Fixing African Economies: Policy Research for Development 9781626371040

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FIXING AFRICAN ECONOMIES

FIXING AFRICAN ECONOMIES Policy Research for Development

edited by

Lucie Colvin Phillips & Diery Seck

b o u l d e r l o n d o n

Published in the United States of America in 2004 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 www.rienner.com and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 2004 by Lynne Rienner Publishers, Inc. All rights reserved Library of Congress Cataloging-in-Publication Data Fixing African economies : policy research for development / Lucie Colvin Phillips and Diery Seck, editors. Includes bibliographical references and index. ISBN 1-58826-148-4 (alk. paper) 1. Structural adjustment (Economic policy)—Africa. 2. Economic development—Research. 3. Research—Economic aspects. 4. Political planning—Africa—Evaluation. I. Phillips, Lucie Colvin, 1943– II. Seck, Diery. HC800.F59 2003 338.967—dc21 2003041424 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. Printed and bound in the United States of America

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The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1992. 5 4 3 2 1

To our spouses, James Daniel Phillips and Khady Sao Seck and to our fallen colleague Jeffrey Metzel

Contents

Acknowledgments

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1 Fixing African Economies: The Research-Policy Nexus Lucie Colvin Phillips and Diery Seck

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2 Ghana: Promoting Accountability and Transparency in Government Behavior Fred O. Boadu, Victor K. Nyanteng, Seth Bimpong-Buta, and Mark Nadler 3 Nigeria: Understanding Attitudes Toward Democracy and Markets Peter M. Lewis and Michael Bratton 4 Kenya: Policy Research and Policy Reform T.C.I. Ryan 5 Tanzania: Policy Research and the Mining Boom Samuel M. Wangwe, Haji H. Semboja, and Lucie Colvin Phillips

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65 95 117

6 Madagascar: Using Policy Research in Formulating Tax Policy Pépé Andrianomanana and Clive Gray

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7 Ghana and Uganda: Considering Monetary and Exchange Rate Policies Charles D. Jebuni, Polycarp Musinguzi, and J. Dirck Stryker

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Contents

8 South Africa: Policy-Oriented Research on Labor Markets and Poverty Haroon Bhorat

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9 Conclusions Diery Seck and Lucie Colvin Phillips

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List of Acronyms References The Contributors Index About the Book

227 229 237 243 249

Acknowledgments

For more than five years, from 1995 through 2000, several hundred researchers and policymakers throughout Africa grappled with economic and political situations that failed to fit the pat theoretical solutions imposed on the process of structural adjustment. Their research resulted in policy and regulatory changes that took account of local economic realities. Although only a few of the resulting studies have been included here to illustrate the dilemmas they face, every researcher’s insights contributed to this book. Together we created a network of working relationships that persists as this book is published in 2004 and continues to inform policy throughout the continent. To that network of researchers and policymakers, and the USAID Africa/Sustainable Development Division that funded them, goes the major credit for the book. One of our key researchers, Jeffrey Metzel, died in the prime of his life in a plane crash off the west coast of Africa in 2000. We remember him for his meticulous, thoughtful research, and we mourn him as a friend. We, as editors, shared entirely equally the task of introducing and analyzing the evolving approach to economic research presented here. When it came to polishing the prose, the editorial staff of International Business Initiative (IBI) deserves kudos. Chief editor John Engels worked with Hilary Russell and Brian Furness to make the presentations as concise and precise as possible, taking care not to lose the flavor of local language variations. IBI’s Shannon McCafferty and Nadine Duplessy Kearns held the whole project together, ensuring coordination with authors, editors, and the publisher. Our publisher, Lynne Rienner, and her staff brought their smooth professional skills efficiently to the final product. Thanks to the entire global team. ix

1 Fixing African Economies: The Research-Policy Nexus Lucie Colvin Phillips and Diery Seck

When African countries embarked on the first round of structural adjustment of their economies in the 1980s and 1990s, there was little opportunity for research on what policies would work and where. The governments were generally bankrupt, and the statist economies had experienced economic stagnation or even decline for several decades. So the first round of structural adjustment policies were generally imposed by international financial institutions and based on theoretical models. The International Monetary Fund (IMF) stressed balancing government budgets, and the World Bank sought to guide the process of institutional reform. The reform process has been eventful and the record checkered. There is, nevertheless, now a consensus among African policymakers that a market economy is a legitimate goal. The challenges are to make such economies work and to alleviate poverty in the process. To that end, researchers throughout Africa have conducted some very interesting research in the last decade, the results of which are reflected in the chapters of this book. These chapters show that a new type of research is emerging in Africa, called policy research. This research evolves a new partnership between researchers (expatriate and national) and stakeholders in each of the countries. It seeks homegrown solutions that take account of local institutions and political economy, and it is conducted and discussed in public, unlike much purely academic research.

The Research-Policy Nexus: The Role of Research in Economic Policymaking Understanding the nexus between research and economic policymaking does not require an intricate knowledge of the economic challenges faced 1

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by African countries. Research and policymaking are complementary and mutually reinforcing: research can constructively inform policy and learn from it. The challenge in Africa is to move beyond that observation and undertake a detailed analysis of how this synergy can be captured in practice and of what specific impediments can limit its scope. The following analysis explores economic policy decisionmaking and the role of research in it in Africa today. The discussion examines factors that can enhance or hinder the contribution of research in the formulation and implementation of policy. At different times countries make economic policy in either a steady state, which calls for minor fine-tuning of the national economic engine, or by instituting a major change in the national economic environment, which calls for significant policy reforms. Before going any further, there is a need to set the stage for the ensuing analysis of the interaction between research and policy. First, in this chapter the policy process is understood as a market for ideas. This market is fueled by actions and pronouncements reflecting the preferences of distinct groups of actors who seek to maximize their welfare, a concept that may include altruistic motives and group, rather than individual, benefits. The policy process in which these actions and proclamations occur is like a continuum that ranges from collaboration to competition. It is also useful to identify the formal institutional conduits for policymaking and the informal processes and private or group interests that compete over policy. Some of the formal arenas for policymaking include constitutionally defined executive branches and parliaments. Concerned groups in civil society that can contribute to the dialogue include professional and business organizations, nongovernmental organizations, organized and informal pressure groups, the research community, and the media. The judicial branch can be considered a minor actor, because its role is generally constitutionally limited to providing redress. The media and the research community act as outside observers and commentators. As they do not always have a vested stake in policy issues, they may take impartial and long-term views. One of the striking features of policy outcomes is that they can result from the confrontation of a limited number of actors with strong preferences. Sometimes acute rivalry dominates negotiations, and these confrontations may determine the policy outcome. It follows from the characterization of the policymaking process that one can attempt to measure the overall quality of policy decisionmaking regardless of the nature of the sociopolitical regime within

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which policy unfolds. The overall quality of economic policy decisions can be measured with respect to • Efficacy: how effectively it accomplishes the policy goal • Exhaustiveness: the range of policy options and inputs considered • Consensuality: the degree to which the policy attains legitimacy, thus enhancing voluntary compliance and minimizing costs of policy administration This framework for assessing policy decisions is in accordance with the “rational behavior approach.” Many donors attempting to influence the structural-adjustment process assumed that policy can and should be made rationally. Yet the chapters in this book reveal that the reality is far more complex. Some writers have observed that policy is rarely made in accordance with the rational-choice model. In his theory of bounded rationality, Herbert Simon (1957) points out that most decisionmakers are “satisficers” rather than optimizers. In other words, because exhaustive research of all viable options for each decision would be prohibitively costly, the search is usually interrupted early with the selection of the first option that is good enough. In hierarchical organizations, those at the top have the privilege of putting forth their options first, and they forge alliances to ensure their adoption. Claims regarding the rational quality of a policy option are made in the process of implementing it, despite the fact that it was usually arrived at in the context of a limited search for alternatives. Charles Lindblom (1959, 1965) depicts the deliberative process as even less systematic, characterizing it as “muddling through,” a process in which the selection of values and goals is indistinct from the search for options aimed at reaching them. In this characterization, there is no clear separation of ends and means and little analysis of the quality of a given policy option, because preference is given to the option on which there is the broadest agreement among players. In short, a good policy decision is that on which consensus can be achieved, not necessarily the one that best responds to a specific policy challenge. The consequence is that valid policy alternatives may be ignored and important policy outcomes are not achieved. The rational-behavior model applied to structural adjustment assumes that major change is necessary and feasible. Some organizational theorists argue, however, that such change rarely occurs. Aaron Wildavsky (1964) observes that decisions are in fact reached in a process of disjointed incrementalism, which works by bringing about changes “at the

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margin.” The high level of uncertainty caused by implemented wholesale change often triggers fierce resistance as the interests and values of various groups of stakeholders are threatened. Moreover, complex problems may be partitioned into smaller policy issues that are handled by decision units that are not necessarily coordinating their work, or who disagree on the overall policy goal. This disjointedness can lead to incoherent overall policy packages and policy increments that are inconsistent with existing law and practice. Lack of cordination has been a major problem with structuraladjustment programs. Often no one policymaker or organization has a complete understanding of the economy. Reforms developed by a ministry or the central bank counteract or fail to consider the policies and practices of others. Regional context and the need to comply with World Trade Organization regulations add another level of complexity. Observations of the structural-adjustment process itself have stimulated some theoretical work by both economists and political and organizational theorists. Economists have tended to blame the inadequate response of African economies to structural adjustment to sequencing problems. They argue that countries with overvalued currencies and serious recurrent budget deficits benefited little from trade liberalization alone. What such countries experienced was rapid growth in imports and stagnant exports, producing serious current account imbalances. Political economists, on the other hand, have tended to focus on weaknesses in governance, including the lack of human resources to undertake economic analysis and manage the reforms, resistance by those with a personal interest in maintaining the status quo (Foroutan and Pritchett 1993; Gulhati 1988; Easterly and Levine 1996), and, in more severe cases, state failure (Wunsch and Olowu 1995). Both groups recognize that lack of infrastructure hampers a supply response, even when the policies seem appropriate. Past government budgets in nearly every country have gone into unproductive employment in the civil service rather than the transport, communications, and power infrastructure needed to make their private sectors competitive. Mamadou Dia, head of the African Governance Program at the World Bank, attributed the slow response of African governments to management practices associated with patrimonial rule, which he found throughout the continent (Dia 1993, 1996). Claude Ake also examined cultural factors, stressing that designers of structural adjustment programs had not sufficienctly taken into account the primacy of group, as opposed to individual, values and loyalties in Africa (Ake 1990: pp. 7–19). Ake proposed that policy reform should be rooted in the logic of

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the household economy and focused on building communities rather than producing a surplus of tradable goods. These perspectives on the complexity of policymaking should serve to alert researchers and policymakers alike of the difficult context in which they work. They may find themselves in the position of positing a rational model of decisionmaking while simultaneously researching the less rational political context that ultimately generates a policy application. While democratization does not immediately enhance rational policymaking, over the long term it at least narrows the greatest divergences. In a democratic regime, politicians debate policies and criticize one another’s proposals until an approximation of a rational model emerges. The separation of powers within regimes formally structures such an iterative process. Finally, at the heart of the social contract of the democratic regime lies the notion of the common good, which posits the benefit of the many as superior to the selfserving exercise of power. Where does research fit in this characterization of the policy process? Economic policy decisions are often formulated and implemented without the benefit of being informed by relevant research. The role of research in this context can be understood as bringing to the forefront of the policy debate sets of facts and figures necessary to evaluate competing policy options. Through this process, research helps reduce transaction costs related to policy bargaining, because it reduces the number of options worthy of support. The obvious implication of this definition of the role of economic research is that its outcome need not necessarily be the identification of the best possible option—it can also identify the worst options.

Required Qualities for Policy-Relevant Research The foregoing analysis should make it clear that economic research ought to play an important role in helping good policy options emerge. It is equally easy to understand that the competitive nature of the policy formation process may often lead to outcomes that do not favor intrinsically superior options. This is especially true in Africa where relevant research output is not always available, or it has little influence in the face of the other factors at play. Nevertheless, economic research can help overcome these conditions and become a more intrinsic part of the policymaking process, especially when it has the qualities listed below.

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Fixing African Economies: Policy Research for Development

Primary Characteristics of Good Policy Research The primary qualities of good research are embedded in its actual production and they result from the skills, motivation, diligence, and thoroughness of the researchers undertaking it. These qualities can be grouped under three categories: • Rigor. Research that is free of faults in design, method, and interpretation is more likely to support development of good policy options. Conversely, overly partisan or hastily or incompetently conducted research lacks rigor. It is noteworthy that rigorous research need not be “academic” or highly theoretical; the quality can equally apply to the practical investigations that are often in greater demand by policymakers. • Relevance and timeliness. If research is to inform fundamental change in policy, it must precede it. Since policymaking is actually a continuous process, however, research can also inform the process by measuring impacts of policies during implementation and proposing appropriate adjustments as they are needed. Relevance is also a matter of degree, because a piece of research output can indirectly shed light on a policy issue. Moreover, relevance should be seen not as every isolated research activity but rather the entire research output. • Completeness. Completeness means exploring all potential options and making available all relevant facts and figures that can be uncovered in the search for good policy options. Completeness means taking account of information provided by various groups of stakeholders and attempting to make all relevant factors and considerations bear on the outcome of the decisionmaking process. In other words, completeness helps ensure that nothing important has been left out. Thus, as in the other characteristics of quality research, completeness is a matter of degree. It can be too costly to achieve if pursued beyond reason, but by the same token, it can also be the first casualty when in contests over high-stakes policy issues. Secondary Characteristics Secondary qualities are also necessary for policy-relevant research, but unlike the primary ones, which researchers themselves are responsible for, they can be provided by third parties. On the basis of the characterization of the policy process described earlier, two major secondary qualities of research can be identified:

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• Digestibility. Considering that research output feeds into the policy process, the policy actors need to be able to use it in the course of the policy debate. Therefore, the research needs to be presented in plain language, with any necessary economic terminology fully explained. Graphics, illustrations, and interactive presentations may be helpful. The issues that arise pertain to (1) the existence of good communicators (researchers or dedicated disseminators) capable of turning research into various forms that can be used by target groups, and (2) a degree of economic literacy that allows end users to receive the message of the research output without the need to oversimplify. • Legitimacy. The research will have a varying impact depending on the degree to which policymakers believe it is legitimate. Whose research output is considered in the policy debate may often be a political determination. In this respect, the scientific standards commonly accepted in policy debate and the status, or bargaining power, of the group endorsing the research can influence the degree of legitimacy ascribed to the research. Research that possesses the qualities listed above may improve its chances of influencing the policy decision and playing an effective role in building consensus. Yet, there is still no guarantee that the best policy decision will be made, or that the decision will not be challenged, derailed, or weakened.

Historical Perspectives Africa is now in a period of rapid political and economic change. Momentum is building to transform countries into “democratic market economies.” These goals are rarely clearly defined in the minds of either policymakers or populations, but there is general agreement that the end result should be a market-oriented economy that broadens prosperity or at least lessens poverty and ignorance. In the face of technological and economic globalization, countries also want to be better able to participate, if not compete. Historically, periods of rapid change may be generated by a clash of cultures or systemic collapse. External shocks combined with internal corrosion create what intellectual historians call “liminal moments.” These are times when no stable order or climate of opinion exists and every aspect of knowledge, belief, value, and practice is called into

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question. Traditional roles and restraints are blurred. As has happened in Africa today, some countries succumb to civil war and enter a cycle of decline. Those that maintain their political integrity can enter periods of great creative energy, producing new ideas and institutions in every field. Such liminal moments have occurred several times previously in Africa’s encounter with outside civilizations, notably at independence. In response to the challenges of the 1990s, a new wave of think tanks and fora for dialogue have emerged in Africa, and some of the older, university-based research institutes are being revitalized. Research institutes are being called upon by donors and their own governments to help analyze the problems of transition and delineate policies that take better account of local political and social realities. The old order that is now collapsing was initiated at independence, which for most countries was about 40 years ago. New African leaders at the time sought to build nations from old colonial dominions. Within a few years the new nations had many common elements across the continent. The structural commonalities seem to have been rooted in nationalism, the logic of nation building, and certain widespread features of African political culture, such as paternalism and patron-client hierarchies (Dia 1996, Ake 1990, Phillips et al. 2001). There seems to have been little difference from one regime to another, regardless of the ideological orientation of the government. Inspired by liberation and pan-African philosophers including Marcus Garvey, W. E. B. DuBois, Franz Fanon, Martin Luther King Jr., and Mahatma Ghandi, a few original thinkers contributed the intellectual foundations of the new states. Many were themselves heads of state. Kwame Nkrumah contributed a theory of scientific socialism, Leopold Sédar Senghor of Negritude, Julius Nyerere of African socialism, Hastings Banda of African humanism. Socialist economic models were appealing at the time, because discredited colonialism was widely associated with capitalism. Political leaders were frustrated that economic control had not changed hands along with control of politics. Key economic sectors were still in the hands of former colonialists or third-country commercial classes such as Lebano-Syrians in West Africa and Indo-Asians in East Africa. Most African countries nationalized key sectors and created state or parastatal corporations and marketing boards to run them as monopolies. The states also moved quickly to create authoritarian structures, either single-party rule or military regimes. They sought to make use of scarce skilled human resources by offering every university graduate government employment. Jobs were also the basis of political patronage, critical for staying in power. Education and health

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policies were also influenced by anticolonialism and patronage. Access to education and health services had been expensive luxuries reserved for colonial rulers and a few privileged government employees. The new countries tried to reverse that discrimination, aiming for universal free public education and healthcare. On trade and investment policy there was a little more variation. States with an initial liberal bent such as Côte d’Ivoire, Nigeria, South Africa, Zimbabwe, Zambia, Zaire, Kenya, Sierra Leone, Liberia, and The Gambia allowed substantial private trade and investment alongside state corporations. The socialist and communist countries generally imposed administered trade, with restricted import and export licensing and fixed prices for key commodities. Within a few years cracks appeared in these systems. In some they were more like chasms. Even those states that avoided civil war and military coups shared a plethora of problems: • State corporations and marketing boards with monopolies over key sectors were unproductive, draining resources from the government instead of paying taxes. • Governments and state corporations contracted huge debts in the 1970s and early 1980s, in response to the desire to build “indigenous capital” and to the external shock created by the OPEC cartel’s impact on oil prices. • Both government budgets and current accounts were chronically in deficit. • Currencies were overvalued. • Inflation was set off by both monetization of deficits and eventual currency devaluations. • Relative productivity and competitiveness declined. • Countries depended increasingly on external aid, much of it incurring debt. In most cases, the macroeconomic crisis was first signaled by donors, led by the World Bank and the IMF. State corporations were audited and shown to be dysfunctional drains on the economy. Research showed that fixed prices, overvalued currencies, and marketing boards favored urban consumers at the expense of rural agricultural producers. This research on equity was not clearly understood in Africa at the time, and it still carries little policy weight, as neither African researchers, leaders, or indeed farmers were used to thinking of farmers as an interest group. When Africans disputed questions of group equity, it was nearly

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always along ethnic or religious lines. As farmers shared ethnic identities with urban residents, the urban-rural distinction cut across the familiar categories. To citizens and the local press, the crisis was more visible in failed social programs. “Free” clinics had no medicines or equipment. “Free” education taught children little, because there were no books, and poorly qualified, underpaid, unmotivated teachers. Government jobs were secure, but did not pay a living wage. Civil servants and the armed forces began seeking something on the side, through private business, graft, or extortion. As the bankruptcy of the regimes became more acute in the early 1980s, governments borrowed heavily and sought aid. The first prescriptions of the international financial institutions addressed the macroeconomic imbalances as if they were independent variables rather than outcomes of the institutional and intellectual climate. The IMF focused on reducing budget deficits and the gap between parallel and official currency exchange rates. World Bank and bilateral donors insisted on trade liberalization, an end to subsidies, and private-sector-led growth. Fairly standard reform prescriptions became conditions for each new loan. In most cases, governments were not told how to reduce budget deficits, but there were only two sides to the budget. It was clear that action had to be taken to reduce spending and increase tax collection. Most governments took the safest political path, cutting education, healthcare, and civil service jobs rather than military budgets, for example. They procrastinated on the most politically sensitive reforms, which were privatization of state corporations and liberalization of trade in food crops. The budget cuts exacerbated the crisis from the point of view of ordinary citizens, the local press, and some donors. Even peasants were upset when civil servants were let go. It went against the commonly accepted values associated with local patron-client type social structures. A “good patron” would never cast out a client. Such an act implied a collapse of social order that psychologically far outweighed the few extra dollars per year that peasants got for their crops under structural adjustment. Urban populations, the military, and students resisted ending their respective subsidies to the point of putting some governments out of office and threatening others. As democratization was sweeping the continent at exactly the same time, many fragile new governments were among those endangered. To establish themselves in the eyes of the population they needed to show generosity and progress, offering new jobs and programs. Instead they were forced to cut existing jobs and programs.

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It soon became evident that structural adjustment was not working. The governments said the right things. Policy pronouncements spoke of private-sector-led growth and liberalization. But on the ground only some practices had changed. Monetary and trade policy were the success stories. Across the continent, most currencies were either successfully floated or realigned to within a small margin of real exchange rates. Export licensing was abolished and importation liberalized. Most countries eliminated export duties entirely, except royalties on depleting mineral resources. They simplified and reduced tariffs on imports. Still, government budgets continued to run deficits, and current account deficits soared to new highs. The countries that got the sequencing of reform wrong, liberalizing trade before floating currencies, were particularly hard hit. With overvalued currencies, liberated consumers went on buying sprees. Domestic and regional trade was generally liberalized more slowly. It quickly became apparent that totally free trade produces its own distortions. Fair trade legislation and autonomous regulatory institutions, which had not been needed when state corporations administered trade, were desperately lacking. Legal, regulatory, and judicial assistance was mobilized to try to fill the gap. Some defunct state corporations were liquidated or sold, but state corporations not only continued to exist in major sectors—new ones were created. Systems of subsidies and patronage remained alive and well. Two areas were particularly resistant to reform: food crops and privatization of state corporations. Many outside economists see this situation as backtracking on reform, and attribute it to rent seeking by politicians and interest groups. That is only a small part of the story, as some of the following chapters illustrate. Privatization of state corporations risks putting key sectors into the hands of people governments do not trust—colonialists, third-country nationals, and political rivals in their own countries. Liberalizing staple food-crop markets exposes politicians to accusations that they emptied the collective larder by letting food be exported. If food markets fail, politicians are liable to be charged with reaping profits from the starvation of their own people. In paternalistic systems, assuring the people food and work are basics for which people hold politicians responsible. This belief is rooted in the management skills learned in every African household. As there are few safety nets in African society, the most important skills people learn relate to managing food supplies, healthcare, and education. A good manager has a full larder and rations it carefully among the extended family. Politicians, by analogy, are expected to manage food stocks—real staple

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crops, not abstract markets—effectively. There is very little trust in market mechanisms to provide staples, and for good reason. Poor infrastructure and weak communication and transportation networks have traditionally meant that markets do not respond quickly enough to food shortages. It will take careful political economy research to tell the rest of the story and forge viable food policies that consider political realities.

