We need structural reforms for self, not just for FDI

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Emmanuel Macron,

The reasons behind our perpetual debt and policy ineffectiveness
Chris Chenga
In July at a G20 summit, newly elected French president, Emmanuel Macron, was chastised for suggesting that Africa’s main problem is one of “civilisation”. This remark was interpreted as condescending, racist, and deflective of France’s own contribution to Africa’s slow socio-economic development. But did his prognosis lack veracity?

Perhaps Macron was the one to say it because evidently in our own discourse, Africans hardly take onus to the civic and societal deficiencies that contribute to our stunted socio-economic development.

Macron had been asked if his new administration would introduce an African policy that would avail stimulus to the continent. Macron’s fault here was that he was overt in sharing why he wouldn’t offer such stimulus; other developed or emerging countries are not as forthcoming but they do share in this civilisation perspective. In fact, they term in within a narrative of “structural reforms”.

Structural reforms, unfortunately, carry a negative connotation largely in context to their conditionality as placed by potential financiers to the continent. Structural reforms are met with disparaging attitudes. Little appreciation is thus given towards whether or not structural reforms are benevolent to the civic and societal make up of our economies.

This is a civilisation problem! Civilisation is a civic, societal and governance order; a frame of conduct that influences an economy’s structure. If our civilisation was good enough for ourselves, then we would not be subject to chronic economic difficulty. Thus, we need structural reforms.

Rule of law
Legislation spells out rules and conduct. It clarifies the structures of reprimand and protection. The fact that we have not aligned our laws to a constitution that has been in place for several years reflects structural deficiencies.

This is a huge deterrent to any sustainable and consistent business outlook. After 2013, positive signals emanated from authorities as we pursued the Bankers Act and a framework for Corporate Governance, amongst other legislative promises.

Unfortunately, this only seemed to be as serious as multilateral creditors were teasing funding to Zimbabwe. Without visible efficiency at the highest level, which is constitutional alignment, there is little persuasive evidence of legislative tenacity beyond posturing for foreign financing.

Yet, the hazards of weak legislative frameworks have been apparent in corporate governance, fiscal management, and civil courts meant to settle business disputes. The fall of many local banking institutions and subsequent loss of depositors’ savings was a matter of abusive governance practices. Large retrenchments and mass employment at companies were a matter of corruption and abuse. In numerous cases, the drain of entrepreneurial pursuits in Zimbabwe has been the environment’s poor legislative deficiencies in terms of property and civic rights.

In the modern global economy, financing at an enterprise level targets companies that provide a service or produce a certain good exceptionally better than all competitors in a market. Nothing exclaims this competitive advantage such as Intellectual Property, trademark and patents.

Global investment patterns, whether FDI or even domestic investment, are indicative of economies were IP, trademarks, and patents are most secure. As Don Rosenberg, executive vice president and general counsel of Qualcomm, explained to an audience at the World Economic Forum in 2016, “technological advances and their economic benefits are rooted in the rule-of-law framework that has enabled secure investment into such innovation to occur and get to market.”

The World Economic Forum went further to find a co-relation between a nation’s competitiveness and IP rights. As the graph below shows, the proximity between dots and the regression line, indicate the strong co-relation (r=0,80) between a nation’s competitiveness ranking and its level of IP protection.

  Source: WEF’s 2015-16 global competitiveness survey

Without legislative frameworks to protect the element of competitive advantage, it is illiterate then to expect financial inflows into an economy. In terms of civic rights, legislative frameworks are deficient to an extent that is taking a toll not just on enterprises but government’ own fiscal capacity. For instance, local governments across the country have spatial plans and zoning ordinances. Consider the effect on commercial real estate by poor enforcement of these municipal structures?

If vendors, for instance, set up in front of commercial property, the value of that property falls. This is intrusion into the property owner and lease’s civic rights. However, not only is this cost to these entities, but it becomes a fiscal cost as rates are not paid and business moves out.

Moreover, commercial real estate and infrastructure are prescribed investment assets for a nation’s savings. Thus, poor municipal legislative enforcement not only infringes civic rights of business, but it stresses that nation’s fiscal capacity. Retaining legislative deficiencies is a matter of civilisation, reflective of civic, enterprise, and societal inadequacies contributing to our own socio-economic difficulties.

Poor structural discipline leads to policy ineffectiveness
The most telling trend of whether or not a nation’s civic, societal, and governance order is economically friendly is the rate of formalisation. A growing informal economy is indicative of a civilisation that is detrimental to enterprise, and the continuous disenfranchisement of market participants is telling. Most importantly, within a stimulus perspective, continued informalisation is detrimental to fiscal and monetary policy. This is a significant point that Macron alluded to in his remarks!

African countries are not attractive to lend huge sums of stimulus because we lack tangible accountability to that debt. Consider for instance, that Zimbabwe’s debt is over $7 billion.

That debt is supposedly cumulative of spending on public goods, infrastructure, and service provision. Yet, with increased informalisation, it means that fewer citizens are within structural capacity for government to service that debt. Macron was chastised for saying that African families bear too many children; he said 8 children in a household. Our governments often have a civilisation philosophy of universal access to public goods, infrastructure, and service provision. So as we accumulate debt to avail these to a household of eight, who will contribute to servicing that debt if both earners in that household are in the informal economy?

Instead of taking offense to Macron’s statement, maybe we can appreciate his empathy in that developed economies lending to highly informal economies is a significant reason why Zimbabwe is increasingly in a perpetual debt trap! We have a fiscal imbalance retained by deficient civilisation philosophy. This fiscal imbalance also makes our fiscal policy ineffective.

Europe has small informal (shadow) economy to GDP

Our informal economy makes monetary policy impotent. It also makes it difficult for our economy to sustain a formalised financial sector.

Consider that informal economies discount the notion of security; hence financial exclusion is so rampant and formal credit channels are hard to find. Also, the retention of informal sectors creates leakages in what should be contained monetary streams.

Foreign currency reserves are difficult to accumulate because in Africa they content with parallel market alternatives. This is why we have weak sovereign currencies across the continent.

 

Macron’s Africa Advisory Panel

The commendable aspect about Macron is unlike his predecessors, and European contemporaries, is that he seems to understand that whatever Africa’s civilisation problems may be, it will take Africans themselves to figure them out and proffer custom solutions.

On his African Advisory Panel of eleven representatives, Macron designated eight seats to individuals of African heritage. We need reforms to the way we organize our civic, societal and governance structure. It’s best we start taking accountability for it!

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