Government’s role in Africa’s poverty

About 60% of the poverty level in any country is ascribable to its government. The combination of the government’s unfulfilled obligations and consciously created anomalies and economic distortions directly impoverish many. There are at least six ways in which the government is guilty. The first is wrong designs of fiscal programs and governments misapplications of such programs, which eventually results in the loss of employment and income. Often these lead to the second, which is the ballooning of expenditures on items that do not create actual value. The inevitable consequence is inflationary distortions which have severe implications for costs of transacting. The third is the governments’ enunciation of policies that do not foster entrepreneurial growth. We know that the continent has a reputation for government spending that finds its way into the pockets of its leaders.

Such spending rarely fosters entrepreneurial growth in scale. These governance anomalies and attendant disenchantment also create security challenges affecting the seamless operation of private property rights. No entrepreneur performs very well in environments without adequate protection of lives and properties. Finally, most African governments rarely see themselves as possessing the characteristics of an entrepreneur. As a result, they do not design programs for entrepreneurial development over long periods. They cannot take risks such as investing in scientific adventures or protecting some industries that are necessary for their growth.

The quality of government spending is a crucial factor responsible for the growth and development of the country. Governments that spend more on consumption goods rather than goods that create opportunities for entrepreneurship will be lower than the latter. Growth and prosperity recline in entrepreneurship. Governments that facilitate the environment for more significant investment rather than consumption create more employment, output and income. Forward-looking governments, therefore, spend more of their income on the creation and strengthening of institutions for accountability and private property rights protection and to a limited extent direct state entrepreneurship aimed at developing and protecting new industries of interest. Because the success of government itself depends on its level of accountability, it has an onerous responsibility to ensure that the institutions that check their performance are reasonably independent and robust. Strengthening such institutions will enable them to be reasonably independent and can function without continually knocking on the doors of the government. The law should reasonably protect such institutions against the threats and harassment of the officials of the government.

One primary reason those in government have a field day robbing the masses or brazenly misusing publicly owned resources is because of the weakness in the institutions. In a weak state, those in government can do anything that they want and walk away unquestioned. Much the same expectations go for institutions responsible for ensuring private property rights protection. The police, the courts and the prisons all need for major surgeries. The recent #endsars police protest in Nigeria explains the enormity of the reforms required within the police force for them to function as a veritable institution for the conduct of justice. Most of the complaints of the protesters showed that the Nigerian police force lost the compass to executing justice lawfully. The story is much the same within the court system and the correctional systems. For instance, there are stories of prisoners that could impregnate their wives. Some did not spend much of the sentence in the correctional facilities. Situations like these embolden criminals and those who impose this order in society. Entrepreneurs, the creators of employment and output also cannot function in such an environment. Until our governments commit adequate resources to strengthen the institutions that promote the rule of law and the justice system, governance problems will still be at a highly elevated level.

Similarly, government spending should also reflect some measure of state entrepreneurship. It is saddening, for instance, that Africa would export most of its natural resources for refining in foreign countries. Why should Malaysia and Indonesia, for example, have more oil palm trees than the whole of Africa put together? It can only be the lack of vision and the lack of entrepreneurial state-mindedness that African governments would fold their hands while Malaysia and Indonesia that collected oil palm seedlings from the continent would go-ahead to develop the world’s largest Palm estates and the continent becomes net importers. Nigeria, for instance, imports most of its petroleum products while it is the world’s number eight most extensive producer of crude oil. The leaders of the continent have over the decades failed to make Africa an indispensable exporter of at least five core products that would turn around the fortunes of its people.

Without a doubt, inflation is a derivative of governments’ unproductive spending. Many countries in Africa consistently record years of budget deficits and extra-budgetary spending. These spendings make up increases in the size of shareable monies pursuing “few goods”. As we know, the elementary definition of inflation remains accurate and irrefutable. Burgeoning the size and velocity of unproductive debts while the quantity of produced goods remains comparatively relatively small will always result in catastrophic inflation. They lock many countries in Africa up in this situation. The cost of doing business grows more extensive, making it more difficult to produce competitively. Inflation again affects the value of domestic currencies in international transactions. Depressed capacities of countries in Africa to produce competitively heightens their perpetual import dependency status and the worsening of the exchange values of their currencies. Today, we exchange 500 units of the Nigerian Naira for a unit of the United States dollar. It is not likely that this situation will abate in the short term. Apart from the exchange rate, even the United States dollar is challenging to come by. This scarcity will force parallel market rates to go further up and further blow up the cost of transacting. This condition is not peculiar to Nigeria. It is your continent-wide situation.

