LOYOLA UNIVERSITY CHICAGO

ROME, ITALY

The Flipside of Foreign Direct Investment in Liberia:

A critical Analysis of the Past and Present with Perspectives for the Future

Submitted to: Prof. Thomas F. McInerny in partial fulfillment of the course (PLAW
102/History, Theory & Practice of Rule of law) for the Masters of Law (LLM) Degree in Rule of
Law for Development with virtual concentration in Investment and Intellectual Property Laws

Mark M.M.Marvey (Esq.)

PLAW 102

ACRONYMS AND ABBREVIATIONS

AML

Arcelor Mittal (AML)

BIT

Bilateral Investment Treaties (BITs)

BRE

Buchanan Renewable (BRE)

CSOs

Civil Society Organizations (CSOs)

EIAS

Environmental Impact Assessment Study

FDI

Foreign Direct Investment (FDI)

IMCC

Inter-Ministerial Concessions Committee

FPIC

Free Prior and Informed Consent

GDP

Gross Domestic Product (GDP)

GOL

Government of Liberia (GOL)

GVL

Golden Veroleum (GVL)

INCHR

Independent National Commission of Human Rights

(INCHR)
Liberia Anti-Corruption Commission (LACC)

LACC
LEITI
USAID

Liberia Extractive Industry Transparency Initiative

(LEITI)
United States Agency for International Development

WB

World Bank (WB)

WTO

World Trade Organization (WTO)

TABLE OF CONTENTS
Executive Summary
List of Acronyms
1.1. Introduction

1.2. Methodology

2.1. Investment or Divestment? Implications of Poorly

Negotiated/Regulated Foreign Direct Investments

i. Dalhoff Larsen and Horneman (DLH)

ii. Sime Darby ( Agriculture)
iii. Golden Veroleum-GVL (Agriculture)
iv. Buchanan Renewable-BRE (Energy)
v. Acelor Mittal-AML (Iron Ore)
vi. China Union (Iron Ore)
3.1. Analytical Conclusions

8
8
10
11
12
13
15

4.1. Recommendations
4.2. The Future of FDI in Liberia

16
17

Executive Summary:
Emerging from an uncivil war in 2003, with its GDP level equivalent to that of 1970,
Liberia has paid attention to its openness to international trade and investment as a crucial driver
of its post conflict reconstruction. Liberias product multiplied fourfold in the following 10 years
largely due to the opening of the countrys main industries to foreign investment. Foreign capital
inflows totaling 16 billion have been directed mostly to Liberias natural resources, in particular
to the extractive and agricultural industries. Substantial investment flows into the services sector,
especially construction and telecommunications have also been essential to the reconstruction of
the countrys decimated infrastructure capacity. Exports have also expanded in the last 10 years,
accounting for one-third of the GDP in 2012. Notwithstanding, FDIs in Liberia has yet to deliver
expected results or translate into benefits for the majority of the countrys poor.
Private interests have captured the state by engaging highlevel, decisionmaking
elites to slant the rules of the game in their favor in the name of rapidly promoting foreign direct
investment. These elites often receive personal financial gain from the award and management of
concessions. Neither government nor citizens receive the full benefits to which they should be
entitled from the current concessions regime. These transactions have occurred amidst serious
regulatory voids. Foreign companies have corrupted public officials to limit scrutiny.
Notwithstanding these developments, unemployment is sky-rocketing and growing poverty has
provoked local resentment against the government for what many term as auctioning o
resources to foreign companies, with limited local consultation and little benefit to Liberians.
This paper seeks to call attention to some key challenges in institutions, policies, laws,
and regulations failures regarding FDI in Liberia, as well as suggest reform measures that Liberia
could take in order to continuously attract foreign direct investment and ensure that investment
not only seek to stimulate growth but confer benefit upon Liberias majority poor. It is based on
desk top research and review of relevant documents such as contracts, reports and articles.
The study notes that the processes of awarding FDIs in Liberia have occurred in a
regulatory void and have violated international laws as well as, existing local investments,
property, procurement and labor laws with impunity. Additionally, it is observed that the
violations include abuse of human right of companies employees and citizens.
FDIs operations have also been noted as resulting in arbitrary dispossession of communal
lands, which has triggered mob actions, and led to increasing clashes between the police and
civilians and destruction of properties, which undermines the rule of law.
FDIs notwithstanding, offer great opportunities which could be maximized with effective
and responsible governance and oversight. In this regards, the study recommends improvement
in concessions negotiations, resource governance, and due diligence; it also stresses the need to
prevent corruption in the negotiation, award of investment contracts or concessions and
regulation by increasing transparency and accountability of the processes and taking steps to
protect environmental and human rights standards, as well as, ensure revenue transparency and
improve benefit allocation so that the poor can benefit from extractive industry revenues.

1.1.

