Foreign investment to medium-sized firms: A boost to post-conflict economic recovery?

After Liberia emerged from two brutal civil wars, Ellen Johnson-Sirleaf was voted into office. Her focus was on rebranding Liberia away from “a nation in permanent violent turmoil” by opening Liberia’s doors to foreign direct investment (FDI). A group of economists have conducted research specifically on large natural resource FDI flows into Liberia and how it impacted local economic growth. Unlike many FDI agreements, Johnson-Sirleaf required the incoming corporations to provide Liberia with public goods. Due to this, they find that large influxes of natural resource inflows are increasing economic growth in the region.

However, other disciplines question the success of FDI in Liberia due to the numerous negative social impacts it has bestowed on local communities. Also, the FDI has been less successful at bolstering tax revenues and improving employment. The country is still suffering from high poverty levels, exacerbated inequality, and increased food insecurity. Thus, the trickle-down impact of these large investment flows has not been felt by average Liberian.

A gap in the literature exists for smaller-scale investments and technology and knowledge transfer to local firms through ‘impact-oriented’ investments. The question then remains, how can small-scale FDI be used as a tool for locally inclusive economic growth and recovery in Liberia? This study will work with a small-scale foreign impact investment fund to examine the influence of FDI on the performance of local small and medium-sized firms.

This research has numerous policy implications. It will determine the primary challenges and opportunities for investment flows into non-natural resource sectors. And, determine barriers to impact investing and general growth of local medium-sized firms. It will help influence the policies for the National Investment Committee - which currently only focuses on attracting natural resource investment - and the new special export zones. In conclusion, these policy recommendations will focus on private sector development in a fragile state and on how to attract more FDI and domestic business that is more locally inclusive.