Observer on Saturday - - Analysis & Opinion -

One of the rea­sons that in­spired this col­umn is the de­sire to change and put the coun­try on the growth tra­jec­tory. I be­lieve that we can­not one and the same thing ev­ery time and hope to get dif­fer­ent re­sults.

It is my view that as coun­try some of the poli­cies we have tried have not given us the de­sired re­sult hence we have to change our ap­proach.

One of the key de­ci­sions that we need to em­brace is the un­der­stand­ing that for the coun­try to be on the growth path, gov­ern­ment’s in­volve­ment in busi­ness has to be min­i­mal. I be­lieve there is some­thing we can learn from some de­vel­op­ing coun­tries in Africa or East Asia or South Amer­ica. His Majesty King Mswati III’s vi­sion of Swazi­land is that it must achieve First World Sta­tus by the Year 2022, a tar­get which is now un­der five years away.

I be­lieve His Majesty the King can ben­e­fit a lot in terms of how we take Swazi­land for­ward if we can es­tab­lish a Chief Ex­ec­u­tive Of­fi­cers Coun­cil (th­ese are in­dus­try key play­ers) who other than Cab­i­net will have reg­u­lar meetings with the King to share ideas on what the coun­try needs to do in or­der to achieve its tar­get. Let me cau­tion though that the in­dus­try play­ers should be those who deal with the out­side world or should I say those who em­brace glob­al­i­sa­tion. As things stands, our econ­omy is heav­ily de­pended on gov­ern­ment and that is even il­lus­trated by the num­ber of pub­lic en­ter­prises we have, which tells you on face value that our econ­omy is in the hands of gov­ern­ment. It is my view that such a pow­er­ful board can bring fresh ideas on what Swazi­land needs to do to ac­cel­er­ate to­wards achiev­ing first World Sta­tus. Sin­ga­pore re­mains as a good ex­am­ple of a coun­try that achieved First World Sta­tus within a sin­gle gen­er­a­tion (within 30 years).

Hav­ing read Greg Mills’ book “Why Africa is Poor” and what Africans can do about it, I liked the points he makes in his con­clu­sion. In his book, Mills when he dis­cuss Swazi­land’s case he says much of our chal­lenge is at home, not ex­ter­nal. I quote: “The re­forms would have to go deeper than tin­ker­ing with bor­der open­ing hours or red tape, what­ever the im­prove­ments in busi­ness ef­fi­ciency th­ese changes could bring. For Swazi­land’s eco­nomic de­cline was rooted in poor gover­nance. Here resided the core chal­lenge, and it was one that had to be con­fronted by the Monar­chy alone. Self-preser­va­tion of the Monar­chy de­manded it gave up some of its pow­ers, wealth and priv­i­leges. Yet it would have to be done in a way that pre­served the strengths the in­sti­tu­tion of­fered Swazi­land. Such a re­form process would have to in­volve di­a­logue with the op­po­si­tion, headed by the unions. “But here are some good news. How­ever, des­per­ate its fis­cal sit­u­a­tion, Swazi­land is no Liberia or Congo. Things did work. There was a well-ed­u­cated pop­u­la­tion. Its in­fra­struc­ture was sound. It was lo­cated next to – and could ser­vice – the more pow­er­ful econ­omy in Africa, South Africa. But to do all this, it needed both the right di­ag­no­sis and medicine. “One civil so­ci­ety ac­tivist said: ‘We need to face the facts head on. It’s like go­ing to a doc­tor. We need to say what the prob­lem is oth­er­wise we will get the wrong treat­ment.’ To make full use of its as­sets, Swazi­land would have to shift from de­nial to deal­ing with its core po­lit­i­cal chal­lenges to its eco­nomic health.” So deal­ing broadly with the chal­lenges fac­ing Africa and Swazi­land in­cluded, I find his con­clu­sion rel­e­vant to what we also need to do.

En­sur­ing the ba­sics are in place:

Long-term, job in­ten­sive growth is go­ing to be dif­fi­cult with­out en­sur­ing the fol­low­ing el­e­ments; macroe­co­nomic and po­lit­i­cal sta­bil­ity, skills, trans­parency, rule of law, gov­ern­ment ef­fi­ciency, suit­able in­fra­struc­ture, hon­esty and har­mo­nious re­la­tion­ship with unions and mer­i­toc­racy.

Tar­get­ing spe­cific sec­tors and multi­na­tion­als:

In suc­cess­ful high growth coun­tries, gov­ern­ment agen­cies es­tab­lished which busi­nesses needed in­vest­ment and wher­ever pos­si­ble pro­vided it, tar­get­ing busi­ness abroad, recog­nis­ing that multi­na­tional cor­po­ra­tions brought not only cap­i­tal and skills, but tech­nol­ogy. Along­side pri­vate in­vest­ment, bank credit is the lifeblood of an econ­omy. Africa will not reach the nec­es­sary dou­ble-digit growth un­less mar­ket ac­cess is opened up and a bank­ing regime put in place that fa­cil­i­ties the flow of cap­i­tal. At the same time, there is a need to limit the lever­age of the banks (eight times may be a rea­son­able level), thereby forc­ing them to be well cap­i­talised, but crit­i­cally at the same time en­sur­ing that the mi­cro­man­age­ment of such in­sti­tu­tions is avoided.

