Leonce Ndikumana, director of the African Policy Program at the Political Economy Research Institute, says poverty, inequality, weak institutions, and low development in general undermine efforts to accelerate economic development.
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries coming to you from Baltimore. In Africa 20 of the 54 countries are classified as fragile states. They account for approximately 20 percent of the continent’s population. In addition to lower per capita income, these countries lag behind in basic social and economic indicators of health, nutrition, and education. While poverty, inequality, weak institutions, and low development in general are the result of such fragility, they also undermine the very effort to improve things. But some people are trying to do so, to improve the conditions in these countries. And that is the topic of our next discussion with Leonce Ndikumana. Leonce is a professor of economics at the University of Massachusetts, Amherst. He’s the director of the African Policy Program at the Political Economy Research Institute, also known as PERI, and the author of the paper Capital Flight From Sub-Saharan African Countries. Leonce, thank you so much for joining us today. LEONCE NDIKUMANA, DIR. AFRICAN POLICY PROGRAM, PERI: Thank you so much for the time and the opportunity. PERIES: So Leonce, PERI and the African Development Bank engaged high-level civil servants in a workshop in Dakar, Senegal recently in an effort to address some of the gravest issues facing fragile states, as you have defined it, mainly the kind of reform required at the level of institutions. Give us some sense of what you presented to them. NDIKUMANA: Thank you so much. So as you said in your introduction, Africa accounts for a large number of countries which are classified as fragile states, and these are countries which have problems in terms of delivering on economic, from the economic development front, in terms of social service delivery, but also have problems delivering in terms of–on the security side, you find that they are countries that have a hard time establishing security throughout their territory. And all these, these two combine to make it difficult for these, for those states to enforce credibility, to have credibility vis-a-vis the people, and vis-a-vis the global community. And when you look at these countries, it’s also the case that these are countries where the quality of policy is weaker, the quality of the institutions is much weaker, the technical capacity is much weaker than in stable countries. So in addition to the need for financing and aid, which the international community has always typically focused on, these countries actually need to develop stronger capacity to design and implement economic reform, including institutional reforms. Which is, which was highly profiled in our workshop. In the workshop, we focused on how to design and implement reforms that are going to both minimize the risk of recurrence of conflict in these countries, because you realize that the majority of them are countries that have actually, have come out of conflicts. But at the same time established a basis for sustainable development. These include economic reforms from say, fiscal policy, monetary policy, and financial policy. Employment policy. But also they include institutional policies, basically establishing institutions that are more capable, more transparent, more accountable, that can deliver on the development agenda. And these institutions are critical because one of the things that you want to establish in these countries is to turn our way, to turn the page from the era of inequality, marginalization, exclusion, so that you have a more participatory [polity], a more participatory economic development strategy. PERIES: So I understand looking at institutions, reforming them, making them more robust and effective is a good thing. But so is the role of fiscal policy, and I understand that you were advocating this as an instrument of state building. What do you really mean by that, and how does that work in these fragile states? NDIKUMANA: Yes, so that’s a very, very important question. One of the things that needs to be done in fragile states, especially those who are overcoming conflict, is to rebuild the economy. You need to rebuild the infrastructure. You need to create the human power. But that cannot be done unless you have a capable state. A state that has the capacity to mobilize resources effectively and to allocate the resources effectively. Here we’re talking about fiscal policy. So in those countries you find that the fiscal base is very narrow because the economic activity has been destroyed, also trade has been brought to a standstill. But also you have that in these same countries, generally you have very high levels of corruption, which basically results in leakages of fiscal resources. The meager resources that are being collected, some of it is being embezzled and leaks through private, into private pockets. So you need to build both the technical capacity to design good tax systems that can mobilize the optimal amount of resources that are available, but at the same time to minimize the leakage of resources. So that’s on the revenue side. On the fiscal–on the, on the expenditure side, you need to increase efficiency in terms of minimizing waste of money in public expenditures. But at the same time, fiscal policy can, must be seen, as a tool for addressing social issues like inequality. Marginalization. In many cases you’ll find out that the war and the conflicts emerged from conflicts arising