Poor Governance Effects On Growth Performance In Africa Economics Essay

Introduction

Governance has increasingly become a major instrument for the successful growth performance and development purposes in the world. Additionally, Governance and institution have also created attention to scholars as well as to international institutions such as World Bank and IMF. In Africa governance has been a concern since 1960s when some African countries got their independence (khan 2006).

There is strong evidence that governance and institutions affects growth performance of the Africa (World Bank 2005). However, there is no common set of governance or institutions that countries should follow, thus, it is linked to the country’s specific context. However, there is an agreement that it involves (the achievement of the Millennium Development Goals, the Poverty Reduction Strategy, sustainable development, wealth creation and etc). Nevertheless, successful developed countries have shown that their superior performance is due to good governance (Kaufmann 2005).

In Africa poor governance has led to poor economic growth and it is manifested through corruption, political instability, ineffective rule of laws and institutions. Some African countries went through governance failures and corruption at some point in time but their governance capacity made them recover and ensure the maintenance of rapid growth performance through constant demands to improve government and reduce corruption. However, this could not happen if governance capacity was poor and non sustainable (Makolo & Resta 2005). The challenge for Africa is to restructure the governance strategy and learn from other countries viable governance strategies that would be suitable to their own conditions. Thus, the actual governance system does not sustain good growth performance (Khan 2006).

The objective of the present paper is to give an overview of governance in Africa, in the context of the current governance debate by African countries for sustainable development, wealth creation and poverty reduction in conjunction with the governance initiatives undertaken by African countries. The paper is based on secondary sources including books, journal articles, online articles, research and studies done previously by various scholars, the government, the United Nations Organization, the World Bank, NGOs and donor institutions.

The essay is structured as follows: sections two provides a definition and discuss some indicators used to measure governance according to different scholars and international agencies. Section three discusses the empirical evidence on the relationship between governance and growth performance as suggested by experts, section four discusses the effects of poor governance on economic growth performance, section five challenges to governance in Africa followed by conclusions and finalize with the bibliography.

Definition and measurement of governance

There are many definitions and interpretations of governance. However, in general, in this paper governance will be referred as a process of decision making on which decisions are implemented. The term governance can be applied in the following context: international, national, local, corporate etc. The term good governance is used to compare ineffective economies and it refers to how public institutions conduct and manage public resources to guarantee the realization of the states plans and human rights (Emery 2003; Kaufmann 2005).

The United Nations Development Program (UNDP) refers to governance as “A” (UNDP 1997).

Similarly, the World Bank refers to governance as “B” (World Bank 1995).

The broad definition of governance makes it difficult to measure, however, some scholars and researchers use some indicators to measuring governance. Therefore, According to Kaufmann (2005) there are six major indicators that capture the quality of governance including: (i) Voice and Accountability: which refers to the participation of the civil society in monitoring and measuring political decisions on civil and human rights; (ii) Political Instability: it examines the vulnerability of government to changes through violent threats or unconstitutional means; (iii) Government Effectiveness: it measures the quality and the competence of civil servants in service deliver including their credibility as well as the effectiveness of the bureaucratic process; (iv) Regulatory quality: it measures whether the policies are friendly to the business environment; (v) Rule of Law: it measures whether the quality of law enforcement including: the police, the courts, as well as property rights are not vulnerable to crime or violence; and (vi) Control of Corruption: which measures the exercise of public power for private gain, including both bribery and extortion.

The Empirical Evidence

Empirical evidence suggests that there is a weak relationship between poor governance and poor growth performance, thus, it suggest that there is another important variable that would improve the growth performance that is not captured by governance. However, good governance is essential for good growth performance (Khan 2006).

Studies done by Knack & Keefer (1997); Mauro (1997); Kauffman et al. (1999) using some corruption and institutions as governance indicator and per capita income found that developed countries have better governance and low corruption, whereas poor countries have poor governance and high corruption. However the direction of causality is not clearly established, that is, it could be possible that the high income is related to development level.

Additionally, studied by Mo (2001), relating corruption and economic growth rates, found a weak relationship between these two and it even disappears when other variables are included in the model. Therefore, it is undeniable that corruption affects to certain extend the growth performance of African nation. Similarly, Khan (2006) Using data from the period 1980s and 1990s, and using the governance indicator against per capita growth, he found that good governance increase per capita income over the period.

Additionally, Sachs & Warner (1997) also demonstrated that countries with good institutions governance tend to have high rates of economic growth than countries with poor institutions. However, the direction of causality remains a controversy.

Governance and poor economic growth performance

In this section the paper will highlights the cause and impacts of poor governance on economic growth.

Causes of poor governance in Africa

There are many causes of poor governance in Africa, including: incompetence, ignorance and lack of capacity from the leadership as well as inadequate infrastructures, corruption, poor institutions etc, however the present paper will highlight corruption, institutions.

Corruption

Corruption takes place when public officials break the laws to fulfil their own interest. The most common types of corruption are bribery and extortion as well as allocation of public resources to favour political benefits (Obadina 2000). Therefore, in many African countries, corruption takes place as a rule based for decisions. That is, public officials influence the economics decision in detriment of the entire society. This results in inefficiency and high transaction costs as well as distortion of transparent and normal market operations and thus, creating insecurity for investors. Typically, African countries have a weak tax base and the policy makers lack integrity thus, facilitating corruption. Corruption is strongly correlated to poor public governance, however, the causality difficult to recognize (Siebert 2006).