Introduction

The benefits of FDI for economic development have been well established. A global
network of 80,000 multinational corporations and 800,000 foreign affiliates have helped create
millions of jobs, transferred technology, upgraded skills, fostered competition, and contributed to
the fiscal standing of many economies.1 The benefits of FDI are particularly amplified in
economies with good governance, well-functioning institutions, and transparent, predicable legal
environments.2 In 2013, Moore Stephens reported that the Liberian government awarded about
$8 billion in contracts to multinational companies without following its own laws. Alfred
Brownell, a board member of LEITI, said only two of the 68 contracts reviewed were found to
be in compliance with Liberian law.3 A year earlier, Global Witness documented how so-called
"private use permits" enabled logging companies to claim over forty percent (40%) of Liberia's
forests along with quarter of the Countrys total land mass in just two years.4
Empirical finding of a 2013 research project, (Paylay, Memon H), revealed that while
FDIs in Liberia has had a positive impact, its relationship with GDP growth rate in Liberia has
been weak and despite exponential increase in FDI inflows over the past 11 years, FDIs have
had little trickledown effect on the ordinary citizen.5
According to (USAID LGSS Report 2013), natural resources could be the engine that
drives growth and development in Liberia, but the process of granting private companies the
right to extract or manage these resources is controlled from the top and alienates the millions of
individuals who live at the bottom of society. The report further describes the process of
awarding concessions as opaque and points to the fact that it does not follow Liberian law, and
does not adequately address the concerns of local communities or the nation as a whole.
Private interests, the report furthered, have captured the state by engaging highlevel,
decisionmaking elites to slant the rules of the game in their favor in the name of rapidly
promoting direct foreign investment. These elites often receive personal financial gain from the
award and management of concessions. Neither government nor citizens receive the full benefits
to which they should be entitled from the current concessions regime. Poor information
management and dissemination approaches exacerbate these problems. Amidst these, Liberia
gained observer status with the World Trade Organization in 2010 and recently acquired full
member status.6

1 World Investment Report, 2014.

2 World Bank Investment Across Borders 2010 Report
3

Jonathan Paye-Layleh, Associated Press publication, May 3, 2013 12:59 PM

4 Illegal logging endangers Liberia's forests - Al Jazeera.www.aljazeera.com/indepth/features/2012/09/20129351732763952.html

5 Paylay, Memon H, University of Nairobi Thesis,

The Impact of Foreign Direct Investment on Liberias Economic, 2013

6 Star Radio, Liberia, March 17, 2010; Ministry of Commerce and Industry, December 15, 2015 press release.

An Associated Press publication (2013), quoted Oliver Courtney of Global Witness, as

saying: if the government was serious about turning the page on the past and using natural
resources to improve the lives of its citizens rather than enrich the corrupt, the GOL should
follow its laws and prosecute government officials and companies who violate them. "The
establishment of rule of law and accountability should be Liberia's No. 1 priority; as this could
make or break the country's future, he concluded 7(Ibid1)
Research has established that when seeking business opportunities, companies are now
more concerned about financial and political risks, with a focus on stable and predictable
business environments. In response, governments everywhere recognize that their chances of
attracting more foreign investment depend on making their investment climates more
competitive.8
This paper examines foreign direct investments in Liberia over the past ten years (20052015), underscoring the economic impacts, as well as the consequences on the countrys
governance culture-corruption and on the lives of the citizenry.
The main thesis suggested here is that even though Liberia has attracted significant
capital inflow from FDIs totaling USD 16 billion, GOL regulations and monitoring has been
weak at best thereby resulting in to soaring unemployment levels, corruption in the form of
bribes offered by foreign companies to public officials to limit scrutiny. In the face of skyrocketing poverty, which has provoked local resentment against the government for what many
term as auctioning o resources to foreign companies, with limited local consultation and little
benefit to Liberians, foreign investors continue to rip off the countrys resources. FDIs in Liberia
have violated international laws as well as, local investments, property, procurement and labor
laws with impunity; and this is in addition to engaging in both violation and abuse of human
right of workers and citizens in the course of their extraction of resources. FDIs operations have
also led to arbitrary dispossession of communal lands, which has resulted into mob actions,
increasing clashes between the police and civilians and destruction of properties of foreign
companies. These not only undermine the rule of law, but risk reigniting violence that could
return the country to war.
FDIs notwithstanding, could deliver better gains to Liberia and ordinary Liberians if
effective policies dialogues, due diligence, proper governance oversight and institutional
capacity development are prioritized.
In this regard, this paper inspires renewed thinking about governance reforms, plus the
political will critical to driving any meaningful break with the past, and to demonstrate this by
depicting how poor governance, weak institutions and corruption make the country susceptible to
abuse by foreign companies, and restrict benefits of investments from reaching the majority of
Liberians. FDIs within the agriculture and extractive industries which constitute the lion share of
FDIs in Liberia, will be the focus. To this end, Buchanan Renewable-BRE; Golden Vereleum7 Ibid.
8 World Investment Report, 2013

GVL; Same Darby, Mittal Steel- Arcelor Mittal, China Union, etc. will provide empirical
illustration to those theoretical assertions.
This paper is structured into four sections. Primarily, I discuss the methodology and
define the concepts of Foreign Direct Investment. Then, I assess one international trade incidence
and five FDIs negotiated contact and operations in Liberia underscoring contracting practices
and how they impact the development of the rule of law and economic growth. Thirdly, I make
conclusion. And Lastly, recommendations that illustrate some perspectives of reforms to improve
FDIs in the future is made. The net effect of the assertions presented above is a call for
rethinking FDI in Liberia.
1.1.

