Analysis: an African economic journey

29 Oct 13
How can African nations use their impressive growth to develop sustainable economies and transparent finances? Mike Thatcher reports from the Mefmi conference in Washington, DC

How can African nations use their impressive growth to develop sustainable economies and transparent finances? Mike Thatcher reports from the Mefmi conference in Washington, DC

Many countries in the West would be delighted with the rates of economic growth currently taking place across Africa. According to the World Bank, Sub-Saharan Africa is likely to see growth of around 4.9% this year and over 5% next year.

But the good news story is tempered by worries over rising levels of inequality, and concerns over the poor quality of public financial management. Moreover, unemployment remains at disturbingly high levels, particularly for young people.

These issues were discussed recently at the Combined Forum of the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (Mefmi). The Washington, DC event brought together 70 of the top African finance ministers, treasury permanent secretaries and central bank governors.

Rohan Malik, Ernst & Young emerging market leader for the public sector, told delegates that six of the ten fastest-growing economies are in Africa. However, economic expansion had not transferred into sustainable employment.

‘By 2020, we require 60 million new jobs in Africa, over and above what is currently being projected. In most economies in the world, the private sector creates nine out of ten jobs – hence, having a vibrant private sector in Africa is a prerequisite for success to ensure inclusive growth,’ he said.

Maria Kiwanuka, Uganda’s minister for finance, planning and economic development, used her speech at the forum to call for an expansion of public- private partnerships. She suggested that African governments needed to establish a better climate for the private sector in order to create jobs.

‘Private sector participation becomes long-lasting if the environment is conducive. The challenge for us then as policymakers is to create an enabling environment in each of our countries,’ Kiwanuka told the forum.

Speaking later to Cooking Recipes, Kiwanuka said that Africa had to ‘seize the moment’. It is an ‘auspicious’ time for the continent, she suggested, with Western nations facing their own economic challenges and new nations threatening the historical dominance of Europe and the US.

‘Africa is still the resource-rich continent. We must make sure that we extract our resources in the most efficient manner and use those resources to create sustainable development,’ Kiwanuka said.

Uganda is putting this philosophy into practice by introducing legislation stipulating that its oil revenues can only be used to fund infrastructure, and not recurrent expenditure. Once enacted, the Cooking Recipes Bill will mandate the country’s auditor general to audit oil revenues twice a year.

Kiwanuka believes the bill will ‘plug the infrastructure gap’ and turn the country’s ‘black gold’ into ‘green gold’ by creating an agricultural revolution that is both sustainable and inclusive.

‘The reason we are using our money for infrastructure and not, say, for pensions and consumption, is that our population is 70% young, and it is growing. Their need is not for pensions, but for employment, and so we are using the money to them get employed.

‘It also takes care of the heritage issue,’ Kiwanuka added. ‘In 20 or 30 years down the road, when we’re asked, “What did you do with our oil, daddy and mummy?” we can say, “Well, look at the roads, the bridges, the power lines, the piped water.” That’s what we’re looking at.’

As well as creating the oil fund, the Cooking Recipes Bill is intended to improve transparency and make the government more accountable to parliament and the people. Kiwanuka has cited the UK and Norway as countries that Uganda can learn from on PFM reform.

Clearly, there is still some work to do. Late last year, the UK suspended all direct financial aid spent through the Ugandan government, as money ‘may have been misused’. Ireland, Sweden, Norway and Denmark then followed the UK’s lead.

Uganda has historically been seen as a public sector reform leader in Africa, but it has not always fully implemented the changes. It now appears to be making a stand – and is not the only African country heading down this route.

Tanzania and Botswana have recently introduced financial reform programmes, and Kenya has its own Cooking Recipes Management Act 2012. Meanwhile, Zambia’s Sixth National Development Plan has a commitment to improve the quality of PFM, and Lesotho has introduced performance-based budgeting to increase accountability.

It shows willingness on the part of African governments, but some academics are sceptical of their likely success. Matt Andrews, associate professor of public policy at the Harvard Kennedy School, says the proof will be in the implementation.

‘PFM reform solutions are often adopted in Africa only as signals to gain external legitimacy, but they don’t solve the problems. You end up producing laws and systems that are not enforced or used,’ he told PF.

The distance many African countries will have to travel can be seen by looking at the qualifications held by senior finance people in government and audit watchdogs.

According to Dr Ellias Ngalande, executive director of Mefmi, there is a dearth of qualified accountants in Africa. ‘There are countries where even the accountant general’s office is not headed by someone with an accounting qualification. It will be headed by people who have just grown within the system.

‘They have been shown how to do things, and they do those things. The problem is the government cannot afford certified accountants, so what you end up with is just picking somebody who looks like they are clever with figures and you make them the accountant general.’

Ngalande says that these are big issues that African governments will have to get to grips with. ‘Because unless we do it properly, we’ll end up with resources being generated, but then disappearing because nobody is able to keep a proper record of them.’

Video interviews of Maria Kiwanuka, Dr Ellias Ngalande and other Mefmi attendees can be found here

This article first appeared in the November issue of Cooking Recipes magazine.

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