The Market, Democracy and Development in Africa

A Keynote Address
at the 40th Anniversary of Africa Confidential
by K.Y. Amoako
UN Under-Secretary-General and Executive Secretary of ECA,
19 April, London

Chairperson,
Distinguished ladies and gentlemen,
Friends,

We live in an unfair world! Instead of allowing me the pleasure of commenting upon Africa Confidential's 40 years of cutting edge investigative journalism; instead of giving me the task of speaking to its influence, consistent quality and foresight; I am asked to explain the economics, politics, and governance of 48 nations in sub-Saharan Africa; thousands of cultures; and over 600 million people! It does make a person wonder whether we have really come that far when a poor African is still doing the heavy lifting for the British!

It is amazing, even to me, that I have agreed to do this and that I do so with pleasure! I do so because of my respect for the publication and for the many talented and concerned Africanists gathered here today. I am particularly honoured to be on this panel of distinguished persons- all of who are also friends I have known for a long time.

Now to serious business:

There are things we celebrate in the forty years that Africa Confidential has kept its eagle eye on the intrigues of the continent. We celebrate the sub-continent's complete transition to independence, historic gains in lifespan, an enormous growth in education, the growth of a middle class of enterprise and professionals, the establishment of numerous centres of reflection and publication, as well as vibrant and flourishing cultures.

These achievements are significant against the backdrop of artificial colonial boundaries and the major disruptions that have been almost a constant: be they civil conflict, droughts and starvation, the oil and other commodity crises, the debt crisis, the adjustment crisis, drought and most recently in Southern Africa, the floods. Economists and political scientists (as well as development assistance institutions) operate equilibrium models on an assumption of a normality that we have rarely had.

After the "lost decade" of the eighties when tumbling commodity prices, debt, economic and political mismanagement brought African economies to near bankruptcy, the majority of African countries have embarked on International Monetary Fund (IMF), World Bank and donor supported economic reform programmes. For five years running, Africa's gross domestic product (GDP) grew faster than its population, meaning a rise in per capita income, as compared to the falling living standards of the previous fifteen years.

Demands for more open, democratic and transparent government accompanied economic liberalisation in many countries. The independent media and civil society blossomed. The ending of apartheid and peace prospects in Southern Africa gave a tremendous boost to the continent in the final decade of the last millennium. According to a recent survey by Freedom House, during the last ten years Africa has, overall, moved from "not free" to "partly free". We have even started to talk of an African Renaissance.

Still, poverty is higher in Africa than in any other region of the world. Two out of five Africans subsist below the poverty line; the majority of these are women. Africa has a very uneven distribution of income. The richest twenty percent of Africans own 51 percent of total income, compared to 40 percent in western countries and in South Asia.

For Africa to achieve the internationally agreed target of reducing poverty by half by 2015, its economies would have to grow by eight percent per annum; more than double the rate achieved last year. The World Bank calculates that the poverty reduction goal will be met in most parts of Asia and Latin America. But that is far from the case in Africa. In essence, the present forecast is that the world's poverty will become even more concentrated in Africa.

I am going to make two key arguments today. First, we are not doing nearly enough to resolve conflict in a sustainable way. Where there is conflict there is no democracy, there is hardly an economy, and- as we've seen in Somalia and Liberia- one may even question whether there is a state. Until we grapple with this issue, we can't talk about growth, let alone a locomotive for growth.

Probably the strongest correlation which researchers have come up with in looking at the relationship between political systems and economic performance is between political instability and poor economic performance. What is not in doubt is that conflict and political instability are far more inherent in non- democratic, than in democratic regimes.

This is borne out by our own work at ECA. Last year, we introduced a measure for economic sustainability, that is, a country's medium to long- term capacity to produce outcomes consistent with poverty reduction. In this year's report to be published shortly, entitled "Economic Report on Africa 2000: Initial Conditions for Africa's Development in the 21st Century" we deepen this analysis by comparing the performance of African countries over the last twelve years.

The analysis, covering 33 countries, shows that while 26 countries registered positive changes, seven countries experienced substantial decline. A key finding is that most of the best performers benefited from the cessation of civil wars, greater stability, economic, and political reforms. Conversely, almost all the bad performers suffered from serious civil conflict and unrest. Since the end of the Cold War, there has been a shift in Africa- as in other parts of the globe- from inter state to intra state conflicts with an even higher degree of civilian casualties and human misery.

We need to work much harder on a strategy for avoiding conflict, encouraged by recent studies showing that ethnic diversity, rather than being the main cause of conflict, could be a stabilising force. Studies have identified political and economic development failures-- which have led to high levels of poverty, and heavy dependence on resource- based primary exports, as the prime causes of conflict. Political liberalisation, democratic reforms, diversified economies, higher standards of living, broader economic space beyond national borders and high quality institutions for economic and political management are critical to preventing conflict.

