PANCOP NEWSLETTER MARCH 1998

Viewpoint

AFRICA SHOULD HAVE HER OWNLEAGUE OF ELDER STATESMEN

The Pan African Consultancy & Productivity Institute (PANCOP) is deeply distressed by the present plight of Dr Kenneth Kaunda.

When the history of Pan-Africanism and the African liberation struggle is chronicled, Dr Kaunda will certainly have a pride of place.

Inspired by the noble ideals of Pan-Africanism, Dr Kaunda and a few other African leaders committed themselves irrevocably to the liberation struggle.

In fact, the present state of the Zambian economy can be attributed, in part, to the immense sacrifices that Zambia and Zambians made to the liberation struggle in South Africa, Angola, Mozambique, Namibia and others.

Dr Kaunda has already contributed more than enough in his personal and official capacities to the noble cause of Africa. He has already paid his dues.

PANCOP is, therefore, of the candid opinion that Dr Kaunda should gracefully and rightfully assume the noble title of "Elder Statesman Of Africa" and join the league of the Senghors and Nyereres.

Africa should have her own league of elder statesmen, a kind of continental think-tank whose members should be able to advise on the numerous problems impeding Africa's development efforts. Nyerere and Senghor are already playing this noble role. Mandela is to join very soon. Dr Kaunda should have been doing this since 1991.

Let Dr Kaunda's stature not be limited to Zambia. Let Africa and the world have the opportunity of drinking from Dr Kaunda's fountain of knowledge, experience and wisdom. Let Dr Kaunda's word be as heavy as a cannon. Let Dr Kaunda's voice reverberate throughout Africa and the world.

PANCOP-UNIDO COOPERATION

PANCOP's International Register of Consultants (IRC) has been registered in the United Nations Industrial Development Organisation's Experts Consultancy Roster.

In a reply to PANCOP's letter, the UNIDO Director of Operational Support Services looked forward to a fruitful cooperation between the two organisations.

THE 1997 INTERNATIONAL COLLOQUIUM ON DEMOCRACY, GOOD GOVERNANCE AND ECONOMIC PROSPERITY IN AFRICA

An International Colloquium on Democracy, Good Governance And Economic Prosperity In Africa was hosted by PANCOP in Mbabane, Swaziland from 27 to 29 November 1997.

The colloquium which was offically opened by Swaziland's Deputy Prime Minister was attended by, among others, one representative each from the UN Economic Commission for Africa and the UNDP in Malawi. The Rwandan Ambassador to South Africa and his wife also partcipated in the event.

A thirty-minute documentary and a print report of the colloquium have been produced. Requests for copies may be directed to the office of the Registrar-General.

UPCOMING EVENTS

Two international workshops will be hosted by PANCOP in May and August this year in Mbabane, Swaziland. The international workshop on Gender, Culture and Professionalism will take place from 14 to 16 May 1998. The objectives of the workshop are to promote a proper understanding of gender; show how cultural biases constrain the development of healthy gender relations and professional performance and to evolve strategies to ensure high professional performance by both men and women in a work environment conducive to healthy gender relations.

The other workshop which will take place from 13 to 15 August 1998 will be on Cultivating and Sustaining Productivity in African Public Enterprises.

* The two events were originally scheduled to be held in February and May respectively. The postponements are to enable PANCOP complete the preparation of the video and print reports of the colloquium.

*Enquiries about attendance at any one of the two events may be addressed to the office of the Registrar-General.

LINK BETWEEN DEMOCRACY, GOOD GOVERNANCE AND ECONOMIC DEVELOPMENT IN SUB- SAHARAN AFRICA

Below is an extract from a paper presented by Dr Oluyele Akinkugbe of Nigeria at the international colloquium on Democracy, Good Governance And Econom,ic prosperity In Africa hosted by PANCOP.

The World Bank (1992, p.1) defines good governance as "the manner in which power is exercised in the management of a country's economic and social resources for development". Thus, good gvernance is said to be synonymous with sound development management since it is central to creating and sustaining an environment which fosters strong and equitable development, and is an essential complement to good economic policies.

On the other hand, poor governance exists when the following symptons begin to become noticeable in a country:

* failure to make a clear seperation between what is public and what is private, hence a tendency to divert public resources for private gain;

* failure to establish a predictable framework of law and government behaviour conducive to development, or arbitrariness in the application of rules and laws.

* excessive rules, regulations, licencing requirememts, and so forth, which impede the functioning of markets and encourage rent-seeking;

* priorities inconsistent with development, resulting in misallocation of resources;

* excessively narrowly-based or non-transparent decision-making.