Methodology:

This analysis is based on desktop studies of key FDI contracts and reports of companies
operation within Liberia over a period of ten years (2005 to 2015), complimented by inspection
of important FDI documents, selected site of local and international institutions, civil society
organizations and government agencies. This paper could however have benefited from a more
extensive local examination of this matter through survey of key actors. Most of the data
analyzed in this paper were obtained from both primary and secondary sources, including
investment contracts, local legislations, reports; plus, recent literatures and newspapers. It is in
partial fulfillment of a Capstone Paper for the Masters of Law (LLM) Degree in Rule of Law for
Development (PLAW 102 - History, Theory & Practice of Rule of law) with virtual
concentration in Investment and Intellectual Property Laws at the Loyola University Chicago.
It aims to highlight some key failures in institutions, policies, laws, and regulations
regarding FDI in Liberia, as well as, the capacities or lack thereof for negotiating, ratifying and
managing-monitoring FDIs operations underscoring key issues. Additionally, this paper also put
forth suggestions on policies and measures that Liberia could take to continue to attract foreign
investment and at the same guarantee economic benefits to the country.
In order to set out the discussions entailed in this study, an attempt is made to shed light
on what Foreign Direct Investment (FDI) means. FDI is defined by OECD as a cross-border
investment by a resident entity in one economy with the objective of obtaining a lasting interest
in an enterprise resident in another economy. The lasting interest implies the existence of a longterm relationship between the direct investor and the enterprise and a significant degree of
influence by the direct investor on the management of the enterprise. Ownership of at least 10%
of the voting power, representing the influence by the investor, is the basic criterion used.9
2.1. Investment or Divestment? Implications of Poorly Negotiated/Regulated FDIs:
On February 7, 2006, the "Report of the Forest Concession Review Committee shocked
most Liberians by its revelation that none of the companies operating in Liberias forest passed
the first threshold of the concession review. The companies, according to the report had either no
legal identity, were not in possession of a valid concession contract, had been involved in the
9 OECD International Investment, www.oecd.org/daf/investment.

conflict, or a combination of the above.10 Prior to the Forest Committees revelation, numerous
questionable terms in Mineral Development Agreements-MDAs had drawn public criticisms.
This made natural resources award a central issue during the 2005 elections and influenced the
incumbent president, then a candidate, to pledge to review the various agreements. It is worrying
to discover that though a number of those agreements were revised, thereby improving their
terms, subsequent FDI/MDA signed during the tenure of President Sirleaf are equally flawed.
Since the end of the uncivil war in 2003, Liberia, with its GDP level equivalent to that of
1970, has paid attention to its openness to international trade and investment to boost post
conflict reconstruction. The countrys product multiplied fourfold in the following 10 years
largely due to the opening of the countrys main industries to foreign investment. Foreign capital
inflows totaling 16 billion have been directed mostly to Liberias natural resources, in particular
to the extractive and agricultural industries. Substantial investment flows into the services sector,
especially construction and telecommunications have also been essential to the reconstruction of
the countrys decimated infrastructure capacity. Exports have also expanded in the last 10 years,
accounting for one-third of the GDP in 2012. 11 Notwithstanding, FDIs in Liberia has yet to
deliver expected results or translate into benefits for the majority of the countrys poor. , Paylay,
Memon H, research of 2013, discovered that while FDIs in Liberia has had a positive impact, its
relationship with GDP growth rate in Liberia has been weak and despite exponential increase in
FDI inflows over the past 10 years, FDIs have had little trickledown effect on the ordinary
citizens.12
It therefore, leave one to ponder what vested interests were in play when those
agreements were made. Notwithstanding, the severe deficits in regulations, the GOL has
continually entered investment contracts. Many foreign companies have taken advantages of the
void to exploit the countrys resources with the aid of corrupt officials. Moore Stephens 2013
report on the Extractive Industry in Liberia also disclosed that the Liberian government awarded
about $8 billion in contracts to multinational companies without following its own laws. A board
member of LEITI, Alfred Brownell said that of 68, FDI contracts entered, only two were found
to be in compliance with local statues. In 2012, a Global Witness report revealed how the
abuse of "private use permits" enabled logging companies to claim over forty (40%) percent of
Liberia's forests along with quarter of the Countrys total land mass in just two years.13
i.

Dalhoff Larsen and Horneman (DLH):

On February 10, 2015, Global Witness filed a complaint against Dalhoff Larsen and
Horneman (DLH) accusing the company of illegally and repeatedly purchasing timber harvested
under Liberia Private Use Permit which was exported to Bangladesh, China and France.
Following an independent evaluation, the Company was found to have violated both forest and
other Liberian laws. Under pressure, the company agreed to compensate affected communities.
10 Concession Review, Committee Forest Concession Review - Phase 3, 31 May 2005
11 World Bank Regulatory Assessment of Trade and Services Investment Report, 2014
12 IBID., 1.
13 Ibid., 1

ii.

