Governance and Development: The Interplay

Published on 12th December 2017

Theoretical dimensions

A huge body of literature has built around the interrelationships between governance and development since the momentous events of 1989 in particular when the transitions from the old Soviet Model began and the winds of change spread to the rest of the world, including Africa. In the early 2000s, many seminal works by UNDP on governance point to good governance as one of the major independent variables explaining sustainable and inclusive development.

Mckinsey, MO Ibrahim Foundation and others have shown that contrary to popular opinion, only one third of Africa’s growth can be explained by natural resource extraction and the commodity boom. In fact, much of Africa’s growth is explained by improved governance in general and political and macroeconomic stability and reforms as well as the growing domestic demand from urbanisation and the rise of the middle class in Africa.

Yet, while previous analyses gave equal weight to these three forces in propelling Africa’s growth, UNDP’s own analysis shows that governance parameters such as democratic transitions, public financial management and stability have a much greater impact on growth than changes in commodity prices or rising middle class incomes. In fact, depth and breadth of participation of participation as well as the quality of public management, including budget management, fiscal policy, revenue mobilisation and transparency and more robust public administration have a strong

impact on growth. For the 31 countries in our sample, those with a higher score in public management (Mo Ibrahim Index) had much higher rates of real GDP growth. And leading countries also have a lower share of the contribution of primary commodities in GDP.

This means that Africa’s long term transformational growth trajectory will depend very much on effectively addressing existing political, economic, social and environmental governance deficits in order to drive substantial multipliers from good governance on Africa’s competitiveness, growth and human development.

Validation dimension

Based on country evidence presented at the International Conference for the Emergence of Africa held in Abidjan in February this year, three classic examples have emerged to demonstrate that sustained reforms and macro-economic stability lead to a tipping point and an accelerated inflection path towards growth and Africa’s emergence.

First, leading countries such as Cote D’Ivoire, Ethiopia, Mauritius, Rwanda, Senegal, South Africa and Seychelles have demonstrated the importance of expanding fiscal space on growth. Emulating their best practices in innovative revenue collection, open budget tracking and integrated financial management will move Africa from the current average of 19% tax to GDP ratio towards the 24% threshold for sustainable funding of development proposed by UNCTAD.

Second, outstanding countries such as Cabo Verde, Ethiopia, Gabon, Morocco, Rwanda, and Mauritius have demonstrated the importance of improvements in managing inflation and improving gross national savings on growth and stability, even though the African average gross national savings of 20-32% is still lower than in developing Asia (41%).

Third, the improved macroeconomic stability and business environment in Cote d’Ivoire, Mauritius, Rwanda and Tanzania is the major force behind rising inward financial flows. Across Africa, inward FDI flows and portfolio investments of up to USD 63 million now dwarfs official ODA of USD 516million 2017, although they are slightly less than the USD 66 million received in remittances.

Exploiting the linkages

Countries must invest strategically in putting in place these key governance actions in order to accelerate structural economic transformation and progressive human development in Africa.

• Governance and institutional policies: This includes major initiatives for improving participation of large sections of societies in the governance of their countries and ensuring responsive leaderships as well as policies for macroeconomic stability, public sector reforms to reduce corruption, improve efficiency, and ensure efficient service delivery.

• Structural economic transformation policies: Strategic investments in creating an enabling environment for increased productivity, diversification of productive bases and competitiveness including strong institutional coordination and monitoring.

• Social and human development policies: Promoting sturdy social contracts is an imperative for enhanced participation, empowerment and accountability to exploit the strong correlation between inclusive governance, supportive social norms, growth and human development.

Let me conclude by recalling the words of Kofi Annan, former UN Secretary-General, “Good governance is the single most important factor in eradicating poverty and promoting development."

Unless our societies and economies are well governed and fully transformed, Africa faces an uncertain future with threats arising from underexploited human and natural assets, rising debt unsustainability and the inability to invest the resources needed to achieve the ambitious global SDGs and Africa’s Agenda 2063.

Urgent actions are now needed to transform Africa to the aspiration of Agenda 2063 of “an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the international arena”:

1. African countries must raise their global competitiveness though transparent and responsive political and economic governance institutions that foster innovation and technological advancement which will help to create jobs, provide goods and services and improve the livelihoods of Africa’s growing urban population.

2. Using new and innovate financial mechanisms to finance the SDG Financing Gap of USD 614 – 638 billion per year requires a strong development state and greater citizen and private sector engagement. There is significant room to grow the current investments from African Sovereign Wealth Funds - estimated at USD 163 billion to capitalize on the estimated USD 7.2 trillion available worldwide. Africa could also grow its Pension Funds’ investments estimated at 334 billion out of global assets of USD 36 trillion.

3. Progress in human development is key to advancing good governance and structural transformation, particularly in terms of health, education and social protection. Our recent report on Inequality Trends in Africa shows that ensuring equitable access to quality education and addressing social and economic exclusion are the most critical drivers of reducing inequality across Africa.

4. Africa must also focus attention on improving local governance and community development initiatives based on strong decentralization and devolution policies and programs such as the Programme d’Urgence de développement communautaire (PUDC) in Senegal and others. UNDP is actively promoting inclusive and resilient governance institutions and processes as an effective strategy to realize the SDGs and Agenda 2063.

• We have supported the African Peer Review Mechanism (APRM) since its founding in 2003 including peer reviews of 17 countries of the 35 countries that have acceded to the mechanism and the development of the first 5-year strategic plan for transformative leadership for effective implementation of Agenda 2063.

• UNDP Africa is also contributing to sustaining peace through a “framing development solutions to radicalization in Africa” project on preventing  violent extremism. Our flagship publication Journey to Extremism in Africa: Drivers, Incentives and the Tipping Point for Recruitment presents findings from over 495 interviews, in 8 countries that uncovered key drivers of insecurity and violent extremism in the Sahel region that are governance related. These include poor service delivery, weak governance institutions and limited pathways to economic empowerment for excluded areas and populations.

• Since 2012, UNDP has been instrumental in providing both technical and financial support to the organisation of Annual High Level Dialogues on Democratic Governance Trends on the continent including thematic Pre- forums and gender pre-high level consultations. These dialogues are part of the African Governance Architecture (AGA), the overall continental framework for promoting, nurturing, strengthening and consolidating democracy and governance in Africa.

• The UNDP Africa Regional Director is keen about promoting transformational governance in Africa in collaboration with Statesmen like President Paul Kagame and African Union.

Mindful of the challenges ahead, UNDP stands ready to support in partnership with other key institutions Africa’s pursuit of a home grown agenda for stronger development states and rapid structural transformation that positively impacts on human development through strong collaborative effort between governments, private sector, civil society and citizens.

I call on leaders, economists and policy makers to look beyond the standard indicators of good governance to explore the complex linkages and dynamics behind the interaction between transformational governance, structural economic transformation and sustainable human progress. This will be the key to unlocking Africa’s potential and advancing Africa’s prosperity for all and a much more robust role in the global arena.

By Mr. Abdoulaye Mar Dieye,

UN Assistant Administrator, UNDP Assistant Administrator and Regional Director, UNDP Africa.

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