The New Research-Policy Dialogue In the face of widespread resistance and weak economic response to reform, donors, researchers, and policymakers returned to the drawing board. Each institution described below plays a role in the policy debate as Africa faces a new, fast, global, knowledge-based economy while still marginalized in the old economy. Recognizing that lack of stakeholder ownership had been a key fault in the early structural adjustment process, the World Bank reoriented its research program to involve Africans more in the conduct of research and policymaking and to focus on whether there was truth to the claim that structural adjustment exacerbated poverty. The African Economic Research Consortium (AERC) and the African Capacity Building Foundation (ACBF) were created to involve Africans more directly in the research-policy nexus. The Global Coalition for Africa (GCA) became a forum for discussing major policy issues, and the Global Development Network (GDN) sought to internationalize the policy debate. So that poverty research could be grounded on sound data, the World Bank funded national household budget and consumption surveys for over a decade. The World Bank also began examining how effective its development projects had been. The first evaluations of the team headed by Karl Wappenhans were startlingly pessimistic: projects consistently failed to achieve objectives. These reflections matured into a summary work, Making Assistance Work: What Works and What Doesn’t in Development Assistance (Wappenhans 2000). In the same year, the World Bank invited African researchers to examine the development process, resulting in a new overview entitled Can Africa Claim the 21st Century? (2000). The World Bank’s internal research has been oddly out of line with policy research on the continent, although some of it has contributed to sound policy formation. Internal research has focused primarily on the efficacy of development assistance (mainly the World Bank’s own) and

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on poverty. The research on poverty has generated a new set of databases and spawned a vast new external research program. In the past, research on economic inequality focused on regional disparities, often noting a history of neglect of border provinces. The idea of analyzing salary disparities and social class differences was considered politically charged. The University of Dakar, for instance, declined for many years to have a sociology department. Other countries kept their household budget and consumption databases confidential and published only gross tabulations. While African policymakers and researchers were concerned about the effects of structural adjustment, it is unlikely that without World Bank leadership they would have focused on poverty. The political pressure was to focus on groups most likely to suffer job loss because of structural adjustment—civil servants and employees of liberalized or privatized parastatal corporations. National macroeconomic monitoring, in countries that did any, focused on inflation, currency trends, and program impacts. The new research, based on improved and standardized household budget and consumption surveys, opens a new world of analysis to African researchers. Teams are engaged in every country looking at the impact of structural adjustment on households and individuals. This is providing a new window into African societies, new conceptual categories, and sounder bases for assessment of the costs and benefits of policy options. Critics have accused the World Bank of exacerbating poverty by imposing structural adjustment programs. This seems to have prompted it to finance the current poverty alleviation research. The household data will have many other uses, including market surveys, inflation monitoring focused on low-income household baskets, and eventually studies of discrepancies between groups and regions. Social indicators of development, including the distribution of incomes, are now available on the World Bank’s website. In the past, the original databases took years to process and were treated as proprietary by both governments and the World Bank. Today the processing is rapid, and the World Bank is willing to release raw data, in keeping with its policy of transparency. South Africa is now conducting such surveys annually. Most other countries are on a decennial schedule. The availability of online global databases has made it feasible to conduct research that allows statistical analysis to be done anywhere in the world, which was not possible in the early 1990s. Donors and African countries came together to create the AERC in 1988. With headquarters in Nairobi and a support office in the World Bank, the AERC sought to engage African researchers, funding them on

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a competitive basis to conduct research and establishing a peer review process. The most interesting research findings are discussed in senior seminars, to which policymakers are invited. The seminars have provided a key forum where policymakers can debate research and compare experience with colleagues from other countries. Domestic think tanks created shortly after independence had helped craft the old order, but they had lost dynamism by the time the statist economies failed. Most had little role in either diagnosing ills or defining the new institutional, legal, and regulatory framework needed for a market economy. The AERC small-grants program funds research by African researchers, many of whom work in a new set of think tanks created in the 1990s. Researchers also benefit from technical advice and guidance from resource people with expertise on the selected themes. This technical support is complemented by a series of methodological workshops and the availability of up-to-date literature, which enhances the quality of the research output of grantees. Twice a year the AERC holds conferences at which papers it has funded are presented and critiqued by peers. In the last few years, it has moved from academic- to policy-oriented research. The advisory committee, which selects the themes on which research will concentrate, has focused recently on poverty analysis, labor markets, and analysis to prepare countries for international negotiations for accession to the World Trade Organization. The consortium occasionally plays a referral role by identifying African researchers and consultants at the request of African governments. AERC publications include the Research Paper Series, the Special Papers, the Executive Summaries, and the newsletter AERC Research News. Occasionally, it publishes a compilation of its research output as a supplemental issue of scholarly journals such as the Journal of African Economies and World Development. AERC also maintains a website. In order to facilitate a steady influx of young economists, AERC manages a joint masters program in economics for Anglophone countries of sub-Saharan Africa (except Nigeria), and it runs a doctoral scholarship program for African students. The ACBF, headquartered in Harare, was created in 1991 on the premise that to build research capability institutional support was needed, not just grants to individual researchers. Three multilateral donors, nine bilateral donors, and 14 countries participate. It was designed to fund new think tanks and bring African researchers up to date on economic research and methodology. By 1999 the ACBF had 34 active projects in 23 countries, including policy units and research and

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training programs (African Capacity Building Foundation 1999). In addition to grants for think tanks, it funds two comparative-research training programs, the AERC’s Cooperative M.A. Program for Anglophone Africa and the Programme de Troisième Cycle Interuniversitaire (PTCI) for Francophone Africa, currently coordinated by the Secretariat for Institutional Support for Economic Research in Africa (SISERA). The UN Economic Commission for Africa (ECA), headquartered in Addis Ababa, tends to work more through formal political leaders in diagnosing Africa’s economic ills and setting a new agenda. It brought out two successive Lagos Plans of Action, the first in 1980 and the second a decade later. In recent years the ECA has actively promoted the spread of information technology in Africa and attempts to render it accessible and useful to rural and urban residents. Analytical activities are central to the overall work of ECA, which serves as a policy advocate on critical development issues to encourage the policy initiatives and reforms necessary for economic and social advancement in Africa. Services in this cluster include research on, and analysis of, the economic and social situation in Africa. To deliver these services, ECA is increasingly drawing on the work of other sources of knowledge and expertise. National and regional African research institutions, African researchers, and development professionals are notable examples. Externally, ECA’s advocacy is geared toward promoting increased understanding of the complexity of African development. It is also aimed at informing and sensitizing Africa’s external development partners about the region’s need for sustained inflows of external resources to supplement those mobilized by Africans. ECA provides technical and advisory services at both regional and national levels in many aspects of economic and social development. It holds conferences, seminars, workshops, and ad hoc meetings of experts to disseminate its analytical work, sharing norms, standards, and best practices, and engaging in advocacy. The ECA research activity focuses on economic and social policy analysis, poverty issues, development management, information and communications technology, environment, and food security. The Annual Economic Report on Africa is ECA’s flagship publication. It creates links between research and policymaking through the following channels: • The Conference of African Ministers of Finance and ministers responsible for economic and social development • Partnerships and networks such as the African Development Forum and the African Knowledge Network Forum

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Fixing African Economies: Policy Research for Development

• Links in the UN system as well as Africa’s development partners such as OECD/DAC, and the Special Program of Assistance for Africa (SPA) The African Development Bank (ADB) has recently accorded more importance to research, which it both conducts and funds. The ADB’s mandate is to promote investment of public and private capital for development, primarily through loans and grants for projects and programs. However, the ADB increasingly recognizes that to tackle these challenges, it must play a major role as a knowledge intermediary in addition to its financial intermediation functions. It is a meeting place for ideas, a knowledge disseminator, and a banker. Policy research at the ADB focuses on • Economic growth, including the relationship between population growth, economic growth, and poverty • The development process and the role of ADB’s operational policies in it • Building internal capacity for economic analysis and policy guidance • Becoming an institutional focal point for policy dialogue • Providing African intellectual leadership SISERA was established in Dakar, in July 1997, to provide support for African economic research institutions. It was created to ensure that African economic research institutions play a key role in the search for homegrown policy ideas and in the public policy debate. The strategy designed by SISERA aimed at capturing the synergies between research and policymaking on the one hand and between research and training on the other. It favors support for capacity building of African institutions over project funding. It supports 20 research centers in both Anglophone and Francophone countries. SISERA recently created two subregional networks of research centers, one in western and central Africa and the second one in eastern and southern Africa, to facilitate networking of African research institutions and promote the use of African research capacity. SISERA collaborates actively with the ECA, the ADB, the World Bank Institute, and the program branch of the International Development Research Centre (IDRC) in the areas of training, publications, and visiting scholar programs aimed at linking up African researchers and policymakers. Its publications include the SISERA Working Papers Series, the SISERA Policy Briefs, and its website.

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The U.S. Agency for International Development (USAID) funded the studies on which this book draws for analyses of the research-policy nexus. USAID recognized early in the structural adjustment process that reforms were not going as planned. It contributed to the conception and establishment of the AERC and ACBF. Its first two major in-house initiatives in the early 1990s focused on the policy process (Implementing Policy Change Project) and the impact of reforms on poverty, health, and nutrition. Still, it was hard to get policymakers’ attention. USAID’s Equity and Growth Through Economic Research (EAGER) project (1996– 2001) dealt with that dilemma by mandating that research themes be demand driven and that the research itself be conducted differently. Policymakers and stakeholders—public and private—generated the themes of research, not university-based researchers. African researchers were full partners in the research process, not ancillary research assistants. Public dialogue took place throughout the research process, not just when a final report was presented. Three activities were funded by EAGER, one providing direct assistance to African research centers and the coordinating secretariat, SISERA, and two others awarded competitively as cooperative agreements with a U.S.-led consortia of research institutions and consulting firms. One consortium, on “Trade Regimes for Growth and Equity,” was led by Associates for International Resources and Development (AIRD).1 It funded research on trade, investment, and monetary policy. The other, “Public Strategies for Growth and Equity,” was led by the Harvard Institute for International Development (HIID) and funded research on a variety of topics, from labor markets to macroeconomic management.2 This consortium’s flagship study addressed the theme of restarting and sustaining growth and development in Africa, comprising five country studies as well as research on a number of crosscutting themes. Both consortia engaged African researchers on every research team, sometimes through grants to African institutions and sometimes through individual contracts. The writing of this book was funded under EAGER, as were the case studies described here.

The Research-Policy Nexus: Current Challenges The issues on which African policymakers are asking for research today deal with making policies work and producing tangible benefits. The need for efficacy and equity in specific country contexts demands

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Fixing African Economies: Policy Research for Development

applied or empirical research, informed by theory and based on data analysis and observation. In contrast, a recent tabulation shows that theoretical research was more fashionable than empirical research in prestigious Western economic journals in the 1980s when structural adjustment began. By the 1990s, empirical research was more widely presented, as illustrated Table 1.1. This is a promising evolution for top African researchers who want both to publish and to contribute to the economic growth and equity of their countries. Until the late 1990s, researchers based in Africa could do little serious research. They worked in isolation, with few resources such as research funding, libraries, computers, or databases. They had little interchange with either their own policymakers or academics in other institutions and countries. One of the first casualties of the budgetary crunch was scholarships for advanced degrees overseas. For a couple of decades the highest degree attainable in an African university was a master’s degree. A whole generation lacked the rigorous methodological training that is offered at the Ph.D. level and the francophone doctorat d’état. The relationship between teaching and research is problematic in Africa. University faculty who managed to earn research degrees often found themselves assigned to teaching roles with little opportunity or incentive to do research. In the anglophone system, universities expected faculty to publish, but there was little funding for research and few journals published on the continent. In the francophone system, until recently, university faculty were expected to teach, while specialized research institutions such as the Institut Fondamental d’Afrique Noire (IFAN), the Centre National de Recherche Scientifique (CNRS), the Institut de Recherche pour le Développement (IRD) (formerly the

Table 1.1 Types of Articles in Major Economic Journals, 1973–1993 Theoretical Year

1973 1983 1993 All Years

Pure (%)

54.6 57.6 32.4 47.6

Empirical

Number of

With Others’ Own Data Experiment Articles Simulation Data (%) (%) (%) (%) 4.2 4.0 7.3 5.3

37.0 35.2 47.8 40.3

4.2 2.4 8.8 5.2

0 0.8 3.7 1.6

119 125 136 380

Authors

154 190 234 578

Source: Daniel Hamermesh 1996, based on a number of articles published in the American Economic Review, Journal of Political Economy, and Quarterly Journal of Economics.

The Research-Policy Nexus

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Office de Recherche Scientifique et Technique d’Outre Mer [ORSTOM]), and sectoral agricultural and forestry institutes conducted research full time. Moreover, the CNRS and IRD are French institutions and staffed overwhelmingly by French expatriates. In the 1980s IFAN began requiring its staff to teach at least part time at the university. The Universities of Dakar and Abidjan also created research institutes, but these were ill-funded and poorly organized. In the 1990s a number of factors began to change that picture. Research funding was available through AERC, EAGER, and other initiatives. ACBF and AERC worked to upgrade research and policy-analysis skills. Access to computers and e-mail spread, so researchers could stay in touch with colleagues throughout the world and use spreadsheets to do statistical analysis. Now Internet access is also affordable. Major international databases that used to reside mainly in U.S.-based institutions such as the World Bank, the United Nations Development Program, and USAID are now accessible to all, often on the Internet. In many instances, there is still a gap between what constitutes the cutting edge for researchers and what policymakers need from researchers. Most applied-research articles focus on a single question or model a single relationship, which is generally a small part of the situation that policymakers need to take into account. Completeness is a critical aspect of good policy research. But complete pictures are complex and may appear messy to academic editors. A neatly structured model is likely to be more publishable, but of limited use to policymakers. Combining rigor and timeliness is also tricky. One head of an African research institution commented that he needed to be a visionary to see what policymakers would be interested in two years from now and insert it into the research program now. Then he needed to ensure rapid turnaround for the research. In the pressure of politics, policymakers often ask research institutions and their leaders for quick consultancies or expert opinions. The results necessarily compromise the need for rigor.

The Approach of This Book This book draws lessons for policy research from five years’ experience throughout the continent. The chapter themes show in detail the types of practical problems that grew out of structural adjustment and how policymakers and researchers are dealing with them. EAGER funded over one hundred research projects in ten African countries over five years.

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Fixing African Economies: Policy Research for Development

Researchers and policymakers met seven times over that period in alternate participating countries for colloquia and related working sessions. As the EAGER project drew to a close, USAID and the team leaders of the two consortia decided to analyze what had been learned about the policy-research nexus. Rather than limit the exercise to EAGER research, the group asked leading researchers in a range of countries to analyze the state of the art with an open mind. Each author analyzed the policy process in his country, the situation of research institutes, and at least one case study of interaction that illustrated the synergies. They were asked to base their chapters on interviews with policymakers, documentary reviews, and their own observations. Where the case studies selected involved EAGER researchers from the United States, they were asked to contribute to the chapter as well. Results This book is addressed to policymakers, policy researchers, and donors interested in how market economics are being adopted in Africa and how to structure successful policymaking using research and dialogue. The perspectives were discussed at two conferences, one in the United States and one in Africa. The Johns Hopkins Nitze School of Advanced International Studies scheduled its annual Africa Day conference around this theme on April 6–7, 2001. The chapters that follow present a variety of policy and research perspectives from across the continent. Policymakers in countries that ended up participating generally actively sought research input, notably Ghana, Mali, Uganda, Tanzania, and South Africa. In each of these countries, relatively new governments were in office and had already initiated major reform programs. The leaders wanted them to work. The exceptions, where research and stakeholder input was not sought in advance, are as interesting as the cases where the researchpolicy dialogue was active from project conception through completion. The case studies begin with Fred Boadu and associates’ chapter (Chapter 2) on Ghana’s experience with the value added tax (VAT). This grew out of a study he and a team conducted under EAGER on alternative institutions for promoting accountability, transparency, and openness in government in Ghana. It queried Parliament, new regulatory institutions, and the business community on the process of developing, passing, and implementing economic legislation. The chapter in this volume is based on a second survey of the same respondents, relating specifically to the experience with VAT. We promised that this volume would

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deal with best practices, which normally implies cases of successful impact of policy research. Boadu’s chapter does just the opposite. It shows what happens when major policy decisions are introduced without the benefit of either research or policy dialogue. What research there was on VAT and its impact had been done by IMF researchers on a theoretical basis, with little empirical research on local economies, tax structures, and political economy. Economists generally agree in principle that theoretical models are a weak basis for prediction and a very poor basis for prescription. Yet theory was the initial basis for this and many other elements of the “Washington consensus” imposed during the process of structural adjustment by IMF and World Bank economists. This chapter gives readers insight into the actors in the policy process, notably the increasing importance of parliament in the policy dialogue. It thus sets the stage for the other case studies. The Madagascar case study by Pépé Andrianomanana and Clive Gray (Chapter 6) also deals with transparency and taxes, this time from a tax administration point of view. Madagascar’s tax revenue in 1994 was 8.3 percent of GDP, putting it in the lowest 11 percent of African countries. The original EAGER study hypothesized that tax performance could be improved, thus reducing budget deficits and providing more resources for education and health, by periodically making systematic estimates of tax evasion and publicizing the results. The Malagasy research team found evasion of seven major taxes to be around 60 percent, or 8.8 percent of GDP. The team’s report called on the government to publish names of major defaulters and recipients of discretionary exemptions. Two months after a high-level workshop on the report, the government did this for the first time, provoking a stir in the business community, which lauded the principle but complained about errors of fact and process. Eventually the controversy subsided, as the revenue-to-GDP ratio rose to 11.4 percent, and it appeared that policymakers found the costs of offending tax evaders to outweigh the benefits of improving tax performance still further. No one has ever been fined or otherwise sanctioned for tax evasion in Madagascar. Not even the Malagasy research team supported the idea of criminalization. The team’s proposals for regular estimation of evasion and publication of names were turned aside. The chapter’s authors complain of a lack of “visionary national leadership” that would weigh increased funding for the social sectors more heavily than the political and personal costs of confronting tax evaders. The other case studies show the wide range of contexts in which economic policy is being researched and decided in Africa today. South Africa, as described by Haroon Bhorat in Chapter 8, has the richest body

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Fixing African Economies: Policy Research for Development

of economic research and the closest relationship between economic research and policymakers. The 1994 transition to majority rule brought economists supportive of the winning party, the African National Congress (ANC), out of their university hermitages and into government service. Some became top officials, and others began providing research to their colleagues on a regular basis. Labor issues, Bhorat points out, were central, as the new government inherited segregated unions and a multitiered wage structure. Whites’ wages averaged several times those of blacks, and the wages of urban residents and union members were far above informal-sector incomes. The new government faced pressure from the Confederation of South African Trade Unions (COSATU), which had been a strong partner in the elections, to maintain or improve black union wages. At the same time, the population at large urgently needed new job creation. Government had to deal with the trade-offs. Pushing for higher wages for union workers would likely reduce the number of jobs available, yet increasing the total number of jobs was also an urgent priority. With the help of researchers, government is exploring ways of minimizing the tradeoffs. Two studies on monetary policy in Ghana (Charles D. Jebuni) and Uganda (Polycarp Musinguzi) are combined in a single analysis by coauthor J. Dirck Stryker in Chapter 7. Monetary reform has been perhaps the most successful of the macroeconomic reforms brought about by structural adjustment. Before reform, businesses throughout the continent were hamstrung by strict currency controls. They could not get foreign exchange to import manufacturing inputs, purchase equipment, or travel to liaise with clients. Ghana and Uganda both moved early on to relax restrictions and then to float their currencies freely. This chapter takes the reader inside the central banks to see the intricacies of managing the newly floated currencies. Chapter 4, on Kenya, by a former chief economist to the government of Kenya, T. C. I. Ryan, takes us into a context where economic reform has been pronounced at the top but failed in implementation at all lower levels. It is a reminder that some of Africa’s most potentially dynamic economies are still stalled in economic limbo. Ryan proposes distinguishing between policy pronouncements and the often contradictory policies put into practice by the bureaucracy. Sometimes policy pronouncements are not followed by the necessary legislation. Even when laws are passed, if implementing legislation and regulations are not issued, a new policy can remain a dead letter for years. Ryan leads the reader through the process of attracting policymakers’ attention by finding the political hook that makes a wider economic issue a clear political problem for leaders. His illustrations are based on his experience as a presidential advisor.

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Tanzania’s experience with liberalizing the minerals sector, presented in Chapter 5, is in sharp contrast to the above. The country had seen its precious minerals production and exploration wither away during the period of state monopoly. Two policy decisions awakened it, with dramatic effect. One was opening access to minerals to small miners and multinational mining companies in the late 1980s. The second was floating the currency in the early 1990s, so that the proceeds from mineral exports could be used directly to finance imports. The study reported on by Samuel M. Wangwe, Haji H. Semboja, and Lucie Colvin Phillips began as a study of informal markets for gems and gold. Government wanted to know why so much was being smuggled out to Kenya. There was some thought that it could be suppressed by better policing. Based on the results of the study, the ministry instead adopted an incentive-based approach for attracting trade. Legal trade volumes have risen steadily, as has the number of Tanzanian dealers making a living from gem and gold trading. A surprising side effect of the economic analysis was the discovery that mining had generated 550,000 jobs in rural areas, at incomes averaging six times those in farming communities. Empirical policy-relevant research is likely to be the cutting edge in Africa for the next decade. The lead researchers are more and more likely to be African. While African research institutes still operate under many professional disadvantages vis-à-vis their colleagues in the West, they now have the means to conduct serious research. There is a growing donor consensus that their understanding and analysis is essential to guide transitions to market economies that enable growth with equity. Finally, researchers based on the continent have access to funding, human resources, and economic and social data on their own countries and the major international economic databases. This was not true five years ago. Now African researchers are anxious to take the lead in monitoring, analyzing, and interpreting economic, social, and political responses as the new order is built. They will also need to apply research to policymakers’ needs in conflict situations, to ward off or mitigate conflicts, and in the continent’s many postconflict situations, to help establish the foundations for peace.

Notes 1. AIRD subcontractors included IBI-International Business Initiatives, Arlington, VA; Purdue University, West Lafayette, IN; the Harvard Institute for International Development, Cambridge, Mass.; the Centre de Recherche en Economie et Finance (CREFA), Université Laval, Québec; the Economic and

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Fixing African Economies: Policy Research for Development

Social Research Foundation (ESRF), Dar es Salaam, Tanzania; the Economic Policy Research Centre, Makerere University, Kampala, Uganda; Ecole Nationale d’Administration, Bamako, Mali; Center for Economic Policy Analysis (CEPA), Accra, Ghana; the Central Bank research units of Uganda and Ghana; South Africa. 2. HIID was dissolved in mid-2000, handing its EAGER role over to the Belfer Center for Science and International Affairs of Harvard’s John F. Kennedy School of Government. U.S.-based subcontractors were AIRD, Cambridge, Mass.; Clark Atlanta University; Development Alternatives Inc., Washington, D.C.; Howard University, Washington, D.C.; IRIS Center, University of Maryland; MayaTech Inc., Silver Springs, Md.; Michigan State University; Northeastern University, Boston, Mass. African subcontractors included research institutes and individual researchers in Benin, Ghana, Kenya, Madagascar, Malawi, Senegal, South Africa, Tanzania, Uganda, and Zambia.

2 Ghana: Promoting Accountability and Transparency in Government Behavior Fred. O. Boadu,Victor K. Nyanteng, Seth Bimpong-Buta, and Mark Nadler

Ghana has made substantial progress in regulatory reforms since 1983, but there remain many “second-tier” regulatory and policy problems that are less obvious or more difficult to address (Foreign Advisory Investment Service [FAIS] 1995). The use of research information in designing and implementing policies still presents challenges that need to be addressed to promote equitable distribution of the benefits of economic growth and to reduce inefficiencies in the form of public sector principal-agent problems, regulatory capture, public sector moralhazard problems, and private rent-seeking behavior. A series of papers that appeared in a special edition of World Development highlight the complexity of economic policymaking in a developing economy context (vol. 18, no. 8, 1990: see papers by Berry, Whitehead, Thomas and Grindle, and Gulhati). Increasing participation of nonstate actors in the process of government is the most effective way to eliminate the culture of reciprocal mistrust and suspicion between business and government and to build credibility in government policy. Good policies are critical to the attainment of Ghana’s goal of becoming a middle-income country by the year 2020 (Government of Ghana 1996). Currently, there are favorable trends in Ghana pointing to increased roles for and acceptance of the participation of economists in the policy process. The success of Ghana’s economic reform program depends in part on making economic policies that are guided by objective measures of performance rather than by the dictates of an autocrat. In a memorandum to the International Monetary Fund explaining its policies in the coming year, the minister of finance confirmed Ghana’s commitment to the use of objective measures in policymaking: “I can assure you that the government is determined to fully implement the program and 25

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Fixing African Economies: Policy Research for Development

comply with the performance criteria. Every effort is being made to quickly carry out the agreements contained in the attached memorandum.”1 The emergence of multipartyism as a component of the structural reform program, for example, has encouraged open criticism of government policies. The commitment to constitutionalism and the rule of law has encouraged the emergence of several media outlets that have dedicated space and time to commentary on government economic policies. Ghana has also experienced growth in economic research institutions since the implementation of reforms. New private advocacy and research institutions such as the Private Enterprise Foundation, The Center for Economic Policy Analysis, and the Institute for Economic Analysis have carried out research, conducted workshops, and prepared position papers, all as input into the policymaking process. These institutions have expanded collaboration with expatriate researchers both as a means of strengthening domestic economic policy research capabilities and to provide the government with critical information that otherwise could be obtained only at a high cost. The activities of these private institutions are similar to those of quasi-governmental institutions such as the Institute for Statistics and Socio-Economic Research. These observations lead to the conclusion that economic policy research is maturing in Ghana and would become even more important as the country deepens its faith in market reforms within a constitutional-democratic framework that invariably sharpens the demands of strategic groups for a share of scarce economic resources. This chapter examines the role of economists and the use of information derived from economic analysis policymaking. The chapter adopts the broader dictionary definition of policy as “a definite course or method of action selected from among alternatives and in light of given conditions to guide and determine present and future decisions” (Webster’s Collegiate Dictionary, 7th ed.). Such a broad view of policy compels the identification of the entities responsible for deciding and selecting the alternative courses of action for society, the sources of the information input in making the selection, the adequacy of the human and financial resources that go into decisionmaking, and the legitimizing elements that make selected courses of policy actions a part of social life in Ghana. Policy is formulated through statutes, executive and legislative instruments, legal notices, regulatory orders by independent regulatory agencies (IRAs), and the like. This chapter therefore focuses on the legislative, executive, and regulatory agencies’ processes, including the role of private entities. It also makes the case that Ghanaian courts are

Ghana: Promoting Accountability and Transparency

27

emerging as important sources of economic policymaking, a phenomenon that has received very little attention in the literature on economic policymaking in sub-Saharan Africa. To sharpen the discussion, the chapter attempts to shed some light on the following questions: 1. How do Ghana’s legislators and regulators originate, structure, and present legislation and rules that affect private sector activities? 2. What is the role of economists, journalists, and civil society in legislative and regulatory processes? 3. How do businesses learn about new laws and regulations and changes in the rules? 4. What are the capacity and information resources available to the Parliament and IRAs to conduct studies and employ transparent protocols (benefit-cost tests, performance standards, open records rules, time limits, comment periods, etc.) in legislative and regulatory process? 5. What is the prospect for adopting formal procedures such as lobbying rules to facilitate private sector participation in legislative and regulatory processes? To answer these questions, questionnaires were administered to (1) members of Parliament, (2) business associations, (3) private business people, (4) the news media, (5) civil society, and (6) selected IRAs. The questionnaire administered to the IRAs explored issues related to their internal rule making processes, their use of research information, and the cost of regulation. The objective was to determine the extent to which the internal controls within the IRAs function to raise business confidence in their operations. The underlying hypothesis is that the absence of business confidence opens the door to rent seeking and regulatory capture. In addition to these formal surveys, informal discussions were held with researchers from selected economic research institutions, and more significantly with selected members of the government’s “economic management team” (EMT). The process of negotiating the Value-Added Tax (VAT) Law (Act 546) and accompanying regulations (the VAT regulations, 1998 [LI 1646]), provides anecdotal evidence to verify some of the findings from the surveys. The study of the VAT law entailed reviewing extensive parliamentary debates, published documents from the VAT secretariat, and gathering information from conversations with individuals who participated in boardroom discussions. The discussion is used to show how a failure to adhere to the principles and guidelines for effective governance

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Fixing African Economies: Policy Research for Development

in the form of public participation in policy debates can lead to costly policy reversals and wasted time and effort. The study is also used to verify some of the parliamentarians’ responses to questions dealing with the use of economic information in economic legislation and policymaking. The second part of this chapter presents a general framework of the economic policymaking process in Ghana. The framework emphasizes the central role of the economist as one exposing all participants in the policy market to the risks and transaction costs associated with alternative courses of action. The section closes with brief comments on policy research institutions, that is, the suppliers of economic information in Ghana. The emergence of IRAs and the results of a survey of parliamentarians, business entities, the media, and civil society are presented in the third part. Conclusions and recommendations for expanding the use of economic information in the policy process are presented in the last part.

