Economic and Corporate Governance

ADF October 2004; Addis Ababa Panelist talking points

Mr. Philibert Afrika, Director of Operations Policy and Review Department of the African Development Bank.

The ADB representative would focus on economic and corporate governance, especially the issues that should be given prominence; how to ensure buy-in into the whole governance monitoring process; the opportunity for institutional collaboration and measures for practicalising such collaboration.

AGR:
The presentation of the AGR has outlined the meaning of governance, and the speakers before me have pointed to the unique features of the AGR project with regard to methodological issues. But before I point to the issues that should be given prominence regarding economic and corporate governance, I want to stress the fact that the kind of government that is in power in a given country (and the strength and relevance of local institutions), the quality of its leadership, its vision and integrity, and its commitment to the common good are keys to the emergence of a conducive political governance, the requisite foundation of economic and corporate governance.

Economic Governance:
Economic governance encompasses the policy, institutional, and legal environment in which an economy functions. Usually, economic governance is interested in public financial management and accountability, integrity of the monetary and financial systems, and the regulatory frameworks. While economic management is getting better in Africa according to the AGR and many African countries have made considerable progress in developing economic governance frameworks, the pace of economic change in Africa remains slow. Indeed, budget deficits are shrinking, better procurement rules are adopted and budgetary processes are streamlined through the Medium Term Expenditure Framework (MTEF), and inflation is down in many countries. But, on the basis of recent studies, I want to point to the following lingering issues that are obstacles to sound economic governance: (i) weak public management in an accountable manner; (ii) difficulty in Africa to implement development and poverty reduction policies with scarce resources; (iii) lack of a credible policy environment that would attract investors and boost trade; (iv) lack of credible anti-corruption, anti-money laundering and terrorist financing policies and related action; (v) low absorptive capacity to mobilize aid and financial resource; and (vi) reluctance to implement participatory approaches in the , decision-making and execution processes.

Corporate Governance:
Corporate governance is understood generally as the law, regulation and best practice under which a corporation's management is accountable to shareholders and other stakeholders, for the efficient management of the business, the attainment of its business objectives and legal compliance. The AGR shows that the private sector is getting more encouragement from governments that have put in place an number of incentives to invest and have improved markedly the private sector environment. Those measures have often be adopted with the participation of private sector actors. But the situation is far from being adequate in many countries. Indeed, Africa is characterized by a myriad of family or small private companies, cooperatives, state-owned corporations and informal undertakings, with few listed entities. It means that prior to the adoption of regulatory frameworks, empirical research is a prerequisite. While the mix varies country by country, the issues I have identified with regard to corporate governance in Africa from recent studies, are the following: (i) weak awareness of the need for effective corporate governance and practices among policy makers, business leaders and the financial market intermediaries; (ii) lack of policy initiatives that would address corporate governance issues; (iii) ignorance of shareholders' rights; (iv) absence of investors' confidence in the region; (v) hesitation to rely on best practices so as to build on key corporate governance concepts such as transparency and accountability;(vi) lack of skills and competence. For corporate governance to bring about tangible results, despite a context of a lack of familiarity with the corporate governance concepts, the demand for related principles must come mainly and primarily from the business community.

For both economic and corporate governance, a major challenge/issue is to improve the capacity of Africa's institutions and people for better results on the ground.

Rationale for monitoring progress:
A good governance system may thrive where the following exist: credible information and statistics (accurate, timely, dependable and easily understandable), alert media, standards or codes of conduct, oversight bodies, and an enabling environment for all those elements to be self-reinforcing. It is key to convince stakeholders of the necessity for monitoring progress on governance matters: the following arguments may be used: (i) the information produced can be a significant input to the decision-making process and prioritization, (ii) monitoring reveals the performance of ongoing activities at the project or sector, level, (iii) it promotes future learning and improvement, i.e results-based management, (iv) assessment of institutions and processes are facilitated by gathered information and indicators, (v) it contributes to accountability mechanisms (managers' performance assessment). Finally, regarding the need to convince the donor community for increasing current levels of ODA, (vi) progress on governance will have to be assessed and monitored in the translation of commitment to global standards of governance (as outlined i.e in the NEPAD framework) into constitutional and legislative measures, and in concrete institutional and sectoral reforms.

Collaboration in the monitoring process:
At the national level, it is important that the basic monitoring processes on economic and corporate governance (but in fact on governance in general) are owned by the countries, with credible local monitoring institutions that are provided with skilled staff. In our view, those national monitoring mechanisms would focus on the broadest possible range of indicators. It is key that those monitoring mechanisms be used for enhanced parliamentary and civil society oversight. Those monitoring mechanisms should also be geared towards assessing compliance with agreed governance undertakings, including those identified eventually through the African Peer Review Mechanism. In addition, local partnership between the public sector, the private sector and the civil society should be promoted in the search and analysis of up-date and reliable information. Continued strengthening of technical capacities of monitoring staff and dissemination of gathered information would be required. Moreover, assessing the regular implementation of initiated activities so as to adjust them would ensure the sustainability of governance reforms.

Once those national mechanisms are in place with the backing of local political commitment, the donor community and international organizations can assist in providing resources and expertise for capacity building, insofar as the governance environment is conducive to the effective use of skilled personnel. Important input from development partners is the continued collaboration on developing reliable result-based management indicators on economic and corporate governance matters. Finally, given the importance of data collection on governance, close collaboration among the development partners and countries could be structured under the aegis of the ECA, to assist countries in gathering and disseminating information, preferably in regional contexts.

The African Development Bank on Economic and Corporate Governance:
In the context of the above-mentioned global issues on economic and corporate governance, the African Development Bank has been preoccupied by the following questions: (i) How can improvements in standards of public financial management and accountability, including in procurement, be accelerated? (ii) Do tax administrations practice transparency and exchange of information? To what extent does a lack of transparency contribute to abuse of the financial systems? (iii) How can governments work in a coordinated manner with the private sector to enable maximum contribution to the development agenda? (iv) How can corruption be effectively tackled at the national and regional level in Africa, (v) How can the donor community improve their assistance? (vi) Are laws and regulations in place able to prevent money laundering and other crimes, including terrorist financing?

The African Development Bank has assisted African countries in tackling public financial management issues, including on procurement and tax administration. The Bank has developed a zero-tolerance policy on corruption and joined efforts with partners (ECA, Transparency International) in sensitising African countries on this important problem. The Bank is also convinced that corporate governance in Africa is key to attract investment and a strategy and action plan are being developed on the basis of specific surveys in a number of African countries. The Bank is actively working on harmonisation so that donors' assistance is provided to African countries on the most efficient manner in the governance area. Finally, I want to indicate the Bank's increased efforts to tackle anti- money laundering and terrorist financing (AML/CTF) problems in Africa. A strategy is being worked out in he Bank and contacts have been made with development partners and AML/CTF regional entities in Africa, to devise the best assistance that can be provided at the national and regional level. This will undoubtedly improve the economic and corporate climate in Africa for efficient use of scarce resources and increased attraction of foreign direct investment.