My second argument is that the relationships between free markets, democracy, development and poverty reduction are complex. I will advocate the market approach but in the context of a strong and capable state. I will seek to illustrate that a capable state is far more likely than not to be found in a situation of deepening and genuine democracy.

If we flick back through history we will see that there is no automatic relationship between free markets and democracy. Western countries, it is often pointed out, began accumulating wealth through wholly undemocratic means, including slavery and colonialism. The tigers in east Asia were nurtured in quasi- autocratic environments. Moves there towards political freedom followed recently and in some cases still do not satisfy western criteria for democracy.

Democratic governments, it could be argued, face tougher challenges introducing economic reforms than autocratic ones. If put to the vote, most Africans would not opt for the starvation wages and austerity measures in IMF and World Bank sponsored packages! Several studies show that non- democratic regimes have, on average, been less successful in reducing poverty. Yet even in some flourishing democracies there are pockets of extreme poverty.

The predominant approach to market-based reforms has been through liberalisation, creating capital markets and privatisation. Yet underdevelopment is typified by market failures arising from externalities, information asymmetry, and monopolies, wherein free markets under- provide social services and infrastructure critical to poverty reduction. The latter responsibilities are left to the state to handle. A market system working within a framework of poverty reduction led by a strong state can reduce poverty, but there is nothing inherent within the market system that ensures it.

It is now accepted even in Washington that the Washington consensus was too narrow. While Joseph Stiglitz has now left the World Bank his impact on development thinking has not. His critiques holding that we need to move from adjustment to societal transformation of the poorest countries, which underlies sustainability, is a particularly well-taken view.

A danger that Africa faces is that because of the disastrous performance of the state in the past, any kind of state intervention may be seen as negative. At ECA, we believe that a strong and capable state is pivotal to sustaining economic recovery. As the UN Secretary-General so eloquently put it in his report prepared for the upcoming millennium assembly: "Weak states are one of the main impediments to effective governance today...For the good of their own people and for our common aims, we must help to strengthen the capacity of those states to govern, and not undermine them further".

How can democratisation help to ensure the creation of capable states? The predominant test of good governance in recent years has been whether competitive elections and smooth transitions take place. But, as a recent World Bank report on Africa notes, "a sharp distinction should be drawn between formal and real democratisation". During the 1990s, 45 out of 50 African countries held multiparty elections, in addition to the four African countries that had such a system at the start of the decade. But in only ten elections did these lead to a change of government. With the significant exception of Senegal, the trend in the most recent elections on the continent appears to be one of even fewer changes in government.

We have not yet reached a stage in Africa where governments that perform poorly are sure to be forced out of office through public opinion and the ballot box; or where the mere threat of this serves as a deterrent to bad governance. African countries, including those that undertake routine elections, continue to rank highly in the global corruption index. Scandals are not just about the odd greasing of palms but about drug trafficking, hazardous waste, trading in arms and white collar crime, including the diversion of public funds intended for development and poverty reduction.

The lack of confidence by Africans in their own governments is manifest in the poor supply side response to the economic reforms undertaken over the last decade. It is shocking that fifteen years after adjustment began, we should be looking solely to foreign aid to plug Africa's financing gap rather than to internally generated domestic savings or indigenous private entrepreneurs. This is not just because of the debt overhang, though that is a contributory factor. Nor is it because Africa's income is so low as to preclude increases in domestic savings. In India domestic savings are eleven percent of GDP higher than in Africa, where per capita income is twenty percent higher than in India! The accumulated loss of faith by Africans in the regimes that govern them is so profound that Africans either prefer immediate consumption to savings; or are exporting their savings through capital flight.

This links to another barometer of sustainability- the direction of talent, which is still outward- bound from Africa. Several hundred thousands highly educated Africans live and work abroad, while Africa spends $4 billion of its Overseas Development Assistance (ODA) per annum on buying foreign expertise. Over 100,000 experts from developed countries are currently employed in Africa. The brain drain is destroying the core of Africa's knowledge producing institutionsùthe universities. Very few of these academic refugees are going to the more flourishing countries within the continent, most of which have adopted restrictive approaches to immigration at times bordering on xenophobia.

Foreign Direct Investment (FDI) is another measure of confidence. The rate of return on FDI to Africa is 29 percent per year, higher than in any other region of the world. Yet only four percent of the total investment pouring into developing countries is going to Africa. It is no good moaning about why investors aren't coming to Africa. If Africans don't have the confidence to come back, and if African entrepreneurs don't have the confidence to invest, why should foreign investors, who have the whole globe to choose from, act any differently?

In a sense the international community has been both too hard and too soft on Africa. It has demanded often- nonviable adjustment, but at the same time it has settled on the forms of governance rather than the substance. The real tests in Africa are less the outward trappings of democracy and economic reform than the longer term determinants of sustained recovery: investment in education, health, coping with HIV-AIDS, investment in infrastructure, a vibrant civil society, unfettered press and viable opposition parties.