Institutions

Institutions are rules of law governing the behaviour of the society. Generally, in most African countries institutions have been a failure because they serve to protect or support personal interests of the elite or leadership. Consequently, the government does not provide efficient institutional framework to sustain good governance, transparency and accountability from its institutions. In many African countries, weak institutions do not secure the required long run sustainable growth. However, many African leaders are contented with short term a solution that imposes long term cost for the nation. (For example: the budget deficits controls). Therefore, since the countries do not have a sustainable and efficient tax system some rely on monetizing through the central bank or public debt (Siebert 2006).

The functions of institutions consist of creation and implementation of economic policies, service delivery, and ensuring efficient use of public resources as well as law enforcement. Thus, good governance implies efficient institutions. Consequently,weak institutions acts as a barrier to sustainable growth in Africa. (Amoako 2003)

According to Khan & Senhadji (2000), poor governance by African countries has led to poor economic growth since it affects negatively investment, productivity, foreign Aid, consumption etc.

Investment

In many African countries public investment is hindered by poor political environment and quality governance, thus, investors including foreign investors tend not to channel investment to Africa, since the business environment is not conducive to secure sustainability and returns. Additionally, weak institutions and political instability retract private sector investment by reducing incentives. On the other hand, private investment benefits from the positive externalities of urbanization implied by the existence of productive infrastructures. Consequently, there is no incentive for investor to channel their funds to Africa because they are not assured about the return to their investment. African nations are failing to improve the governance, thus, blocking the economic growth that would result from foreign investments. The World Bank estimates that Africa only received 8% of private investment during the period 2001-2006 (Wiafe 2007).

External aid

Most African countries depend on external aid, thus, the efficient absorption of Aid to as well as the attraction of international donors would depend on quality of public institutions and service delivery accompanied by high skilled servant and capacity building. Therefore, strengthening the rule of law and property rights, improve the regulatory burden and avoid political violence would attract donors thus, increasing the probability of increasing the growth rate.

Challenges to governance in Africa

Governance concept per se represents a challenge for Africa, since there is no common definition applied to it. Thus, it is vast and subject to different interpretations. However, although constant debates on governance, there is still some controversy about the good governance. However, according to the World Bank, the challenges facing the African continent towards adopting sustainable governance are as follows:

Empowerment of the civil society: in Africa there is strong belief that better governance is done when government is strengthened. Thus, people participation in governance is poor in the continent. However, African countries need to motivate participation of the civil society in the countries’ governance so that the society will be empowered to demand accountability from the public sector managers and avoid mismanagement of public goods. Therefore, it is crucial to developed and strengthen instruments that allows civil society intervention and participation in governance. On the other hand a massive participation of the society would require high levels of accountability, credibility and efficiency of civil society organizations (Kaufmann 1999 & Khan 2006).

Communication and media: the media plays a very important role in disseminating and divulging societies’ opinion regarding socio political views and also act as supervisor to public sector managers. Therefore, in Africa it has been a great challenge to promoting media’s freedom of expression combined with professionalism, capacity and credibility. Additionally, in some African countries the private media are limited due to finance constraints, thus, unable to function efficiently. Therefore, the majority of the media institutions are state controlled thus, lacking independent (World Bank 2005).

Decentralization: the leadership in most African countries is centralized, thus, the local government do not have the power and authority to take any decision. Therefore, it hinders efficient the capacity of the local administrations. Thus, the opinion of the population is not legitimated by the local governance. Additionally, due to lack of capacity and authority, the local governments are not efficient in providing public service, nor accountable for their local institutions (Kaufmann 1999 & World Bank 2005).

Leadership building and public administration: it is not possible to have good governance under poor leadership. Thus, it is crucial to build capacity for policy development that would require visionary leadership, adequate resource and information management and efficient public service delivery. The above mentioned capacity building are required in a changing environment and are in line with the millennium development goals. Additionally, reforms in the public services capacity are needed including provision of incentives to public servants, to ensure motivation and increased performance, accountability and reduction in corruption. Public service delivery should be improved through capable and effective institutions (World Bank 2005).

Parliamentary system: The parliament should play a major role in eliminating corruption and encourages good governance. On one hand, for this to effectively happen, members of parliaments need to be independent and reinforced in terms of human and institutional capacity. On other hand, internal organization and procedures such as training opportunities as well as minimum literacy level are critical. Additionally, the parliamentary need to be provided with institutional resources such as, libraries or documentation centres (World Bank 2005).

Peace and stability: Conflicts and crises such as civil strife have affected governance in Africa as well as the establishment of sustainable growth performance. Although some countries have recovered from civil wars, good governance remains a challenge. This includes boosting national capacity to avoid crises in governance, maintaining good internal relationship and peace building, as well as reinforcement of issues regarding national security reducing and crime (World Bank 2005).

Institutions and human rights: leaders and society need to respect constitutional rules as a pillar of the rule of laws. Thus, any disrespect of laws would be a threat to stability. Additionally, the integrity and independence of the judiciary should be improved as it can reduce structural constraints. Protection to people’s rights including minority groups and vulnerable population should also be improved (World Bank 2005).

Conclusion

In conclusion, poor performance is a general concern in Africa, and is mostly explained by the persistence of inefficient markets, corruption, poor institutions, low government intervention as well as insecure property rights. Therefore, Africa needs an improved set of policy including political, economical and institutional reforms to break the persistent poor growth performance. The economic reforms should combine market liberalization, enforcement of property rights, improved institutions as well as credibility and accountability of public servants and leaders.

To eliminate public resource mismanagement and to ensure quality service delivery and effective bureaucracy, strengthen the rules of law as well as the promotion of credibility accountability and transparency, capacity building is also a vital process. Once the African countries successfully manage to get rid of the variables associated with poor governance and institutions, Africa will be in a better position to strengthen and boost its growth performance. Consequently, poverty will be reduced and wealth increased.