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Africa: ECA Calls for Developmental States

AfricaFocus Bulletin
Mar 31, 2011 (110331)
(Reposted from sources cited below)

Editor's Note

"What is certain is that, as with the successful growth and development experience of many countries, the state has a key role to play in economic diversification and structural transformation in Africa. It is therefore important for the state that is accountable and responsive to the needs of its population to assume its developmental responsibility and guide sustainable social and economic development in African countries." - Economic Commission for Africa

This observation, from the annual Economic Report on Africa (ERA) released by the Economic Commission for Africa this week, may seem unremarkable. But it represents a significant marker of recent shifts in development thinking in Africa. The report decisively rejects both free-market fundamentalism of the "Washington Consensus" and exclusively state-controlled development as failed models. In contrast, it highlights the need for state planning, democracy, accountable bureaucracies, proactive industrial policy, and other state initiatives, as well as the critical roles of private sector and civil society engagement.

As with all such highly general prescriptions, the implementation of this call for "developmental states" is both complex and problematic. And reading this report one feels that repetition of the "developmental state" mantra is likely overdone, as compared with relatively little attention given to the obstacles to the emergence of such states, of which the authors are undoubtedly well aware.

This AfricaFocus Bulletin contains excerpts from two of the press releases on the meetings of experts and ministers at which the report was launched, as well as brief extracts from the report itself.

The full report is available at http://www.uneca.org/era2011

Additional background from the joint AU and ECA meeting of ministers of economy and finance is at http://www.uneca.org/cfm/2011/index.htm

For previous AfricaFocus Bulletins on economic issues, visit http://www.africafocus.org/econexp.php

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Consensual Framework on Role of State in Governing Development in Africa Emerges from Experts' Meeting

African Union / Economic Commission for Africa

28 March 2011

http://www.uneca.org/cfm/2011/index.htm

Addis Ababa, Ethiopia 26 March, 2011 (ECA) - A draft consensual framework on the role of the State in governing development in Africa emerged from two days of deliberations on this year's theme of the Joint Annual Ministerial Meetings of the African Union Conference of Ministers of Economy and Finance and the ECA Conference of African Ministers of Finance, Planning and Economic Development, according to ECA's Information and Communication Service.

Economic, financial and development experts had been meeting here since Thursday in preparation for the ministerial meetings which open in Addis Ababa, Ethiopia on 28 March, 2011 under the theme "Governing Development in Africa: The Role of the State in Economic Transformation".

Recommendations by the experts that will be tabled for discussion by the ministers during the conference are now being fine-tuned, sources indicate.

For two days, experts examined the role of the State in the context of globalization and free enterprise and arrived at the conclusion that State intervention in the economic development process does not imply nationalization of the private sector, which in any case, remains an essential driver of the development process.

In one of the marathon sessions yesterday, two leading African economists used historical perspectives and concrete modern day examples to allay the concerns expressed by some participants as to the "dangers" inherent in what they called too much State powers in the productive sector of the economy.

Messrs Emmanuel Nnandoze and Réné Kouassi, respectively Director of Economic Development and NEPAD Division at the UN Economic Commission for Africa (ECA), and Director of the Economic Affairs Division at the African Union Commission, explained that in the context of scare investment resources that characterize most African economies, sustained economic growth would be near impossible without States taking the lead, or at least playing a major role.

But that was not the central argument Nnandoze pushed through to justify calls for State participation in development initiatives.

In a highly applauded presentation, he outlined a number of key areas in which no other stakeholders could play a better role than the State - infrastructural transformation, the formulation of suitable taxation laws, public/private partnerships, the use of national development plans, as well as a judicial system in which investors and citizens have faith.

This is why he underscored the key facilitator role of the State, while cautioning that "we are not recommending copying exactly what China, South Korea or Malaysia did, because the historical and contemporary conditions are not necessarily the same."

Although Africa grew on average by 4.5 percent in 2010 up from 2.3 percent in 2009 and will most likely maintain steady growth of about Five percent in 2011, governments and development partners, including the ECA are worried about the sustainability of that growth, observers say.