Deficits and high tastes for extra-budgetary spending have also led several governments in Africa into excessive borrowing. A typical example is the Nigerian government’s borrowing of up to 84% of its pension funds. Apart from the enormous risks posed to pensioners, the country’s sovereignty is no longer any guarantee against credit default. Second, those loans, including those contracted directly through the bank, crowd out private sector borrowing opportunities, destroying opportunities for entrepreneurial growth, employment and income.

Again there are at least three ways in which governments’ antimarket policies orchestrate and sustain poverty conditions in developing countries. These include heavy and multiple taxations imposed by different tiers of governments. Besides, this is even the manner of tax administration in which most of them provide little room for discussion, understanding with entrepreneurs and negotiations. The second is the granting of exclusive concessions and waivers to some entrepreneurs who take advantage of that to dominate the industry and drive other competitors away. At one point, Ibeto complained that Dangote was leveraging the many concessions granted by the government to get him out of the cement industry. The third is the inadequate provision of entrepreneurship supporting infrastructure. This last factor is commonplace across the continent. The lack of electricity and the lack of infrastructure for logistics and supply chain management have made it doubly challenging for entrepreneurs to produce competitively for export.

Over the years, governments have made a lot of efforts in reducing the size of the financial burden imposed on entrepreneurs by the three tiers of governments. Local governments have a chain of collectable taxes different from those of state governments. And sometimes the federal government has a different retinue of payable taxes. This list is beside the chains of ‘legalized’ bribes these entrepreneurs must pay to access government services. If we add these burdens to the obligations orchestrated by the government’s triggered inflation, one can only imagine how much damage the entrepreneur suffers at the hands of the government. A vital element of the self-rule factor defining political leadership in Africa is the granting of exclusive concessions and waivers to persons of interest. Often, waivers do not depend on any national economic consideration, but to grant the beneficiaries the opportunity to advance far ahead of competitors. Unfortunately, the outcome usually destroys the market. Most concessions end up giving the beneficiary such a decisive advantage over price and supply that other competitors no longer need to be in the market. When governments create these kinds of benefits, they build destructive entrepreneurs who drive other participants away. Employment and output are inevitably lost.

Of course, without the right set of infrastructures such as electricity and good roads, it is difficult for production and distribution to take place effectively. This infrastructure, unfortunately, is not in existence adequately on the continent. Political leaders are not so keen on providing these enterprise-supported substructures. Africa is a global leader in poor governance. Entrepreneurial growth correlates with governance. The better it is, the higher the confidence that entrepreneurs and investors have to do business in that clime. Three poor governance conditions are effective in orchestrating poverty on the continent. The first is political leaders’ self-rule, corruption and poor accountability. The second is conflicts and insecurity. The third is the preponderance of which institutions for accountability and performance management.

Elevated levels of accountability neutralize corruption and self-rule. But that is nearly nonexistent on the continent. Political leaders are not accountable. The law appears discretionarily set aside so that officeholders can do whatever they want with nobody questioning them. In effect and unfortunately, the self-rule mentality reinforces the poor accountability conditions and consequently perpetuates the corruption among officeholders in the continent. There is also speculation that many of the political crises, wars, and religious insurgencies across the continent are being sponsored by those in government. The conviction of Charles Taylor appears to lend a lot of credence to that fact. Nigeria has made as many calls for all its military service chiefs to resign as some believe the protracted insurgency in the country is because of the benefits they probably derived from it. But prosperity and well-being cannot exist in environments that are chaotic and deprived of order and peace.

African leaders cannot also successfully envision and embark on long-term programs. For instance, all the explorations of the moon and Mars were conceived by the government of the United States and Russia over several years. They could identify the benefits and the potential costs if they failed to realize the program. It is the same capacity for long-term visioning, risk-taking, at the level of government that has underscored the many breakthroughs of the developed world in science and technology. African leaders appear entirely deprived of the capacity for that kind of thinking and entrepreneurial bravery, which is the only way to relaunch the continent into a new world.