State capacity key to economic growth

Historically, in the developing world, active macro-economic and industrial policy on the part of the state is more often than not greeted with pessimism and scepticism. This very prevalent competency and trust-deficit emanates from valid concerns that the state — specifically in the developing world — is often too inefficient and too corrupt (sometimes both) to successfully and efficiently implement policy pertaining to balanced economic growth and development, both in their own country and region.

But despite the shortcomings of government, real and imagined, the state realistically remains the only viable institution able to manage and facilitate the required large-scale economic and social development that can influence levels of employment, the production and allocation of goods and services, the distribution of income and assets that can ultimately be held accountable for its decisions and policy implementations by its citizenry through the process of democratic elections every election cycle.

Within this framework it has become increasingly imperative that state actors reduce various crippling institutional weaknesses they experience to ensure greater levels of development in their countries. Counter-productive variables such as corrupt bureaucracies, inefficient markets, weak state-run institutions and ineffective public services must be urgently addressed.

For any successful state to ensure inclusive economic growth and development for their citizens, governments must strengthen and solidify their own state capacities. Once this is achieved it would facilitate the promotion of cooperation as well as the deepening of various institutional networks crucially required by non-state actors – such as the private sector – to ensure sustained long-term growth and innovation, specifically in a context where traditionally market failures have been consistent.

Specifically in sub-Saharan Africa, various states in the region over the past few decades have failed to successfully implement the required structural adjustment programmes required to promote and facilitate the required levels of inclusive growth desperately required in the region. The nefarious combination of macro-economic austerity, unrealistic levels of rapid liberalisation, privatisation and deregulation not only contributed to a failure to create and produce a supply-side boom, but also counter-productively, set the region back economically. This led to productivity growth in most sectors in the region stalling which in turn exponentially grew the informal economy throughout the region with negative consequences.

However over the last decade overall GDP across the region has grown consistently at an average of 6% a year. According to the United Nations Conference on Trade and Development this translates to approximately 3% of real per capita growth. In addition growth has also been widespread throughout sub-Saharan Africa with only a handful of economies in the region contracting. There was of course a steep downturn experienced in 2009 due to the devastating effect of the global financial and economic crisis but in the sub-Saharan region overall growth rates have managed to remain largely positive.

While the welcomed economic growth is incredibly encouraging it’s important to understand the nature and context of this growth. The fact that there has been a wide variation in individual state economic performance across the region is largely due to the exponential growth rates of oil and mineral-producing countries. Added to this, in terms of comparing the economic growth with other developing world regions, sub-Saharan Africa still lags behind East and South Asia in terms of economic growth and development.

To ensure more balanced and equally dispersed levels of economic growth and development in the coming decades it’s crucial an alternative and equally realistic development agenda be implemented by various state policymakers in the region.

This development agenda will require a more fluid connection between macro-economic policies coupled with tighter sectoral measures that would prove vital in effecting long-term structural transformation in various state economies in the region.

Measures which could be implemented to achieve this sought after – yet elusive – structural transformation include;

Building a solid policy framework that takes into account a strong growth/investment/employment axis.
A real focus on active fiscal measures that would include counter-cyclical measures and a greater commitment to public investment.
A crucial management of monetary policy that would focus on ensuring interest rates remain low and conversely, exchange rates remain at stable and competitive levels.

In addition to the potential policy framework measures and considerations outlined above, various countries in the region must also place greater emphasis on positioning their respective states in a wider regional and global context. This would include greater importance and focus on developing “South-South” links and relations beyond the region. Through developing greater relationships with trading partners in South-South nexus this would potentially also align strategic economic ties with other countries around the world in terms of trade, foreign direct investment, finance and technology.

The reality of attempting to induce and ensure economic growth and development in the uncertain times we’re experiencing is proving to be challenging for many states. Therefore countries must be more innovative and creative when it comes to economic policy development and implementation.

A more flexible approach that is still able to operate within the remit of the rules and norms of economic development and growth strategies will prove crucial for raising the probability to success for developing world countries, specifically in an African context in the decades to come.