Sime Darby:

Three years earlier, on February 17 2012, hundreds of villagers and town residents of
Liberias Grand Cape Mount Country attracted nationwide attention in their bid to recover what
they said was their land seized from them and turned over to a Malaysian agro-industrial
concern, known as Sime Darby. In a petition sent to President Ellen Johnson Sirleafs office in
January of that year by the aggrieved peoples political representatives, the return of their land,
was demanded.14
Mary Freeman, 42, of Sinje Town said, This is unbearable, Our government must care
for us and dont allow these people to kill us silently. What have we done to go through all of
these sufferings? This land belongs to us. We were born here and we give birth to our children
here too. This is the only place we know. 15 Malaysian company Sime Darby Plantations was
granted a permit on 21 April 2010 to cultivate 10,000 hectares of palm oil in Bomi and Grand
Cape Mount counties. The award process was void of any free prior and informed consent of the
locals, who only encountered the company during the clearing processes. In a meeting with
residents of the district, the President acknowledged that some mistakes had been made and that
the government should have gone about the negotiations differently. She also told residents of
Grand Cape Mount County that when government, including legislators, signed documents with
foreign companies or countries, these could not be changed. 16 Really? Do companies have no
responsibilities at all?
On July 23, 2009 Sime Darby signed a 63-year lease agreement with the government of
Liberia, for 311,187 hectares (about 760,000 acres) of land in violation of the countrys Property
Law. By August 2012, Friends of the Earth Liberia, had published a report on the impacts of
Sime Darby on the livelihoods of communities in Garwula District. The main findings of the
report indicated that farms and farmlands which provide livelihoods and food for the local
communities were being swallowed up by the Sime Darby plantation, with very few alternative
livelihood options available to those not incorporated into the company workforce; no
compensation had been paid to communities for land taken over by the company; forest areas
used for various cultural practices had also been destroyed and planted with oil palm.17
The Liberia Extractive Industries Transparency Initiative (LEITI) subsequently, found
that contract award process between Sime Darby and the Liberian government did not comply
with local land laws, in addition to failing to conduct public consultations or produce due
diligence reports as required by Liberian rules. The report also noted that: 1) An area of 100,000
hectares was awarded to Sime Darby without undergoing a competitive bidding process. 2) The
14 IRIN Africa/Liberia: Land Grab or Development:www.irinnews.org/report/94882/liberia-land-grab-or-development
15 Ibid., 4
16 Ibid.,15
17 Friends of the Earth commissioned report by financial research agency Profundo on the
investors of Sime Darby, issued 14th of June 2013

concession was signed without a Certificate for Concession which seeks to ensure that the
proposed Concessions are in line with the national economic objectives.18
A further analysis of the contract revealed that the contract violated several international
human rights guaranteed under Conventions (International Covenant on Civil and Political
Rights-ICCPR; International Covenant on Economic, Social and Cultural Rights-ICESCR and
the International Convention on All forms of Racial Discriminations-ICERD) to which Liberia is
a signatory. For example, the contract i) has no protection of communities right in terms of
customary land and natural resources; ii) terms does not include the principle of Free Prior and
Informed Consent-FPIC; iii) is causing involuntary resettlement of locals if they are considered
to be a hindrance to companys activities; iv) is contributing to the degradation of locals food
security in instances where farmlands were lost to the plantation without any consideration of
alternative sources; v) is denying local communities their right of refusal; vi) fails to provide
communities with any opportunities to consider the circumstances and vii) is not disclosing any
information about the concession to the members of the communities affected. 19
iii.

Golden Veroleum:

Barely two years after the Sime Darby brouhaha in Grand Cape Mount County, Golden
Veroleum (Liberia) Inc.(GVL), entered a concession agreement with the Government of Liberia
for the development of oil palm plantation in Sinoe, Grand Kru, Maryland, Rivercess and River
Gee Counties in Southeastern Liberia. Sadly, the Mineral Development Agreement violated local
and international laws requirements. 20GVL bought the rights to convert 2,600 km2 of southeast
Liberia into an oil palm estate.
Its contract extends to 98 years, affecting some 41,000 people. Without proper regulatory
frameworks governing how agriculture companies should be awarded contracts, how they should
operate, or how they will be held to account, a concession covering approximately 500,000 acres
(220,000 hectares) was signed. GVL attempt to clear the land, met communities resistance. A
complaint was filed on February 17, 2014, by affect communities to Mr. Ravin Krishnan, of
Roundtable on Sustainable Palm Oil (RSPO). It alleged that GVL never consulted locals affected
by the concession, but was forcing them out of their land. The complaint furthered that as a
member of the Roundtable on Sustainable Palm Oil, Golden Veroleum was obligated to comply
with and implement the RSPO standards and procedures including rights of local communities to
their customary land and their right to give or withhold their Free Prior Informed consent which
they claimed GVL had disregarded. A portion of the complaints also asserted a lack of
compliance by GVL with the information and notification procedures required under the RSPOs
18 Liberia Extractive Industries Transparency Initiative (leiti) post award process audit final report
http://www.leiti.org.lr/doc/LEITI%20Post%20Award%20Process%20Audit%20Final% 20Report.pdf

19 Human rights-based analysis of the agricultural concession agreements between Sime Darby and Golden Veroleum and the
Government of Liberia Tom Lomax, Forest Peoples Programme, December 2012 available at foei.org/simedarby

