Investment policy: Idea that first phase policy strategies

14Jan 2018
Guardian On Sunday
Investment policy: Idea that first phase policy strategies

DEBATE has restarted on the merits of economic advice that Africa has continually obtained from foreign countries, especially from the key multilateral financial institutions, the International Monetary Fund and the World Bank Group.

World Bank Group

A quick glance at the literature or indeed events of the past two decades shows that the IMF is more criticized than the World Bank, but there is also a lot of criticism towards the IMF from staffers of the World Bank down the years.

Yet the two institutions habitually make efforts to mend their differences so that they can link up in how they work with various countries, where it is the IMF that broadly changed.

In the past ten years some countries have had serious economic mishaps, including Zimbabwe, Malawi and Zambia at some points, Ivory Coast much earlier and it slipped to civil war, and a number of other contrasts.

In none of these cases did we hear that the country had been pushed to privatize major state companies to that it eliminates a broad part of the public debt, which used to be a vital part of economic advice during the decade of structural adjustment, from 1981 to 1991.

Global attention started focusing on Africa's debt to multilateral institutions not as a result of bad policies but structural captivity of economies, policy advice.

That is why by 1999 the thrust was a new global convention, the Highly Indebted Poor Countries (HIPC) initiative which replaced structural adjustment, by converting the debt into a mutual burden, forgiven by converting new aid and portions of older repayment funds into poverty reduction spheres.

As a matter of fact thus thrust was intended to correct Africa's policy weaknesses of 'eating and drinking' while little welfare provisions are felt on the ground, not to speak of inability to create jobs, swelling cities without industries. It has taken and half decades for industry as such to start being addressed in many countries.

The trouble is that to many commentators this thrust into industry is an effort to correct wrongful economic advice from Western countries, one key example being liberalization - another facet of structural adjustment policies.

Examples are multiplied that the Far East and South Asia moved into industrialisation owing to key role of the state, an administrative paradigm which tends to enhance the image of economic planners, to the detriment of the matter itself.

For if the issue was the role of the state, why wouldn't the older socialist counries lead industrialisation, instead of collapsing and returning to globalization before really taking off?

It is clear that the Far East and South Asia did not liberalize economic systems so as to industrialise, but their process of rapid take off wasn't based on state investments either, but the private sector.

This situation unsettles some of the arguments of the state role school, for it focuses on protecting 'infant' industries against competition from outside, thinking that this is benevolence, whereas it leads to inflation, poor quality goods if competition of imports is kept out, sharp drop in purchasing power and decline in the quality of life.  It leads to civil breakdown as political loyalty seeks new centres against existing authorities.

Thus it is important that those who hold public office, and those who held office earlier and are now retired, and see in the current efforts at industrialization and an enhanced role of the state a vindication of their disastrous policy thrusts of the 1970s and 1980s to rethink their options.

The first phase government did not suffer a serious disruption of consensus on account of the trust that the public had on Mwalimu Nyerere, his personal probity, shunning ostentation, and the ability to govern with minimal exercise of control of dissent, especially since organized dissent was still just budding by 1967. It was thus stymied for another 25 years.

None of those conditions are currently available, and all data indicates that people and mass media follow intensely how policies are reflected in conditions on the ground, in which case pragmatism ought to have a vital role in decisions reached in current circumstances.

This realism may be missing from those who think that the country has abandoned the globalization paradigm of the second to fourth phase governments in order to embrace the nationalist and socialist policies of the first place, that they were morally right and thus economically correct. Nothing can be further from the truth, as those policies had a certain appeal but failed.

One critical error in policy planning is to imagine that all it takes to succeed in a policy orientation that is hostile to the flow of foreign capital, purchasing of property and starting of projects that employ people and uplift living standards is to think that force can do the job.

They pick numerous examples from Asia to show that compulsion works, but they see that compulsion in a vacuum, that is, on the basis of any set up at the policy level, whereas compulsion strictly speaking only works as facilitation, not as forceful implementation of ruinous policies. That leads to social implosion, even political chaos rather than rapid economic growth.

Asiatic authoritarianism of the Belt and Road Initiative model is one of leaving vast portions of the country to unhindered purchase of property by local groups linked with venture capital from outside, development of an export-led economy, and now, exporting capital abroad.

They are purchasing companies to exploit local markets and produce needed materials for Chinese industry, and indeed their model doesn't differ much from IMF and World Bank advice in relation to liberty for foreign investors to purchase local businesses or key state companies. That is why Kenya is now a more vibrant partner to the Chinese than Tanzania, easily.

There is also another facet that pundits praising protection of perennial infant industries, state investments fail to locate sharp growth of Asian economies in post-oil price crisis of 1973/4 and shift of much industry from Europe and America to Asia.

They did not do so by being 'invited' the way we say we try to 'woo' the Norwegians and others but in allowing major companies to buy majority stakes in Asian firms, for instance how Japanese car firms linked up with US firms and top European brands to inject capital and produce what appear to be rival Japanese brands. There are also South Korean and other brands in telecommunications...

It is the fusion of local and foreign capital, something like economic partnership agreement with Europe that Africa has refused, which works. Africa wants trade preferences, not be disturbed in its antiquated company ownership structure; its stock markets trade private firms, not big state-owned firms.

Industrialisation plans will at some point have to throw out public ownership centrism so as to attract sizeable amounts of foreign capital and move forward. Thinking that this is a matter of economic diplomacy is mistaken, as that is a still aid, not opening up of economies as sought by China, Europe and the US, but as yet, to Africa's deaf ears.