Background on the Value Added Tax The Value Added Tax (VAT) (Value Added Tax Act, 1994 (Act 486)) and accompanying regulations, the VAT Regulations (Legislative Instrument No. 1598) were passed in February 1995. That probably was the most significant economic regulation in Ghana since the inception of the country’s structural reform program in 1980. Actual collection of the tax commenced on March 1, 1995. The legislative intent was to establish a uniform mechanism for collecting consumption taxes. Two mechanisms were used to collect consumption taxes prior to the VAT—a 15 percent sales tax on goods collected by the Customs Excise and Preventive Services (CEPS), and a tax on selected services collected by the Internal Revenue Service (IRS). There was also a 35 percent excise tax on luxury goods. The VAT law was short-lived. Two months after its passage, the Parliament of Ghana moved quickly to repeal the law in response to intense public pressure and violent protests. In May 1995, Parliament passed the Customs, Excise and Preventive Service [Management Amendment, no. 2] Act 1995 (Act 500) and the Service Tax Act, 1995 (Act 501) that effectively repealed the VAT law and regulations. This policy reversal was particularly shocking because the government had already established a VAT administration service and associated protocols back in August 1994 to administer the VAT. The government then began a process of rethinking the mode of application of the VAT tax

Ghana: Promoting Accountability and Transparency

29

and educating the public on it. Eventually the VAT was reintroduced in the second VAT Act in 1998. Several reasons have been advanced for the failure of the VAT law in 1995. First, there was the issue of government credibility. Prior to the introduction of VAT, there was a luxury tax of 35 percent in operation in Ghana. This tax was supposed to have been eliminated under the 1994 budget. However, when VAT was introduced in 1995, the luxury tax was still in effect. Furthermore, most people pointed to a VAT rate of between 5 percent and 10 percent in other countries and questioned why the government was proposing a rate of 17.5 percent in Ghana. The fact that neighboring Nigeria had a rate of 5 percent did not help matters. When the government later stated that the rate would be 15 percent even though the Finance Committee of Parliament had proposed 10 percent, the public had little remaining confidence in the policy (Government of Ghana, 1998, hereafter Report, p.18). Another major reason for the failure of the first VAT law was the coverage of the tax. Apparently, in order to expand the revenue base, the government required that all businesses with a minimum annual turnover of 25 million cedis were required to register with the VAT Secretariat. The practical implication of this was that many small and informal sector businesses were to be covered, thereby imposing on them the responsibility to engage in the required record keeping and paperwork. Most of these businesses simply were not capable of meeting these record keeping requirements. It was this aspect of the legislation that galvanized the small businesses, retail outlets, and the informal sector entities into a very vocal anti-VAT group. The Parliamentary Finance Committee responded to the concerns expressed by the small business group by raising the threshold to 200 million cedis under the second VAT law. As the committee explained, “it is also at the retail stage where most of the problems (e.g., poor record keeping, lack of tax education, monitoring) were encountered in 1995. It is thus economically unsound to register too many small shops and artisans under VAT” (Report, p. 12). Some additional factors fueled public opposition to the first VAT law, namely: • Failure to educate the public about the law • Regulatory dissonance and turf battles between the CEPS, IRS, and the newly created VAT administration service • Proximity to the date for general elections (to be held in 1996) • Staffing problems at the newly created VAT authority

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Fixing African Economies: Policy Research for Development

Having learned from the first experience, the government of Ghana embarked on a massive public education campaign to reintroduce the VAT. Particular emphasis was placed on the fact that the proposed VAT rate was lower than the rates under the sales and services act. The government also emphasized the many exemptions under the law, most likely because the small retailers had been very vocal in opposing the first VAT law. The campaign to reintroduce the VAT intensified after the elections of 1996. Sections 77 and 78 of this new law effectively repealed the Sales Tax and Service Tax [Amendments] that were used to repeal the old VAT law. The new VAT law, the Value Added Tax Act, 1998, Act 546, is in effect today.

A Framework for the Policymaking Process in Ghana A framework proposed by G. M. Meier (1991) is adapted in developing a model of the regulatory and legislative process in Ghana, best conceptualized as a multistage production process involving (1) the initiation of legislation or regulation, (2) bargaining between government and the private sector regarding the limits of applicability of the proposed legislation, and (3) implementation of the law and monitoring of commitments made under the law. Ideally, as shown in Figure 2.1, the economist plays a central role and is responsible for exposing all stakeholders to the risks and transaction costs associated with alternative policy choices. The society and state-centered forces utilize the services of economists in making predictions and offering prescriptions that are passed on to Parliament. Economists also supply information to Parliament either through Parliament’s in-house sources or through external sources. The outcome of this competitive trading of ideas between the Parliament and the private sector is a law, regulation, or policy that is widely accepted into national life because the process of enactment made it possible to account for the risks and transaction costs facing all stakeholders. Sources of Legislation The above description of the policymaking process points to the legislature (Parliament), state organs (executive/ministries), and private sector entities as possible sources of legislation. The framework explicitly accounts for the role of international and donor organizations in the

Figure 2.1 A Framework For Legislative/Regulatory Process in Ghana

Society-centered forces ociety-c entered forces Classes Classes Interest Interestgroups groups Parties Partiesand andvoters voters Business entities Business entities

31

ate-centered forces State-centered forces echnocrats Technocrats Bureaucrats State Bureaucrats interests State interests

33rd rd Parties Parties International Organizations ternational Orga nization

Economists Economists

Predictions and Predictions prescriptions and prescriptions

Policies Policies

Policy Policy choices choices

Implementation Implementatin

Policy outcomes

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Fixing African Economies: Policy Research for Development

process. These organizations have been the source of some significant economic laws, including the Bank of Ghana Law (amendment, 1992), the Financial Institutions (non-banking) Law (1993), and the Free Zone Act (Act 504), enacted in Ghana over the last decade. Given the dominant role of the public sector in economic activity and the importance of the donor community in promoting the market reform program in Ghana, one would expect most legislation and regulations to originate from these two sources. Bargaining and Information Bargaining occurs at all stages of the legislative process. Efficient bargaining outcomes occur when Parliament and the private sector have access to the same information. Parliament must have the capacity to make its own set of predictions and offer policy prescriptions. There is a nascent research division within Parliament in Ghana, but its human and infrastructure resources are weak. With the possible exception of the Bank of Ghana, in-house research capability in most regulatory agencies is almost nonexistent. A plausible hypothesis is that studies supporting proposed legislation and regulation are likely to be carried out by consultants and international organizations as part of project proposals in support of market reforms. Private sector entities and organizations face similar constraints and are also likely to rely on third-party studies instead of their own sources. Transparency is possible only when competing policy positions can be compared using a common yardstick. To improve the quality of legislation, parties in the bargaining process must be able to understand and utilize economic information. Even though all members of Parliament and the staff of regulatory agencies have had some formal education, the lack of supporting economics research infrastructure suggests that their ability to utilize economic information in decisionmaking is limited. These combined factors would lead one to expect very low economics research input into the policymaking process in Ghana. Monitoring and Implementation of Legislation Transaction costs associated with the implementation and monitoring of regulatory and legislative outcomes must be sufficiently low to support an efficient regime. What is being monitored in this framework is the legislature’s compliance with the procedural requirements in enacting new legislation, and government compliance with negotiated policy

Ghana: Promoting Accountability and Transparency

33

commitments (see Buchanan 1990). This contrasts with the more popular monitoring models that focus on government monitoring of private behavior or the legislature’s monitoring of bureaucratic behavior. In the tradition of Downs (1957) and Niskanen (1971), it may be argued that the incentive for Parliament or regulatory agencies to monitor their own behavior is low. Hence, there is a need for third-party monitoring of the policymaking process. The media plays an important role in this regard. How the media goes about performing this monitoring role depends on the rules governing access to the legislative and regulatory apparatus and the human and infrastructure resources available at media houses. The hypothesis is that inadequate human and infrastructure resources available to the media limit their monitoring role. Another important monitoring institution is the judiciary. The ability of citizens to protect their political and economic rights is an essential ingredient of any credible governance regime. At this early stage of democratization, citizens in Ghana are using the monitoring powers of the judiciary only in a reactive sense, that is, only when an impediment is placed in their way under a particular law. International and donor organizations play an important role in holding governments to their commitments. Donors have been instrumental in empowering domestic private sector advocacy groups in their interaction with the legislative and regulatory apparatus (see, Mason 1990). In Ghana, for example, the role of USAID in empowering the PEF to more effectively interact with the legislative process is well established. Also, through their operation of “loan conditionalities,” these organizations have forced developing-country governments to live up to their commitments. Given the key role played by these organizations in Ghana’s economic reform program, one would expect a significant number of legislative and regulatory proposals to originate from these agencies acting through the relevant government ministry. Information Supply Institutions The discussion so far suggests that the legislature, executive, judiciary, private entities, and international organizations are the key policy institutions in Ghana. Within some of these institutions are subunits primarily responsible for economic policy matters. Focusing specifically on the executive branch, the president’s cabinet is at the apex of the policymaking hierarchy. Beneath the cabinet is the Economic Management Team (EMT), headed by the vice-president. The operation of the EMT seems to be ad hoc. First, the EMT does not have a fixed membership,

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Fixing African Economies: Research for Development

that is, with the exception of the finance minister, governor of the Bank of Ghana, and a few heads of ministries, any individual considered to have specialized knowledge on a particular economic issue may be invited to join the team during the discussion of an issue. Also, the team does not have a fixed meeting schedule, and it meets only at the discretion of the vice president or minister of finance. The EMT was especially instrumental in fashioning Ghana’s structural adjustment program and working with IMF staff in preparing various position papers on the economy. Decisions by the EMT are subject to cabinet approval. Since the inception of the adjustment program, there have emerged what may be labeled economic research information supply institutions. The Private Enterprise Foundation (PEF) is a USAID-sponsored institution that advocates policies supportive of the private sector in Ghana. There is a small in-house research group, but they contract out most of their research in support of their economic policy positions. The Institute for Economic Analysis (IEA) is a privately funded organization with a considerably larger in-house research group of economists and political scientists. Through their associates program, IEA has been able to tap the expertise of retired civil servants to boost their in-house research capability. It is not exactly clear how research, workshops, and seminar information from the IEA influence government policy. Conversations with some key in-house researchers indicated that while their impact on policy may not be explicit, government officials routinely attend their workshops and seminars, and always are tuned in to what is happening at the institute. One program organized by the IEA has the potential to considerably improve research support of Parliament’s inhouse economic research. The institute sponsors university students as interns attached to selected parliamentarians. These interns conduct background studies in support of legislation proposed by a parliamentarian. One test of the IEA’s influence on the policy process could come from their sponsorship of a “Freedom of Information Act” proposal by a group of academics and public interest groups. A seminar on the proposal was held at the institute in June 2000, but so far the government’s position is not known. Probably the most recognized economic policy institution in Ghana today is The Center for Economic Policy Analysis (CEPA), which boasts several well-known domestic economists who work with both government and expatriate research institutions. The key to CEPA’s dominant position in the economic research information market is its leadership. The center is headed by Dr. J.L.S. Abbey, widely regarded as the “father” and principal architect of Ghana’s economic reform program.

Ghana: Promoting Accountability and Transparency

35

The director also serves on several key government-established boards and committees, including the Bank of Ghana Board, which is responsible for monetary policy. Field information suggests that the director is in fact the originator of the EMT on which he still serves. While CEPA is known to have made considerable contribution in shaping economic policies in Ghana, the modalities in transmitting research information to policymakers and the use of the information in actual policy decisions are unclear. Conversations with some staff members indicate that economists from the center regularly testify before Parliament, present at seminars and workshops on key economic issues, and also serve on various committees established to address specific economic issues. Probably the most direct influence of the center on policy comes from the director himself, who literally has the ear and trust of key government officials. Another major economic research institution is the Institute for Statistics and Socio-Economic Research (ISSER) attached to the University of Ghana at Legon. ISSER is the oldest economic research institution in Ghana. Being a part of the University of Ghana, it is supported by both the government of Ghana and several international donor organizations. As a government institution, it has been instrumental in conducting research that is often directly associated with a government program, such as the Ghana Living Standards Survey organized by the World Bank. ISSER conducts studies for organizations, such as PEF and the Chamber of Commerce, on a contractual basis, but it is not directly involved in lobbying activities. ISSER economists are sometimes invited by Parliament to present expert opinions on proposed legislation. Some of the studies produced by economists at the institute are academic publications with a general audience in mind. ISSER’s annual publication, The State of the Ghanaian Economy, produced with funding from USAID/Ghana, is now standard reading for policymakers and the public.

Results of a Survey of Policymaking Bodies in Ghana A survey of selected institutions and private sector entities was conducted during the period of October 1997 to May 1998. Questionnaires were distributed to all two hundred parliamentarians in the Ghana legislature, forty-two business associations, fifty businessmen and businesswomen, all twenty-one news media houses, and a group with diverse professions and occupational persuasions grouped into the category “civil society.” Since no official list exists for the businessmen and businesswomen, a simple “find and interview” approach was used.

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Fixing African Economies: Policy Research for Development

For the regulatory agencies, the seven most active agencies were interviewed. ISSER led the survey effort. Parliamentarians were slow to return completed questionnaires and the response was low (25 percent of the total distributed). Thirty-seven responses (88 percent) were returned by the business associations, and the businessmen and -women returned forty-six, or 92 percent. All twenty-one news media houses responded to the survey. Twelve respondents were from the print media and the remaining were electronic media. One hundred and fifteen questionnaires were distributed to the group labeled “civil society.” About 70 percent of those questionnaires distributed were returned and included in the survey. This group was divided into subgroups as follows (their proportion in the sample is in brackets): (1) managers/administrators [28 percent]; (2) economists, lawyers, accountants, and bankers [21 percent]; (3) researchers, lecturers, and consultants [18 percent]; (4) analysts, engineers, and chemists [13 percent]; (5) medical doctors and nurses [10 percent]; and (6) students [10 percent]. Out of a total of 428 questionnaires distributed, 234 or 54.7 percent were returned and used in the analysis. Survey of IRAs The previous sections described the policymaking process in Ghana and identified both the users and producers of economic information. In this section, we present the results of a survey of policymaking institutions, focusing particularly on the set of objectives stated above. The discussion begins with the results of a survey of IRAs, a major evolving source of policies. When Ghana achieved political independence in 1957, the government decided that a more active role for the public sector was the best way to promote economic growth. The primary institution for monitoring economic performance of business during the period 1957–1981 was the State Enterprises Commission. With the dismal failure of this commission, policies shifted toward promoting the private sector as the engine of growth. This shift in policy called for new regulatory institutions to monitor economic activity. Today there are over sixty regulatory agencies operating in Ghana. For Ghana and other countries pursuing market reforms, an early understanding of the mechanics of regulatory agency behavior could prevent the waste of valuable resources in the future. Under the constitution of Ghana, regulatory commissions are statutory bodies established by an act of Parliament (Article 190 [1][d]). Parliament also determines the functions and membership of the regulatory agency. A member of a regulatory agency may not be victimized or discriminated against for having discharged his duties faithfully in accordance with the

Ghana: Promoting Accountability and Transparency

37

constitution, or dismissed or removed from office or reduced in rank or otherwise punished without just cause (Article 191). Table 2.1, which was adapted from another previous study, summarizes questions and responses by selected IRAs to questions related to information use in the regulatory and policymaking process. Generally, decisionmaking within these agencies is a committee responsibility. All the agencies (excluding the National Insurance Commission and Food and Drug Board) reported having studies performed in support of new regulations. With the exception of the Bank of Ghana, the agencies reported having no in-house research capability. While these agencies give notice (probably required by statute), few position papers are submitted by outside groups. As argued earlier, policymaking by regulatory agencies is a fairly recent phenomenon in sub-Saharan Africa. It is plausible to expect that if countries stay with a market approach to economic organization, these agencies will gain prominence, and access to economic information will become even more important in designing efficient regulations to implement policy.

Survey of Parliament, Private Business Organizations, and Other Civil Society Organizations Analysis of study: Objective one. The first objective of this chapter is to examine selected issues related to the basic elements of rulemaking and the role of the private sector and other stakeholders in the process. The following three issues are addressed: 1. Sources of legislation in Ghana 2. Role and use of information by the private sector 3. Role played by strategic groups (economists, business entities, journalists, and civil society) in the legislative process Sources of legislation in Ghana. Legislation originates from several sources in Ghana. The legislative power in Ghana is vested in the Parliament (1992 Constitution, Art. 93[2]). Under Article 110(1) of the 1992 Constitution, Parliament may, by standing orders, regulate its own procedure. Under the constitution, the president is responsible for introducing bills in settlement of financial matters (Art. 108[a] and [b]). Under Standing Order 120(2) of Parliament, a member of Parliament may introduce a bill on behalf of the president after giving notice for introducing the bill. Legislation may also originate from an individual acting through a political party. The constitution guarantees the right of

Table 2.1 Survey of Regulatory Agencies: Questions and Response Summary Questions 1. Who proposes regulation in your agency? a. Designated individual b. Committee c. Ministry d. Private citizens e. President f. Parliament 2. Who handles regulatory affairs in your agency? a. An individual b. Committee c. Ad hoc, individual or committee 3. How many new regulations did your agency issue in: a. 1998 b. 1997 c. don’t know d. nil 4. Considering all the people and processes involved in regulation, about how much in money terms did regulation cost your agency? 5. Were any studies performed to outline issues and impacts of regulation? 6. Who performed the study? 7. Did other bodies and private entities submit position papers on the proposed regulation? 8. Does your agency give notice prior to introducing new regulation? 9. How much notice (in days) does your agency give prior to introducing new regulations? 10. Are your regulatory processes and discussions open to the public? 11. Do you conduct post-regulation impact analysis? (continues)

Table 2.1 Con’t. Results of Survey Question Number Body

1

2

3

4

5

PURC NIC NCA NBSSI BOG GSB FDB

b b b,c c b b,c,d b

b b a,b b b b b

a d d d c c a

Nk Nk Nk Nk Nk Nk Nk

Yes N/A Yes Yes Yes Yes No

6 Consultant N/A Consultant IRS Internal Tech comm. N/A

7 Yes N/A No No Not always N/A Yes

8 Yes Yes Yes Yes Sometimes No Yes

9 121 days 90 days 90 days One month Irregular N/A No response

10 Yes Yes Yes Yes No Yes Yes

11 Planned Yes Planned No Yes Mkt surv. Planned

Key: PURC—Public Utilities Regulatory Commission; NIC—National Insurance Commission; NCA—National Communications Authority; NBSSI— National Board for Small Scale Industries; BOG—Bank of Ghana; GSB—Ghana Standards Board; FDB—Food and Drug Board; Nk—Not Known.

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Fixing African Economies: Policy Research for Development

individuals to belong to political parties and participate in the political process. It was suggested earlier that donor and multilateral agencies are important sources of legislation in Ghana. Acting through the relevant government ministries, these agencies often propose legislation as part of project implementation. For example, the implementation of the Trade and Investment Program, managed by USAID/Ghana, led to new laws and policies for improving the ports and customs procedures. Ghana is only recently introducing policies for its eventual transformation to a market-driven economy. This policy is being followed with the assistance of the donor community. A plausible hypothesis is to expect most legislation to originate from the government sector and from donor-inspired sources. Stated another way, the private sector is expected to play a lesser role in proposing legislation. The hypothesis is partly supported by the results of the survey and the process that led to the passage of the recent tax law, the Value Added Tax (VAT) Law (Act 486 ). From the perspective of parliamentarians, the most important source of new legislation is government ministries. This was indicated by one-third of the respondents (Figure 2.2). The business community and special interest groups were the next most important sources of new legislation, each indicated by 15.7 percent of the respondents. The Office of the President was the fourth most important source of new legislation Figure 2.2 Sources of Legislation in Ghana 35

34%

30

25

20 15.7%

15.7%

15

13.4%

12.6%

10

8.7%

5

0 Ministries/ Government

Business Community

Interest Groups

Office of the President

Parliament

International Organizations

Ghana: Promoting Accountability and Transparency

41

as indicated by 13.4 percent of the respondents. The Parliament itself initiates some legislation (12.6 percent of respondents), while international agencies are identified as sources of new legislation by 8.7 percent of the parliamentarians. In combination, the executive branch (ministries and the president’s office) is responsible for over 47 percent of new economic legislation. Legislation proposed by international agencies (8.7 percent) also passes through ministries. While the results point to the executive branch as the dominant source of legislation, there is room for optimism that over time the role of private parties will be enhanced, since the market reform program has not fully matured. This hypothesis is further supported by the legislative history of the VAT law, which originated from a government ministry as part of an effort to strengthen the economic recovery program supported by the World Bank and the IMF. The minister for parliamentary affairs presented the bill on behalf of the Ministry of Finance (Parliamentary Debates, Wednesday, January 7, 1998, col. 60). The rationale for the law was the need to expand and diversify the tax base as a means of increasing government revenues in light of declining support from the donor community (“Statement by the Minister of Finance,” Parliamentary Debates, Friday, January 30, 1998). The dominance of the government (ministries and president’s office) sector as the major source of business-related legislation suggests that the direction of market reforms in Ghana continues to be dictated by the administration. While the government’s role in providing an enabling environment for business is laudable, the effort would be more credible if the origin, content, and expected outcomes of the government’s economic legislation reflected business practice and culture. In the case of the VAT, it is difficult to support the proposition that the business sector and the government were in agreement over the legislation. A more plausible argument is that the government, in response to demands by the major donor organizations, introduced the legislation primarily as a revenue measure to accomplish the objectives of the Economic Recovery Program (ERP) and the Structural Adjustment Program (SAP) introduced in 1986. This conclusion is supported by the absence of any studies from the private sector that supported the government’s positions. Role and use of information by the private sector. Efficient bargaining outcomes in the policymaking process are possible when parties have access to information that allows them to weigh the risks and transaction costs associated with alternative policy choices. On its face, current procedural guidelines in the legislative process in Ghana seem to

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Fixing African Economies: Policy Research for Development

promote an effective governance regime. Parliamentary practice allows any person, who has an interest in any matter pending before a standing or select committee or Parliament itself, to testify, and present studies, investigations, and other information into the legislative process. Any institution (such as the Ministry of Finance) that proposes new legislation may also perform background studies in support of the legislation. Under a directive issued by the Office of the President (December 23, 1994), the cabinet must approve all proposed legislation before it is presented to Parliament. The proposed bill, embodied in a memorandum presented to the cabinet by the sector minister, must state inter alia: 1. Background of the proposed legislation 2. Issues for consideration by the cabinet 3. Interdepartmental/interministerial consultations that have been held with bodies and agencies of relevance 4. Financial considerations supported by a statement that the Ministry of Finance has been consulted 5. Employment considerations, if any 6. Whether or not there is existing legislation From the perspective of parliamentarians, the business community is adequately informed about the legislative process. A majority of the parliamentarians (80 percent) indicated that the business community was adequately informed about business-related legislative processes (Figure 2.3). In a competitive political market, participatory governance means that groups work to promote their interests if there is effective demand for change (Becker 1983; Olson 1965 ). This requires business associations Figure 2.3 Information to the Business Community—Parliamentarian View 80

80%

70 60 50 40 30 20 12% 8%

10 0 Adequate

Not Adequate

No Response

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to inform their membership of impending legislation and to formulate a common position to present to Parliament. This is not the case in Ghana. A majority of business people learn about impending legislation through the press. When businessmen and businesswomen were asked to name the sources of information on proposed legislation, an overwhelming majority (71 percent) identified the news media and Parliament (not business associations) as the primary sources of information, while about 24 percent indicated that Parliament directly notified the relevant business association. It is difficult to reconcile the results from the survey with the information from the legislative history of the VAT law.2 There is broad consensus that a major reason for the failure of the first VAT law (Act 486, passed on December 1, 1994) and the withdrawal of the law two months after passage was the lack of public education. The Finance Committee’s report and the debates in Parliament are replete with statements about the cost of failing to inform and educate the public. Many institutions and individuals were of the view that the VAT should be imposed only after a well-structured and meaningful educational program had been carried out, to bring about a better understanding of the system so as to obviate the state of confusion that greeted the 1994 VAT act (Report, p. 20). The minister of finance reiterated the committee’s conclusion: “Mr. Speaker, one of the maybe not as oft-discussed contributing parts of the 1995 withdrawal was the fact that a lot of people felt out of the decisionmaking process, felt out of being a part of the processes that led to the introduction of the tax. And not only that, the general feeling that there was not enough discussion and consultation on all aspects of the economy is one of the general lessons that we have picked from the era” (Report, p. 836). To avoid costly policy reversals, Parliament has to improve the mechanism for sharing information with the business sector. Also, business associations need to improve their internal organization to effectively deliver information to their members. Role of strategic groups in the legislative process. The participation of respondents categorized as members of civil society and who represent a broad cross section of Ghanaian society is especially critical to the objective of good governance (Apter 1965; Bates 1988). Nearly all (96 percent) of the civil society respondents consider good legislation to be very important or important in economic development. However, respondents did not consider their role in the legislative process to be important. About 45 percent of respondents did not find any role played by ordinary citizens in the legislative process, while 39 percent found

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only a moderate role (see Table 2.2). Civil society respondents also found the participation of the business community in the legislative process to be poor. About 23 percent found business participation to be poor, while 43.2 percent found business participation to be below average (see Table 2.3). About one-third of respondents found the participation of the business community to be average, and only about 3 percent found their participation to be above average. The absence of civil society participation in the legislative process means that the cost of implementing legislation is significantly increased, because it is difficult to assess citizen reaction to the legislation beforehand. As was the case for the first VAT law, reaction was spontaneous and violent, primarily due to lack of civil society participation in the process. News media assessment of business community participation in the legislative process contrasts with the assessment by civil society. The majority (about 73 percent) of the electronic media found the business community to be quite active or very active in the legislative process, while a majority of the print media found the participation to be less active (44.4 percent) and quite active (22.2 percent) (see Table 2.4). The difference between the civil society and the news media assessments of the role of the business sector in legislation is a matter of economics. Since there are no formalized procedures for influencing legislation, the cost of gathering information on who is influencing the

Table 2.2 Role of Civil Society in the Legislative Process Role No Role Moderate High Total

Frequency

Percent

32 28 11 71

45.1 39.4 15.5 100

Source: From the survey. Table 2.3 Civil Society Assessment of the Business Role in the Legislative Process Role Poor Below Average Average Above Average Total Source: From the survey.

