The recent advice by the International Monetary Fund for governments to “spend as much as [they] can and then spend a little bit more” to deal with the economic fallout from the Covid-19 pandemic is a welcome departure from the Fund’s traditional prescriptions of austerity in the midst of economic crises.
But then this is no traditional crisis, hence the need for non-traditional approaches.
But how do we increase spending, especially in countries with weak institutions for mobilising and managing fresh resources, to overcome the crisis and tackle the future?
The question is particularly relevant for Africa where economic growth had stagnated before the pandemic, and weak institutions and structural rigidities have undermined the efficacy of the response to the crisis. Any surge in spending must, perforce, be accompanied by institutional, structural and technical reforms across the three phases of the crisis and beyond: relief (for survival), recovery (restoring economies to pre-pandemic levels), and reconstruction (building back better through structural reforms, sustained growth, and sustainable development over the medium-to-long term). Based on experiences from the crisis and
Africa’s tenuous record of development over the past 50-plus years, the following principles, together forming the Covid Creed, are proposed. They are not exhaustive and may apply differently in different countries according to the strength of existing institutions and stages of development.
- Learn from the crisis – The worst thing about a crisis is to ignore its useful lessons. Many of the innovative solutions to the crisis carry lessons that must be formalised into national development strategies. Government-business collaboration to provide emergency water and sanitation services to previously neglected communities, for example, can be institutionalised to accelerate Africa’s low basic sanitation coverage of about 35%. The explosive growth in digitisation, especially in education and food delivery, has been good but is also a reminder of the digital poverty and inequality that have long hindered Africa’s progress in the Fourth Industrial Revolution. Equitable access to affordable and reliable internet must be prioritised. Food delivery services might have created new jobs, but they have also increased waste generation, possibly even pollution. Public education and relevant regulatory reforms should be in order. Any taxes extracted from these new services must be matched with adequate public services.
- Revolutionise fiscal and monetary policies – Africa’s weak financial capacity to deal with the crisis is a timely reminder to revolutionise fiscal and monetary policies, ranging from the obvious to the not-so-obvious. Effective strategies for efficient revenue mobilisation and revenue utilisation are required. This means the traditional three-dimensional approach to fiscal policy – revenue, expenditure, and debt management – must be driven by a fourth dimension, a productivity revolution. Government spending must aim at conspicuous development, not conspicuous consumption, which breeds public resentment and encourages tax evasion. (In the midst of the crisis, one government bought 30 Land Cruisers ostensibly to “monitor” the pandemic, when hospitals lacked enough PPEs). The quality of debt (i.e., its purpose) must be given as much importance as its quantity, and indicators of fiscal soundness must be critically re-evaluated for their relevance and accuracy. Ratios based on GDP in particular are notoriously misleading, especially in countries with poor GDP data, and must be supplemented or replaced with better ones. Inflation targeting, which was never suitable for Africa to begin with, must give way to a realist (or real sector) approach to central banking that prioritises economic growth and job creation. The pace of economic growth, accompanied by appropriate structural reforms, will then determine price pressures in Africa’s sclerotic post-colonial economies, where inflation is more of a structural phenomenon than a monetary (or monetarist) one. Central banks should establish labour economics departments to support monetary policy.
- Localise national economies – This is one structural reform that will bear fruit over time but requires policies during the relief and recovery phases. Local economic development (LED) has been marginalised in national development strategies largely because the concept is misunderstood and misapplied. A simplified framework based on (1) business development, (2) infrastructure and spatial development, and (3) social development, is presented here to guide policy makers. At the centre of the framework is an integrated sub-framework to measure job creation and decent work. In keeping with the UN’s framework for resilient economic recovery, all local development plans must incorporate strategies for resilience against future crises of all kinds, not just pandemics.
- Formalize national economies – There can be no economic transformation (i.e., the reallocation of resources from inefficient sectors to more efficient ones) and the eradication of poverty without a rapid reduction in Africa’s economic informality, the highest in the world at 85.8%, compared to an average of 61.2%. Informality spans a spectrum from survivalist activities by “own-account workers” (60-80%% of the labour force) to potentially viable small-scale enterprises, including micro-professional and other services, often operating outside required legal norms. Formalisation policies should be differentiated and targeted. The International Labour Organisation’s 2015 Transition from Informal to the Formal Economy offers a useful analytical framework, but countries should customise their own policies. Open air markets, for example, must be transformed into modern and efficient work places. Formalisation should constitute an integral part of the productivity revolution.
- Reconceptualise foreign aid – Most African countries will require some form of aid – loans, grants, or technical assistance – in the foreseeable future. Contrary to some misconceptions, aid, per se, is not bad for development. China used it for over 40 years to transform its economy into a global behemoth. Aid types and how they are administered ultimately matter most. Nuisance aid, such as pet donor projects that create an illusion of progress but leave no durable legacies, must be discouraged in favour of strategic aid, such as major infrastructure projects or institutional reforms that contribute to development tangibly and sustainably.
The author is a former Director-General of the National Development Planning Commission, and more recently a consultant to the United Nations on strategies for resilient economic recovery from the Covid-19 pandemic.