from distribution of national wealth, in the sense that some regions, some populations, some parts of the population benefited more from state services than others. So in the post-conflict settings, you need to design public expenditure strategies that minimize those inequalities. In fact, in some cases you need to design the expenditure strategy that bridge the gaps that existed between the more, the advantaged regions, for example, and the disadvantaged regions in terms of, for example, infrastructure. Road infrastructure, you find that in some countries the infrastructure has privileged the regions where the, that are the origin or the homes of the ruling elite. In that case after conflict you need to design expenditures that provide services to the marginalized segments or regions of the country. Similarly, from a horizontal perspective again, you’ll find that some groups of the population may have been excluded from the economy, from the mainstream economy. In that case, fiscal policy has to involve transfer mechanisms where some of the marginalized segment of the population are given more, are given resources to rebuild their lives, through preferential treatment in terms of access to employment, preferential treatment in terms of access to government procurement contracts. An example would be, for example, to give preferential treatment to youth enterprises, to women-owned enterprises, so that when there are, when there are projects that are funded by aid, external aid or government money, these enterprises should be given priority in delivering the services that need to be delivered under those projects. PERIES: Leonce, when you’re talking about leakages and a better tax system here, you’re talking about basically tax evasion and forms of corruption. These are very sensitive issues in some of these states. Did you find a willingness to want to address them? NDIKUMANA: That’s again an excellent question. The issue of tax evasion is not only in the case of fragile states. But you realize that tax evasion hurts more the country that has little. So tax evasion will hurt more the fragile states because they have a lower tax base. The public is aware of the problems of tax evasion. But as you said, it’s a political issue because those who benefit from tax evasion are at the moment more politically powerful. The political and economic elite, both domestic and foreign, in fact are a key player in–one of the big guilty parties in tax evasion is multinational corporations. But those multinational corporations are able to evade taxes because they take advantage of the loopholes in the tax system. But they’re also able to bribe and corrupt local leaders so that they pay very little from their profits. In fact, you find that in many cases major multinational corporations pay less than your ordinary citizen. Which is vastly unfair in terms of the responsibility as a citizen, but also it really erodes the tax base of the country, and robs the countries with a vast amount of tax revenue. PERIES: And Leonce, educating and trying to inform some of the civil servants who have the capacity to make decisions on these items or these problems that states are faced with is one thing. But for them to go back and try to introduce these in terms of reform, institutional reform and legislation and so on is again another huge hurdle to cross. What kind of assistance did they ask for in terms of being able to mobilize these ideas that you came up with? NDIKUMANA: Yes. The participants that we work with in these workshops are senior policymakers. You’re talking about the level of director, director general, in the ministries of finance and the central banks, but in this particular case, also in the ministries in charge of resettlement. Post-conflict resettlement, refugees, gender, and youth. They are, the primary objective–the first objective of the workshop is to provide these decisionmakers with the technical tools to allow them to diagnose the problems, establish the strategies to address the problem, so that they can actually improve on the way they design their policies. So it’s improving the quality of policymaking. But the second objective is to get, to increase public awareness of the issues, of the [incompr.] of these issues. But also get, increase the public debate on what can be done so that everybody who can contribute can contribute. The toughest part, as you indicated, is getting these to be implemented and getting this to the attention of the higher levels of the government. Because there are two aspects of policy implementation. There is a technical aspect which is being able to design a convincing policy or strategy. But the second component is political will. You need the top-ranking, the top leaders of the country to actually be willing to reform and willing to change, willing to embark the countries on the higher level of development. And when there is political will that is going to be a way. Because first of all, people are going to be able to use their full capacity, but also even in terms of the international community, the international community will be more willing to support countries where they see there is political will for reform. PERIES: Leonce, I know that in addition to sort of trying to unpack what some of the issues holding states back have been you also discussed some of the progress that some states have been making. So let’s take that up in the next segment of this interview. Thank you so much for joining us on this segment, Leonce. NDIKUMANA: Thank you very much, again. PERIES: And thank you for joining us on The Real News Network.