Frequency

Percent

17 32 23 2 74

23 43.2 31.1 2.7 100

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Ghana: Promoting Accountability and Transparency Table 2.4 Media Assessment of Business Community Participation in the Legislative Process Type of Media Print Electronic Total

Not Active

Less Active

Quite Active

Very Active

2 (18.2%) 1 (11.1%) 3 (15.0%)

1 (9.1%) 4 (44.4%) 5 (25.0%)

5 (45.5%) 2 (22.2%) 7 (35.0%)

3 (27.3%) 2 (22.2%) 5 (25.0%)

Total 11 (100.0%) 9 (100.0%) 20 (100.0%)

Source: From the survey.

legislative process is very high. Everything else being equal, the average citizen has little incentive to incur the high cost of monitoring the legislative process. The cost to the news media is lower because they have the infrastructure in place to gather information. Also, the news media benefit from information supplied by business entities. Finally, there is a long historical relationship between the print media and the business community, whereas electronic media outlets are of only recent origin. Over 68 organizations and individuals submitted memoranda or attended the committee hearings on the second VAT law (Report, appendix). Among the institutions attending were the Association of Ghana Industries, the Ghana National Chamber of Commerce, the Chartered Institute of Marketing, the Ghana Association of Leasing Companies, and the Trade Union Congress. However, none of the “institutions and individuals attending provided an independent study to show the revenue implications of such a policy (VAT)” (Report, p. 16). The argument being made in this chapter is that the idea of participation goes beyond mere presence at a committee hearing; it requires the preparation of position papers advocating the group’s views. This exchange of ideas is at the core of democratic governance. Analysis of study: Objective two. Capacity to assess proposed legislation. Economists often present their analyses of alternative policy choices to policymakers. The policymaker must have the requisite educational training to understand and utilize the information presented. The survey results show that parliamentarians in Ghana are highly educated (84 percent have completed university education). This high educational attainment partly explains why about 66 percent of respondents reported some training in economics during their school career, and most (90 percent) found economic analysis to be important in assessing the impact of business-related legislation both during and after the passage of the legislation. About 71 percent of the

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Fixing African Economies: Policy Research for Development

parliamentarians with a university education have had some courses in economics. For those with other postsecondary education, only 43 percent have had some training in economics, and the only parliamentarian among the respondents with vocational/technical education has not taken any course in economics (Table 2.5). In a self-assessment of the level of knowledge in economics, 83 percent of those with a university education indicated their knowledge to be fair, and the remaining 17 percent indicated it to be good. All the remaining parliamentarians with other postsecondary and vocational/ technical education indicated their knowledge of economics as fair (Table 2.6). As discussed below, this high educational attainment did not influence Parliament to require rigorous economic impact analysis of the VAT legislation. Economic impact assessment of legislation. It was hypothesized that the lack of both human and infrastructure resources would prevent the use of transparent economic impact analysis in the legislative and regulatory process. The responses indicate that parliamentarians perform some economic impact assessments both before and after implementation of legislation. The approaches used for the economic impact assessment, in the order of weighted frequency, were economic analysis, testimony by experts, testimony by the business community, and comments from international agencies (Table 2.7). The weighted importance of

Table 2.5 Level of Education in Economics of Parliamentarians Level of Education

Trained

Not Trained

Total

Voc/Tech Post Secondary University Total

0 0(0.0%) 3 (42.9%) 30 (71.4%) 33 (66.0%)

1 (100.0%) 4 0(57.1%) 12 0(28.6%) 17 0(34.0%)

1 (100.0%) 7 (100.0%) 42 (100.0%) 50 (100.0%)

Source: From the survey. Table 2.6 Self-Assessment of Economic Knowledge of Parliamentarians Level of Education

Fair in Economics

Voc/Tech Post Secondary University Total Source: From the survey.

1 (100.0%) 7 (100.0%) 35 0(83.3%) 43 0(86.0%)

Good in Economics

Total

0 0(0.0%) 0 0(0.0%) 7 (16.7%) 7 (14.0%)

1 (100.0%) 7 (100.0%) 42 (100.0%) 50 (100.0%)

47

Ghana: Promoting Accountability and Transparency Table 2.7 Approaches to Impact Assessment of Legislation Before Passage Least important 1 2

Approach Economic Analysis Expert Testimony Business community International Body Others Total

42.2% 33.3% 17.8% 4.4% 2.2% 100%

30.4% 28.3% 32.6% 6.5% 2.2% 100%

➝ 3

4

32.2% 32.5% 22.5% 12.5% 0% 100%

0% 22.7% 36.4% 40.9% 0% 100%

Most Important 5 Very Imp. 0% 0% 100% 0% 0% 100%

33% 30.6% 25.2% 9.6% 1.6% 100%

Source: From the survey.

approach has been estimated by assigning five points to the most important approach indicated by respondents, four points to the next most important, three to the next, and down to one for the least important. The points for each approach are summed up and expressed as percentages. The legislative history of the VAT law does not support the contention that parliamentarians conduct any rigorous studies in support of legislation. The VAT debate was replete with references to the economic impact of the VAT on individuals and the business sector. However, it is difficult to identify a specific “reference document” that guided the debate. The report of the Finance Committee (Report) listed fifteen documents that were referred to during the committee’s deliberations. Eleven of these reference documents were simply previous laws that were deemed relevant to the VAT; three documents were copies of VAT laws from Tanzania, Kenya, and Uganda. The only document that may be remotely called a “study” was the National Economic Forum Report (Government of Ghana, October 1997, hereafter Forum). The national economic forum cannot be considered an institution as the term is used in this chapter. It is instead an ad hoc gathering of stakeholders who discuss issues of economic importance and build consensus among strategic stakeholders with respect to overall economic policymaking and implementation in Ghana. It has no office or secretariat, and the occasional gathering may be funded by the government itself or by a donor agency. The discussion of the VAT was only a minor component of a broader forum discussion. According to a reference the Finance Committee made to an impact study provided by the Ministry of Finance, “the analysis provided to the Committee by the Ministry of Finance indicates the 15 percent [tax rate] proposed in the Bill would have yielded this revenue-neutral position. The Committee, however, recommends a rate of 10 percent even though

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the Ministry of Finance’s position is that this could lead to a revenue loss of 20 to 30 percent for the whole year compared with the Sales and Services Taxes.” There were also references to computations made available to the committee by the VAT Project: “Computations made available to the Committee by the VAT Project suggest that price changes will on average range from 0 percent to 3.3 percent on account of the introduction of the VAT at the current sales tax rate of 15 percent for many commodities at the second retailer level” (Report, p. 14). These studies are not public documents nor are they a part of any public report on the passage of the VAT. Several conclusions relevant to the issue of governance emerge from the report. First, the report suggests that economic policy decisions are not necessarily ad hoc. There is some effort to support decisions with “some analysis,” albeit incomplete. However, the report points to a total lack of “effective competition in ideas” that could lead to the emergence of broad-based consensus on proposed laws. While the government presented some studies on the impact of the VAT, there were no competing studies presented by individuals or private-sector entities. Referring to the debate on the VAT rate, the committee points out that none of the individuals and institutions provided an independent study to show the revenue implications of such a policy” (Report, p. 16). According to the committee, their deliberations were informed by studies conducted by the Harvard Institute for International Development and the Crown Agents from the United Kingdom: “Mr. Speaker, we have been told that VAT has been highly recommended by such institutions as the Harvard International Institute and the Crown Agents. I think it is a sad note that we could not announce one Ghanaian consultancy which was consulted also to give its own feelings because here we are, we are proposing a tax regime for the people of this country” (Report, p. 1202). While no competing studies were presented, there were misgivings about the two reports that the committee used in their discussions and recommendations: “Mr. Speaker, there was also a lot of talk about revenue and in all the talk, not a single person gave us figures to show that indeed the tax would increase revenue. So now if we are to make an intelligent decision, and we all think that VAT is good because it would increase revenue, what are the Minister’s projections for 1999 and the year 2000? You are saying that we should have enough revenue, but VAT and the Minister would not give us the figures. And it is part of his work, and it is part of all economic analysis in economics that you do projections and you convince us that you are indeed going to have a lot of revenue” (Report, p. 1299). The debate on the VAT law confirms the hypothesis about the negative effect of the lack of human and infrastructure resources on the

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ability of agencies to produce transparent studies in support of legislative and regulatory proposals. While third parties and consultants fill in some of the gaps for the government, private sector agencies are generally not equipped to produce their own studies. The result is that debates often end up as challenges to the studies produced by the government but with no counterproposals being offered. For example, one would expect private sector entities to discuss the heavy burden of the tax on firms and households based on some carefully prepared study. This was not the case. The government only presented studies on the revenue advantages of the tax with no discussion of the cost of the proposed legislation. As was pointed out in the first survey (survey of regulatory agencies), no agency could tell the cost of regulation. The failure to consider the cost of regulations in addition to their benefits is one of the major gaps in developing efficient governance regimes in Ghana. Analysis of study: Objective 3–alternative institutions for promoting governance. Effective governance requires openness in legislative and regulatory procedures, accountability for the impact of decisions arrived at in using the procedures, and transparency of the rules and regulations that define how the established procedures are supposed to operate. The third objective in this study examines the monitoring and policing roles of (1) Parliament, (2) the courts, and (3) the media. The possibility for adopting formal procedures to influence the policymaking process is also discussed. Self-monitoring by Parliament. It was hypothesized that parliamentary self-monitoring would be weak in the absence of an effective information market that permits checks on members. Recent concerns about absenteeism only confirm the lack of an effective monitoring mechanism of parliamentarians’ behavior. Generally, there is no incentive for Parliament to monitor itself if the cost of not monitoring is lower than the benefits of monitoring. About 60 percent of parliamentarians indicated that they have sometimes assessed the economic impact of legislation on the business community, 28 percent indicated that this has never been done, while only 6 percent indicated that the economic impact of legislation has always been assessed. The economic impact assessment of legislation that has been applied is done mostly through feedback from the business community. Other approaches to impact assessment of legislation, in order of importance, are analysis by Parliament, expert testimony, and comments from international agencies (see Table 2.8). The weighted importance of the approach to legislation impact assessment has been estimated by assigning five points to

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Table 2.8 Economic Impact Assessment of Legislation After Implementation Approach

Least important 1 2

Feedback from Business 54.5% Expert Testimony 18.2% Parliamentary Study 18.2% International Body 3% Others 6.1% Total 100%

30% 16.7% 40% 13.3% 0% 100%

➝ 3 12% 44% 36% 8% 0% 100%

4 8.3% 41.7% 36.4% 41.7% 0% 100%

Most Important 5 Very Imp. 33.3% 33.3% 100% 0% 0% 100%

35.6% 24.3% 25.2% 9.6% 2.6% 100%

Source: From the survey.

the most important approach indicated by respondents, four points to the next most important, three to the next, and down to one for the least important. The points for each approach are summed up and expressed as a percentage. It is difficult to determine from the legislative history of the VAT any evidence in support of the results in Table 2.8. That is, there is no documentation of a situation where the Parliament has used feedback from the business sector to make changes in legislation that has been passed. This is not to say that this has not happened. The critical issue is that these changes must be made within the context of some identifiable procedure consistent with the ideal of openness and transparency to promote good governance. The absence of identifiable and transparent procedures leaves room for regulatory capture and rent seeking. Monitoring by the courts. Courts in democratic constitutional systems play a critical role in monitoring the behavior of all branches of government. Given that Ghana operates under a common law tradition, the role of courts in shaping policy may become more significant in the future. There seems to be a movement toward some appreciation of the nexus between law and economics; if the trend continues, courts could emerge as potent institutions promoting accountability, openness, and transparency in government behavior. The role of courts in promoting governance is exemplified in a series of court decisions that has been announced by the supreme court recently. These decisions suggest that the courts intend to protect both the political and economic freedoms enshrined in the constitution of Ghana. The case of British Airways v. Attorney-General (reported in 1996–1997 Supreme Court Reports [SCGLR] 547) marks the beginning of a transition to a system of rule of

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law in terms of the opportunity for private companies to seek redress in court and not be subject to arbitrary rules. In arriving at the above decision, the supreme court had to determine an issue key to private sector development, namely, whether the executive, in exercising its power to regulate the economic activities of the country for the public good, could trample upon the individual’s fundamental human rights. The court held that executive power is subject to constitutional limitations. Therefore, the exercise of executive powers must not erode individual human rights and freedom; the executive power to regulate economic activities must be exercised in such a way as to maintain the equilibrium between enjoyment of individual rights and freedoms and preservation of law, order, and public welfare. The court further held that the executive must not exceed the bounds of reasonableness lest it unjustifiably encroach on the individual’s right of association, which is guaranteed by the constitution. The supreme court strengthened its monitoring and policymaking roles by making courts more accessible to business entities in the case of New Patriotic Party v. Attorney General (CIBA case, 1996–1997, SCGLR 729). In this decision, the court accorded a body corporate the same status as a natural person in enforcing the fundamental rights enshrined in the constitution. In this case, the plaintiff, a political party, registered as a body corporate, sued in the supreme court for a declaration that the Council of Indigenous Business Associations Law (1993, PNDCL 312) was unconstitutional as being in contravention of Articles 21(1)(e) and 37(2)(a) of the constitution. The court rejected a challenge based on the theory that the plaintiff, a political party, could not bring the action. In support of the supreme court decision that natural persons as well as corporate bodies had the capacity to enforce the constitution, the court said per Bamford-Addo JSC: It would be more beneficial and in accordance with the intention of the framers of the Constitution and in the public interest to open the door widely to permit both natural as well as legal persons . . . access to the court. I would think that corporate bodies by reason of their important place in society are most suited both financially and otherwise to undertake the defense of the constitutional order by resort to judicial review when the constitutional order is being threatened. (emphasis added)

One can appreciate the importance of the above cases in Ghana’s market-based and private-sector-driven economic policy only by realizing

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that in the United States, for example, it took several decades of court application of the “commerce clause” (used to check regulations by states that burden interstate commerce in the United States) to break down barriers to commerce and strengthen the relatively cohesive relationship between business and government that one finds today. So far there have not been cases challenging the authority of regulatory agencies in Ghana. This may be due to the fact that there have not been many regulations issued by these agencies. The court’s willingness to expand access for both private individuals and corporate bodies, coupled with the explicit recognition of the restraints on the exercise of executive power, are supportive of a credible governance regime. The ability to challenge the constitutionality of laws and executive behavior can only improve accountability, openness, and transparency in government legislative and regulatory practices. Press monitoring of the legislative process. An informed public is a key element of good governance. The media in a democratic constitutional system is a critical institution that carries major responsibility in terms of informing the public, as well as providing a forum for the general public to participate in debates about the processes and outcomes of governmental decisions. Two conditions are necessary to support effective monitoring of the legislative and regulatory process by the media. First, the country’s laws must permit access to parliamentary and regulatory-agency deliberations, and second, the media must have the resources to gather and disseminate information. Two hypotheses are examined here. The first is that, while there are formal laws that guarantee access to government and other public documents, transaction costs associated with using the formal procedures may be high and, in effect, may serve as a disincentive to use the procedures. A second hypothesis is that inadequate training and limited resources available to the media may inhibit its monitoring role. In terms of access, there is no law governing journalists’ access to Parliament. The matter is governed by the practices and procedures of Parliament. Journalists are entitled to comment on any matter pending before Parliament or its committees. There are, however, limitations on what journalists may publish. They stand the risk of being charged with contempt of Parliament or breach of privilege, or being otherwise punished. Under Standing Order 30(h), the “publication of false, perverted, misleading, distorted, fabricated or scandalous reports, books or labels reflecting on the proceedings in Parliament” by a journalist, constitutes a breach of privilege or contempt of Parliament. Standing Order 25 provides that:

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Subject to the provisions of the Constitution no person shall be under any civil or criminal liability in respect to the publication of: (a) The text or a summary of any report, papers, minutes, votes, or proceedings of Parliament; or (b) A contemporaneous report of the proceedings of Parliament, unless it is shown that the publication was effected maliciously or otherwise in bad faith.

Ghana has an open records law, Public Records and Archives Administration Act (1997, Act 535). Section 27 of Act 535 defines public records to include records created, received, and maintained (1) by any public office, other than the security services, (2) by any court with jurisdiction within Ghana, and (3) by any other body or individual so designated by regulation, and public archives within the meaning of the Public Archives Ordinance (1955, No. 35) in the custody of the National Archives of Ghana at the time of coming into force of this act. While in theory these laws point to efforts by a relatively young democracy to involve private entities in the process of government, in practice our survey and case study support the hypothesis about media use of formal procedures to obtain information in their monitoring functions. The survey results show that the media have not taken advantage of the laws to gain access to key documents that inform debate on issues of interest to the business sector. In the debate on the VAT law, for example, the committee referred to “some documents” but these have not been made public by the media or the committee. One reason may be the transaction cost associated with gaining access to such documents. Conversations with an investigative reporter for a major newspaper indicated that it was more efficient to rely on informal processes (“who you know”) than to use the formal rules to gain access to documents. The author’s own effort to obtain copies of documents from regulatory agencies during the preparation of this report was indeed a costly experience, and in most cases a futile effort. The access issue may not be as daunting as the implications of a recent spate of libel lawsuits against media access that some argue may have a chilling effect on the monitoring role of the press. In terms of human and infrastructure resources, the survey shows that both print and electronic media companies assigned reporters to cover the parliamentary proceedings. About 52 percent of the media companies always assigned reporters, 38 percent sometimes did so, and the remaining 10 percent have never done so (see Table 2.9). The extent to which the print and electronic media assign reporters to cover parliamentary

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proceedings differs. About two-thirds of the print media always assigned reporters, compared to one-third of the electronic media. About 56 percent of the electronic media sometimes assigned reporters, compared to 25 percent of the print media. An unresolved puzzle is the response to the question of keeping their audience informed on legislative proceedings. Even though many of the news media companies covered legislative proceedings, the proportion of those who kept their audience always informed was only about 43 percent; about 52 percent only sometimes informed their audience, and the remaining 5 percent have never informed their audience about legislative proceedings (Table 2.10). Among the print media, 50 percent always kept their audience informed, and the remaining 50 percent sometimes informed their audience. Among the electronic media, only 33 percent always kept their audience informed about legislative proceedings, 56 percent sometimes informed them, and the remaining 11 percent never reported on legislative proceedings. The question is: Why assign reporters to cover parliamentary proceedings if there is no intention of informing readers about those proceedings? One reason may be that the press does not find the proceedings newsworthy. Another plausible but purely speculative explanation is the political orientation of the media. Newspapers especially have

Table 2.9 Media Coverage of Parliamentary Debate Frequency Type of Media Print Electronic Total

Always

Sometimes

8 (67%) 3 (33%) 11 (52%)

3 (25%) 5 (56%) 8 (38%)

Never 1 (8%) 1 (11%) 2 (9%)

Total 12 9 21

Source: From the survey. Percent totals may not add to 100 due to rounding. Table 2.10 Informing Clients About Legislation Frequency Type of Media

Always

Sometimes

Print Electronic Total

6 (50%) 3 (33%) 9 (43%)

6 (50%) 5 (56%) 11 (52%)

Never 0 (0.0%) 1 (11%) 1 (5%)

Source: From the survey. Percent totals may not add to 100 due to rounding.

Total 12 9 21

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tended to espouse pro- or antigovernment viewpoints. These media outlets are unlikely to report on a parliamentary debate purely for informational purposes, tending instead to report on parliamentary deliberations that are most likely to highlight the weaknesses of, or the damaging impact of, the legislation. The hypothesis about the human and infrastructure resources available to the media helps in explaining why it is not informing clients about parliamentary deliberations. This is implied by media responses to their thoroughness in terms of analyzing legislation. Only 24 percent of the media houses indicated that they analyzed legislation thoroughly; the majority of them (57 percent) did moderately thorough analysis, 14 percent did not conduct thorough analysis, and the remaining 5 percent did not analyze any legislation (see Table 2.11). Among the print media, 92 percent analyzed legislation moderately to thoroughly compared to 66 percent of the electronic media; the remaining 8 percent of the print media and 33 percent of the electronic media analyzed legislation not thoroughly or not at all. With regard to qualification of staff to analyze legislation, the hypothesis in this chapter is supported by the response from the media. About 10 percent of the media did not have qualified staff (not qualified or below average qualified), 52 percent had staff with average qualifications, 33 percent had staff with above-average qualifications, and the remaining 5 percent had very qualified staff (see Table 2.12). Supply and demand forces largely explain the qualification issue. Since 1992, when the new constitution came into force, there has been an explosion in the number of media agencies in Ghana. Historically, the only outlet for an individual with training in communications was government newspapers and radio. Today, there are several independent newspapers and radio and television agencies. This explosion in media sources might have outstripped the supply of top-quality reporters and press agents. Parliamentarians, businesspeople, and other members of civil society were asked to assess the quality of media coverage of the legislative

Table 2.11 Thoroughness of Media Analysis of Legislation Type of Media Print Electronic Total

Thorough

Moderate

3 (25%) 2 (22%) 5 (24%)

8 (67%) 4 (44%) 12 (57%)

Source: From the survey.

Not Thorough 1 (8%) 2 (22%) 3 (14%)

Not at All 0 (0%) 1 (11%) 1 (5%)

Total 12 9 21

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Table 2.12 Qualification of Media Staff Type of Media Print Electronic Total

NQ 0 (0.0%) 1 (11%) 1 (5%)

BA 1 (8%) 0 (0.0%) 1 (5%)

A

AV

5 (42%) 6 (67%) 11 (52%)

5 (42%) 2 (22%) 7 (33%)

VQ 1 (8%) 0 (0.0%) 1 (5%)

Total 12 9 21

Source: From the survey. Notes: NQ = Not Qualified; BA=Below Average; A = Average; AV= Above Average; VQ=Very Qualified.

process in Ghana. The hypothesis was that assessments by Parliament and the business sector would be favorable since, in the case of Parliament, media presence was always there, and in the case of the business sector, the media provided a platform for its views. On the other hand, since civil society is removed from the legislative and regulatory process, the expectation was that their assessment of the media would be unfavorable. The results were surprising: 68 percent of parliamentarians thought that the extent of news media coverage of the legislative process in general was inadequate (fair to poor); 20 percent thought that it was good; and only 8 percent thought the coverage was very good. Among businesspeople, 36 percent ranked the quality of news reports on business-related legislation as fair or poor, 48 percent ranked it as good, and only 14 percent ranked it as very good to excellent (see Figure 2.4). The quality of news media coverage of legislative process in the country falls short of the expectation of parliamentarians, the business community, and civil society. Specific to business-related legislation, 36 percent of parliamentarians thought that the extent of coverage by the news media was inadequate. The available data suggest that the extent of coverage was much higher for other legislative processes than for business-related legislation. Among businesspeople, 75 percent ranked the proficiency of news reports on business-related legislation as average or below, and the remaining 25 percent ranked them above average. For effective dissemination of information on legislative processes to the business community, some of the print media have special sections in their newspapers that highlight business-related news; and some of the electronic media devoted some airtime to business issues, particularly reporting on parliamentary proceedings. About 81 percent of the media devoted space or airtime for business-related news, and the remaining 19 percent did not. The assessments of media monitoring of the legislative process suggest an urgent need to strengthen the media’s role. Strengthening the

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Ghana: Promoting Accountability and Transparency Figure 2.4 Quality of Newsmedia Coverage—Business Assessment 48%

50

40 34% 30

20

10

8% 4%

2%

4%

0 Excellent Very Good

Good

Fair

Poor

No Response

media entails both training press people and improving information and communications technology available to the media. But probably the most critical need is to put teeth in the implementation of the access law to eliminate the transaction costs associated with public information acquisition. To the extent that parties rely heavily on informal processes in information acquisition, the seeds are planted for capture of the policymaking apparatus by those in strategic positions to do so. Lobbying Parliament. One of the objectives in this study was to explore the prospects of adopting formal rules for lobbying Parliament. As Ghana attempts a transition to a market driven economy within the framework of constitutional democracy, there is a need to institutionalize the process of influencing government behavior. Informal approaches to influencing government will always be present in a political system, and indeed they may be useful in reducing transaction costs in businessgovernment interactions. The problem for a young democracy is that informality may unduly raise the cost of legislation and regulation for those parties that are not in a position to participate in the rulemaking process due to information restrictions. In societies where the information market is weak, there is a tendency toward distrust of government intentions, which may open the door to rent seeking (Kreuger 1974). Formalized procedures make it possible to account for the expenditure of resources on institutional change. Formal lobbying laws are usually accompanied by reporting requirements so that the system can be monitored. Lobbying is important as a means of promoting effective participation of stakeholders in the legislative process. Associations, unions, and other stakeholder groups are more able to lobby successfully than are individuals. All the business associations in the survey, except the

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Ghana Bar Association (GBA), indicated a need for a formal lobbying law. Also, a majority of the media companies (65 percent) will support the adoption of formal procedures to lobby Parliament (see Table 2.13). The need for formal procedures for lobbying is best understood by reflecting on Ghana’s historical practices. At independence, Ghana, like most countries in sub-Saharan Africa, inherited a “nascent civil society” that permitted participation of groups in the formulation of rules and regulations (Wight 1946). Participation was in the form of notices, hearings, comment periods, and public debate on major legislation and regulatory proposals. The postindependence period is characterized as a period of “political monopoly,” whereby the formal modes of participation have been largely eliminated and replaced with costly and high-risk strategies to influence policy (Drah 1993). A formal law on government consultation processes and lobbying is one way to revive practices that are known to have served the country well in the past. A second recommendation for promoting accountability, openness, and transparency is to improve the capacity of Parliament to utilize economic information. Both civil society respondents and the media found Parliament’s ability to pass good legislation to be very weak. Note that the concern is the ability of Parliament to either utilize its own internal research sources or to use outside expertise to examine proposed legislation. Less than 10 percent of civil society respondents found Parliament’s ability to produce good legislation to be above average or excellent, while the majority, 62 percent, found Parliament’s ability to be only average. Almost one-third found Parliament’s ability to be below average or poor (see Figure 2.5). It is not exactly clear how respondents arrived at their conclusions given that a majority indicated that they did not play a significant role in the legislative process. It may also be the case that their lack of confidence in Parliament’s ability to produce good legislation is the reason for their nonparticipation. Whatever the reason, the results point to an important need to involve the public if good governance is to prevail in Ghana.

Table 2.13 Media Attitudes to the Adoption of Formal Procedures for Lobbying Type of Media Print Electronic Total Source: From the survey.