Em­brac­ing and cham­pi­oning glob­al­i­sa­tion:

This re­quires ef­forts into at­tract­ing and not pro­tect­ing in­dus­tries. Such an out­ward ori­en­ta­tion de­mands be­ing aware of and re­spond­ing to com­pe­ti­tion: from the re­gion, for ex­am­ple and from oth­ers, in­clud­ing BRICS (Brazil, Rus­sia, In­dia, China and South Africa). This de­mands coun­tries con­tin­u­ously rein­vent­ing their economies and al­ways be­ing price sen­si­tive given that costs are an im­por­tant as­pect of com­pet­i­tive­ness. It re­quires build­ing and re­fresh­ing com­pe­tences, teach­ing peo­ple to think and not just to learn, and fo­cus­ing on re­sults rather than only pro­cesses of gov­ern­ment.

Lib­er­al­is­ing ac­cess:

Africa is not able to com­pete utils­ing its hu­man cap­i­tal ad­van­tage with­out open­ing up ac­cess – for both trade and peo­ple. The costs of trade is not just about tar­iffs, but also the costs of de­lays at the bor­der and the pa­per­work in­volved. An am­bi­tious, for­ward look­ing agenda would seek, within a short time frame, to re­move all im­port and ex­port quo­tas and tar­iffs. After all, what in­dus­try is much of Africa seek­ing to pro­tect? The gov­ern­ment could also com­mit to a dead­line to dra­mat­i­cally sim­plify im­port and ex­port pro­ce­dures, set­ting a goal that it should take no more than, say ten days to im­port or ex­port things. In­stead of es­tab­lish­ing new tar­iff bar­ri­ers, gov­ern­ments should com­mit to adopt­ing the stan­dards and tech­ni­cal spec­i­fi­ca­tions of OECD coun­tries and other ma­jor trad­ing part­ners. Tourism would sim­i­larly be ex­pe­dited, as in Ge­or­gia for ex­am­ple, through the re­moval of visa re­quire­ments for cit­i­zens of all coun­tries with a per capita greater than a cer­tain level. Mak­ing a coun­try eas­ier to visit en­cour­ages a greater vol­ume of tourists, crit­i­cal for an in­dus­try with con­sid­er­able eco­nomic mul­ti­plier po­ten­tial. Other such “soft” is­sues, such as the welcome given (or not) to ex­pats, are sim­i­larly im­por­tant to in­vestors.

Align­ing gov­ern­ment, the unions and busi­ness in a shared growth for­mula:

Lead­er­ship should be able to as­sert a vi­sion of shared pros­per­ity – or fail­ure. It is es­sen­tial, too, to em­ploy the con­cept of ‘whole gov­ern­ment’: en­sure there is no over­lap, and that gov­ern­ment de­part­ments are func­tion­ally fo­cused and aligned.

Tax re­form:

Widen­ing Africa’s tax base and in­come, in­creas­ing its for­mal em­ploy­ment and mak­ing it more at­trac­tive to in­vestors all have one com­mon as­pect to their so­lu­tion: tax re­form. The ba­sic build­ing blocks of this pariah are for sim­pli­fied ad­min­is­tra­tion, fewer tax cat­e­gories and for low, flat taxes. This is a crit­i­cal build­ing block for growth and re­cov­ery beyond aid. It would also as­sist in elim­i­nat­ing rent seek­ing. Such an ap­proach would aim to en­cour­age liq­uid­ity and in­vest­ment through sav­ings by elim­i­nat­ing taxes on sav­ings, cap­i­tal gains, and in­come on div­i­dends and in­ter­est.

Food se­cu­rity and di­ver­sity:

Con­tem­po­rary African schemes have fo­cused largely on short­term donor fi­nanc­ing of in­puts, no­tably seed and fer­til­izer. This has been both eco­nom­i­cally and so­cially costly, and not nec­es­sar­ily ef­fec­tive. Gov­ern­ments should back pri­vate sec­tor-led ex­ten­sion ser­vices. This would en­able Africa to quickly achieve food self suf­fi­ciency and se­cu­rity and re­duce re­liance on donors to en­able such monies to be put to pro­duc­tive rather than of­ten con­sump­tive pur­poses. Such pri­vate sec­tor-led schemes have been suc­cess­ful else­where on the con­ti­nent, no­tably in Mozam­bique.

