If there was a lesson for Africa from the last global financial and economic crisis, it may be that we should tarry a bit before writing off the state as a catalyst for development. The clear lesson from Europe and America is that the private sector, which many had looked upon as the solution to sustainable growth and development, faced severe problems and had to be rescued by state structures.
Accordingly, in the US, the un-imaginable happened: Government took over banks and ran automobile companies. That was not all. Across Europe, billions of dollars were given as grants and/or loans to the private sector to help corporations keep afloat and weather the storm. What went wrong? Several explanations have been proffered but at the height of the crisis, there was broad agreement that it was in the interest of countries to arrest sliding production, curtail unemployment and save homes and families if governments lent a helping hand to the private sector in correcting market failures.
While governments were bailing out the private sector in developed countries, African economies, though similarly hard hit, were showing some resilience. Over the last ten years, six of the world’s fastest growing economies were in Africa, driven by stellar performance in commodity prices, service trade, countercyclical fiscal policies, stronger private consumption and foreign investment flows. Even as the world economy remained mired in crisis, Africa on average grew by 4.5 percent in 2010 up from 2.3 percent in 2009 and will most likely maintain steady growth of about 5 percent in 2011.
But the story is not all rosy for Africa. The quality of the continent’s economic growth is still poor and the economic recovery has not created adequate employment opportunities, one reason Africa’s economic growth has not yet translated into significant reduction in poverty levels. Weak global economic growth, limited availability of financing and reduced ODA flows to poor countries will all continue to impact negatively on livelihoods.
There are also domestic factors. Climate change poses significant threat to growth and human welfare in the continent. Likewise, recent political events in Northern Africa, unfulfilled democratic aspirations, high food and fuel prices as well as widespread unemployment (especially among the youth) which have led to social unrest will continue to matter for the continent’s growth and development in future.
This situation must change and Africa is determined to achieve high level, sustainable, clean and inclusive growth which will create jobs, generate wealth and reduce poverty. While there is no silver bullet to accomplish this, we argue that Africa can only achieve sustainable development if it diversifies and reduces its dependence on primary commodities while modernizing agriculture, the largest employer in many African countries. Of course, this calls for structural transformation of African economies — changing the structure of the economy over time from agrarian to an industrialized one. This remains one of the most daunting development challenges faced by Africa today.
Structural transformation itself requires developing and sustaining strong and functional institutions, human capital, and infrastructure. It also requires the good use of technology and innovation as well as sound macroeconomic, trade and industrial policies. These are things that are not normally provided by the private sector or markets.
We argue that the state has a central role to play in bringing about the structural economic transformation that Africa requires for sustainable development. In particular, to unleash growth drivers and establish the conditions under which the private sector will thrive, and in which employment-intensive growth and economic take-off can take place.
There is clear evidence in support of the role of the state in accelerating economic development. It is a fact of history as underscored by the Growth Commission that most of today’s advanced economies relied on state intervention for their structural transformation. In Malaysia and Mauritius, there was a deliberate state involvement based on disciplined planning process.
In Japan and South Korea, the state collaborated effectively with the private sector under the leadership of planning authorities such as the MITI in Japan and South Korean Economic Planning Board. Government investment was used in these two countries to develop infrastructure, provide cheap finance and facilitate tariff protection when needed. These examples of guided transformation involved the formulation of relevant development policies, the creation of the required institutions and the promotion of investment. The state must do the same in Africa.
In fact, to achieve the objectives of structural economic transformation, African states must provide a clear vision, coordinate change through a planning process, manage distributional conflicts, mitigate investment risks and in the case of Africa promote regional integration to overcome the limitations of small, fragmented economies. This will require national commitment to development, a developmental state, if you will. The developmental state is one that has the political will and capacity to articulate and implement policies to expand human capabilities, enhance equity and promote economic and social transformation.
To be sure, Africa has had clear commitment to development in the past, but the adoption of structural adjustment programmes in the 1980s and 1990 effectively undermined this process. While we do not advocate a one-plan-fits-all strategy, it is sufficient to assert that an increased unwavering commitment to accelerating development by Africa states could address institutional, environmental and governance weaknesses as well as market imperfections. It will also help rebuild and strengthen state capacity which is required to manage the process. This, in turn, should generate appropriate incentives for economic diversification and transformation, the sine qua non for sustainable growth accompanied with employment creation.
Such commitment is possible and has already been well demonstrated in the area of political governance as reflected in the adoption of the African Peer Review Mechanism. Indeed, this is one way of managing the downside risks of increased state engagement in development processes, which makes it important to continue to hold states accountable to the population at large.
We hope that these and other issues will be thoroughly discussed by African Ministers charged with Finance, Economy, Planning and Development when they meet in Addis Ababa on 28-29 March, 2011 to discuss the theme ‘Governing Development in Africa’. It will be the fourth meeting of these Ministers held under the joint auspices of the African Union and the United Nations Economic Commission for Africa. The deliberations and decisions of the conference will certainly be critical for continental economic performance especially as we approach the 2015 target date for achieving the Millennium Development Goals
Jean Ping is the Chairperson of the African Union Commission
Abdoulie Janneh is UN Under Secretary-General/Executive Secretary of Economic Commission for Africa