In summary, macro balances, or getting the prices right, is not economic reform just as casting a ballot is not democracy. The hallmarks of a capable state are strong institutions of governance; a sharp focus on the needs of the poor; powerful watchdogs; the rule of law; intolerance of corruption; transparency and accountability in the management of public affairs; respect for human rights; participation by all citizens in the decisions that affect their lives; as well as the creation of an enabling environment for the private sector and civil society. If you ask which of these should be the locomotive for growth, I'd have to say-- all of them. We need to stop thinking of ourselves as a single engine train, but rather a jumbo jet, with several engines revving up for take off, and several more back ups in case of engine failure.

Does all this mean bleak prospects for Africa? Certainly not! In fact, I am optimistic about Africa's future because I am optimistic about some of the long- term determinants of transformation in the continent.

As an example, we are here today to celebrate a publication on Africa that has survived the harsh economics of publishing about the continent and proven the value of a probing media in the quest for transparency and accountability. Despite the financial and political odds confronted by the media in Africa, the last decade has witnessed bold new ventures that are holding governments accountable and showing politicians that it is not enough to win votes on election day without delivering on electoral promises.

I see more recognition that parliaments must be strengthened, particularly in their capacities to understand development issues and in their abilities to perform their legislative, oversight and regulatory roles. Leaders in a few countries are taking decisive steps against corruption and hopefully this will catch on.

The gender revolution is unleashing vital energy for good governance and development in Africa. As Ugandan MP Winnie Byanyima puts it: "Throughout Africa, women are preparing themselves for greater and better political participation. They are inviting the men folk to seize the opportunity and embrace true democracy and good governance by opening up political systems to women. There can be no turning back... this is the call of history.... The question is, on which side will you be caught-for change, or for resisting change?"

I see a far greater interest within Africa on policy issues. That is why our web site is receiving well over 100,000 hits a month, mostly from within Africa. And that is why we are able to draw upon a much wider and deeper range of African scholarship in our work.

Information technology is opening vast new opportunities for Africa. For once, we have a technology that is getting cheaper, more accessible and that enables us to leapfrog the linear concept of development to which we were hitherto condemned. A decade ago, only a handful of African countries were connected to the Internet. Now the opposite is true. And if ever proof were needed that there is entrepreneurial spirit out there, it is the growth of indigenous African IT companies spurred on by the low overheads and lucrative returns of the business. At the request of member governments, ECA is leading the Africa Information Society Initiative that aims to accelerate the information revolution on the continent.

Increasingly networked through the Internet and coming to the fore in the national and international arena, African civil society has become a vital mirror for, and conscience of, the continent. African NGO's were to be found protesting against unfair trade practices at the World Trade Organisation (WTO) ministerial meeting in Seattle last year. They are actively involved in the Jubilee 2000 campaign for the cancellation of all debt to the poorest countries of Africa; witness the demonstrations of the last few days at the spring meetings of IMF and World Bank.

Indeed, it would be wrong of me to let the international community off the hook in this discussion on the relationship between markets, democracy and development in Africa. Just as unregulated markets are unlikely to lead to poverty reduction at home, a global trade system governed by the law of the jungle will simply exacerbate the divide between rich and poor countries.

For all the talk on free trade, the World Bank estimates that high tariffs, anti dumping regulations and technical barriers to trade in industrialised countries cost sub-Saharan African countries $20 billion annually in lost exports. In other words, we lose more because of trade barriers than we gain because of aid! If rich countries want unfettered access to our markets, we require that they open their markets to us so that we can earn, rather than beg, our way out of poverty. Democratisation, transparency, accountability and good governance at the national level must be replicated at the international level!

Of course, our best guarantee as Africans for making these demands in WTO and in other global fora is to speak with one voice. We have known that this is so from the day Kwame Nkrumah addressed the inaugural meeting of the Organisation of African Unity (OAU). We have engaged in several experiments on regional integration. Now the moment of reckoning has come. We simply can't afford to procrastinate any more.

All around us, in Europe, Asia, North America and Latin America we see the emergence of strong regional blocs that are serving the interests of those nations. Clearly, no nation state in Africa can live in isolation and hope to survive. Yet in the Abuja treaty, Africa set itself a leisurely pace for achieving an Africa Common Market by 2025.

I can think of no better way to end than with the words of one of our greatest statesmen, the late Mwalimu Julius Nyerere, when he said, at the 40th anniversary of Ghana's independence in Accra in 1997:

"Of all the sins Africa can commit, the sin of despair would be the most unforgivable.... Unity will not make us rich, but it can make it difficult for Africa and the African peoples to be disregarded and humiliated.... My generation led Africa to political freedom. The current generation of leaders and peoples of Africa must pick up the flickering torch of African freedom, refuel it with their enthusiasm and determination, and carry it forward".

Thank you and Happy Birthday!