Pub­lic ser­vice re­form and dereg­u­la­tion:

The es­tab­lish­ment of a mer­i­to­cratic, pro­fes­sional civil ser­vice is vi­tal. As Lee Kuan Yew ob­serves, the sin­gle most de­ci­sive fac­tor in Sin­ga­pore’s suc­cess in trans­form­ing it­self from a swamp to a de­vel­oped na­tion in 30 years was the ‘abil­ity of its min­is­ters and high qual­ity of civil ser­vants who sup­ported them.’ The ob­jec­tives of any re­form pack­age should be to stream­line and en­hance the qual­ity of pub­lic ser­vices, thereby re­duc­ing the bur­den on al­ready weak gov­ern­ment (and over­bur­dened peo­ple) through fewer reg­u­la­tions, li­cens­ing, and per­mits. This would also min­imise the op­por­tu­ni­ties for cor­rup­tion, in­volv­ing a full re­view of ev­ery per­mit re­quire­ment. African gov­ern­ments should con­sider a li­cens­ing law that min­imises the in­ter­ac­tions re­quired, cre­at­ing a sin­gle win­dow con­cept for ap­pli­ca­tions, min­imis­ing bu­reau­cratic dis­cre­tion by adopt­ing the si­lence is con­sent prac­tice law, that no re­sponse within a set num­ber of days deems grant­ing of the au­thor­ity by the gov­ern­ment. This could also freeze the num­ber of li­cences re­quired by law.

Em­pow­er­ing labour:

The aim of any leg­is­la­tion should be to en­cour­age new en­trants into the for­mal labour mar­ket. This car­ries ad­van­tages, po­lit­i­cal and eco­nomic, of in­creas­ing the size of the very small mid­dle class, in­creas­ing bank­a­bil­ity. This re­quires the re­new­ing of labour codes in a way that takes the gov­ern­ment out of ne­go­ti­a­tions be­tween busi­ness and em­ploy­ees. Since wages and for­mal em­ploy­ment lev­els have de­clined so markedly, there would be much at­trac­tion in not adopt­ing a min­i­mum wage, a la Sin­ga­pore and Ge­or­gia.


Use of fis­cal in­cen­tives for in­vestors has been a suc­cess­ful spur to growth, as see in suc­cess­ful de­vel­op­ing coun­try cases such as Costa Rica, El Sal­vador, Colom­bia, Sin­ga­pore, In­dia, Malaysia, Viet­nam and Morocco.

Keep­ing the cur­rency com­pet­i­tive:

Keep­ing the cur­rency weak, and thus en­cour­ag­ing ex­ports, is a chal­lenge, es­pe­cially where there is a pri­vate bank­ing sec­tor. Where the gov­ern­ment owns the banks, it can con­trol the ex­tent of credit and money sup­ply, thus lim­it­ing the dan­gers of in­fla­tion. While any gov­ern­ment can print more money to weaken its cur­rency, this runs the risk of in­fla­tion where gov­ern­ment can­not con­trol the banks. Peg­ging the cur­rency value can also lead to prob­lems, in­clud­ing cur­rency volatil­ity and less strict ad­her­ence to the fun­da­men­tals, es­pe­cially unchecked state spend­ing. For com­mod­ity ex­porters, ster­il­is­ing in­flows by plac­ing them in a spe­cial fund is one method to avoid Dutch dis­ease. Set­ting a high ratio of re­serves to lend­ing can en­sure the bank­ing sec­tor lim­its lend­ing even where the cur­rency is cheaply val­ued.

Fi­nan­cial in­clu­sion:

‘Fi­nan­cial’ and ‘tal­ent in­clu­sion’ is key to ex­pan­sion. The ex­ten­sion of a credit sys­tem to pre­vi­ously marginalised peo­ple will not only im­prove their lives by bring­ing them into the for­mal econ­omy, but can also cre­ate, but can also cre­ate a groundswell of eco­nomic change to drive African economies for­ward. Sim­i­larly, there is a re­lated need to teach good fi­nan­cial habits to po­ten­tial en­trepreneurs, re­duc­ing the im­pact in the process of the greater birth lot­tery – where and into what they were born.

Greg Mills closed by quot­ing Adam Smith’s golden rule of eco­nomics which is that trans­ac­tions will take place if both sides mu­tu­ally ben­e­fit. “Put dif­fer­ently, it is about price and tech­nol­ogy com­pet­i­tive­ness – for the man­u­fac­turer, this re­quires be­ing able to sup­ply some­thing to the mar­ket cheaper than their com­peti­tors. For coun­tries start­ing on a de­vel­op­ment path, catchup growth de­pends on el­e­ments of so­cial and po­lit­i­cal sta­bil­ity – es­sen­tially peace – plus the fac­tors of labour and cap­i­tal. If you are poor, small ad­just­ment make growth pos­si­ble and easy.”

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