Support

Don’t Support

Total

7 (63.6%) 6 (66.7%) 13 (65.0%)

4 (36.4%) 3 (33.3%) 7 (35.0%)

11 (100.0%) 9 (100.0%) 20 (100.0%)

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It is reassuring to note that the major stakeholders recognize a key role to be played by economists in improving governance in the country through efficient rulemaking practices (see Figure 2.6). About 27 percent of respondents indicated a need to employ professional economists to participate in conducting studies to assess the impact of legislation. Many (29.6 percent) reinforce the public involvement theme by focusing on the importance of public feedback in the legislative/regulatory process. Respondents also pointed to the need for legislators to improve their own knowledge. Training of Parliamentarians. The infrequent performance of economic impact assessment of legislation on the business sector and the admitted need for these assessments help explain the overwhelming support for training of parliamentarians in economic analysis. For a better understanding of tools and methods of economic analysis of business-related legislation, the respondents were unanimous that parliamentarians require Figure 2.5 Ability of Parliament to Produce Well-Researched Legislation 70 61.6% 60 50 40 30 21.9% 20 8.2%

10

6.8%

1.4% 0 Excellent

Above Average

Average

Below Average

;;; ;;; ;;; ;; ;;

Poor

Figure 2.6 Strategy for Improving Quality of Economic Legislation/Regulation 3.5%

29.6%

10.4%

10.4%

Consider Public Feedback Use of Professional Staff Economists Improve Own Knowledge Use of Local Experts

19.1%

Use of International Organizations Other

27%

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Fixing African Economies: Policy Research for Development

some training. Given the high level of educational backgrounds of parliamentarians, an opportunity is presented to grow one of the most efficient governance regimes in a developing economy. The government also may want to consider hiring staff experts to assist in economic analysis of proposed legislation.

Conclusions and Policy Recommendations This chapter addressed three main objectives. The first was to gain an understanding of how Ghana’s legislators and regulators originate, structure, and present legislation and rules that affect private sector activities. The role of economists, journalists, and civil society were also examined. It was hypothesized that, given the dominant role of government in economic activity, one would expect most economic legislation to originate from the government ministries, motivated primarily by donor agencies as part of the ongoing economic reform program. This hypothesis was supported by the results of a survey of parliamentarians, the business community, and other members of civil society. There was additional support for the hypothesis based on an in-depth review of the legislative history of the VAT legislation. From a policy perspective, while the role of government in providing an enabling environment for business is critical to the attainment of the reform objectives, there are real dangers in pursuing economic legislation that is not driven by business practices. The likelihood of compliance with legislative and regulatory outcomes is highest when the parties most affected by the outcome are involved in the process. The survey results show that Parliament and the IRAs have not performed well in terms of informing the public about impending legislation and regulation. Also, the results show that the participation of the business community, organizations, and civil society has been weak. In the case of the VAT legislation, for example, no organization or individual outside of government performed any studies to assess the economic impact of the legislation on the business sector. Efficient bargaining outcomes in the legislative and regulatory process are possible when parties have access to information that allows them to weigh the risks and transaction costs associated with alternative policy choices. On its face, current procedural guidelines in the legislative process in Ghana seem to promote effective governance. Parliamentary practice allows any person who has an interest in any matter pending before a standing or select committee, or Parliament itself, to

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testify and present studies, investigations, and other information into the legislative process. There should be a concerted effort on the part of government and IRAs to publicize meetings to encourage participation by interested parties. The history of the VAT laws teaches that where the public has been poorly educated, costly policy reversals may follow. It is also important for legislators and regulators to indicate how public feedback is used to improve legislation. A feeling on the part of nongovernmental entities that their views do not matter in the legislative process could threaten the stability of negotiated legislative and regulatory outcomes. One way to improve credibility of the legislative process is to put teeth into the directive issued by the Office of the President. While only a single reference was made to the directive during the debate on the VAT law, the specific information required is a useful starting point for building a transparent and open mechanism for public debate on issues of national concern. Business organizations can strengthen the efforts of government by educating their members with respect to proposed legislation and its expected impact on business. The second objective of this chapter addressed the information processing resources available to Parliament and IRAs. It was hypothesized that the lack of both human and infrastructure resources would prevent use of transparent economic impact analysis in legislative and regulatory processes. The survey responses by parliamentarians indicated that some economic impact assessment was undertaken both before and during implementation of the legislation. The approaches used for the economic impact assessment, in the order of weighted frequency, were economic analysis, testimony by experts, testimony by the business community, and comments from international agencies. The legislative history of the VAT does not support the claim that Parliament and IRAs undertake rigorous economic analysis of legislation and regulations. The existing research unit within Parliament needs to be strengthened. The majority of parliamentarians expressed strong interest in obtaining training in economics to better formulate legislative proposals. To improve business participation, organizations such as the PEF need support to expand research capabilities and to become effective advocates of business interests. In terms of IRAs, the recent partnership agreement between the Public Utilities Regulatory Commission of Ghana and the Public Service Commission of Maryland, United States, is a useful example for improving the information processing capabilities of IRAs in Ghana. The third objective explored alternative institutional mechanisms to increase the degree of accountability, transparency, and information

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openness in the policymaking process. The discussion focused primarily on the issue of monitoring government behavior to ensure accountability, and the options for new institutions to promote openness in governmental processes. Three monitoring options were examined. The first was parliamentary self-monitoring. It was hypothesized that parliamentary self-monitoring would be weak in the absence of an effective information market that permits checks on members. Absenteeism in Parliament and the infrequent use of economic impact studies during the legislative process provided some evidence in support of the hypothesis. It was difficult to document any use of feedback information by parliamentarians. Poor documentation of the use of public input in legislation leaves room for regulatory capture and rent seeking. Over the last decade, a series of decisions by the supreme court of Ghana have had a major influence on the private sector. The court has signaled its intention to protect the political and economic freedoms enshrined in the country’s constitution. Today, private sector entities are assured that their investments will be protected against arbitrary seizure of property. The court has also defined limits to the exercise of executive power: “The Executive power to regulate economic activities must be exercised in such a way as to maintain the equilibrium between enjoyment of the individual’s rights and freedoms and preservation of law, order and welfare of the public.” From the perspective of governance, it is clear that the court’s decisions support Ghana’s marketbased economy within the framework of an accountable, open, and transparent governmental apparatus. The media play a vital monitoring role in a constitutional democratic system of government. It was hypothesized that, while there are formal laws that guarantee access to government and other documents, transaction costs associated with using the formal procedures may be high and, in effect, may serve as a disincentive to use the procedures. The results of the survey and review of the debate on the VAT law support this hypothesis. For example, while the relevant parliamentary committee on the VAT law pointed to ”some documents” that were relied on in their deliberations, the documents have not been made public by the press or the committee. Some press people indicated that informal (“who-you-know”) procedures are used more regularly to obtain information due to the high transaction costs associated with using formal procedures. As a policy matter, there should be a more effective implementation of the open records law (Act 535). It was also hypothesized that inadequate training and infrastructure resources available to the media may inhibit its monitoring role. Slightly

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more than half of media companies assigned reporters to cover parliamentary proceedings, but fewer than half informed the public about these proceedings. In terms of the quality of media coverage, only 24 percent of the media companies indicated that they analyzed legislation thoroughly. The survey results also show that only about 52 percent of the media companies had staff with only average qualifications, while 10 percent did not have qualified staff. This inadequacy of human resources may be due to the large increase in demand for qualified staff as a result of the explosion in media outlets and the inability of the journalism schools to respond to the demand. The inadequacy of media staff largely explains the low grades assigned to the media by parliamentarians and businesspeople when they were asked to assess the quality of news reporting. The results from the survey point to a potentially lucrative market for individuals with journalism backgrounds. Investments in a school of journalism could help to promote the goal of strengthening good governance in Ghana. The study also suggested two institutional mechanisms that could be useful in promoting accountability, openness, and transparency in Ghana. There was considerable support for a formal law on lobbying the government. Such a law could promote effective participation of stakeholders in the policymaking process. Since such laws are usually accompanied by reporting requirements, there is an opportunity to gain insights into the demand for institutional change. Informal procedures for influencing government policy always leave room for regulatory capture and rent seeking. There was also considerable support for training parliamentarians and regulators in the use of economic information in legislation. The infrequent performance of economic impact assessments could undermine compliance with laws and regulations. The IRAs surveyed in this study hardly conducted any impact assessments of their regulations. This study suggests that the directive issued by the Office of the President regarding proposed legislation must be strengthened to explicitly require an assessment of the impact of the proposed legislation on business. Furthermore, the directive must also be made applicable to IRAs. Notes 1. Taken from the IMF website: www.imf.org/external/np/loi/2000/gha/01/. 2. Note that the VAT law may be considered the most important businessrelated legislation in Ghana since the inception of the economic recovery program in 1983.

3 Nigeria: Understanding Attitudes Toward Democracy and Markets Peter M. Lewis and Michael Bratton

Nigeria’s recent political transition opens a new chapter in the nation’s quest for democratic governance. Over the past three decades, Nigeria has been ruled chiefly by the military with only a brief civilian hiatus during the Second Republic (1979–1983). Throughout a turbulent political history, Nigerians have repeatedly affirmed their commitment to democracy as the ideal system for governing the country. Nearly every military leader has espoused his intention to restore democracy, and several have arranged elaborate political transition programs. Throughout the cycles of civilian and military governance, a vibrant press has served as a forum for the expression of political values and aspirations. The academic community, professional groupings, and a range of popular associations have also nourished democratic desires. As a principle, democracy has a firm foundation in the national conscience. Two previous constitutional regimes were unable to endure, however, as they succumbed to the rivalries of elites, the deficiencies of key institutions, and flagging popular legitimacy. The First Republic, the parliamentary system that governed from independence until 1966, fell victim to ethnic and regional contention, and ensuing political violence. The Second Republic, a presidential system inaugurated through a deliberative transition, was ruined by prodigious corruption, partisan stalemate, and rampant electoral misconduct. In each instance, many Nigerians welcomed the eventual intercession of the military, although the public nurtured hopes that a more viable democracy would soon be restored. The coup d’etat of 1983 gave way to a protracted period of military control, as a succession of governments ruled until 1999. The country entered a lengthy period of political tension and instability when the 65

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democratic reforms promised by General Ibrahim Babangida were abrogated by the annulment of the presidential election in June 1993. General Sani Abacha, who succeeded Babangida soon after the annulment, declared his own transition program, yet his government restricted political competition and engaged in large-scale abuses of human rights. Abacha’s apparent efforts to succeed himself as a civilian president ended with his sudden death in June 1998. Within a year, his successor, General Abdulsalami Abubakar, presided over a phased transition to civilian government. After years of autocratic rule, prodigious official corruption, and growing social strains, many Nigerians welcomed the advent of democracy as an opportunity to move forward on a path of political development. The democratic regime inaugurated on May 29, 1999, headed by President Olusegun Obasanjo, confronts a daunting array of challenges. The establishment of new institutions, the development of effective political procedures, and the resolution of numerous policy problems present urgent issues in the consolidation of democratic rule. Among the more pressing concerns faced by the new government is the country’s frail economy. A combination of sagging global markets, chronic mismanagement, and endemic corruption have fostered an extended economic malaise, and much of the Nigerian public anticipates that better governance should be reflected in improved economic conditions. Yet, there are different popular visions of the paths that the Nigerian economy should follow. The oil boom of the 1970s transformed the scale and composition of Nigeria’s economy. In the preceding decade, Nigeria exported a range of agricultural and mineral commodities, as the government pursued modest intervention in the economy. With the arrival of abundant petroleum revenues, Nigeria shifted toward an oil “monoculture,” and energy exports became the principal source of revenue and foreign exchange. The abrupt rise in government resources prompted a growth of the state and an expansive program of public investment, regulation, subsidies, and social services. The concentration of revenues and programs was encouraged by military rulers who sought to bolster the authority of the central state. The boom era collapsed abruptly in the early 1980s when global oil markets slumped and mounting external debt created severe fiscal problems. By mid-decade, the Babangida regime introduced the Structural Adjustment Program (SAP), a reform package backed by the International Monetary Fund and the World Bank, and directed toward reconfiguring and reviving the Nigerian economy. Economic reform

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proved elusive, however; the program was inconsistent and irregular, and economic management was soon overshadowed by political discord. Many of the reforms associated with the SAP led to public criticism, drawing Nigerians into animated debate about the proper roles of markets and the state in the nation’s economy. In an important sense, then, Nigeria’s political transition is not only a challenge for the consolidation of democracy, but it is also a potential opening for economic revitalization. The paths of political and economic reform—and the relations between these processes—pose essential questions about the country’s future. This chapter seeks to better understand these concerns.

Public Opinion in Nigeria If democracy is “government by the people,” then a reliable means is needed to know what the people want. Elections perform this function, but only if freely and fairly conducted and then only once every several years. In the interim, political elites can all too easily claim to speak on behalf of the people, while governing mainly in their own interests. Though often overlooked, public opinion is an important aspect of democracy. It can either endorse official power, thereby strengthening the legitimacy of rulers, or counterbalance it by holding leaders to account. Public opinion consists of the values, attitudes, evaluations, and preferences of ordinary citizens. Together with political behaviors, these attributes summarize a country’s political culture. At minimum, the consolidation of democracy requires a means for tracking political and economic attitudes and reporting their profile widely and openly. At best, the expressed preferences of an active citizenry can help make decisionmakers more responsive. Public opinion is commonly measured by sample surveys. If scientifically designed and administered in a culturally sensitive manner, sample surveys are a powerful tool for revealing, among other things, the level of popular support for democracy and the citizens’ estimates of the performance of the government of the day. Surveys can also report on differences of opinion on these topics among people of different genders, ethnicities, and classes. For activists in civil society, the results of public attitude surveys are an essential starting point for programs of policy advocacy and civic education. For various reasons, public opinion has been a neglected force in Nigerian politics. Most obviously, military governments have stifled the

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free expression of political views and trampled on the rights of the media. As a result, many Nigerian citizens have either been afraid to speak out or have deferred to, even sometimes internalized, the attitudes and values of their military masters. Under these circumstances people commonly resort to exit or to loyalty rather than to voice. Indeed, the conventional wisdom from the qualitative social science research in Nigeria is that the psyche of the citizenry—indeed, of civil society itself—has been thoroughly “militarized.” Against this pessimistic scenario, isolated efforts to measure political and economic attitudes in Nigeria point to a more pluralistic universe that contains a resilient democratic culture. Several studies over the past several decades reveal a stubborn attachment to basic democratic values among key public constituencies. The pioneering work of Margaret Peil, Nigerian Politics: The People’s View (1976), established a baseline. It was written in the aftermath of the Nigerian civil war and in the context of a transition from military to civilian rule planned by the then head of state General Gowon. In the early 1970s, Nigerians were evenly split on whether a military government (38 percent) or a civilian government (35 percent) was “more helpful to ordinary people,” though a clear plurality favored a return to multiparty civilian democracy by 1976. Moreover, a decisive majority (76 percent) thought that military governments should include civilians in their ruling coalition. By then, Nigerians already disapproved of violence in society, which they associated with military rule, and official corruption, which they linked at that time to civilian rule. A later study revealed an evolution in public opinion. A comparison of the attitudes of Nigerian university students between 1973 and 1995 found “a shift in opinion toward democracy” (Beckett and Alli 1998, p. 37). In both years, a sample of students was asked, “Which is the most valuable or important: economic development or a democratic form of government?” Whereas a clear majority of respondents opted for economic development in 1973 (62 percent), the situation had reversed by 1995, with 61 percent opting for democracy. Interestingly, though, the students’ conception of democracy remained consistent, at both times emphasizing good governance (“honest government in the interests of the people”) rather than multiparty competition (“competing politicians and political parties”). Nigeria, along with South Africa, was one of the two African cases included in the forty-two-nation World Values Survey (WVS) in 1993 (Abramson and Inglehart 1995). Based on a sample of just over one thousand urban residents, the survey revealed strong dissatisfaction with the way the country was being governed and a strong yearning for greater

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leadership transparency: fully 78 percent thought that “the country is being run by a few big interests looking out for themselves,” only 26 percent said that they could “trust the government in Abuja to do what is right all or most of the time,” and a nearly universal 94 percent agreed that “our government should be made much more open to the public.” Finally, a private survey research firm in Nigeria associated with Gallup International has launched an innovative effort to track public opinion over time on a few key questions. The Niger-Bus, a syndicated omnibus survey conducted every two months by Research and Marketing Services (RMS), asks over five thousand respondents in all thirtysix states what they think about the pressing policy issues of the day and the performance of the president of Nigeria. In April 1998, for instance, Nigerians listed the country’s most critical problems in the following order: fuel scarcity (30 percent), unemployment (28 percent), corruption (26 percent), poverty (25 percent), and “political impasse” (25 percent). Perhaps the most interesting facet of the RMS tracking poll concerns the president’s job performance, an item that is used in polls in most mature democracies. In April 1998, only 39 percent approved of Abacha’s performance (including his plans for self-succession). As for Abubakar, his positive performance rating peaked in December 1998 at 82 percent, dropping precipitously to 50 percent by February 1999. Obasanjo’s performance rating has risen steadily over time, from 53 percent considering it “good” in June 1999 to 84 percent in December of the same year. Much more work remains to be done on the subject of public opinion in Nigeria, not least to distinguish between approval of the president (i.e., the government of the day) and support for democracy (as a regime of constitutional governance). To fully appreciate the nature of Nigerian political culture, we also need more information on citizen knowledge of democratic rights and institutions, their trust in fellow citizens and particular state agencies, and appraisals of elected representatives other than the president. This chapter seeks to fill some of these gaps at a moment when the country has just returned to civilian democracy after experiencing the most corrupt and repressive military dictatorship in its history.

The Objectives and Design of the Survey The purpose of the present study was to find out what ordinary Nigerians think about recent political and economic developments. It explores

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public attitudes at the individual, “micro” level toward political and economic changes at the national, “macro” level. As a guiding theme, we asked “Do Nigerians support democracy and markets?” The study was designed as a national sample survey, meaning that we posed the same set of questions to a small subset of the population who were selected so as to represent the adult population of Nigeria as a whole. The research instrument was a questionnaire containing one hundred items (mostly close-ended and some with multiple parts) that addressed several areas of interest. First, a section of the questionnaire on the social background of the respondent asked conventional questions about gender, age, language, education, religion, and participation in the organs of civil society. A second section on economic conditions asked about occupation, subsistence strategies, relative perceptions of respondents’ well-being, and evaluations of government performance in managing the economy. A third section on political attitudes and behaviors probed how Nigerians regarded and interacted with their political leaders, the institutions of government, and the country’s new regime of democracy. A fourth section explored the degree of trust Nigerians hold for their fellow citizens, leading institutions, and prominent officials and civic figures. A fifth section asked about the economic attitudes of the respondent, including the respondent’s views with regard to market-oriented policy reforms and whether he or she thought and acted like an entrepreneur. A sixth section examined political participation and citizens’ assessments of political performance. Seventh, we investigated the rule of law by asking about citizen attitudes to crime and corruption. Finally, we explored the question of social identity in a series of questions about self-identification and attitudes toward others. The questionnaire replicated several items that had been asked in previous surveys in Nigeria and in selected studies in other countries in Africa and abroad. Standard items were included for purposes of comparison. We wanted to assess whether change was occurring within Nigeria over time and to locate public attitudes in Nigeria in relation to those elsewhere in the world. Indeed, the contents of the questionnaire were modeled on a series of “Afrobarometer” surveys now under way or planned in at least fourteen other African countries.1 To adapt the questionnaire to local conditions, all items were pretested in fifty trial interviews in urban areas of Nigeria, and the English version was translated into six local languages. All interviews were administered in the language of the respondent’s choice.

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The target population for the survey was citizens of Nigeria eighteen years or older on the day of the survey in January–February 2000 and, therefore, eligible to vote. To draw a representative cross section of the voting-age population, a random sample was designed using a multistage, stratified, area cluster approach. The objective of the sample was to give every eligible adult an equal chance of being chosen for an interview. To ensure this, random procedures were used at every stage of the sample, including the selection of primary sampling units, households, and respondents.2 A total of 3,603 people were interviewed. A random sample of this size allows a confidence level of 95 percent and a margin of error of plus or minus 2 percent. A summary of the social background of the sample is presented in Table 3.1.

Attitudes Toward Democracy Support for Democracy Nigerians generally show a pronounced commitment to democracy. An overwhelming majority (81 percent) agreed that “democracy is preferable to any other form of government,” while much smaller proportions believed that “in certain situations, a nondemocratic government can be

Table 3.1 Social and Economic Characteristics of the Sample Percentages Male:Female Ratio

50:50

Urban:Rural Division

42.7:57.3

Languages (total number) Hausa Yoruba Igbo

85+ 31.5 25.5 16.7

Education No schooling Primary only Secondary only Post-Secondary No formal schooling (Christians) No formal schooling (Muslims)

25.3 17.0 37.0 20.7 6.8 47.5

Percentages Occupation Informal marketer Student Farmer/fisherman Housewife Artisan Businessperson Government employee Unemployed (currently) Unemployed within last year Income No earnings (students, dependents, etc.) Less than 5,000 naira/month More than 30,000 naira/month

Notes: Number of people surveyed: 3,603. Median age of sample: 29 years.

18.6 15.3 13.4 12.8 10.5 6.2 5.6 5.9 35.4 14.6 72.4 2.0

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preferable” (9 percent) or “to people like me, it doesn’t matter what form of government we have” (10 percent). This suggests that democratic commitments currently run higher in Nigeria than in many other new democracies in Africa and elsewhere. In January 2000, Nigerians agreed that “democracy is preferable” at higher rates than in recent surveys in Ghana in 1999 (74 percent), Zambia in 1996 (63 percent), and South Africa in 1997 (56 percent). Democratic preferences in Nigeria also exceed those of such countries as Brazil (41 percent) and the Czech Republic (77 percent) measured shortly after recent regime transitions there. Only southern European countries such as Greece (90 percent) exceed the magnitude of the Nigerian response to this question (Bratton and Mattes 1999). This attachment to democracy is affirmed by Nigerians’ comparative evaluations of alternative political regimes (see Table 3.2). Respondents were asked to “grade” different systems of government on a scale from 1 (least favorable) to 10 (most favorable). Here, too, Nigerians display a strong preference for democracy and high expectations about future governance. The present system of government (with free elections and many parties) earned a mean score of 7.5. About a fifth of respondents awarded democracy a 10, and 55.5 percent scored it above 8. The former military system, by contrast, earned a mean score of 2.5. More than half of those interviewed (51 percent) gave military rule the lowest score of 1, while 78 percent scored it 3 or below. Two historical systems were rated somewhat higher than military rule, but still well below the current democratic system. Colonial rule earned a mean score of 4.1, while the “old system of government by traditional rulers” was comparable with a mean score of 4.0. In addition, Nigerians were asked to speculate about governance in five years’ time, and they displayed considerable optimism, providing an impressive mean score of 9. A substantial majority (59 percent) assigned a high score of 10 to the government they expect five years from now. Thus, there is a marked contrast between the harsh assessments of preceding military governments and the high hopes invested in the new system. Table 3.2 Ratings for Different Systems of Government (Mean Score) Present system of elections and many parties Military rule System you expect Nigeria to have in five years Former colonial system System of traditional rulers Note: On a scale of 1 (for least favorable) to 10 (for most favorable).