When all these symptoms are sufficiently severe and occur together, they tend to create an environment hostile to development and thus poor government. Looked at from this perspective, we are able to conceptualize governance as involving three interrelated questions and dimensions of government action, that is: the social and political structures - official and unofficial institutions that determine how public decision and authority are exercised in a country; the enactment of laws, policies and regulations that affect directly or indirectly the allocation of public expenditures and investments and therefore determines incentives for other actors in the economy; and the corrective interventions of government when market failures become observable or when the objectives of development are not being achieved. Thus, the very existence of these systems of rules, institutions and mechanisms, as long as they are universal and predictable, defines governance capacity in the modern state. And the modern state as

described by this conception of governance is thus the

rational-legal ideal-type state, most conducive to the economic activity and social organisation of modern societies. In this light, we may want to define the State in a broad sense as a set of institutions that possesses the means of legitimate coercion, exercised over a defined territory and its populations, referred to as society.

Having defined the State and good governance as above, the question then arises as to the root cause of economic crises and stagnation in most of Sub-Saharan Africa if the key to superior performance of the countries of South-East Asia, the "Asian Tigers", is the State. The answer to this question is not far fetched, though it has to be looked at from two paralles and almost diametrically opposed schools of thought. The first is the idea that has emanated over the years from economists that had studied developments in South -East Asia such as Hutington (1969), Hutington and Dominguez (1975),Vaman Rao (1984), Haggard (1990). The argument of this school of thought is that the performance of economies of South-East Asia countries from the late 1960s can be attributed to "State autonomy", defined as a combination of the capacity of the State to pursue developmentalist policies with its insulation from particularistic pressures, particularly those originating from large firms or unions. This argument is put forward from two major angles. One, that "State autonomy" favours growth, and secondly, that "State autonomy" is possible only under authoritarianism or benevolent dictatorship. Hence, this school of thought does not favour democracy when an economy is still at the early stage of development. On the other side of the line are those economists

who are favourabbly disposed to the economies of Western Europe and North America. To this second school of thought, countries cannot attain sustainable growth and development in the absence of democratic governance.

Examining closely the arguments of the two schools of thought will help in shedding more light on the role of good governance in economic growth and development.

From the point of view of those in favour of benevolent dictatorship in the growth process, economic development is seen as a process for which huge investments in personnel and material are required. Such investment programs imply cuts in current consumption that would be painful at the low levels of living that exist in almost all developing societies. Governments or the State must thus resort to strong measures enforceable with an iron hand in order to marshall all surpluses needed for investment. If such measures were to be put to popular vote, they would surely be defeated. Hence, no political party can hope to win a democratic election on a platform of current sacrifices for a bright future. This argument could be further buttressed as follows: In the first instance, poor people have a higher proponsity to consume out of their income, hence they are easily in favour of immediate consuption. Secondly, when workers can organize, they tend to acquire the enormous powers to drive up wages, reduce profits, and reduce investment (either by lowering the rate of return or the volume of profit or both). Thirdly, when people can vote, governments inadvertently acquire the damaging power to buy votes as well as to distribute incomes away from investment and more towards transfer payments. All of these put together tend to lower investment and slows down growth. Thus benevolent dictators such those of the Far East and Latin America in the late 1960s and 1979s were said to be future-oriented because under them the State is insulted from private pressures, and they were able to make the economy function efficiently.

The conclusions from this school of thought is that democracy is a product of economic development. That is, that stable democracy requires as a prerequisite some level of economic development described as the "threshold", because affluence reduces the intensity of distributional conflicts. Furthermore, development generates the education or the communication networks required to support democratic institutions, and similarly, it is only development that can facilitate the growth of the middle class in the society, a class which is very necessary and essential for the formation of a competent bureaucracy. This conclusion is evidenced in the fact that all developed countries in the world constitute stable democracies while on the other hand stable democracies in the less developed countries remain exceptional and a mirage.

The proponents of democratic governance as the engine of growth are of the view that State autonomy is pernicious for economic performance, since the State is predatory and is always ready to prey on the society through multifarious type of rent-seeking policies and activities. To these economists, only democratic institutions can constrain the State to act in the general interest since any form of dictatorship is a source of inefficiency.

From the arguments of the two schools of thought as advanced above, it becomes easily discernable that while the critics of democracy are of the view that benevolent dictatorships are better at mobilising savings, the defenders are of the view that democracies are better at allocating investment. Thus, the two sides seem to agree that whatever political regime is in place in any country, it is the government as represented by the State apparatus that promotes savings, investment, growth and, therefore, economic development. That is, it is the existence of good governance that assists private production by either maintaining a framework for private activity or by supplying inputs directly. Hence, in any country, the State has to provide law and order, enforce contracts and defend private parties from external threats, as well as provide inputs to private production that are not efficiently supplied by the market.

Thus, the conclusion from the two arguments is that some productive role of the State, i e good governance, is optimal for maximizing efficiency, growth, or welfare and thus economic development.

If the political factor is as important in the growth and development process as shown above and has been crucial to the experience of the South-East Asia economies, the question then arises as to what is wrong with the State in Sub-Saharan Africa. Is it too much government? The answer to this question is not likely to be in the affirmative, because the public sector in the sub-continent has not been unusully large. Public expenditure as a proportion of Gross Domestic Product (GDP) in Sub-Saharan countries is not significantly different from what obtains for all low- and middle-income countries. The problem has been that many African states seem to be lacking in the capacity to establish the crucial conditions for capital accumulation and additionally in a number of cases act in economically irrational ways. This non-developmental or even anti-developmental thrust has been manifestable in the mismanagement, inefficiency, pervasive corruption of the public sector as well as political instability and the inability to prevent widespread evasion of taxes, laws and regulations.