20 Concession agreement between the government of Liberia and Golden Veroleum (Liberia) Inc. 16th
August 2010.

New Plantings Procedure (NPP). Considering the merit of the complaint, RSPO order a freeze in
plantation development, pending resolution of the complaint in December 2012.
The Tropical Forest Trust (TFT) was subsequently contracted to complete an independent
assessment of GVLs operations with reference to FPIC compliance. In its final report, it
confirmed community concerns about GVLs operations, finding that the plantation had acquired
land and damaged community grave sites, creeks and drinking water sources, swamps and food
sources, including crop lands, without the communitys free, prior and informed consent. The
report found a lack of compliance with key aspects of FPIC (a process which was largely
undocumented by GVL) and included the following: inadequate participative consultation with
communities; lack of participatory mapping; the taking of land and destruction of community
resources without their prior consent; insufficient provision of information to communities; a
lack of sufficient time given for the community to consider proposals on their own and in their
own way; poor environmental and social impact assessment (ESIA) and High Conservation
Value (HCV) Assessment, including a shortage of consultation in ESIA development and lack of
accessibility of the ESIA to communities.21 The (May 2013) report by Moore Stephens LLP
(LEITIs Post Award Process Audit final report) found nine separate regulatory violations
concerning Golden Veroleums concession contract, and judged the contract as non-compliant
with the relevant national laws and regulations of Liberia. 22
Amidst the controversy, President Ellen Johnson Sirleaf, paid a visit to the area. She
acknowledged that there were missteps and assured the people that every effort will be made to
address the Problem. GVL also pledged to address concerns raised by the locals. 23 The Frontpage
News Paper quoted Global Witness as saying, It is unacceptable to view the well-being of tens
of thousands of people as inferior to an investment contract, said Gant. Development is not
development if it involves robbing the countrys poorest citizens of their land. If Liberians are to
benefit from palm oil they must be free to choose for or against it, and have the information and
support they need to negotiate on their own terms. Until that time, the government should stop
Golden Veroleum from expanding onto new land, and set a precedent for the other foreign
companies poised to cash in on Liberias vast natural wealth.24
On May 24, 2015, a riot occurred at the GVL plantation in Sinoe resulting into disruption
of work at the plantation, damages to the companys properties, as well as the mass arrest,
beating and threatening of citizens for taking a stand against GVL rampant land grabbing. The
Independent National Commission on Human Rights of Liberia, following an investigation
found Golden Veroleum Liberia (GVL) liable for the riot incident. The former Associate Justice
of the Supreme Court of Liberia, and current Chair of the INCHR, Cllr. Gladys Johnson noted
21 Conflict or consent? The oil palm sector at a crossroads__ Global Witness expos reveals violence,
threats, and false promises driving rapid palm oil expansion in Liberia, 2014

22 Liberia Extractive Industry Transparency Initiatives-LEITI (May 2013) report by Moore

Stephens LLP (Post Award Process Audit final report)
23We made Mistakes-Sirleaf Admits Missteps. allafrica.com/stories/201304290901.html
24 Frontpage, February 21, 2014

that relying on the Police power to deal with these kinds of citizen uprisings is only a temporary
measure. The INCHR investigative report, recorded underlying concerns of unemployment,
delay payment for destroyed rubber trees owned by some farmer that have not claimed the
attention of GVL or the Government of Liberia (GOL), as central to the reasons that fueled the
demonstration. Cllr. Johnson added that the Sime Darby experience should be an excellent entry
point for future engagements.25
iv.

Buchanan Renewable:

Coming out of years of uncivil strives, with virtually every energy facility damaged, the
countys investment incentives rank power/energy generation as a crucial driver of growth and
GOL perceived Buchanan Renewable, as a stitch in time. The company represented that it would
construct and maintain roads and other infrastructure, and construct a 35-MW, biomass fueled
power plant to provide electricity for Monrovia. Its stated aim was to contribute to sustainable
development in Liberia as a whole, and to its smallholder farmers in particular by investing 150
million.26 Weeks preceding the complaints by citizens against GVL, farmers, charcoal producers
and workers filed a complaint of abuses against Buchanan Renewable-BRE, to Overseas Private
Investment Corporation ("OPIC") one of BREs investors, to investigate human rights and
environmental abuses by BR.27 In March 2013, Somo and Swedwatch published Cut and Run
which claims that Liberian farmers suffered as a result of BRFs withdrawal. 28 The Heritage
Newspaper, had earlier published several headline stories ranging from workers claims that BRE
had abandoned over 600 of its employees and sold off to an unknown investor; to citizens
accusation of betrayal by law makers. In October 2010, a critical article published in the
German-African Times pointed out that the farmers who had signed contracts with BRE were not
satisfied.29 The money they had initially received for their old trees was long gone, and the
company did not provide the cash crops, such as beans, it had promised. In March of 2010, a
Green Advocates (GA) investigation into the sustainability of Buchanan Renewables operations
revealed uncertainty regarding the legal status of the companys operations in Liberia, and
unresolved issues related to the clearing efforts on the farms, as well as a backlashed of payments
for old trees and a neglect of the replanting of new trees.
v.