7.5 2.5 9.0 4.1 4.0

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Nigerians generally view democracy in conventional liberal terms, and they hold mainly positive connotations. When asked to express their understanding of democracy, nearly two-thirds of respondents offered definitions that emphasized political freedoms and procedures, including government by the people (38 percent), political rights and elections (14 percent), or civil liberties (14 percent). A significant proportion defined democracy in more neutral terms as civilian politics (17 percent), while about 10 percent provided substantive values such as peace, social and economic development, or equality and justice. Less than 1 percent of those interviewed associated democracy with such negative terms as corruption, conflict and confusion, economic hardship, or government of the rich. Thus, much of the public holds a very positive view of democracy and sees it as a system of liberties, laws, or popular voice. Moreover, Nigerians are evidently comfortable with the idea of democracy, as only 6 percent were unable to provide a meaning, answering “don’t know.” Conditional Support for Democracy While general assessments of democracy can provide some indication of popular attitudes, the depth and strength of these commitments can still vary widely, as studies of political culture have emphasized (Almond and Verba 1963; Putnam 1993). How deeply are Nigerians attached to the values of democracy, and how substantial is their resolve to defend these new institutions? If there is weak commitment to core features of democratic politics or considerable tolerance for nondemocratic alternatives, then a fledgling democracy might be more vulnerable to “illiberal” pressures or even reversal (Zakaria 1997; Rose, Mishler, and Haerpfer 1998). Overall, in Nigeria there appear to be clear and consistent preferences for democratic values and behavior. For instance, nearly threefourths of respondents support freedom of expression for people with different views and reject the idea that diverse opinions are “dangerous and confusing.” A similar majority (73 percent) believes in full voting rights for all citizens, regardless of education. Although Nigeria has frequently been troubled by political violence, those interviewed voice a sound rejection (79 percent) of violence as a means of achieving political goals. Moreover, there is a strong belief in constitutionalism, as 79 percent agree that “the President should obey the Constitution” and should not have leeway to change the constitution at will. These affirmations of democratic values are complemented by a clear dismissal of various nondemocratic directions in politics. Fully 90

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percent of respondents disagreed (70 percent strongly) that “the army should come in to govern the country.” This response was complemented by expressions of suspicion toward the army as an institution. When asked about their relative trust of the army, only 37 percent of respondents were somewhat trustful, while 62 percent expressed relative mistrust, and fully 39 percent did not trust the army “at all.” This confirms the perception that protracted army rule, and the attendant abuses and malfeasance under recent dictatorships, have tarnished the military’s reputation. There was also an objection (88 percent) to the possibility of singleparty rule, and the notion that elections should be scrapped so that “a strong leader can decide everything” (84 percent disagreed). In one respect, however, Nigerians appear willing to defer to those in authority, as 59 percent registered some agreement that “the most important decisions, for example on the economy, should be left to experts.” This suggests that in some areas of governance, especially technical areas such as macroeconomic reform, citizens do not feel a sense of efficacy and are willing to delegate authority to elites. In view of past limitations on political and civil rights in Nigeria, citizens were asked how they might react to future infringements of basic liberties. Options ranged from doing nothing, to supporting the government, contacting an elected representative, or taking stronger actions such as joining an opposition party or participating in protests or boycotts. In this area, responses were less resolute or consistent. If the government were to shut down adversarial newspapers, 45 percent said they would actively oppose this action, yet an equal proportion said they would do nothing. Similarly, if the government dismissed judges on political grounds, 42 percent promised to act, while 46 percent replied passively. Even more telling, if the government suspended the legislature and canceled elections, 46 percent say they would respond forcefully, yet an equivalent number would acquiesce (44 percent) or actually support the government (2 percent). In other areas, Nigerians expressed greater resolve toward protection of personal liberties. Should the government attempt to limit freedom of travel, more than two-thirds of respondents promised some form of opposition, with 51 percent saying they would actively protest. Most significantly, when asked how they would react “if the government told you which religion you had to follow,” 58 percent vowed to protest, and another 19 percent affirmed they would join an opposition party; less than 10 percent said they would be indifferent. Thus, defense of religious freedoms evoked the strongest response among Nigerians,

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who are apparently more ready to protect their spiritual faiths than rise to the defense of democracy. The intensity of these feelings is evident in the controversy over the introduction of Islamic Sharia law by governors in twelve of Nigeria’s northern states. Satisfaction with Democracy Apart from measuring abstract commitments to democratic values, gauging citizens’ contentment with the workings of the democratic system is also important. In the months following the political transition, Nigerians expressed considerable satisfaction with “the way democracy works.” This popular vote of confidence is qualified with a strong note of caution, however, with many more Nigerians saying they are “somewhat satisfied” (58 percent) rather than “very satisfied” (26 percent). The satisfied majority (84 percent) is an even higher proportion than those expressing a general preference for democratic government (81 percent). This balance of opinion is distinctive from many other new democracies around the world, where satisfaction with the workings of democracy is typically lower than overall preferences for a democratic regime (Rose, Mishler, and Haerpfer 1998; Bratton and Mattes 1999). Nigerians may reflect exceptional enthusiasm in the early moments of the new regime, in which case we might expect to see some decline in satisfaction with democracy over time. When asked “How much of a democracy is Nigeria today?” more than 96 percent find the country to be democratic. This judgment must be qualified, however: only 17 percent view Nigeria as a “full democracy,” 33 percent perceive it as a democracy “with minor problems,” and almost half (46 percent) view it realistically as a democracy “with major problems.” In line with other responses, a majority (87 percent) agrees that “democracy may have problems, but it is better than any other form of government.” Not surprisingly, in view of these opinions and the unsettling legacy of military rule, 93 percent of respondents affirm that the transition to democracy has been good for the country. Performance of Democracy and the Government Citizens use various criteria when evaluating government performance. The popularity of democratic regimes is often affected by economic performance or the delivery of material benefits, but there are also a range of “political goods,” that is, basic liberties and the performance of

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institutions that influence relative satisfaction with democracy (Przeworski et al. 1995; Diamond 1999). The survey asked Nigerians to weigh the importance of various political and economic attributes that might be associated with a democratic regime. While essential political rights and benefits are clearly valued, respondents give equal (or somewhat higher) weight to economic outcomes. The questionnaire asked, “In order for a society to be called democratic, how important is each of these?” (see Figure 3.1). This allowed respondents to offer independent assessments of different factors along a range of responses from “not at all important” to “very important.” There is a substantial valuation of basic democratic prerogatives and institutions, as 83 percent believe it is important to be able to criticize government, and 86 percent affirm the importance of majority rule (in each instance, slightly less than 50 percent rated them very important). In addition, respondents stress the importance of multiparty competition (89 percent, with 53 percent answering “very important”), and somewhat less strongly, regular elections (80 percent, with 45 percent “very important”). A range of economic benefits, however, elicited even stronger responses. Universal access to basic necessities such as shelter, food, and water is considered important by 93 percent of those interviewed, including 70 percent who consider this very important. Indeed, the goals of full employment (95 percent “important,” and 73 percent “very important”) and universal education (95 percent “important,” and 74 percent “very important”) prompted the strongest opinions. Income equality was also valued highly, though not as highly as other economic Figure 3.1 Importance of Selected Items for Democracy (percentage responding very/somewhat important)

Education for everyone

95%

Jobs for everyone

95% 93%

Basic necessities Party competition Majority rule Free to criticize Regular elections

89% 86% 83% 80%

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goals: 82 percent deemed it important, with 57 percent saying “highly important.” At face value, these responses suggest that Nigerians expect democratic governance to provide both economic and political goods and that, at least in the short term, they are especially concerned with basic amenities and social services. The problem of income inequality is also an important consideration in Nigerians’ evaluation of democratic performance. Politically, there appears to be a somewhat greater concern with basic liberties and multiparty competition than with procedures such as elections. One frame of reference for evaluating democratic performance is to compare current conditions with those under preceding military regimes. Nigerians perceive a marked difference between their present circumstances and those under former rulers. When asked whether conditions were relatively better, worse, or the same under the current system, a large majority noted improvements in freedom of speech (89 percent), freedom of political affiliation (85 percent), and open electoral choice (86 percent). Substantial though lesser majorities believe that citizens now have greater influence on the government (66 percent), that the current government treats citizens more fairly and equitably (65 percent), and that people have better living standards than under authoritarian rule (59 percent). In general, Nigerians are encouraged by improvements in political and (to a lesser extent) economic conditions under the new democratic government, and these answers show discernment among different dimensions of performance. The performance of key democratic institutions is obviously a touchstone for assessing the new regime. The founding elections of 1998–1999 attracted criticism from domestic and international observers, yet Nigerians generally seem content with the integrity of the polls. When asked about the conduct of elections (given a spectrum of choices ranging from “very dishonestly” to “very honestly”), a majority of respondents nationwide believe in the relative honesty of the presidential poll (76 percent) and the state elections (77 percent). Another question asked about relative trust in public institutions (again, ranging from “no” trust to “a lot” of trust), and 62 percent of those interviewed expressed some degree of trust in the Independent National Electoral Commission (INEC). Notwithstanding serious flaws in those polls, the new democratic government does not seem to suffer a general deficit in legitimacy arising from the founding elections. Other democratic institutions also garner significant approval, several of which are listed in Figure 3.2. A majority (64 percent) show

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Figure 3.2 Trust in Selected Public Institutions

78% 51% 47%

62%

57% 35%

54% 42%

45%

37%

20%

President President

Political Pol. Parties Parties

INEC INEC

Local Local Government Govt.

70%

62%

Courts

Army

Trust 29%

Don't Trust

Police Police

some satisfaction with the performance of political parties, though citizens are clearly ambivalent about these new associations, with 51 percent expressing relative trust for parties and 47 percent relative distrust. Nigerians show a greater degree of trust for the National Assembly (58 percent) and local governments (57 percent). They are not acutely concerned about partisan contention, as most disagree (70 percent) with the proposition, “Democracies are indecisive and have too much squabbling.” It is important to emphasize the distinction between the democratic system and the current government. While citizens may be favorably disposed toward democracy as a regime, they can hold different views toward elected officials or the majority party. Early in its term of office, however, the new Nigerian government attracted substantial levels of popular approval, generally equivalent to public favor for democracy. When asked for an overall assessment of the government’s performance, nearly 82 percent of respondents stated “good” or “very good”; only 11 percent were neutral, and a little more than 5 percent offered negative ratings. This response is affirmed by separate ratings of elected officials. Nigerians generally express satisfaction with their National Assembly representative (58 percent) and their state representative (58 percent), and give even higher ratings to governors (72 percent) and local government chairs (67 percent). These responses suggest that perceptions of performance are affected by proximity: the more distant representatives in Abuja earn less approval than local officials or the visible and influential state executive. This may also reflect the highly publicized scandals and controversies in the National Assembly in the early months of the civilian regime, including the replacement of the speaker of the house and the senate president, and the issue of allowances for legislators.

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In an important exception to this pattern, the presidency appears to instill a high level of public confidence. In January and February 2000, four out of five Nigerians expressed relative trust for Obasanjo, with nearly a third affirming they trust him “a lot.” Patience with Democracy Expectations about the future, and patience with the political process, influence the consolidation of democracy. The hopes that accompany a major change in government can be construed as an asset or a hazard. Optimism among the public can be an important advantage for government, providing a “cushion of legitimacy” for leaders in difficult times. Yet high expectations may also give way to disillusionment, raising the possibility that discouraged citizens could be more inclined to consider alternatives to a democratic system. Nigerians clearly have high expectations of democratic government and considerable optimism about their future. When asked about their own life’s prospects, 87 percent anticipate being more satisfied in a year, with 59 percent expecting to be “much more satisfied.” Regarding government performance, 71 percent expect the government to fulfill its promises within four years, that is, a single term of office. And, as reported earlier, citizens give very high marks to the government they expect in five years’ time—58 percent assigned the highest grade of 10. Nigerians currently feel a sense of efficacy in politics, as 81 percent agree (59 percent strongly) that “we can use our power as voters to choose leaders who will help us improve our lives,” while only 16 percent are inclined toward a contrary view, that “no matter who we vote for, things will not get any better in the future.” Moreover, there is a sense of patience among citizens as 80 percent agree that “our present system of elected government will be able to deal with inherited problems, even if this takes time.” Once again, a small proportion (16 percent) accepts the alternative proposition that “if democracy can’t produce results soon, we should try another form of government.” Nonetheless, there is some equivocation on the values of governance: although 49 percent of respondents believe that “the best form of government is a government elected by the people,” an equal proportion agrees that “the best form of government is a government that gets things done.” While Nigerians display a preference for democratic values, they also expect a modicum of performance from their leaders.

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Summary The responses to the survey in January–February 2000 reveal a remarkably strong commitment to democracy among Nigerians. In the early months of civilian rule, Nigeria appears to be a paragon of democratic values, both in Africa and internationally. Moreover, the current government enjoys high legitimacy and favorable performance ratings, notwithstanding the many acute problems evident in Nigeria’s political and social landscape. The apparent intensity of these attitudes invites an explanation. Two distinct interpretations may help account for these patterns. One possibility lies in the dimension of political culture. Observers of Nigerian politics have discerned an enduring, deep-seated commitment to democratic ideals, despite the country’s extended interludes of authoritarian rule (Peil 1976; Diamond 1995; Beckett and Alli 1998). As Nigeria embarks on its newest democratic transition, these innate preferences are evident in public opinion. Another explanation focuses on the nature of the current transition. Nigerians have reflected a degree of postauthoritarian trauma as the country emerged from an extended period of political crisis, autocracy, and economic malaise under recent military regimes. The peaceful, timely change of government has opened the way to transition euphoria as freedoms are regained and a new sense of national possibility has emerged. In the current mood, many Nigerians have temporarily set aside their critical faculties regarding government performance and their social or economic conditions. There is evidence in the survey data for both lines of explanation. The depth and consistency of democratic attitudes and values cannot be dismissed as a transient outburst, or an expression of rote ideas learned during the transition period. Nigerians evidently hold enduring and fundamental attachments to democratic governance, and they have a relatively sophisticated understanding of political institutions and processes. At the same time, the almost uniformly high evaluations of government performance, and the lofty expectations of rapid progress in governance and the economy, bespeak a degree of acclamation that is not entirely realistic. The public will likely resume a more critical stance as the transitory enthusiasm wears off and many intractable problems persist. We would then expect to see assessments of performance (of both the democratic system and the incumbent government) decline markedly in subsequent surveys. If the presumption of an underlying democratic culture is correct, however, then declining satisfaction with democracy

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will not necessarily be mirrored by diminished commitment to democratic governance.

Attitudes Toward the Economy Support for Market Values General attitudes toward the market (or a “market regime”) frame a range of views toward economic policy and reform. Nigerians were surveyed on an array of questions pertaining to the relative role of markets and government in the economy. The public displays a variety of perspectives on these issues. In some respects Nigerians have a high regard for entrepreneurship and individual initiative, and they look to the private sector to provide many essential goods and services. At the same time, there is a substantial preference for government involvement in crucial areas of the economy, as Nigerians expect the state to secure employment and welfare and to regulate certain markets. Nigerians are inclined toward a reliance on government for general economic welfare, as 56 percent accept that the government “should bear the main responsibility for ensuring the well-being of people,” while 43 percent stress personal autonomy, agreeing that “people should look after themselves and be responsible for their own success in life.” In this regard, Nigerians differ from Ghanaians, whose preferences reverse these values. We speculate that this contrast in attitudes is a reflection of the different paths of the two economies in recent decades. The Ghanaian economy, including much of the state sector, largely collapsed in the early 1980s, and the country has since experienced seventeen years of relatively consistent market-oriented reforms. Nigeria’s economy, while battered by low oil prices and mismanagement, nonetheless sustained many government services, subsidies, and institutions. Market reforms have been erratic and uneven in their impact. Nigerians, as a consequence, have comparatively less confidence in markets and a greater attachment to the perquisites of the state. Similarly, many Nigerians express a penchant for government provision of jobs, as 56 percent lean toward the view that “the government should provide employment for everyone who wants to work,” while 43 percent agree that “the best way to create jobs is to encourage people to start their own businesses.” There is, however, considerable regard for the benefits of individual initiative, as 55 percent agree that people “should be free to earn as much as they can, even if this leads to

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differences in income,” while another 39 percent take the alternative view that “the government should place limits on how much the rich can earn, even if this discourages some people from working hard.” Most Nigerians appear to hold a sense of personal efficacy, as twothirds agree that “I always try to plan ahead, because I feel I can make my plans work,” while slightly less than a third believe that “it is not wise to plan too far ahead, because many things turn out to be a matter of luck.” With regard to entrepreneurship, 81 percent accept the notion of risk, agreeing that “if a person has a good idea for a business, they should invest their own savings or borrow money to try to make it succeed,” and only 17 percent allow that “there is no sense in trying to start a new business because many enterprises lose money.” There is also evidence of significant trust in certain market institutions. Surprisingly, in view of recent problems in the banking industry, 76 percent of respondents express relative trust for banks. Overall, 71 percent have some trust of businesses. A majority of Nigerians (74 percent) are also tolerant of foreign investment, agreeing that “in order to create jobs, the government should encourage foreign companies to invest in our country.” Conversely, 25 percent are more skeptical, believing the government “should be wary of foreign investors because they may gain control of our national wealth.” In order to gauge relative preferences for government and markets, the survey asked people to name the best provider for key goods and services: Is it the government, private businesses, individuals, or some combination of these? The responses are shown in Table 3.3. When asked who should be responsible for protecting the nation’s borders, respondents readily

Table 3.3 Responsibility for Specific Goods and Services (percentages)

Govt. & Govt. & Business & Govt. Business Individuals Business Individuals Individuals All 3 Protect Borders Building Homes Agricultural Credit Oil Production Selling Consumer Goods Providing Schools/ Clinics Creating Jobs Reducing Crime

91 11 61 55

1 3 1 4

1 66 2 2

2 2 20 23

1 15 10 9

— 1 1 2

4 3 4 6

21

4

30

8

13

14

10

67 67 67

1 1 1

1 1 1

9 12 2

11 7 13

1 1 —

9 12 17

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agree (by a margin of 91 percent) that the government should mainly be responsible. When it comes to building homes, however, 66 percent believe that individuals should be responsible, with only 10.5 percent designating government, and another 15 percent choosing individuals and government combined. These responses “anchored” the outer points in the range of possible views between government and individual provision. Other economic goods were deemed to fall between these extremes. With regard to social services, most Nigerians expect government to be the main provider: 69 percent believe that government should be the main source of schools and clinics, while 11 percent choose government and individuals, and about the same number believe all three should have a role. In the area of employment, the responses affirm expectations toward the public sector as 67 percent believe that government should be the main source of creating jobs, while fewer than 1 percent chose either individuals or private companies. Much of the public favors a state role in other important areas of the economy. A majority of respondents believe that government should be primarily responsible for producing oil (55 percent, with another 23 percent preferring government with businesses) and providing agricultural credit (61 percent selected government). In other aspects of the economy, however, there is greater emphasis on market mechanisms. Considering property rights, more than threefourths of respondents believe that rural land should be freely owned and traded, while only 23 percent prefer communal land tenure under the control of traditional rulers. Markets for consumer goods are also an area where Nigerians accept greater private activity, as only 21 percent selected government as the main provider, while a little more than 48 percent chose a variety of private sources. When asked about specific policies that affect the balance of government and markets, there are clearly diverse views among the population. A majority of people accept open markets and free pricing for everyday items, agreeing (56 percent) that it is preferable “to have goods in the market, even if prices are high,” while only a third prefer “low prices, even if there are shortages of goods.” A substantial majority is willing to accept user fees for education, if they are linked to higher standards (69 percent endorsed this option, with 49 percent agreeing strongly), while 26 percent choose “free schooling for our children, even if the quality of education is low.” While Nigerians show some flexibility on the role of government in price-related issues, they also hold strong preferences for government employment and ownership of enterprises. There is considerable opposition

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to retrenchment in the public sector, as 73 percent agree (45 percent strongly) that “all civil servants should keep their jobs, even if paying salaries is costly to the country.” Less than a fifth concur with the statement that “the government cannot afford so many public employees and should lay some of them off.” Nigerians are also inclined against privatization, as 61 percent agree that the “government should retain ownership of its factories, businesses, and farms,” while 35 percent believe that “it is better for the government to sell its businesses to private companies and individuals.” Attitudes Toward Economic Reform and Performance The policies discussed in the preceding section are important elements of the reform package introduced by the SAP in 1986. Although the formal program launched by the Babangida regime has lapsed, many of its key features have continued and the SAP has become synonymous with an agenda of economic liberalization. The program is also frequently associated with policy conditionality from the multilateral financial institutions, the IMF and the World Bank. The SAP is a reference point for debates about economic reform in Nigeria. Nigerians were asked about their familiarity with, and evaluation of, the SAP. Overall, there is limited knowledge about the program, as only 40.3 percent of respondents were familiar with the SAP by name. Far fewer Nigerians could therefore attach a meaning to “adjustment” than to “democracy.” And far fewer could name the minister of finance (16 percent) than other officials such as their state governor (87 percent) or the national vice president (56 percent). These findings, and the ones that follow, suggest low levels of economic awareness in Nigeria, a condition that is common in other African countries as well. The survey probed the knowledge of the SAP from among those who could identify the package. When asked to explain the purpose of the SAP, nearly half of that group replied it was either to improve the economy (21 percent) or improve living conditions (25 percent). Others mentioned more specific economic goals, including stabilization and fiscal balance (7 percent), increasing jobs and/or productivity (3 percent), reforming economic institutions (8 percent), making goods available (6 percent), or reducing inflation (3.6 percent). Some answers had a general focus such as “self reliance” (7 percent), “hard work” (0.6 percent), or “bring the country together” (0.1 percent). In light of the controversial nature of the SAP, it is interesting that fewer than 1 percent provided such negative definitions as “bringing hardship and difficulty,”

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“benefiting the rich,” or “corruption and looting.” Contrary to the conventional wisdom that “the people” view adjustment negatively, most knowledgeable Nigerians seem to associate structural adjustment policies with positive economic objectives. Whether these objectives have been realized, of course, is another matter. When asked about their relative satisfaction with the SAP (based upon a range from “very unsatisfied” to “very satisfied”), two-thirds of respondents expressed some degree of dissatisfaction with the program and only 14 percent displayed relative satisfaction. When the full national sample was asked more generally about reform policies, the results were ambivalent. While 49 percent agreed that “the costs of reforming the economy are too high; the government should therefore change its policies,” another 45 percent accepted that “in order for the economy to get better in the future, it is necessary for us to accept some hardships now.” There is a clear perception that public policies have failed to alleviate social inequalities and have even aggravated such imbalances. With regard to the reform program, 60 percent of respondents agree that government policies have “hurt most people and only benefited a few,” while slightly more than a third believe that these policies “have helped most people; only a few have suffered.” Who are the perceived beneficiaries? Among those who believe the benefits have been narrowly distributed, 84 percent identify “people close to the government,” while the remainder identify a number of groups including people in “selected regions” of Nigeria (2 percent), foreign businesses (3 percent), or “the rich” (3 percent). Specific ethnic or regional groups are cited by few, and less than 1 percent mention elites such as politicians or the military. When asked who is responsible for economic conditions in Nigeria, respondents focused chiefly on domestic actors (see Figure 3.3): 63 percent cited the previous military government and another 13 percent pointed to the current government. About 10 percent responded that the Nigerian people themselves were mainly responsible. Fewer than 1 percent identified the IMF/World Bank, the SAP, or “international economic forces.” Nigerians clearly locate accountability for the economy within their own government and society. The survey asked for evaluations of government performance on a range of economic issues. The present government earns generally favorable assessments, as a majority of respondents believe that newly elected leaders are doing well at handling jobs (55 percent), controlling inflation (58 percent), providing for education (61 percent) and health (64 percent), assuring food security (55 percent), and fighting crime (62

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Figure 3.3 Responsibility for Current Economic Conditions

;; ;; ;; ;; 6%

8%

Military Government

10%

Current Government Nigerians

63%

Other

13%

Don't Know

percent). Notably, the government is rated highest for its handling of corruption (64 percent). Obasanjo’s early initiatives to dismiss selected cronies associated with the former government and to recover their illgotten gains have apparently met with a measure of popular support. In the area of income inequality, however, the government receives more negative assessments, with only 40 percent of respondents feeling that leaders are doing well in narrowing the gap between rich and poor. This accords with other opinions regarding economic and social disparities, including the perception (by a majority of 60 percent) that the SAP has been largely detrimental, and benefits have accrued only to a narrow group. Moreover, Nigerians show significant discontent with general economic conditions, as 55 percent are relatively dissatisfied with the current state of the nation’s economy. Relationships Between Political and Economic Reform Nigeria’s democratic experiment is unfolding against the background of a weak economy and irregular efforts at economic liberalization. The relationship between these political and economic processes is an important dimension of the nation’s transition. One important question is whether political and economic liberalism are related, that is, whether democratic preferences are closely associated with preferences for a market economy.

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In Nigeria, there is generally a weak association between these views, and the relationship does not point in one direction. For instance, people who believe more strongly in government provision of welfare actually show slightly stronger preferences for democracy (and lower tolerance for nondemocratic alternatives) than respondents stressing personal autonomy in economic matters. In this sense, the economic “statists” are somewhat stronger democrats.3 On another dimension, there seems to be almost no relationship. Those supporting public employment are almost indistinguishable in their democratic preferences from those who favor public sector layoffs.4 The same holds true among those who support or oppose privatization; their democratic commitments are essentially the same in either case.5 Finally, with regard to government policies, the association points in a different direction: Nigerians who favor changes in adjustment policies display somewhat weaker democratic preferences than those who believe in sustaining the reform program.6 On this question, the economic reformers seem to be more committed to democracy. Overall, it appears that Nigerians hold fairly consistent views on politics, yet they have more diverse opinions on the economy, and these values do not cluster in a regular fashion. Evaluations of the impact of economic reform appear to influence assessments of the democratic regime, though they do not shift general preferences for democracy. Among respondents who say they are very dissatisfied with the SAP, slightly more than 80 percent still express relative satisfaction with democracy, while 19 percent are relatively dissatisfied with democratic performance. By comparison, among those who are very satisfied with the SAP, nearly 92 percent register relative satisfaction with democracy, a statistically significant difference.7 Seen from another direction, the people most satisfied with democracy still report dissatisfaction with the adjustment program (62 percent), while those least satisfied with democracy are only somewhat more dissatisfied with these policies (68 percent). Thus, disappointment with adjustment would seem to attenuate enthusiasm for the political regime, though it does not undermine Nigerians’ remarkably strong approval for democratic governance. This same characterization holds true when we match preferences for democracy against general evaluations of the Nigerian economy. Among people who are most satisfied with the state of the economy, 84 percent express a preference for democracy over any other system, while 9 percent would consider a nondemocratic alternative. Those least

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satisfied with the economy show slightly reduced democratic preferences (78 percent) and somewhat greater willingness to tolerate nondemocratic options (11 percent). Nonetheless, for all groups there is a strong attachment to democracy, and the relationship is not statistically significant.8 Taking into account citizens’ satisfaction with their personal economic conditions, a similar pattern is evident. The respondents most satisfied with their own circumstances strongly prefer democracy (79 percent), but those who are “not at all satisfied” with their conditions also display solid democratic commitment (76 percent). Among the least satisfied, 13 percent would consider an alternative to democracy, compared with 11 percent among the most satisfied. In these instances, the differences are not statistically significant, and they point to a strong and consistent attachment to democracy regardless of individual economic satisfaction.9 Although economic factors do not currently appear to have a strong effect on attitudes toward democracy, popular perceptions of economic well-being could be consequential over time. Nigerians’ relative patience about their economic and political conditions is especially relevant in trying to assess these relationships. One approach is to match appraisals of future well-being with attitudes toward democratic performance. The questionnaire asked people to speculate on their welfare, asking “How long do you think it will take before your own living standards meet your expectations?” The responses included the following range: within two years, within four years, within eight years, more than eight years, or never. More than half of those interviewed expected to meet their expectations within two years, and a little more than three-fourths anticipated their ideal conditions within four years. The most optimistic respondents expect to achieve their desired living standard within two years. Among this group, a large majority (81 percent) tend to agree that democratic government can “deal with inherited problems, even if this takes time,” while only 16 percent accept the view that if “democracy can’t produce results soon, we should try another form of government.” Among the more pessimistic segment, those who believe they will never meet their personal material goals, 73 percent concur that democratic government can eventually deal with problems, while 23 percent would look for alternatives if democracy doesn’t deliver change. While there are significant differences among those who perceive different personal prospects, there is still a generally strong sense of forbearance toward the democratic regime.

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Also on this theme, the questionnaire asked for relative agreement or disagreement with the statement “In a democracy, the economic system runs badly.” Overall, a majority of Nigerians (81 percent) disagreed with the statement. And, as noted earlier, respondents were evenly divided among their preferences for elected or effectual government. This division does not vary according to views on economic competence: among those who believe that democracies can successfully manage the economy (i.e., who disagree strongly that the economy “runs badly” in a democracy), 42 percent strongly agree that electoral government is most desirable, and the same proportion favors a government that “gets things done.” Thus, while many Nigerians value government efficacy more highly than democratic procedure, their views are not driven by economic concerns. Thus, the Nigerian public is forming separate and largely unconnected perceptions of political and economic reform. In a nutshell, Nigerians are much more committed to democracy than to structural adjustment and most policies of economic liberalization. This is clearly evidenced by the willingness of survey respondents to countenance change in political versus economic regimes. Whereas only 16 percent of survey respondents want “to try another form of government (soon),” fully 49 percent think that the government should “change its economic policies (now).”

