Africa cannot innovate its way out of bad governance

Some months ago, I discussed the leadership problem in Africa. I argued that even as African economies were failing in the 1960s and 70s, issues of growth and development were largely seen as politically neutral or even above politics and all that was required was the influx of foreign investment and implementation of public sector reforms.

It was not until the failure of the Structural Adjustment Programmes (SAPs) imposed on African countries that the attention began to turn to leadership and governance.

Still, there was an obvious refusal to engage with governments. Governments across the continent were seen as corrupt and part of the problem.

Following the spate of state failures and worsening socio-economic conditions in Africa in the 1980s, Western donors and civil society tried to circumvent the state by intervening directly to provide vital help to people and communities.

From the mid 1980s there was a proliferation of Non-Governmental Organisations (NGOs) providing social welfare services, economic empowerment, humanitarian services, and human capital development.

One key lesson from that episode, besides the issue of sustainability of NGOs, is that there is as yet no alternative to governments.

For instance, while Ghana had only 10 registered non-profit NGOs in 1960, the figure had risen to 350 in 1991, and by 2001, it had ballooned to 1300. Ditto in Tanzania. In 1992, there were only about 200 registered NGOs but rose to 813 two years later, and by 2001, the number had swollen to between 1800 and 8000. Most development assistance were funnelled through these organisations.

Many of these NGOs – both local and international – have long ceased to exist and the extent of their impact is doubtful. What is not in doubt however is that even when they were in operation, socio-economic conditions continued to worsen across the continent even as donor fatigue became a problem. In fact, with hindsight, countries that received the most aid became substantially poorer.

One key lesson from that episode, besides the issue of sustainability of NGOs, is that there is as yet no alternative to governments. Governments are indispensable to building a successful and prosperous society.

Every successful and prosperous society needs a capable state that, in the words of Ricardo Hausmann, “can protect the country and its people, keep the peace, enforce rules and contracts, provide infrastructure and social services, regulate economic activities, credibly enter into inter-temporal obligations, and tax society to pay for it all.” Unfortunately, the government, by nature, is a monopoly; so there can’t be an alternative.

After decades of under-performance, African economies began recording healthy growth at the turn of the 21st Century thanks, in no small part, to the boom in commodity prices and the implementation of some liberal reform policies.

In Nigeria, for example, the liberalisation of the economy enabled the private sector to blossom to such an extent it could challenge the state for the control of the commanding heights of the economy. The once dominant oil and gas sector’s contribution to the Gross Domestic Product (GDP) started to decline precipitously, climbing down from a high of 48.9 percent in 1999 to a low of 2.8 percent in 2016 and now stands at only 8 percent.

The liberalisation of African economies and the growth of the private sector resurrected the thinking that again, we could circumvent the government and that the private sector, through entrepreneurship, market-creating innovation and the deployment of technology could lead the charge to end extreme poverty, unemployment, and environmental degradation and herald an era of prosperity in Africa. This argument posits that the market-creating innovations ultimately pulls in institutions (political, economic and social) and ultimately transforms society’s system and structures for good.

However, it didn’t take long for the Buhari administration in Nigeria to prove this new iteration of the circumvention theory wrong again. Upon coming to power, his government set about clawing back the commanding heights of the economy from the private sector. While still mouthing pro-market rhetoric, the government has been consistently implementing policies to make it difficult for the private sector, entrepreneurship or market-facing innovation to thrive or even access funding. This is most eloquently seen in the conduct of the central bank’s monetary policy since 2015.

In 2017, a former member of the central bank’s Monetary Policy Committee (MPC) and now Chair of Buhari’s Economic Advisory Council (EAC), Doyin Salami. Blowing the whistle at the meeting of the MPC of the CBN in July 2017, Mr Salami expressed “concern over the increasing fiscal deficit … and crowding out effect of high government borrowing.”

In plain language, the terribly compliant CBN has been illegally printing money to fund the government.

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However, according to Salami, the “massive injections of cash” to the government doesn’t reflect in higher inflation and currency weakness at the time because the CBN through “special auctions” raised the cash reserve requirements for banks beyond the stipulated 22.5 percent thus skillfully crowding out the private sector. “We thus find ourselves at a point where government borrowing from the CBN is neutralised by raising the CRR of banks, thereby limiting private-sector access to credit”, said Salami who later lamented that “Monetary policy management is presently about funding the Federal Government.”

Although the CBN has raised the official CRR ratio in Nigeria to 27.5 percent, the actual CRR rate is between 58 to 60 percent. The CBN, as at 2020, held as much as N10.3 trillion in CRR out of a total naira deposit of N17 trillion. Coincidentally, the N10.3 trillion the CBN is illegally holding is also about the size of the federal government’s budget.

This is besides the shambolic handling of the forex regime, the crippling business environment, failing and decrepit infrastructure, inability to keep the peace, respect contract, lawlessness and insecurity in the country that has stifled most entrepreneurship, innovation and businesses.

Any wonder then that the economy has tanked, foreign and local investments have dried up, borrowings have skyrocketed (total debt stock as at March 2021 stood at N107 trillion ($87.239bn), unemployment and inflation are on rampage and Nigeria continues to languish at the bottom of the world poverty and most development indexes.

The private sector and prosperity paradox advocates must realise that the role of the private sector is, at best, complementary to that of the government and bad governments can and do dismantle the private sector and put a stop to entrepreneurship and innovation when they threaten their control of the society.

There is as yet, no alternative to good governance in the crafting of a successful and prosperous society. No wonder Francis Fukuyama opined that the development of a capable state that is accountable and ruled by law is the crowning achievements of human civilisation. As desirable and indispensable as the private sector is, our most immediate need in Africa is the creation of a capable state that is accountable. That is the only way we can banish hunger, diseases and wars and build the Africa of our dreams.