Arcelor Mittal:

Arcelor Mittals strategy in Liberia was no different. The companys intervention in the
Liberian economy was criticized as an alarming "case study in which multinational corporation
seek to maximize profit by exploiting international regulatory void to gain concessions and
contracts which strongly favored the corporation over the host nation". The $900m deal, sealed
25 Human Rights Commission Blames GVL for Riot in Butaw./betty.johnson@frontpageafricaonline.com,Published: 25 August 2015
26 SOMO and Green Advocates, Burning Rubber Buchanan Renewables Impact on Sustainable Development in
Liberia, November 2011

27 Mae Azango, IRIN-Humanitarian news Analysis, 2014.

28 Cut and Run, March 2013, Sumo & Swedwatch
29 African Times, October 2010, article

by the unelected transitional government amid considerable public controversy, was as described
by the U.K Business Guardian, not in the best interests of the nation. In what the Global witness
report termed as an inequitable "raw deal" that created an unaccountable "state within a state",
key issues are underscored, including the fact that Liberia ceded important sovereign and
economic rights to a foreign multinational. 30 As a consequence of the deal, Mittal controls a
range of major decisions, company and capital structure, taxation, royalties, transfer pricing,
rights to minerals and confidentiality; additionally, royalties and transfer pricing are also within
Mittals control, particularly, over how much royalties are paid because the agreement does not
set a price for the ore. The report notes that Mittal would have a "strong incentive" to sell the ore
to its affiliates at less than the market price - so-called transfer pricing practiced routinely by
mining companies. Most strikingly, were the taxation clauses which fell far short of
recommended international best practice." Ostensibly Mittal was in effect given a five-year tax
holiday with the option of an unspecified extension. The report concluded that "to obtain tax
concessions at the direct expense of a chronically poor country raises serious moral and ethical
questions.31
The AML MDA with the Government of Liberia, has however, seen two amendments; the
last of which was done in March of 2013 through the Inter-Ministerial Concessions Committee
(IMCC). The second amendment addressed the request made to the Government of Liberia by
Arcelor Mittal to amend certain fiscal and related provisions in its 2007 mineral development
agreement (MDA). Request for amendment on depreciation, interest deductibility, withholding
tax on interest, loss carried forward, corporate income tax and customs duties was approved,
while request for amendment on royalty and debt-to-equity ratio was denied. The requested
amendment on royalty and debt-to-equity ratio ran contrary to the Consolidated Tax Amendment
(CTA).32 Significant increase has been reported in Arcelor Mittals investment from US$900m to
US$2bn. Friends of the Earth, claimed that AML MDA with Liberia was in violation of Chapter
II General Policies 7/B. Violation of Chapter VI Combating Bribery of OECDs Guiding
Principles.33
Heinrich Bll Stiftung in its Resource Governance Dossier also claimed that much of the
controversy around the signing of the MDA by the transition government centered on allegations
of corruption at various stages of the allocation process. For example, some members of the
legislature were accused of receiving bribes to ratify the MDA. Most of the legislators reportedly
did not see the full text of the MDA and apparently relied on a 2-page summary of the 79-page
MDA prepared by the executive branch, which had negotiated the agreement. Prior to the
submission of the agreement for rectification, AML donated 100 pickups to the then 73 member
legislature.34
30 David Pallister, The Guardian (UK), October 2nd, 2006
31 https://www.globalwitness.org/archive/mittal-steels-us900-million.
32 http://investliberia.gov.lr/data/uploads/downloads/lnic_annual_report_2013.pdf
33 http://www.foeeurope.org/publications/2010/Working_for_development_june2010.pdf
34 http://www.globalwitness.org/library/heavy-mittal

An examination of social development fund intended for affected communities in Grand

Bassa, Bong and Nimba, revealed that less than 20% of the revenues was allocated to projects
that would benefit directly affected communities; and although AML has significant stake (50%)
in the fund management framework, no investigation has been launched into the matter in spite
of public outcry over the mismanagement of the fund.35
Both Global Witness and the Sustainable Development Institute-SDI have criticized
AMLs business behavior and practices asserting that the company does not ensure that its
operations in Liberia are in harmony with OECD Guidelines aims to strengthen the basis of
mutual confidence between enterprises and the societies in which they operate, to help improve
the foreign investment climate and to enhance the contribution to sustainable development made
by multinational enterprises. In 2014, a group of disaffected citizens clashed with riot police at
the Mittal Steel concession area in Nimba, north-central Liberia, in early July as they protested
that an iron ore concession agreement had not benefitted local people. The government branded
the assailants thugs and unlawful, making appeals to parent company Arcelor Mittal before a
formal investigation of the grievances.36
Underscoring the relationship between development and corruption US Secretary of
State, Hilary Clinton, in a speech given in Liberia in July 2009, offered U.S. assistance to build
strong, democratic institutions that work and are accountable and deliver results; She also noted
that ending corruption is necessary to growing and sustaining such institutions and restoring the
public's trust.37
vi.

China Union:

The Government of Liberia following an alleged international competitive bidding

process in 2009, signed a 25-year, 2.6 billion MDA with China-Union Investment (Liberia) for
the exploration of iron ore in the Bong Range of Liberia. To date, that MDA, represents the
single largest foreign investment ever in the country.38 The conclusion of a Global Witness and
Green Advocates February 13, 2009, joint recommendations to the Liberian legislature for future
concession contract negotiations recognized that GOL negotiation of that MDA could play a very
positive role in Liberias development as it was a significant improvement over other recent
natural resource concession entered by the GOL with international companies. According to the
groups, the contract fiscal provisions reflected current international best practice. Other positive
aspects of the contract included the requirement that the company joins the Liberia Extractive
Industry Transparency Initiative (LEITIE), the disclosure of information regarding advance
payments as signature fees to the Government and the fact that the contract was published.
35 SDI Liberia Social Development impact study, 2010.
36 http//www.tnrliberia.com/indes/php/login/522-clash-near-in arcelor mittal%2%80%99mine.html
37 US Secretary of State Clinton, speech given in Liberia ,July 2009
38http://www.resourcegovernance.org/sites/default/files/RWI_Columbia_Draft_Analysis_of_China_Union_contract_fiscal_fram
ework.pdf