The Rule of Law Establishing the rule of law is among the fundamental challenges new democracies face, and the problem is manifest in Nigeria. Two aspects are especially salient in Nigeria: the prevalence of corruption and high levels of crime, especially in the major urban areas. Beginning with the oil boom of the 1970s, Nigeria experienced an enormous increase in official corruption as well as a variety of fraudulent and illicit practices in the private sector. The boom era also witnessed an explosive growth of urbanization and increased social inequalities, both of which fostered a rise in crime. Since that time, corruption and crime have been among the most vexing obstacles to effective governance and economic growth, and they have persisted through both military and civilian rule. There is also a widespread perception that these problems, especially the malady of corruption, have worsened under recent military regimes. The efforts by a democratic leadership to deal with these issues can significantly affect public perceptions of the government’s legitimacy and effectiveness.

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Official Corruption The issue of corruption is a perennial concern among Nigerians. When asked how often they believe their fellow citizens offer bribes to public officials, 94 percent of those interviewed perceived some corruption, including 53 percent who replied that people “always” bribe officials. Almost three-fourths of respondents disagreed with the statement that “bribery is not common among public officials in Nigeria.” All told, those who admitted being solicited for bribes named more than fifty different agencies or departments as the source. There was substantial concentration among this list, however, as more than half named the police or law enforcement agencies as the main source, while a substantial group cited the National Electric Power Authority (12 percent) or local government authorities (also 12 percent). Interestingly, about 10 percent of bribes were paid to various educational institutions or instructors, yet relatively few people reported illicit payments to the courts (0.9 percent), or political institutions such as the Independent National Electoral Commission (0.1 percent). Large national organizations, such as the Nigerian National Petroleum Corporation, apparently do not elicit much “petty” corruption among average citizens, as only 0.2 percent report corrupt dealings with the company, notwithstanding its reputation as a center of malfeasance. The salience of corruption in the public eye obviously carries substantial weight in citizens’ evaluations of their government. Overall, Nigerians are divided in their opinions of public officials, as half are inclined to agree with the proposition “Politicians and civil servants are trying their best to look after the interests of people like me,” while another 47 percent register some disagreement with that statement. This suggests that, despite the prevalence of bribery, Nigerians do not see their elected leaders and bureaucrats as totally self-aggrandizing. Many people also acknowledge that cultivating influence can be effective, as nearly two-thirds (63 percent) agree that “the best way to get ahead in this life is to have contacts with important people in high places.” Given the realities of power and inequality in the society, there would seem to be considerable acceptance of the need to gain favor with people of status and means. In this area, Nigerians perceive a significant improvement under the new regime, as fully 83 percent agree (52 percent strongly) that “corruption was a worse problem under the old military government than these days.” Although the new democratic administration had been in office for under nine months at the time of this survey, Obasanjo had already taken some steps to curb official corruption, including the revocation of high-level oil licenses and land grants, a panel to review

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government contracts, and anticorruption legislation introduced into the National Assembly. The public evidently credited the present leadership for its early anticorruption efforts, as three-fourths (76 percent) agreed that “rather than protecting his friends, the President will fight corruption wherever he finds it.” Corruption is closely related to issues of equity, as it can foster special preferences that unduly favor some groups and disadvantage others. Nigerians are generally ambivalent on the issue of government favoritism. An impressive majority (77 percent) believes that “the government represents the interests of all Nigerians,” rather than favoring just a few groups (15 percent) or a single group (4 percent). Still, 54 percent of Nigerians believe that their self-identified group (ethnic, religious, class, or individual) is treated unfairly by government to some degree. In response to another proposition, 38 percent agree that “the President’s region of the country gets more government services than any other,” while 53 percent differ with that view. In light of the short tenure of the Obasanjo government, however, the perception that his region (the southwest) is favored in the provision of public services more likely reflects the historical disparities in regional development, rather than deliberate bias on the part of the new administration. Law and Order Crime is another problem that affects government legitimacy as well as the everyday quality of life. The responses to the survey suggest that, while crime is prevalent, it may be less severe than the conventional wisdom suggests. Over 60 percent of respondents report that they do not know anyone who has been the victim of an attack or robbery within the past two years, and a virtually equal proportion have had no brush with burglaries. About 6 percent report being victims of violent crime personally, and about 7 percent have had their own homes robbed. Around 40 percent of those interviewed said they knew someone else who had been a crime victim within the past two years. Most Nigerians sense improvements in recent years, as 58.3 percent say they feel safer today than they did five years ago. The differences in perceptions among urban and rural residents are significant, though perhaps not as wide as might be expected. While 61 percent of rural residents feel more secure than they did five years ago, 58 percent of urban residents also sense improved safety. On the other hand, 22 percent of urbanites say they are less assured of their safety, nearly twice the proportion of rural dwellers (12 percent).

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The strategies that Nigerians use to respond to crime say much about their relative confidence in state institutions as well as the quality of social capital. The survey asked people what they would do if they felt unsafe in their surroundings. Nearly half said they would never report a crime to the police, a response that is echoed by citizens’ relative distrust of law enforcement: 52 percent express “no trust at all” for the police, and another 18 percent profess some distrust. By comparison, courts of law evoke greater trust, as 53 percent express a degree of trust, while only 45 percent are inclined to distrust these institutions. Nigerians are not strongly inclined to turn to other citizens for protection against crime. While a little more than a third of respondents said they might seek protection by going out in public with companions, only a quarter would form a citizens’ group to combat crime. The relative sparseness of collective responses does not imply a preference for individual initiative: fewer than one in five respondents would consider carrying a weapon to protect themselves against crime. Although many new democracies around the world have experienced dramatic increases in crime, Nigerians do not believe that their democratic system is handicapped in responding to this problem. In spite of their concerns about personal security, 72 percent of those interviewed disagreed with the proposition that “democracies aren’t good at maintaining order.” Citizens clearly hold leaders accountable in this area, as two-thirds believe that government should have the main responsibility for combating crime. A nearly equal proportion (62 percent) gave favorable assessments of the current government’s performance in reducing crime. In the months following the transition to democratic rule, Nigerians appear comparatively satisfied with the performance of the new regime in addressing issues of law and order. In summary, Nigerians and outside observers have often commented on weaknesses in the rule of law in the country. Endemic corruption, weak law enforcement agencies, and a beleaguered judiciary have all created an environment in which the enforcement of laws and the operations of institutions are irregular and often arbitrary. The legacy of “rule by decree” under a succession of military regimes has also eroded the development of an effective legal and institutional culture. While there is little expectation that these problems will be remedied quickly, the advent of democracy has naturally raised expectations. Nigerians clearly perceive problems of corruption, crime, and low compliance with the law in their society, yet they also note some significant improvements under the new regime. The government has garnered credit for its anticorruption efforts, and much of the public approves of official

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efforts to curb crime. Moreover, Nigerians retain a modicum of trust in the courts and public officials.

Conclusion This survey, conducted six months after the transition to civilian rule in Nigeria, reveals fervent attachments to democratic values in Nigeria, remarkably high assessments of the performance of the new regime, strong evaluations of elected officials and political institutions, and a heady optimism about the benefits of democracy. These popular attitudes may seem irreconcilable with the sober realities evident on the streets, in the media, and in public discourse. Nigeria confronts profound challenges in consolidating new institutions, crafting effective leadership, achieving social stability, and reconstructing the economy. As daunting as these problems are, many Nigerians find their present circumstances far less onerous than those under preceding authoritarian governments. Many observers of Nigeria’s political change have been impressed with the degree of public acceptance of a rapid and sometimes flawed transition process. An overriding national concern with ending military rule caused many Nigerians to tolerate the shortcomings of the transition period. We conclude that this was the temper of the country in the wake of a long, onerous period of autocratic rule. In the “miracle of the moment,” expectations often outshine judgment, and citizens may suspend criticism of the flaws in everyday governance. As the slow, difficult realities of political and economic change make themselves felt, we expect to see dramatic declines in political satisfaction, perhaps even in support for democracy. Thus, for all those concerned with Nigeria’s future, it will be important to keep listening to the popular voice.10

Notes A longer version of this study was originally published as Michigan State University Afrobarometer Paper No. 3 in April 2000. 1. The Afrobarometer is a joint enterprise of the Institute for Democracy in South Africa (IDASA), the Centre for Democracy and Development (CDD, Ghana), and Michigan State University (MSU). The countries examinede are South Africa, Zambia, Zimbabwe, Mozambique, Malawi, Botswana, Namibia, Lesotho, Senegal, Benin, Ghana, Mali, Cape Verde, Uganda, and Tanzania. Information on the Afrobarometer and survey results for selected countries can

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be obtained from any of the above partner institutions. For further details see the Afrobarometer web site: http://www.afrobarometer.org. 2. The International Foundation for Election Systems (IFES) conducted the survey in collaboration with Management Systems International (MSI). A Nigerian survey research firm, Research and Marketing Services (RMS), conducted the fieldwork, assisted with sampling methods, and processed questionnaire data. Peter Lewis and Michael Bratton directed survey design, oversaw implementation, and analyzed survey results. The survey covered all six informal geopolitical regions of the country, including twenty-two of the thirty-six states, with the number of interviews in each region being proportional to the region’s population size. Eight field teams, composed of a supervisor, a quality control manager, and six enumerators, were trained in a three-day intensive workshop at the RMS home office in Lagos and at six regional locations. Teams were deployed to the field for up to fourteen days starting on January 21, 2000. Data were entered at RMS and analyzed at American University and Michigan State University. 3. Contingency coefficient = .090, sig. = .000. 4. Contingency coefficient = .120, sig. = .000. 5. Contingency coefficient = .135, sig. = .000. 6. Contingency coefficient = .139, sig. = .000. 7. Contingency coefficient = .229, sig. = .000. 8. Contingency coefficient = .062, sig. = .132. 9. Contingency coefficient = .073, sig. = .021. 10. These inferences are largely borne out in a subsequent survey conducted in August 2001. See Peter Lewis, Michael Bratton, Etannibi Alemika, and Zeric Smith, Down to Earth: Changes in Attitudes Toward Democracy and Markets in Nigeria, Washington, D.C.: Management Systems International/USAID, December 2001.

4 Kenya: Policy Research and Policy Reform T.C.I. Ryan1

At the time of its independence in 1963, Kenya’s colonial heritage provided a variety of rent-seeking opportunities to the country’s newly elected economic managers. Their enduring influence has often frustrated policy reform. Identifying unsustainable outcomes of these distortions is a key purpose of economic research. Notwithstanding any preceding policy research and analysis, Kenya’s political leaders have to ensure that the president will support their new reform proposals. Access to him and the appropriate presentation of research results are thus necessary components of any reform process. To have an impact, researchers must perceive problems in the ways that Kenyan policymakers do. The audience must be kept in mind when research results are presented. In examining the costs and benefits of any reform, it is unrealistic to ignore ethnic differences and the political constituencies upon which leaders depend. Policymakers must trust the researcher: they have neither the time nor inclination to read carefully worked out economic arguments. To some extent, this means that a researcher without political connections must find someone who has them to carry the message in a format that policymakers can easily understand and use. Though Kenya has a well-established international reputation for preparing high-quality policy documents, such written statements do not necessarily constitute policy—a term that implies sustained action supported by money, facilities, and personnel. In part, this explains Kenya’s reputation for backtracking on such controversial policies as grain marketing, where the real issue is a complex domestic perception of food security and rent seeking, or parastatal divestiture, where the underlying issue is economic sovereignty and rent seeking. Any proposed efficiency 95

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reforms that sacrifice security or sovereignty will fail to address the real problems.

Historical Background Kenya is a young country: less than 110 years ago, explorers were wandering around it, coinage was virtually unknown, and what is now Nairobi was a swamp. No urban settlements of even two thousand people existed between the coastal strip and present-day Uganda: designers of the East African Railway saw Kenya as an inconvenient piece of country to be crossed as quickly as possible. Kenya officially became a British colony in 1922, an event that in many ways determined the path of the country’s development. A dual economy was an inevitable outcome of the combination of a British administration, a well-organized, white-settler enclave, and an extremely efficient South Asian business community. Until independence, both these communities lobbied, obtained significant privileges, and established a variety of institutions that supported their objectives. In the meantime, the African majority continued a slow evolution toward market behavior, unlike their counterparts in West Africa and even Southern Africa, where market behavior had been the norm for centuries. Kenya’s majority communities were largely agriculturebased, with relatively little formal education. Although African independence movements date from the 1920s, they did not have any real significance until the 1950s. Settler and immigrant communities carried greater political muscle, creating institutions such as the grain marketing board, a dairy monopoly, and a farmers’ association. The economic rents these institutions provided were the envy of the traditional small farmers and pastoralists who were beginning to participate in the formal, cash economy. After independence in 1963, the new governing elites captured and preserved wage differentials, economic rents, and other privileges inherited from the colonial structure. The traditional institutional structure provided a vast array of benefits to most Kenyans. In 1963, the formal sector probably constituted less than 5 percent of the population.2 The other 95 percent needed traditional institutions to provide insurance within the risk-averse traditional economy. This insurance was mainly associated with survival—food security and protection—because of the common experiences of climactic risk and ethnic conflict, including tribal

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raiding for women and cattle. Investments in social capital were through harambee efforts (community self-help activities in cash or kind) as well as involvement in marriages and funerals. For an individual, such investments produced a sense of belonging to a defined community and the secure knowledge of support in the event of tragedy. Kenya’s dual economy persists, although its traditional economy is under greater stress. For example, many educated members of the more affluent formal sector owe their educations to their clans or communities, who anticipated recompense for their sacrifices when favored sons were in positions to dispense patronage. Because this kind of payback is often seen as corruption, policy reforms that seek to remove corruption often fail when they arise from a different cultural context. Efficiency reforms may be seen as removing the raison d’être of sacrifices that have enabled the poor to progress. Further, the abiding importance of social capital within a political constituency means that espousing such reforms may jeopardize a politician’s career. The conflict between public and private costs and benefits—the winners and losers in the reform process—is complicated by the fact that outcomes are measured differently and in noncomparable ways by each grouping. Before addressing the question of how research interacts with the policy reform process in Kenya, one needs to identify the target of the policy intervention. Other basic questions need to be asked: What is policy? Why reform policy? How is policy made? Who makes policy? Is policy what is articulated, in writing or by word-of-mouth? Or is it what is done, whether or not previously stated? Might policy constitute actions that are sustained? If this limiting definition is accepted, how can one explain the occasions of policy reversal following earlier commitment? These critical questions need to be answered before launching into a discussion of policy reform in Kenya.

What Is Policy? Those familiar with policymaking procedures in the developed world may not understand the process in countries such as Kenya. In the United States, for example, the division of powers between the executive, the legislature, and the judiciary, and resulting checks and balances, permit citizens to follow policy transition in a transparent form and to hold officials accountable when they act beyond the competence of their institutions. This clear or effective division of powers does not

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exist in Kenya, nor do Kenyan institutions behave in a manner that is as transparent and accountable. The agenda of those in control tends to dominate decisions, and the rule of law is less efficient. Though parliamentary representatives might be said to have entered into social contracts with their constituents, often the electorate does not have access to unbiased (or at least divergent) sources of information and opinion. The parliamentarian may have been put into power on the basis of unrealistic electoral promises that the constituents are unable to evaluate. It is worth noting that there has been considerable turnover of sitting members since independence: on average, two-thirds are not reelected, and one in three cabinet members fail to regain seats. These data demonstrate one dimension of the efficacy of the democratic process in Kenya. What Is Written A wide variety of publicly available documents purport to represent Kenya’s policy: the country’s critics often point to them to claim that the country is backtracking or lacks commitment. Among such documents are development plans, including those for the Ministry of Health and the Ministry of Environment and Natural Resources. Sessional papers might be expected to reflect the legislature’s policy commitments: some have targeted a specific area such as unemployment, HIVAIDS, or food policy, while other papers contain more general reviews of the country’s status and propose improvements.3 The annual budget speech is also regarded as a vehicle for policy change. Though it usually addresses fiscal and monetary areas, the speech has also been used to convey reforms, particularly during the late 1980s and early 1990s. The Kenya Gazette serves as the official record of legislation that changes policy. This weekly publication often carries powerful policy changes without referencing their logic or background. Its readers learn that legislation or personnel have changed or of a new piece of subsidiary legislation, along with such consequences as the decontrol of prices, the changing of gazetted forest boundaries, appointments to statutory authorities, or amendments to the operating rules of the Capital Market Authority. Other than the most obvious government policy vehicles noted above, many more written policy documents exist, including matrices attached to agreements with the World Bank, the International Monetary Fund (IMF), and other similar bodies. These agreements and their policy matrices are drawn from signed letters of sectoral policy, letters of intent, or other signed commitments by Kenya’s minister of finance. In many cases, these

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undertakings are products of a policy framework paper (or, more recently, poverty reduction strategy papers). Analysts who have studied the process of negotiating such understandings (O’Brien and Ryan 2001; Killick 1998) conclude that conditionalities—or reforms agreed to with an external funding body—may not necessarily be seen as policies. Instead, they may be viewed as actions undertaken in return for a price. They consequently imply an entirely different degree of commitment. Documents distributed at World Bank Consultative Group meetings also contain written policy, though they are intended to alert donors to foreseen constraints and directions for the economy. Unfortunately, such documents often included public investment programs that were largely shopping lists, not policy statements. Similarly, a number of earlier development plans were wish lists, cosmetic documents, or vague promises. They lacked an adequate assessment of resource availability or prioritization, though they were often backed by considerable research. The history of macroeconomic modeling in Kenya is a saga of academics struggling for policy relevance, except for a series of research papers by the Institute for Development Studies of the University of Nairobi that influenced economic policy documents of both the World Bank and the government of Kenya. At the risk of digression, it might be mentioned that Kenya—at that time a de jure one-party state—presented a document to donors at the November 1991 Consultative Group meeting that promised multiparty elections. Participants did not refer to it in any of their presentations, which attacked the existing constitution. These led to the suspension of aid on the basis of governance conditionality, since a multiparty democracy was considered a core element. In a run-up to the 1992 multiparty elections, no reference was made to the earlier promise. Government policy was also considered to be contained in a set of well-intentioned volumes from Kenya’s Ministry of Finance and Planning under such titles as “Forward Budgets” and “Medium-Term Expenditure Frameworks.” Their purpose was to direct ministries—consulted in the course of their production—to adhere to figures and not frustrate careful prioritization by introducing “parachute projects.” However, the bottom line is that Kenya in 2000 did not yet have the fiscal control to do more than aggressively enforce its annual budget ceiling: indeed, the country has done this with considerable penalty to the economy over the last few years, when a countercyclical policy would have been more appropriate.4 The reform programs that were signed with the World Bank had all the right titles. Structural Adjustment Loans were followed by Sectoral

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Adjustment Credits to agriculture, industry (including trade reform), and the financial and export sectors. Within Kenya’s Ministry of Finance, programs supported Budget Rationalization and Taxation Modernization. Nevertheless, the World Bank’s assessment of all this effort and funding was summed up in the title of Gurushri Swamy’s chapter in the World Bank publication on adjustment in Africa: “Kenya: Patchy, Intermittent Commitment” (Swamy 1994). What Is Said, or Who Said What The minister of finance has the unique opportunity of stating policy in his annual budget message. Other policy statements may come from the press units of the president and the vice president, or on the occasion of a visit from the IMF or the leader of any country. Because the president must rule and be seen to rule, those pushing for policy change will clear their proposals through him prior to making announcements. When the president wishes to announce some new policy in a national day speech, his office will canvas the ministries for submissions: a proposal put forward at this time may get a presidential blessing. Media coverage of politicians in Kenya is seldom on policies but commonly on personality conflicts and any action or statement that could embarrass. Nevertheless, there are some (such as the late Robert J. Ouko when he was minister for planning) who constantly keep in mind a set of policies that they wish implemented so that, given any opportunity either directly or indirectly through using the offices of another (for instance a private encounter with the president), they can immediately make recommendations that were already thought through. Attempts at making policy statements are by no means limited to politicians. Some make use of access to those who can make policy statements. On occasion, permanent secretaries, technical directors (e.g., the director of planning and the director of the National Population Council), and even CEOs of parastatals will use the media to put out proposals as though they were policy statements. These may not be implementable: the wish or intention may exist, but not the institutional capacity to undertake and sustain the proposed changes. This means that there is no clear way of identifying whether a statement represents governmental policy. Development partners and missions negotiating a program may think that they are holding discussions with officials who speak for the government of Kenya, but this may not be the case. For instance, a minister cannot, in law, commit the country to overseas borrowing without prior Treasury approval. At the other

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extreme, Treasury can and did exert pressure on ministries to agree to time-bound conditionalities in a policy matrix attached to a program to provide budget-support funds—so-called program finance. These reforms may have had only nominal support from the institution with the responsibility of implementing them—often without the benefit of receiving an increment from the funds released thereby. Professional associations, trade unions, church groups, women’s groups, and nongovernmental organizations (NGOs) are among interest groups or advocacy agencies that seek policy change. Donors—bilateral and multilateral development partners and NGO funding agencies— may be included in this grouping when they use good relations with the media to advocate reforming agendas and to critique existing situations. Such efforts might be described as the unmaking of policy, in the hope that it will be more to one’s liking when remade. What Is Done Though many actions follow written or oral statements of policy, many others occur without public announcement. In the past, the minister, commissioner, or other technical director could legally exercise ad hoc discretion to make decisions that could be interpreted as policy. Such decisions have often led to corruption and increased risk to players on Kenya’s economic playing field. Reforms have made such policies more transparent by purging legislation of discretion or limiting it to explicitly stated beneficiaries. Exemptions from various forms of taxation were the major source of distortion. While consultation is often desirable, consensus seeking is not the norm in Africa, and stakeholders in Kenya are often unorganized and inarticulate. In the industrial sector, a highly organized lobby is fully conscious of what might be lost in a reform. Those who might be expected to gain in a reform of the sector are unaware of their potential gain and lack an effective organization to present their case. The potential winners—the majority—are misled into seeing only the short-term costs of reform. Industry in the formal sector is far more sophisticated (though not necessarily more prosperous) than business in the informal sector. The former accounts for a relatively large amount in GDP statistics because the informal sector is largely unsurveyed. Yet the latter’s importance is revealed by the paralysis of Nairobi when the informal taxis (matatus) go on strike: formal-sector transport is utterly unable to cope. Less obvious—but not less important—is the massive improvement in the attire of the poor that can be seen (albeit not quantified)

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since the liberalization of imports that include secondhand clothes. There is now a countrywide network of secondhand clothes dealers, while the domestic textile industry pleads for protection.5 Sometimes continuing with the status quo is the policy decision. Though an outsider may assume that an announced policy is not being implemented, what is actually happening is that the policy announcement is not being permitted to override the existing policy. Reforms in the cereal sector and privatization provide examples: the government supported the continuation of existing policies, though this may not necessarily be seen as part of reform. In many cases, the distinction between policy reform as a consequence of a one-shot action—such as the decontrol of the price of soft drinks—is confused with a policy reform that requires a process—such as the continuous implementation of transparent tender procedures. For a process, a series of actions needs to be taken. Some of these appear to have no consequence: they are often considered to be frustrating or avoiding the issue. Reforms that require a process are obviously harder to sustain: they often involve institutional changes and retraining or redeployment of staff. Backtracking will be dealt with more explicitly later on, but it is sufficient to note here that such an action clearly represents a policy decision. In Kenya, policy is what is done on a sustained basis, usually backed by the appropriate resources—money, staff, equipment, and facilities. It may or may not be expressed in a document, but it is always cleared, at least implicitly, with the president.6

Why Reform Policy? Those governing Kenya share an implicit belief that explicit policies from the past were rationally imposed for the benefit of the country as seen by those colonial rulers. Only recently have some started to question the policies involved. The rules-based, rather than market-based, allocation of property rights over resources gives rise to a particular distribution of national assets and consequent economic rents, thereby inhibiting the operation of market forces. Urban zoning and tribal land units limit the mobility of labor and capital domestically, while work permits and investment controls reduce competition from abroad. In the 1970s, Kenya conformed to the widespread belief in importreplacement industrialization and the role of government in providing welfare to the people, often through parastatal enterprise. The 1990s and

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the beginning of the third millennium have seen a major change in attitude away from that statist mentality. The 1980s can be construed as a bridge, made all the more important by the collapse of the Marxiststyle, centralized-planning alternative available as a bargaining tool to the economies of developing countries. One can argue that policy reform arises because those with the power to initiate change are dissatisfied with the status quo. There is seldom a solution where everybody is better off—or at least no one worse off—as a consequence of a particular change. Since independence, Kenya has undertaken some limited forms of compensation to potential losers, but these could not be considered a case of a compensation principle. Compensation paid to Tanzania in the East African Community for revenue lost through importing from Kenya was not considered adequate: the financial flows did not affect the investment environment and Kenya continued to attract almost all new investment. Similarly, export compensation—nominally for taxes paid on inputs— was regarded as a windfall rather than a serious pro-export strategy. It is easiest to demonstrate Kenya’s decisions to reform policy by examining motives. Efficiency was seen to be a desirable goal, producing lower prices and more employment. The industrialization of the 1970s was found to be inefficient in the liberalized world of the 1990s: only export-oriented industries and those that could compete with minimal protection would now receive support. A second motive for reform was the unsustainability of existing strategies. Legislation relating to the banking system permitted many abuses. Once these reached a critical level, a banking crisis and the reform of the Banking Act and Central Bank Act were inevitable because unsustainable rent seeking imposed too great a cost on the economy. Inefficient management, lending to directors, unsecured loans, and similar forms of privilege largely brought down the banks that collapsed. Agricultural lobbies are ubiquitous and food policy reform appears to have been attempted in almost all political economies. Often the existing resource allocations—a consequence of some earlier policy regime—favored some segment of the community, and those newly in power felt that they did not benefit sufficiently. Colonial racial discrimination was sometimes converted to tribal discrimination that favored the new ruling elite’s power base. Sometimes corruption became a way of transferring the benefit; other times the legal right to issue licenses and permits was used to penalize those who threatened the interests of those in power. Government contracts were not given to firms owned by particular ethnic groups; transport licenses to move farm produce were

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denied to farmers who had previously used their own transport vehicles. This form of economic persuasion can bring an erstwhile thriving business down, or at least bring its CEO to heel. Other policy reforms arise as a consequence of well-directed advocacy from a pressure group that persuades authorities that the status quo is against their own best interests. Donors and NGOs have played this role when they depict the tradition of sub-Saharan Africa as primitive and African traditions and values as at fault or second-class. Pejorative language—such as “backward,” “less developed,” and “underdeveloped”—is targeted at embarrassing a country into reform.7 In Kenya, the cry of “neocolonialism” is one of the surest ways of stopping a reform process. Those who contend that they have a superior values system have to be extremely careful not to open themselves to such criticism. Examples of external pressure for policy reform include efforts by the Ford Foundation and the Population Council in the 1960s to get Kenya to adopt a family planning program. Environmental policy and gender policy have also been initiated from outside the country, though thereafter often championed from within. Evidence suggests that a key resource for successful reform is a “champion”: one who possesses adequate stature and access to the president, and who is utterly convinced of the need for and the appropriateness of the proposed changes (D’Souza 2001). If an existing structure fails to deliver what is desired, there is reason for reform. When structural adjustment loans were introduced at the end of the 1970s, the Kenyan economy had controls in virtually every market. Resources were constantly being allocated by nonmarket devices, often giving rise to economic rents and corruption. In a number of cases, the distortions were embodied in laws such as the Foreign Investment Protection Act, the Exchange Control Act, the Price Control Act, and even the Central Bank Act. The distortions largely stemmed from an initial desire to attain economic sovereignty, but often led to an effort to obtain and retain the privilege of the previous alien enclave. The theory of the second-best would suggest that it is better to undertake some liberalizing activities if a total set of “right prices” cannot be achieved. Import liberalization, agricultural marketing, decontrols (of prices, interest rates, and exchange rates), and budget rationalization have been seen as fruitful areas for reform. By taking them one at a time, political policy attention could be focused on the consequences of an existing set of distortions, hence not diffusing the attention or limited political goodwill of those called on to initiate the reforms.

