Africa\'s Budget: Free the Dead Capital

Published on 21st June 2005

Africans seem to have lost interest in budgetary issues since they consider that the budget proceedings don’t lay food on their table.  This simple point articulated by a street vendor points at a fundamental economic concept that economic policy makers ought to address each time they come up with the budget.

It should not be the work of the government to put food on people’s tables, but government policy can either make it difficult for people to get food or miss it altogether. The persistent inclination of government planners to see only the immediate effects of a given policy, or its effects on a special group and to neglect the long run effects not only on the special group but on all groups is what Henry Hazzlit terms as the fallacy of overlooking secondary consequences. This draws the distinction between a good economist and a bad one. There are men regarded today as brilliant economists, who deprecate saving and advocate squandering on a national scale as the way of economic recovery. Africa is already suffering the long run consequences of the policies of the distant and recent past. Today is the tomorrow which the bad economist yesterday urged us to take no notice of. 

Africa’s economy is not on a deathbed; it is, as a Peruvian economist Hernando De Soto aptly described, like a lake whose potential for generating electricity has not been tapped.  Economic policy makers should picture themselves as engineers looking at a river or a lake to generate electricity.  The task they are faced with is to transform the placid lake’s potential energy into kinetic energy of tumbling water that can turn turbines, creating mechanical energy that can be used to turn electromagnets that further give rise to electrical energy.  This cannot be achieved by putting brakes on the energies that ought to make the economy grow.

It is imperative consequently that Africa releases her “dead capital”.  Any assets that Africans have and own that cannot at the moment be used or converted to generate money to finance other enterprises should be explored.  It is estimated that Africa holds $ 0.58 trillions in urban informal untapped capital and $ 0.39 trillion in rural informal untapped capital.  The property ownership regime in most countries has not simplified the use of houses, land, vehicles trees, wildlife, and cattle to finance an enterprise.  Capital has been mistaken to mean only money.  It is critical that Africa develops a formal property system that can transform assets from a less accessible condition to a more accessible condition.  This can be done through property valuation, and documentation.

Another approach is to check the culture of land subdivision.  Economists have observed that continued subdivisions of land from one generation to another lead to small parcels that cannot be utilized gainfully.  This has led to people having only two alternatives – to starve or steal.  Incentives should be put in place to curb the traditional subdivision of land that has seen most productive districts see their production dwindle.

There is need to reexamine the licensing procedure to businesses. A hotel may be expected to have separate licenses for lodging, health, disco, bar, sundry shop, city council adverts license (if it has a sign post outside) and all these don’t come easily.  A retail shop may need one for food, electronics, clothing, office supplies, city council adverts, security, and insurance. Getting a mere personal identification card (ID) is an uphill task in most countries. In Kenya for example, if one wants to establish a Taxi business, he will be faced with over 8 licenses, both official and unofficial. They range from the Driver’s License, Motor Vehicle Insurance, Road License, PSV, Cartel License, Touts (manamba) License, Traffic Police Tax (Kitu Kidogo) and local authority License. The Kenyan Finance Minister for example admitted there being about 600 licences in the country, directly affecting trade and investments. He promised to review them and revoked seventeen of them with thirty others pending alteration. Enforcing the execution of a multitude of these demands, costs the government a lot of money. Many creative entrepreneurs in Africa are not only taxed out of business but also scared on their tracks.  Wouldn’t it be prudent then that the policy makers focus more on what stops Africans from being productive as opposed to punishing them for consuming and limiting their freedom to choose?

Free Africa’s economy.  To ignore the fact that Africans want cheap but high quality goods is to commit economic suicide. African governments should respect the individuals’ sense of personal choice, protect private property and allow free exchange, which comes only through competition.  To limit the consumer pool of goods through protectionism will not raise the standards of living.  The African individual shall be said to be economically free if his/her wealth buildup is not through political rent seeking, force, fraud or theft and is protected from the physical invasion by others.  Without putting in place policies that release Africa’s innovative energies, the prospects of economic development are slim.

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