Furthermore, the agreement contains robust transfer pricing provisions and the Concessionaire
and the Operating Company are made jointly and severally liable. The recommendation also
observed that despite the various positive aspects of the contract, the Agreement is vague in
parts, potentially leaving it open to abuse. Greater clarity and rigor is required to prevent serious
problems from arising in the future. Negative aspects of the contract which the two groups
pointed out as crucial for the Legislatures consideration for amendments were the provisions
relating to the resettlement of communities, the fiscal stabilization clause and the provisions
governing the conduct of feasibility study. Ultimately, the contract is only as effective as its
implementation. As such, it is critical that significant international support is given to develop
state capacity, local civil society and legal avenues to provide the checks and balances needed to
ensure oversight of the contracts execution.
An analysis of the reports of both Global Witness and Sustainable Development
Initiative-SDI on the one hand and Revenue Watch Institute and Columbia University on the
other, revealed that none of the groups were able to obtain copies of the general solicitation for
bid proposals, original bidding documents or modified bidding documents, which leaves room
for speculations as to the credibility of the biddings. As a separate point, the Revenue Watch
Institute and Columbia University February 25, 2009 study noted that the time between the
acceptance of the original bid (December 8, 2008) and the agreement of the contract reflecting
the revised terms (January 19, 2009) was curiously short given the revenue at stake. In
evaluating the fiscal regime elaborated in the contract, Revenue Watch Institute and Columbia
University observed that the royalty calculations differ from the royalty rate for iron ore
produced under the Mittal contract, which is 4.5%. Thus, China Unions royalty of 3.25% is
1.25% lower (i.e., a 27.8% reduction in royalty receipts) than the rate established in the Mittal
Agreement.39
In view of the somewhat debilitating circumstances of a late EIAS, coupled with the
noted absence of strategic legal requirements or standards for the conduct of social impact
studies, or human rights impact assessment, Global Witness and Green Advocates
recommendations, discussed above also highlighted the need for the initiation and control of
such study to be in the hands of an impartial body-noting that the Agreements made this clear
by providing that it be placed in the hands of an internationally recognized engineering
consulting firm that is independent of Concessionaires interests. However, because the firm is to
be appointed and paid for by the Concessionaire [sec 5(2)(a)], the possibility for bias is obvious.
The groups suggested that future agreements could ensure greater independence from influence
by the Concessionaire by splitting the source of funding for the expert between the government
and the concessionaire. The groups (GW &SDI) recommendation also criticized provision 14.4
of the MDA on a fiscal stabilization clause noting that it translates into taxation by contract
rather than by legislation and thereby fundamentally contradicts the democratic principle of
government accountability for taxation. This clause, the groups maintained was profoundly
unattractive in this regard and exempted the Concessionaire from any amendments to the
revenue code of Liberia after the agreement is signed. The extension of these rights to associated
companies in paragraph 14.5 only increases this effect, because the Concessionaire could exploit
this to its advantage in the coming years. Provision 33.8 of the MDA, regarding joint and several
39http://www.resourcegovernance.org/sites/default/files/RWI_Columbia_Draft_Analysis_of_China_Union_contract_fiscal_fram
ework.pdf

liability of the Concessionaire and the Operating Company, was acknowledged as a positive step
which should inform other future MDAs.
4.1.

Analytical Conclusion

In the introductory statement of his Is natural resources a curse? article, Marcus

Wallenberg wrote. A rich natural resource endowment can indeed be a curse, but need not
be such. 40Still recuperating from years of uncivil war and instability, Liberia desperately needs
to reconstruct its economy and develop the living conditions of its underprivileged people. The
majority of the countrys population, the youth need work to reduce their exposure to social
vices, which could undermine the countrys stability. Natural resource abuse is a well noted
factor that fueled the conflicts. Judicious use of natural resources can enable the country to
stimulate growth and improve living standards.
From the myriad of mistakes in investment contracts as acknowledged by the President, it
is evident that GOL lack institutional capacities and the abilities to design and effectively
implement policies for trade and investment. This view is supported by a World Bank 2014
Report on Liberia regulatory frameworks, which designated a similar challenge as the main
barriers to the development of trade and investments sectors in Liberia. 41 Amidst such dearth,
model contracts that articulate investor obligations, could promote more responsible and
mutually beneficial investments.
Improvements in disclosures and public access to information, are essential for fighting
corruption. Progress in negotiation of better terms of Concession such as China Union provide
impetus to renew efforts aimed at making investment agreements generate benefits and avoid
pitfalls of the past. Much more is required particularly to improve contracts negotiation,
eliminate rent seeking behaviors and boot regulatory capacities of key institution in order to
deliver genuine economic and democratic gains. Political will, although critical, remains lacking
in some respects to tackle corruption and enforce laws consistently.
As observed in some instances, FDIs have failed to provide the number of employment
anticipated and are noted for subcontracting. Subcontracting may be in the companies financial
interests but represents gross insecurities for workers, many of whom are from affected
communities and would have lost as it denies them of employment benefits. There is also little or
no evidence that FDIs are impacting the lives of the majority of the citizenry, or building
capacities, resulting in technology transfer, or to say the least, upholding responsible investment
culture, since regulation are largely inconsistent. It is recognized that the GOL lacks the
wherewithal to develop and enforce laws and policies or confronts corruption. The countrys
integrity pillars (Anti-corruption commission, Auditing Commission and justice system- the
courts & police) need reforms and resources. While society and institutions are path dependent
and may even resist change, corruption is recognized as the leading cause of eroding faith in
governance, as well as low global confidence in Liberias investment climate.
40 Marcus Wallenberg Professor of International Business and Finance Georgetown University; Non-Resident Senior Fellow,
Peterson Institute of International Economics

