Forestry in Liberia

Timber and rubber are Liberia's main export items since the end of the war. Liberia earns more than $100 million and more than $70 million annually from timber and rubber exports, respectively.

Mining and resources in Liberia

Liberia has begun exploration for offshore oil; unproven oil reserves may be in excess of one billion barrels. The government divided its offshore waters into 17 blocks and began auctioning off exploration licenses for the blocks in 2004, with further auctions in 2007 and 2009. An additional 13 ultra-deep offshore blocks were demarcated in 2011 and planned for auction. Among the companies to have won licenses are Repsol YPF, Chevron Corporation, and Woodside Petroleum.

Communications in Liberia

Communications in Liberia encompass the press, radio, television, fixed and mobile telephones, and the Internet. There are six major newspapers in Liberia, and 45% of the population has mobile phone service. Additionally, there are over 70 radio stations throughout the country, with about 30 of them located in Montserrado County.<br>Even as it struggles with economic and political constraints, Liberia's media environment is expanding. The number of registered newspapers and radio stations, many of them community stations, is on the rise despite limited market potential. Politically critical content and investigative pieces are published or broadcast.

Energy in Liberia

Formal electricity services are solely provided by the state owned Liberia Electricity Corporation, which operates a small grid almost exclusively in the Greater Monrovia District. The vast majority of electric energy services is provided by small privately owned generators. At $0.54 per kWh, the electricity tariff in Liberia is among the highest in the world.

Liberia - Key Economic Indicators

Exports and Imports

Liberia's economy relies heavily on exports of natural resources. Major exports include rubber, iron ore, diamonds, and timber, with rubber and iron ore being the most significant contributors. In 2021, Liberia's exports were valued at approximately $500 million. Imports include fuel, foodstuffs, manufactured goods, machinery, and transport equipment, amounting to about $1.5 billion in the same year. The country relies heavily on imports to meet domestic demand due to limited local production.

Infrastructure

Liberia's infrastructure is underdeveloped, with significant needs for investment in roads, bridges, ports, and energy. The road network is expanding but remains insufficient, particularly in rural areas, limiting access and economic activities. Key projects are underway to improve major highways and rebuild infrastructure damaged during the civil wars. The government is also focusing on improving energy infrastructure to ensure reliable electricity supply.

Balance of Trade

Liberia consistently runs a trade deficit due to its reliance on imports. In 2021, the trade deficit was approximately $1 billion, with imports significantly outpacing exports. This imbalance highlights the need for diversification of the economy and increased local production to reduce dependency on imported goods.

Fiscal Policy

Liberia's fiscal policy aims to promote economic stability and growth while managing debt levels. Government spending focuses on infrastructure development, healthcare, education, and social services. Tax revenues are derived from income taxes, corporate taxes, and goods and services taxes. The government is working on broadening the tax base and improving tax collection efficiency to increase revenue.

Monetary Policy

The Central Bank of Liberia (CBL) oversees monetary policy with the primary goals of controlling inflation and stabilizing the national currency, the Liberian dollar (LRD). The CBL uses tools such as interest rate adjustments, reserve requirements, and foreign exchange interventions to manage liquidity and ensure financial stability. Inflation control remains a key challenge due to fluctuations in global commodity prices and domestic factors.

Trade Agreements

Liberia is a member of several regional and international trade organizations, including the Economic Community of West African States (ECOWAS) and the World Trade Organization (WTO). The country benefits from trade preferences under the African Growth and Opportunity Act (AGOA), which allows for duty-free exports to the United States. These agreements aim to facilitate trade, attract foreign investment, and integrate Liberia into the global economy.

Environmental Regulations

Liberia faces significant environmental challenges, including deforestation, mining impacts, and coastal erosion. Environmental regulations are in place to address these issues, focusing on sustainable resource management and conservation. The government collaborates with international partners to implement programs aimed at protecting biodiversity, managing natural resources sustainably, and mitigating climate change effects.

Tax System in Liberia

Capital Gains Tax: Liberia imposes a capital gains tax on the profits derived from the sale of assets, including investments in real estate and securities. The tax rate on capital gains is generally aligned with the ordinary income tax rates, which vary depending on the amount and nature of the gain. As of the latest updates, the rate is typically around 10-15%.
Corporate Tax Rate: The corporate tax rate in Liberia is set at 25% on taxable profits for resident companies. For non-resident companies, the tax rate is also 25% on income sourced within Liberia. The tax system aims to create a conducive environment for business while ensuring fair taxation.
Sales Tax: Liberia does not have a value-added tax (VAT) or goods and services tax (GST). Instead, the country levies a general sales tax of 7% on goods and services. This tax applies to most transactions, providing a significant source of revenue for the government.
Property Tax: Property taxes in Liberia are assessed on real estate properties, including land and buildings. The rates vary based on the location, size, and use of the property. Typically, property taxes range from 1% to 3% of the assessed value. These taxes are essential for funding local government services and infrastructure development.
Payroll Tax: Payroll taxes in Liberia are primarily used to fund social security programs, including pensions and healthcare. Employers are required to withhold a portion of employees' wages and contribute an additional amount. The combined rate for payroll taxes usually ranges from 10% to 15% of an employee's gross salary, with both the employer and employee sharing the cost.
Tax Deductions and Credits: Liberia's tax system includes various deductions and credits to reduce tax liability and incentivize certain activities. Common deductions include business expenses, charitable donations, and interest on loans. Credits may be available for investments in specific sectors, such as agriculture or renewable energy, as well as for employing local labor.
Tax Compliance: Tax compliance in Liberia has improved with efforts to modernize the tax administration system. The Liberia Revenue Authority (LRA) is responsible for tax collection and enforcement. The LRA has implemented electronic filing systems and taxpayer education programs to enhance compliance and reduce evasion. Despite these efforts, challenges remain in ensuring comprehensive compliance across the country.
Tax Burden: The overall tax burden in Liberia, which includes all taxes paid by individuals and businesses, is relatively moderate compared to global standards. The combination of corporate taxes, sales taxes, payroll taxes, and other levies contributes to the government's revenue. However, the tax burden can vary significantly among different sectors and income groups, influencing economic behavior and investment decisions.

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