Why governance for structural transformation matters

THE concepts of governance and structural transformation are central and important in moving our continent forward towards the development trajectory envisioned in both the 2030 development agenda and Agenda 2063.

Governance can be understood, broadly, as the set of factors that influence how power is exercised.

It comprises the complex range of mechanisms, processes, relationships and institutions through which citizens and societal groups articulate their interests, exercise rights, meet their obligations and mediate differences.

Governance determines which public policies get adopted and how they are implemented.

There is a growing consensus that African countries require a more conducive governance environment for them to be able to pursue better public policies and ultimately to achieve better outcomes, including structural transformation and inclusive development.

The fundamental reality is that development and structural transformation are not an overnight phenomenon.

Development results from long-term strategies, policies and effective partnerships with the various agents of global, regional and local production and innovation systems.

There are a number of areas where governance is an important and necessary condition for economic diversification, value addition and transformation.

Let me give a few examples first in the area of resource mobilisation.

Today Africa still lags behind all other regions in terms of resource mobilisation.

LAC 22 percent on average, OECD 34 percent and Africa 19 percent.

The informal sector, tax evasion and illicit financial flows are important issues of governance the continent must address to accelerate its transformation agenda.

We need these resources for research and development, to put more girls to school, keep more kids healthy, increase investment. The are widespread perverse effects of illicit financial flows on African economies.

In particular, these flows represent a substantial financial drain on the continent, which reduces the continent’s ability to make the investments needed in education, health, science, technology and infrastructure to achieve its goal of industrialisation.

Indeed, the latest estimates from ECA indicate that, over the period 2000 to 2015, Africa lost $73 billion annually net through illicit financial flows through trade re-invoicing alone.

This is in addition to around $27 billion estimated net annual losses through other channels, as highlighted in ECA’s forthcoming Study on the Global Governance Architecture for tackling illicit financial flows.

Taken together, this represents around $100 billion annually, and we know that this is a very conservative estimate.

This represents around 4 percent of the continent’s GDP.

As such, strengthening the institutional architecture designed to tackle these flows must be a priority for the continent.

Infrastructure and energy

We all agree that without adequate access to energy, Africa will not be able to accelerate and sustain the growth process.

However, today over 600 million people on the continent do not have access to energy.

Sub-Saharan Africa, according to a recent report, has only 300 000 km of power lines compared to over 10 million in the EU. Access to energy is not due to lack of base resources.

With Africa’s major hydro resources Africa can produce over 283 gigawatts of energy. Less than 10 percent of this clean energy source has been tapped to date. Ethiopia, Niger, of course, and Guinea are a few notable examples.

Under developed energy infrastructure and growing demand could help attract more private sector investment and accelerate energy development.

However, for this we need to improve the governance processes for contracts awards, and licensing to ensure populations get affordable prices, improve the governance of energy utilities, most of which are under-performing, and most of all improve the governance of our regional power pool institutions. Institutions building again is critical for this.

Agriculture

At least 40-65 percent of Africa’s labour force today is engaged in the agriculture sector, most of them women.

It is widely known that no country has grown sustainably without developing its agriculture sector.

However, the governance processes regulating agriculture in Africa are still fraught with weaknesses.

Land rights are not secure, the procurement process for inputs such as fertiliser and seed remain highly political in many countries undermining productivity of the sector and most of all its profitability.

As a result, food imports into Africa increased almost four times between 2002 and 2014.

One in nine people is not adequately nourished and one in four undernourished people lives in Africa.

In the fisheries sector, governance issues continue to cripple a sector with enormous potential for diversification, value addition and overall improvements in lifestyles especially for women.

Currently about 25 percent of all marine catches around Africa are by non-African countries and in many cases the catch never lands on the continent.

Boats are not registered and the fishing seasons are not respected, thus depleting resources and impoverishing already poor communities.

For all of this, an appropriate macroeconomic policy framework is critical.

Essential components of macroeconomic frameworks to foster structural transformation across the continent include: scaling up public investment and public goods provision; maintaining macro stability to attract and sustain private investment; coordinating investment and other development policies; mobilising resources and reducing aid dependence over time; and securing fiscal sustainability by establishing fiscal legitimacy.

Building strong institutions is critical for all this.

In conclusion, Africa has made significant progress in improving its governance in recent years.

Also many African countries are slowly but consistently transforming their economies.

However, huge governance gaps remain and the pace of structural transformation is too low compared to the continent’s needs and potential.

To realise the dreams of Africa’s women and bulging youth as stated in Agenda 2063, the Africa we want, we must address the links between governance and accelerated growth.

We need good governance to tackle the huge challenges ahead of us such as climate change. — African Executive.