...


Growth does not Happen by Chance... It is planned, Nurtured and Sustained - UN Official

The Director of Economic Development and NEPAD Division at the UN Economic Commission for Africa (ECA), Mr. Emmanuel Nnandoze told a press conference in Addis Ababa on March 24 that growth and economic prosperity do not happen by chance, they must be planned, nurtured and sustained to be bring real change in the lives of ordinary citizens.

The press conference followed a 1 day media workshop to familiarize the wide cross-section of African media with the critical issues to be presented at the Fourth Joint Annual Meetings of African Union Ministers of Economy and Finance and the ECA Ministers of Finance, Planning and Economic Development.

The Information and Communication Service (ICS) of ECA report that Messrs Réné Kouassi, Director of the Economic Affairs Division at the African Union and Emmanuel Nnadozie, briefed the media on the essential messages of the 2011 edition of the Economic Report on Africa (ERA2011) - a report to be released this week on Africa's economic performance for 2010 and projections for the coming years.

The two officials acknowledged that Africa was set on a new path of growth, the only continent with a projected growth rate of about five percent this year.

However, this situation does not call for immediate celebration because many efforts still need to be made to ensure that such growth has a noticeable impact on poverty reduction because ordinary people are yet to feel this upbeat economic posture.

While Mr.Nnadozie called for guarded optimism, Mr. Kouassi advised that measures had to be taken to ensure that this upward trend is sustainable for, he argued: "there is no point registering a positive growth rate in a year and dropping the next year just because adequate measures were not taken to ensure that the status quo is not only maintained but that growth actually continues."

For Nnadozie, the State must be in a more proactive posture by providing an enabling environment for growth. This can be done by ensuring that institutions are strong,

while incentives such as good taxation policies and improved governance are put in place. In the opinion of the two officials, Africa must step up its productive capacity and try to conquer new export markets.

This Fourth Annual Joint Meetings will be addressing the role of the State in promoting equitable and clean economic development.

In answer to a question as to whether proposals of ERA2011 are tantamount to a re-nationalization of key production apparatus in Africa, both Nnandoze and Kouassi stressed that the initiative was not about nationalization, at all.

"What the report calls for is greater involvement of the State in matters that are exclusively of its domain, such as the taxation system, the provision of essential services such as good transport systems or reliable energy supply, which accompany development," they said.

Nnadoze argued that broadening the tax base, so as to avoid a situation where very few overpay, will help inject more money into the economy and spur growth. The recent cases in Europe where the State ran to the rescue of countries such as Greece, Ireland and Portugal were used as illustrations to justify the desire to see the State get better involved in the running of African economies.

It is a known fact that Africa grew by an average of 4.5 percent in 2010 up from 2.3 percent in 2009 and will most likely maintain steady growth of about Five percent in 2011. However, there is concern as to whether such growth could be sustained for a full decade, a condition for the benefits of growth to become perceptible and palpable.


Economic Report on Africa 2011
Governing Development in Africa

[excerpts from Chapter 6. Full publication available at http://www.uneca.org/era2011]

6.1 The state, economic diversification and structural transformation in Africa: The need for diversification and transformation

How to promote high-level, sustained, inclusive and clean economic growth has been a main focus of African countries for decades. Africa's high growth rates have not translated into high levels of employment and reductions in poverty. They are also quite volatile, especially in sub- Saharan Africa.

From about 1960 to the early 1970s, the continent's growth performance was similar to that of other developing regions. During 1973-2000, however, it faltered and then declined, while other regions achieved higher and less volatile economic growth rates. During the last decade, Africa experienced an upsurge in growth, and GDP rose twice as fast in this period as in the 1980s and 1990s. This improvement has been widespread, but the roots of this improvement are traceable largely to the global commodity boom, not to transformation. Despite this high growth level, there is still high and rising unemployment, high poverty levels and a lack of social safety nets, which imply that social development in many African countries has been limited.