41 World Bank Regulatory Assessment of Services Trade and Investments 2014 Report on Liberia

In 2005, John Ruggies appointed by the Secretary-General of the UN as a Special

Representative on the issue of human rights and transnational corporations, enabled the
identification and clarification of international standards of corporate responsibility and
accountability. As a Special Representative, he was asked to develop methodologies for
conducting human rights impact assessments.42 On June 16, 2011, the Human Rights Council
endorsed the Guiding Principles on Business and Human Rights, the first global standard for
preventing and addressing the human rights impacts of business activity. The principles outlined
the implementation of a protect, respect, and remedy framework, which emphasized the duty
of the state to protect human rights, the corporate responsibility to respect human rights, and the
need for greater access to remedy for victims of business-related abuse.43
Political uncertainty and poor governance (such as weak property rights, high corruption,
or excessive regulation) have been found to discourage domestic private investment and FDI
(Campos et al., 1999 and Mauro, 1995). The necessity for Liberia to critically address concerns
of rising corruption need not be further emphasized. With the corruption watch-dog, the LACC,
lacking prosecutorial authority and the Ministry of Justice overwhelmed by caseload of several
docketed cases of corruption, without being brought to trial, the countrys chances are slipping
away by the day. 44. In his national Independence Day oration, Cllr. Harry Varney GbotoNambi Sherman renew the call to fight corruption when he said, again, I submit to you that our
country cannot be transformed when public service is evaluated by the Liberian people at large
as the place where corruption exists, persists and is practiced as a matter of course and with
impunity".45
4.2.

Recommendation:

The World Bank concluded in a 2004 report on the extractive industries that investments
in the industry can only contribute to achieving the Millennium Development Goals, if a number
of conditions are met. These conditions are related to good governance in host countries,
prevention of corruption, high environmental and human rights standards, revenue transparency
and making sure that the poor benefit from extractive industry revenues. These recommendations
are still completely valid and crucial today.46 The need to embrace new perspectives are crucial
for changing the picture of FDIs in Liberia and to put an end to the rule of lawlessness.
4.2.1. Future Perspectives:
42 OHCHR
43 Human Rights Impact Assessment Toolkit 25 Good Business: Implementing the UN Guiding Principles on Business and
Human Rights, UK Foreign and Commonwealth Office, September 2003. https://www.gov.uk/government/publications/bhraction-plan

44 The Chairman of the LACC, Madam Frances Johnson Allison speaking at a recent ELBC Radio program interview February
29, 2012

45

see Google: Cllr. Harry Varney Gboto-Nambi Sherman, "166th Independence Day National Oration", July 26, 2013).

46 World Bank Extractive Industries Report, 2004

In her inaugural address of 2006, Liberian President correctly declared corruption public
enemy number one and provided this sober assessment of the negative impact of corruption:
Corruption erodes faith in government because of the mismanagement and misapplication of
public resources. It weakens accountability, transparency and justice. Corruption short changes
and undermines key decision and policy making processes. It stifles private investments which
create jobs and assures support from our partners. Corruption is a national cancer that creates
hostility, distrust, and anger. 47
Liberias current development agenda, Liberia Rising presents a real opportunity to
build on what has been achieved in terms of regulatory reforms, capacity development, and
governance. By adopting renew approaches in light of the priorities and unmet needs regarding
natural resources governance, strengthening of the rule of law, confronting corruption, and
sharing the benefits of growth, I advance the following options:
a. An adequately capacitated and resourced Anti-Corruption Commission, National
Investment Commission as well as the Public Procurement and Concession Commission
could greatly aid the fight against corruption, limit flaws in investment and concession
granting, processing and oversight.
b. Conducting enhanced due diligence could assist businesses avoid involvement in human
rights abuses or becoming an actor in conflicts that risk reigniting violence in Liberia and
undermining the rule of law.
c. Providing in Investment/Concession Agreement shared responsibilities for observance of
human rights standards, could moderate occurrences of abuse of locals, limit corruption
and confer greater investments benefits upon the majority poor.
d. Designing clear procedures, enhancing openness within concession awards, and
negotiation and timely consultations with locals could eliminate abuses of the people and
processes.
e. Proper monitoring, supervision and realistic policies controlling foreign investment in
Liberia will open the way for the attracted foreign investment to improve the living
standard of the ordinary Liberians.
f. Some individuals trusted by locals could serve as liaison between the GOL, foreign
companies and the people located within concession areas to protect the interest and
prevent disputes. An open and free vetting process could greatly enhance the selection of
such persons.

47

See Ellen J. Sirleaf, Inaugural speech, 2006, January 16