As it were, politics or the State is just one strand in the explanation of the massive economic problems that afflict most sub-saharan countries. Others have been a rather harsh international economic climate, natural calamities such as drought and desertification; low savings and capital formation capacity; declining foreign direct investment; unmanageable external debt situations, and, in some cases, the absence of much-needed raw economic potential. Hence, both exogenous and endogenous factors put together have complemented each other in the decline of economic fortunes in sub-saharan Africa. However, the focus of this paper is on the endogenous factors in economic perfomance and particularly the role of the State or institutional framework.

The State and Economic Development in Sub-Saharan Africa

The interventionist role of the State and thus its magnanimity with respect to the performance of the economy is usually viewed from three inter-related perspectives, that is, its size, its policies and its institutional framework. The size of the State is usually measured in terms of the ratio of government expenditure (consumption and investment) to the economy's total expenditure or total output. On the other hand, an overall picture of the economic presence of the State is usually given by government interventions through policy and institutions, in addition to its fiscal activities. Government Policy stance in this regard can be conceptualised by an index that combines three key indicators, i e the openness of the economy (the share of trade in GDP), overvaluation of the currency (the black market exchange rate), and the gap between local and international prices. The institutional framework of the State is captured in the quality of bureaucracy. And usually the evaluation of State presence in this regard focuses on the amount of red tape involved in any transaction, the regulatory environment, civil liberty and the degree of autonomy from political pressure.

However, just the same way as the efficiency of firms is affected by the structure of property rights and other endogenous factors in the particular industry, so is the efficiency of economies. The efficiency is in this regard said to be dependent on the choice of the institutional framework as represented by the government-determined environment and conceptualised in its interventionsist activities in the economy which bear a lot of consequences for the allocation of resources.

The observable situation in most economies in Sub-Saharan Africa is that the government-determined environment has been capital-hostile in terms of security, policies and services, and, therefore, has resulted in the overall reduction in the productivity of capital and labour. It has also contributed to the observable trend of large capital outflow from Sub-Saharan Africa and decreasing rate of private capital inflows (FDI).

Sub-Saharan Africa in general is thought to be a difficult environment in terms of both what might be regarded as macro security, ie the threat of civil war to the survival of the State and micro security or the threat to an individual from weak property rights. A measure of macro security is the months of civil war which between 1960 - 92 was 76% more in the average Africa country than the average non-African LDC.

Furthermore, quantitative evidence on property rights has been found in two indices. One was reported by Knack and Keefer on the enforceability of contracts. Normalising on the OECD average, LDCs other than SSA rate 0.71 and SSA rate 0.66. The other index is the one constructed by Business International (BI) on the reliability of judicial processes. If again normalised on the OECD average, non-African LDCs score 0. 75 and SSA scores 0.71. Thus, in terms of the various measures of security, Africa is on average a worse environment than other developing areas.

With respect to economic policy environment, it has similarly been found that Africa has not performed well as to provide a level playing ground for the productivity of capital. For instance, looking at trade policy or trade restrictions, Africa is shown to have had the most restrictive policies in the world. On Dollar's index of trade policy, the gap between Africa and the next most restrictive trade policy areas - the Middle East - was greater than that between the Midle East and the most open region, East Asia.

Additionally and with regards to the effect of government size on growth, the State in SSA is found to be predatory. That is, government consumption relative to public consumption has been quite high and hence constitutes a drag on growth potential since it has a net tax on society with few corresponding benefits.

Conclusion

The conclusion that can be drawn from this paper is that most countries in Africa have grown more slowly becuase they had predatory State apparatus as represented by the kind of economic policies executed, macro and micro security framework in place and the size of government, all having been more damaging in their overall effects in Africa than elsewhere. Similarly, whichever way one looks at it, be it from the angle of a benevolent dictatorship or that of democracy, what is important in the growth and development process of any any country is good governance. Since capital is assumed fairly mobile internationally, the lack of investment probably reflects the low returns upon it, which are in turn due to the efficiency of its use and the economic environment defined by the State in SSA, namely, insecurity, a range of poor economic policies, civil liberty and ethnolinguistic fractionalisation. The downward spiral in the economic fortunes in SSA could be checked with release of market forces, by trimming the bureacracy, reducing administrative bottlenecks, re-aligning currency exchange rates, restricting public subsidies and relying more opn private entrepreneurs and less on public corporations. Finally, to tackle these problems effectively, SSA countries will have to concentrate on building agencies of restraint (including independent judiciaries and the seperation of powers), so as to restore the African credibility problem; establish a strong central capacity for formulating and coordinating policies; establish an efficient and effcetive delivery systems, ie setting the right balance between flexibility and accountability; and begin to attract able and dedicated staff into the public sector.