The nature of the recent strong growth surge raises questions on sustainability and inclusiveness. One of the main reasons for these two fundamental issues is the lack of structural economic transformation in many parts of Africa. Up to the present, the extent of structural transformation and diversification in output, exports and employment has been limited in most African countries. This has contributed significantly to the apparent inability of African economies to achieve high and sustained economic growth rates and social development, as well as to their high growth volatility and unemployment rates.

...

The experiences of successful countries present three important lessons. The first is that there are discernible common characteristics in the patterns of structural change and economic development processes in general, and industrialization and diversification in particular. The second is that countries that have succeeded in unleashing high growth rates in recent history are not the ones that implemented the prescriptions of the Washington Consensus. This is illustrated by the case of South Korea, Taiwan and China, whose growth policies exhibit significant departures from the Washington Consensus. The third and overarching lesson is that the state plays a central role in guiding and promoting successful economic transformation. Indeed, the historical evidence shows that all countries that have successfully transformed from agrarian economies to modern advanced economies had governments that played a proactive role in assisting individual firms in the process of structural transformation.

Modern economic growth theories point out that structural economic transformation involves a process of continuous technological innovation, industrial upgrading and diversification, and improvements in the various types of infrastructure and institutional arrangements which constitute the context for business development and wealth creation. However, market mechanisms may not be sufficient and the government has a potential role to play in helping firms.

What is certain is that, as with the successful growth and development experience of many countries, the state has a key role to play in economic diversification and structural transformation in Africa. It is therefore important for the state that is accountable and responsive to the needs of its population to assume its developmental responsibility and guide sustainable social and economic development in African countries.


Economic Report on Africa 2011
Governing Development in Africa

[excerpts from Chapter 5. Full publication available at http://www.uneca.org/era2011]

5.4 Towards the future: How to construct developmental States in Africa

African countries clearly need developmental States to promote economic and social transformation. Five major elements are crucial in building them: purposeful leadership and a developmentalist coalition; transformative institutions; focused industrial policy; investment in research; and enhanced social policy.

Purposeful leadership and a developmentalist coalition

Capable and farsighted democratic leadership will be central to constructing developmental states in Africa. Such leadership can foster hegemonic developmentalist ideology and the necessary coalition to underpin it. A powerful technical team will have to be assembled to support the political leadership in crafting and driving the developmental vision of the country. Forging such an alliance will not be easy, especially given competing class interests. The composition of the developmental coalition will have to vary from country to country as often reflected in the process consultative process and deliberations of country reviews under the African Peer review Mechanism (APRM) of the New Partnership for Africa Development.

The need to overcome underdevelopment on the continent and dependency on external forces could unite these class forces around a common vision for Africa's development. Towards this end, the developmentalist coalition has to be committed to Africa's industrialization and to creation of more opportunities for productive and high-income activities in the formal sector.

Central to this, the state needs to ensure that people have opportunities to acquire assets and sustainable employment. With respect to the former, land reforms for example will be critical, especially in Southern Africa. In other subregions where subsistence agriculture is dominant, the state needs to promote cooperatives and to support small farmers with access to skills training, finance, markets, technology and so on. In effect, agrarian reforms are required for African countries to become developmental States.

...

Transformative institutions

To become developmental states, African countries will have to build transformative institutions, and primarily a competent and professional bureaucracy. Recruitment and promotion in the bureaucracy have to be based on merit rather than political patronage, ethnic and religious considerations. Also, civil servants need to have predictable career paths. As in developmental States elsewhere, including Japan, changes in political leadership should not affect the positions of these civil servants, and the bureaucracy has to be insulated from the political elite and direct political and sectional group pressure. Moreover, the issue of training and re-training is essential for capacity enhancement, with adequate and competitive remuneration and modern ICT systems for operations and service delivery.

African countries will also have to re-establish ministries of planning or competent planning commissions charged with responsibility for overall development planning, alignment of the policies of line ministries, and ensuring complementarities between economic and social development. In effect, the need to revive the planning capacity of the African state is urgent through the establishment of ministries of planning, or of planning commissions, which will aim to ensure effective coordination and alignment of government policies and programmes. Such planning bodies are more effective when located in the office of the head of government (president or prime minister) as strongly suggested by the experience of Korea with its Economic Planning Board (before it was disbanded in the mid-1990s), the Economic Development Board of Singapore, the Economic Planning Unit (EPU) in Malaysia, and the celebrated MITI of Japan.

...

It is not only the capacity of the bureaucracy and the planning ministry or commission that should be invigorated, but also that of all public institutions especially public financial institutions--the central bank, the ministry of finance, the stock exchange commission, the tax collection authorities (tax office, customs, immigration, etc), and the oversight institutions such as the offices of the accountant general, anti-corruption commission, and the ombudsman, among others. Transformation institutions are at the heart of state capacity. They should be inclusive and operate transparently and accountably.

Focused industrial policy

To catch up and, more important, to meet its own development objectives, Africa needs to promote rapid industrialization that will promote innovation, technological adoption, entrepreneurship, high value added and employment-generating manufacturing. This will enable the continent to overcome the low contribution of industry and manufacturing to GDP and employment. The formulation and implementation of industrial policy will enable African governments to target particular activities or sectors for support. Each country will have to identify niche industries where it has competitive advantages or the capability to develop dynamic advantages. This in turn will contribute to Africa's industrial development. However, unlike most countries in post-independence Africa, which thwarted the emergence of a capitalist class, the 21st century African developmental state has to vigorously attempt to build an indigenous capitalist class.

Also, unlike the experiences of the 20th century developmental States elsewhere, industrialization in Africa in the 21st century will have to be sensitive to environmental sustainability (chapter 3). The development of renewable energy and a green economy as part of Africa's overall development strategy cannot be over-emphasized. Renewable energy in particular and the green economy in general offer Africa a basis for transforming the structures of its economies and to create sustainable jobs and livelihoods.

The industrial strategy of the developmental States of East Asia suggests that creating industrial winners through fiscal incentives to facilitate enhanced productivity and some form of protectionism were critical for the growth of local manufacturing. While protectionism may be difficult and largely unfashionable in a globalized economy regulated by WTO, nonetheless, as part of their industrial policy, African States should ensure a phasing-out process to protect local industries, which is necessary for their growth and consolidation. This will enable them to compete, over time, in the global economy.

Investment in research

In a knowledge-driven global economy, investment in research, science and technology for economic development is central to boosting production, enhancing human capacity and reinforcing the capability of the state. To promote sustainable growth and economic transformation, African countries would have to scale up their investment in R&D, which stood at 0.4 per cent of GDP in 2007; Asia had gross domestic expenditure on R&D (GERD) of 1.6 per cent as a share of GDP. Except for South Africa, which invested 0.9 per cent, GERD as a share of GDP of most sub-Saharan African countries was less than 0.3 per cent in 2007. In Asia, Korea, for example, spent 3.2 per cent, China 1.4 per cent and India 0.8 per cent (UNESCO Institute of Statistics dataset, 2010).

Given that Africa's R&D is very low, GERD should be increased to more than 1.6 per cent of GDP--Asia' rate. This should be accompanied by effective measures to improve the quality and relevance of educational outcomes to the needs of the job market. The tertiary education sector, especially the universities, which should constitute the site of advanced knowledge production and scientific research in Africa, is currently witnessing a severe crisis in terms of standards due to poor funding, a brain drain and massive commercialization in the sector (Akin Aina, 2010; Mamdani, 2007)

...

Enhanced social policy

To become developmental States, African countries have to revise their social policies. As in Asian and Latin American developmental experiences, these should include measures to increase income support, gradually reduce income inequality and ensure access to the basic social goods of education, health care and decent livelihoods for people. In other words, social policy measures have to meet the basic goals of human existence as contained in the MDGs.

Heavy investment in skills, education, health care and infrastructure (including economic infrastructure) will be important tools for expanding human capabilities in Africa. They will also become important means of enhancing the productive base of African economies. Of course, a combination of development strategies that promotes investment in education and infrastructure, such as roads, water and electricity, would improve the environment for doing business in Africa, and attract greater volumes of FDI.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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