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Research on effective rates of protection has been the only important work underlying import liberalization. This research was commissioned by the World Bank as part of the Industrial Sector Adjustment Credit (ISAC). It gave quantitative support to arguments that pointed to the excessive levels of inefficiency embodied in some of the protected industries, and helped present an argument that import replacement strategies were the same as those that discouraged exports. Policies under ISAC did not differ from those under the first and second structural adjustment loans, but it was now possible to make a credible argument rather than one based purely on theory. The Kenya Association of Manufacturers commissioned research on the deleterious effect of price controls in the early 1980s. Although this research was made available to the Ministry of Finance, it had no effect. Instead, the price decontrol strategy arose from internal discussions in the preparation of Sessional No.1 of 1986. These agreed that the way to implement this politically unpopular strategy was to break it up incrementally into the smallest possible pieces. In this way, no shock would occur in the system and the minister would always be able to defend his position by taking the strategy forward through a series of Gazette notices. Industries were told in advance that their prices were to be decontrolled: if they wished them to stay controlled, they would have to undertake incremental price change. The level of suppressed inflation was quite small, since almost all price-controlled items received a price revision annually, based on a cost-plus formula. Only once was a particular industry threatened by recontrol and given eight hours to bring its announced price change down. In the agricultural sector, a multitude of studies have led to very few noteworthy policy changes. Price decontrols and a shift from a cost-plus to an export parity formula were implemented, as was some easing of the domestic and international movement of agricultural produce. Despite many research-based recommendations, marketing boards continued to dominate the scene. Industries such as pyrethrum, cotton, sugar, coffee, and dairy produce were all seriously jeopardized by marketing board inefficiencies. In all cases, two lobbies seemingly combined to undermine reform. One was the lobby that received benefits by being directly involved in the marketing board; the other group received subsidies in the form of protection from imported competitive produce. In the latter case, commercial wheat farmers and the sugar estates combined to ensure that Kenya was the exception to the common experience that rural farmers subsidize urban dwellers.

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From the policymaker’s standpoint, the only reason for reforming policy is that a different policy would be likely to deliver more of what he or she seeks on a sustainable basis. The inherited colonial structures delivered privilege to a particular enclave. Almost 40 years after independence, many of those now seeking power have not benefited from that regime. From a macroeconomic standpoint, efficiency can be very controversial. The politician is reluctant to increase unemployment by downsizing the civil service or laying off workers from parastatals, yet both measures may be necessary to increase efficiency within an organization. Similarly, cost sharing in education or health is very unpopular with the politician, since most people in his or her constituency will be affected. The arguments that schools and health clinics would be able to deliver better health services with more money for operating and maintenance costs are too abstract for the poor. Their main resource is time to wait in a queue: they are able to pay the time price, if not the money price.

How Is Policy Made (and Made to Work)? Policy may stem from • • • •

Conviction, largely a result of emotion Analysis, largely a result of a close reasoning process Nonmarket payoffs, largely an outcome of seeking self-interest International or domestic pressure

Policy is made after a problem is identified and information is conveyed convincingly to those with the power to do something about it. This identification does not necessarily have to carry with it a proposed solution. A solution can be presented independently, but again, it needs to be persuasively presented to those with power to implement. In many cases, those proposing solutions have not indicated who the losers in the process would be. When such reform is initiated, unforeseen difficulties arise. The reform process needs to be spelled out, even after identifying the problem and proposing a solution or set of solutions. This includes any legislative and institutional changes that may be needed, along with the training of appropriate personnel— sometimes coupled with changes in their “scheme of service” to attract and retain the best. This occurred after the Kenya Revenue Authority was established. Changes in the price-control regime were able to go

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forward significantly only after the Restrictive Practices, Monopolies and Price Control Act was passed in 1988. At least on paper, this ensured that price decontrol did not lead automatically to monopolists benefiting from restrictive practices. The removal of price controls was linked with the liberalization of trade: local industry had to compete with imports. Furthermore, all suggestions of divestiture were constantly frustrated until the passage of a Capital Markets Act. This converted the exclusive club that called itself the Nairobi Stock Exchange into a legally controlled body with appropriate oversight regulations relating to insider trading and the requirements for listing. All countries seek some of the same basic goals—including stabilization, growth, sustainability, and equity or welfare—and try to adapt their policies so as to attain them. Often there are short-term tradeoffs as a consequence of the electoral cycles and, more recently, of an external agenda resulting from the dominance acquired by donors from the buildup of past international debts. Past borrowing and the liberalization of the foreign-exchange regime has made Kenya much more vulnerable to the reform agenda of donors. The country conforms to these more as a consequence of the “threat of the stick” than the “promise of the carrot.” Kenya has usually talked of growth as the goal, with the hope that trickle-down effects would address questions of equity. The stabilization policies that surrounded fiscal discipline and balance-of-payments strategies have shifted from massive foreign exchange controls and trade licensing to liberalization of both the capital and current accounts of the balance of payments. The debate surrounding this liberalization was long and anything but harmonious: a blow-by-blow description of the reform is available in a policy timeline (Ryan 2002). There was general agreement about the need to move toward some export orientation of policies, but considerable disagreement on the modalities, or timing and sequencing, of reforms. At a political level, protection through an appropriate rate of exchange was considered to be a myth. Furthermore, fiscal discipline— as represented through a reduction of the budget deficit—was related to problems regarding the auctioning of treasury bills and marketdetermined interest rates, as well as the inflationary impact once price controls were removed. The lowering and harmonization of tax rates was done over a number of years. The background research to provide assurance that revenues would not suffer was done in-house. Kenya provides interesting support for the “Laffer Curve,” since taxes collected rose during this period of reform, but this was a consequence, in part, of increased institutional efficiency. The almost firm-specific protection

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that was replaced had led to extensive smuggling and featherbedded ineptitude. Only recently has the sustainability of Kenya’s policies been cast in doubt, as a consequence of domestic and international debt. Another dimension of sustainability arises from the handling of land issues (Hunt 1984). Not only has land continued to be a major item in the political agenda in the countryside, but even the decrease of city services can be construed, in part, as a consequence of a lack of enforced land policy. Parking spaces have been built over, informal shelters have tapped into water and power supplies, and property rights are not enforced as “land grabbing” of vacant spaces such as proposed road alignments continues. Kenya’s policymaking process can be seen in operation in the genesis and implementation of Sessional Paper No. 1 of 1986 on Economic Management for Renewed Growth. The fifth development plan was due out at the end of 1983. At that time, several long-term problems needed to be addressed—as distinct from the conventional difficulties that a development plan attempts to address. These all related to unsustainable positions. First, the labor force for the year 2000 had already been born in 1983. Its magnitude would not be materially affected by such policies as family planning. The data demonstrated that 7 million potential workers would be on the market within 16 years, doubling the country’s existing workforce of 6.7 million. Second, long-term analysis showed that the average propensity to save from national income in Kenya was around 25 percent—ranging from 33 percent during the coffee boom in the 1970s to 17 percent during the oil crisis at the end of that decade. Taking a reasonably optimistic growth path of 5.6 percent to the end of the century, only £30 billion would be available for investment over the 16-year period. A wide range of improbable assumptions relating to growth and average propensity to save did not significantly affect this amount. Third, analysis showed that £16,000 (in constant 1982 values of Kenya pounds) was necessary to create a formal-sector job, while some £750 was necessary for a job in the informal sector. These were robust averages over a large number of observations. Since job creation was going to be a major component of any economic development strategy, it could be seen that the informal sector would require much less savings. The formal-sector job cost meant that the savings available from national product (as distinct from domestic product) would be inadequate to avoid massive open unemployment. On the other hand, channeling

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investable funds to the informal sector would create employment and leave funds over for infrastructure development by the government. Finally, forecasts regarding population growth to the year 2000 suggested that some 13 million more Kenyans would be alive. From a policy standpoint, the question was where would they be living. There were three broad possibilities: the major cities could absorb them, the agricultural sector could be called upon to sustain them, or they could seek employment in widely dispersed minor urban centers. The first two locations were fraught with problems. The diseconomies of urban degradation and the likelihood of desertification and movement to more droughtprone areas made the third alternative the obvious desired policy. Furthermore, minor urban centers naturally hosted small-scale enterprise. The technical personnel in the Ministry of Finance and Planning (and, later, the two separated ministries) were able to convince Minister George Saitoti that these problems would not go away without positive governmental interventions. The minister convinced the president, since at the time he was a nominated member of Parliament and not answerable to the pressures of a constituency. The president then gave him the go-ahead to prepare a set of policies to address these difficulties. This meant that the technicians in the ministry were able to look at economic efficiency in a way that ensured that growth targets and income distribution would be optimal. They proceeded to lay down guidelines for the district focus for rural development, budget rationalization and tax modernization, and trade reform and price decontrol. They established a framework to give rise to the liberalization of the capital account of the balance of payments and consequential freeing up of the exchange regime. They also established the initial institutional parts of a capital and money market.

Backtracking Failure to undertake some stated policy action represents a policy decision. Though there is a significant difference between them, the same can be said for policy reversals or backtracking. Sometimes the policy being reversed started with the appropriate commitment. Exogenous shocks such as a drought or an oil crisis can easily lead to a policy reversal, since the expectations underlying the original policy pronouncements were frustrated or at least cast in doubt. Kenya’s undertaking of fiscal reforms to bring the deficit under control provides a case in point. These reforms were premised on the expectation of some flow of concessionary donor

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funds to relieve the fiscal burden of consolidated fund services under which domestic interest payments are made. Donor aid freezes in 1991– 1992, 1997, and 2000–2001 jeopardized deficit targets, domestic borrowing targets, and project implementation levels. Policy reversal may arise from unrealistic expectations about the economy’s reaction to reform. A major policy reversal occurred on March 23, 1993, when the president announced the reintroduction of all controls because retention accounts were not releasing funds into the foreign exchange market. All dialogue with the IMF was suspended at the same time. Reforms recommenced in April 1993, following in-house advice on appropriate modalities. Interestingly, these events were not mentioned by the Central Bank’s publication, “Diary of Important Events January–March 1993.”8 In many cases, reform is expected to produce benefits quickly enough to create an effective lobby to sustain them. Research results used in the preparation of a policy change seldom provide an adequate sense of how quickly benefits can be expected to appear. If they do not materialize, the lobbies of those losing privilege can indicate that reform is failing; a political agenda for reversal may get a sympathetic ear. The reversion in the 2002/2003 budget to the protection policy of the 1970s and away from the focus on revenue increases is a case in point. Increases in unemployment were laid at the door of liberalization—particularly tariff harmonization. Research prior to reform is also seen as ineffective when there are unanticipated impacts and implementers cannot prepare a response or a briefing on the likely outcome. Another research difficulty is the appropriate timing and phasing of reform. This information often is not transferable between countries, due to differences in their history, experience, and institutions. Besides backtracking, divergence from an agreed time frame of activity is a common problem in policy implementation in Kenya. These delays arise from the need to undertake prior actions not fully articulated before obtaining commitment, or perhaps from the need to harmonize some policy with another to get a holistic result. A particularly Kenyan problem can be seen in parastatal divestiture. The so-called Ndegwa Report (Ndegwa 1982) demonstrated a major need for divestiture and restructuring. A task force was appointed under Gilbert Harding in 1982: despite endless papers and recommendations, nothing was achieved and frustration brought the task force to a halt. The original high-powered membership included permanent secretaries of Treasury and the office of the president, Harris Mule and Simeon

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Nyachae, who had been in Ndegwa’s Working Party. They resigned by early 1984 because proposals never reached the policy level and were rejected by silent inaction. Despite widespread knowledge of the critical importance of parastatal reform, Sessional Paper No.1 of 1986 barely mentioned it. While in preparation, it was realized that such commitments in that area might jeopardize credibility in other areas where progress could be expected. In Kenya, a good indicator of a lack of commitment to some announced policy is the establishment of a task force or commission or, worse still, the commissioning of a study. An extreme example of these common delaying tactics can be found in cereal-sector reform, a matter of debate since just after World War II. Paul Mosley (1986) identified a series of studies from 1948. Again and again, these resulted in the renaming of the regulatory body and perhaps marginal change to its mandate. The studies have made no major difference in the regulatory body’s ability to capture rents. Many of those who have recommended reforms to cereal-sector marketing fail to appreciate the grassroots acceptance that the community and its leadership are responsible for food security. In traditional communities, food shortages cause death, not higher prices; current Kenyan leaders know this from personal experience. Policy proposals that address food security as well as efficiency are more likely to be sustainable. Efficiency must not be measured by a market that is alien to many whose lives are at risk.

What Is Research? The economy of Kenya has been extensively researched and written about (Killick 1976; Killick, Rupley, and Finucane 1986). Between them, these sources cite 347 books or articles on economic matters published between 1963 and 1974; a further 874 items were added by 1980. Data availability, climate, and a large international presence have attracted scholars over the decades. Academic and popular publications on almost every facet of Kenyan life are available to the public—and to the policymaker. Some writings are well informed and constructively critical; others are merely critical. Notwithstanding, policymakers and even lobbyists often make no reference to this wealth of information; they commission further studies that often are not available to the academic community. From a policy standpoint, research might entail a description of the current situation and its consequences. Alternatively, it might advocate

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a specific reform and state costs and benefits, or it might constitute some combination of the two. The government seldom checks on the validity of the research; rather, it seeks to grasp whether its results or proposals agree with in-house perceptions. The fact that validity is not measured means that the researcher must be credible. In Kenya, a policy researcher is sometimes given access to government material. On other occasions, research consists of looking at secondary data. The IMF almost always collects a large amount of secondary data when their missions visit a country, and they often cast doubt on the quality of the numbers they receive. Under various programs, the World Bank has commissioned studies to provide a quantitative background to a reform proposal they are seeking to support. The UN system has garnered secondary indicators and financed the generation of primary data to evaluate Kenya’s progress toward the goals embodied in agreements that the country has signed. The Central Bureau of Statistics in Nairobi periodically updates its national sample survey framework. This enables those with access to it to draw true random samples and, potentially, statistically valid surveys. Though these have a high credibility, they may not be regarded as “better” from a political standpoint. Case studies are often invalidly cited and generalized: the United Nations Acquired Immune Defiency Program (UNAIDS) has recently cited AIDS data from sentinel sites as though they were national averages. A recent survey indicates that only 10 percent of Kenya’s population has been tested for AIDS, including the biased group covered at the sentinel sites. A very good case study of AIDS in Kisumu is being widely cited as though it represented the national situation. Stakeholders, including development partners, often commission research to present a stronger case for reform. No matter how good these results, they may be merely of academic interest if the sponsor does not have the capacity to market them to the appropriate policymaker. Furthermore, how these results are presented will have a direct influence on their acceptability. Executive summaries do not need to be overburdened with the elegance of the research. In many cases, the policymaker merely wants ammunition to support an argument for reform. A high-profile launch of research results by a minister, permanent secretary, or technical director does not mean that the research results have been absorbed by the bureaucracy. Further, the presence of stakeholders is not a necessary component for acceptability. Instead, the key elements are to select the right person to open the workshop or seminar, and to get this person’s agreement on the content of the opening speech.

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These factors will go much further toward making a body of research relevant than a large attendance at the launch. Because of the inertia of institutions, research that involved its members sometimes provides surprising insights. Though these may not be quantified, they may well indicate where constraints exist that need reform. Such constraints may not even be identified for investigation in the research proposal or questionnaire. It is what is done that constitutes policy, not what is said. What is done will depend on how implementable the proposals are, given the abilities and skills of available manpower. Research that is done in-house gets a better hearing than research from outside the system. With the significant exception of the Central Bank, such in-house research is seldom of as high quality as outside research, since in-house researchers seldom have the time to devote exclusively to a single study. Other forms of consultation involving inhouse personnel can come from stakeholder research or, more recently, from research by think tanks. These think tanks range from the quasigovernmental Kenya Institute for Public Policy Research and Analysis to the Institute of Economic Affairs (IEA) and the Institute for Policy Analysis and Research. The latter two are domestic private-sector bodies that are largely foreign-financed. IEA is a strong advocacy body that runs seminars, publishes a bulletin, and produces a large quantity of economic policy proposals that are easily available to policymakers.9 The oldest economic research organization is the Institute for Development Studies at the University of Nairobi. Founded in the early 1960s, it attracted many well-known scholars, including Peter Diamond in public finance, Robert Engle in econometrics, and two Nobel Prize laureates—James Tobin and Joseph Stiglitz. In recent years, many associates have been drawn to consultancies with less policy relevance, affecting the character of the institute. Besides think tanks, other economic research organizations include the African Centre for Economic Growth and the African Economic Research Consortium. These bodies receive funding from various sources and put together research teams to address agreed-on topics. They attempt, through workshops or policy fora, to disseminate the results of their work. Because they build up a significant amount of access to government, their credibility is enhanced. They present their results to appropriate personnel, though without any guarantees of acceptance. Because research institutions may not have access to the government’s confidential data, their output may be viewed by the policymakers as ill-informed. Efforts to circumvent this difficulty by creating

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semiautonomous think tanks within the bureaucracy have often failed, since their efficacy depends on attracting highly qualified researchers who command competitive international salaries. In the developing world, this often means that the think tank must market its services to the private sector as well; the resulting potential for information leaks is viewed adversely. Since research presupposes a problem to be researched, who perceives the problem is an important question. Donors may see maize marketing as a problem, but large-scale maize farms with better political access may not see it as such. Cheap sugar may appeal to the urban community, but to sugar growers who cannot compete with cheap imports, the survival of their sugar estates is much more critical. As described earlier, Sessional Paper No. 1 of 1986 addressed three problems: the magnitude of the foreseen labor force; the lack of investable funds, given realistic growth targets; and the physical location of the forecast population for the year 2000.10 The effective presentation of these problems enabled the Ministries of Finance and Planning to get cabinet agreement on the need to prepare a sessional paper on a policy reform strategy that liberalized the economy. A major research gap that undermines the credibility of reform occurs at a different level: research is not available to assess the impact of a policy in relation to what was intended. The research should look at the original problem identified and examine its current status by some set of indicators. This type of evaluation is often complicated or frustrated by the lack of a baseline survey or, where the impact of a policy is to be assessed, by the absence of an appropriate control group to provide a counterfactual argument.

What Does Research Provide? Fundamentally, research is meant to provide appropriate and easily usable information. It might be employed as ammunition in a debate or as timely advice, but to be useful for policy reform, it must be packaged to be acceptable to a small coterie of policymakers. They must be confident that what they are being told is true. Unfortunately, credibility will not derive from such things as statistical qualities of sample surveys, but from the way in which results are marketed. If merely embodied in some document, research results often die there. Policymakers very seldom have the time to read carefully argued reports. Graphs, charts, and simple tables often convey messages more effectively than

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sophisticated (and possibly more valid) analytical techniques. A document should contain necessary support for the executive summary’s argument, but the summary will probably determine whether the policy reform proposals will go any further. A four-volume study with a sixty-page executive summary provides an extreme example of a user-unfriendly piece of research: it cost a lot of donor money and went nowhere. In the Kenya government, relevant reform proposals often require very quick answers. Technicians in-house are asked for a quick answer because there is no time to appoint external researchers. Such demanddriven research does not make for high-quality work. Though it is unwise to set up a “straw man” as an alternative to a favored scenario, research can be made relevant by providing a variety of scenarios that show the possible outcomes of different policies. Often, this presupposes a macroeconomic model with a sufficient level of disaggregation and appropriate modules to frame the policymaker’s concerns within appropriate parameters. The policymaker does not need to know the mathematical gymnastics involved, but must have sufficient confidence in the research to recommend and defend it to his colleagues. Because of governmental time constraints, a perfect solution that is late is a wasted effort. Often what is required is an adequate level of accuracy delivered in time to be digested to support whatever vehicle is chosen to launch the reform process. A number of researchers work on fundamental problems without policy agendas in mind; their work is reflected in professional journals. Only later is such work digested and popularized, usually when a different set of researchers grasps its policy relevance. Because the insights of such research are often at the problem-identification level, they depend on awareness to become relevant.

Conclusion In Kenya, policy is what is done on a sustained basis, backed by resources. Policy already being implemented has high institutional and human-capacity inertia. Policy reform thus results from a critical player championing the change and continuously advocating it, and using all appropriate access to the key players of the economy. Research can contribute significantly by explaining the true nature of a problem: it does not necessarily have to carry a solution. If a proposed solution is politically unacceptable, the correctly identified problem may be lost. When a research proposal advocates some solution, it must identify winners

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and losers, from the political-economy perspective of key players. Research results must be presented in ways that do not demand much time to absorb. The credibility of a research organization will be determined by its ability to provide timely, appropriate material.

Notes 1. The opinions expressed in this chapter are personal and not those of any organ of the government of Kenya. 2. Kenya’s population at independence was 9.4 million: 250 thousand were of South Asian origin and 50 thousand were European settlers. A further 10 thousand were British civil servants, police, or other diplomatic personnel. The average annual per capita income was US$132.40. 3. Within the general category is a series on economic conditions published in the 1970s and 1980s, a consequence of major changes that might have disrupted the way the country’s economy was functioning. For example, the international financial crisis of 1972–1973 and the oil crises of 1974 and 1978–1979 caused revisions of development plans published in Sessional Papers (No. 1 of 1974, No. 4 of 1975, and No. 4 of 1980). 4. The budget deficit fell from 6 percent of gross domestic product in 1994 to a surplus of 0.2 percent in 2000, but this came with an increase in domestic debt from Ksh 104 billion to Ksh 206 billion and a decline in growth from 3.03 percent to –0.24 percent. 5. The 30,000 small traders produced by liberalization put 3,000 formalsector jobs in the textile industry at risk. The 2002/2003 budget suggests that the formal-sector lobby has succeeded: imports of secondhand clothes are banned, and effective rates of protection for the textile industry have again been raised. 6. In November 2000, Joe Donde, an opposition MP, put forward in Parliament a bill to amend the Central Bank Act so as to control interest rates. This bill went through, despite Kenya African National Union (KANU) opposition, but sat for many months in State House awaiting presidential signature. Almost two years later, it is still unimplemented and being challenged in the courts. 7. A Basuto proverb should be borne in mind: “If a man does away with his traditional way of living and throws away his good customs, he had better first make certain that he has something of value to replace them.” 8. Quarterly Economic Review, vol. XXV, no. III, January–March 1993. 9. That the personnel in the Institute of Economic Affairs (IEA) are considered to be anti-KANU undermines the acceptability of its advice. The IEA includes several Kikuyu, which incurs further prejudice. 10. It is interesting to note how accurate these three statements were. The labor force was already known, due to population forecasts from the previous census. The 1999 census showed that the urban population grew, exactly as predicted, to 9 million, in widely dispersed urban centers. The savings rate was lower than had been predicted, but the growth of the informal sector—the most efficient user of scarce resources—was up to expectations.

5 Tanzania: Policy Research and the Mining Boom Samuel M.Wangwe, Haji H. Semboja, and Lucie Colvin Phillips

This chapter is part of the outcome of a larger initiative under the Equity and Growth Through Economic Research (EAGER) Project on what has been learned about the uses of research in policymaking processes. In the case of Tanzania, the experience on uses of research in policymaking is illustrated by the case of the Minerals Marketing Research Project. The experience gained in that project has thrown light on how economic and social science research can contribute to and improve the policymaking process. From it we draw lessons learned on the interaction that has been stimulated between policymakers and researchers. First, however, one needs to understand the current status of policymaking in Tanzania and how the policy process has evolved.

Context of Policymaking The conduct of policymaking in Tanzania has changed in the past two decades in response to four major developments that have influenced economic policy processes. These are • • • •

Economic liberalization Political liberalization Changes in donor attitudes and concerns Globalization

As each of these changed the nature of society and institutions, it has enhanced demand for good-quality local policy research. 117

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Economic Liberalization Tanzania underwent a transition from a controlled and interventionist economy to a more open and market-oriented one driven by private sector development. The market orientation requires a change in policy approach from direct controls to eliciting responses indirectly via incentive instruments. The demand for in-depth knowledge of how different markets function in specific Tanzanian contexts has increased. In the new policy environment, economic management has to perform the dual task of making both the government and the market function more effectively and efficiently. This situation generates demand for more information and a greater capacity for collecting, analyzing, and using the information for economic management. The weakening position of parastatal enterprises as the country shifts to private sector leadership has diluted a major source of information for analyzing sectoral performance of the economy. Previously parastatals dominated the sectors and provided a single source of information. Reliance on indirect sources of information has increased, creating demand for better data and a new skill profile for policy analysts. Another challenge is to create a strategic division of policy responsibilities between the public and private sectors that will be pragmatic and not preconceived, but rather relevant and suitable in the prevailing situation. One such division could be the partnership of the public and private sectors that is now in vogue. Another variant is where government contracts with outside consultants and think tanks to undertake research. Yet another allows government to appoint people from the private sector to work for some time in the government. Finally, government may interact with private sector associations and research institutions. Political Liberalization Tanzania went from a closed political regime under a single political party to a more open and liberal multiparty political system that allows for a more explicit articulation of interests of various groups in society. As part of the political liberalization process, the influence of the media has increased considerably in alerting the public to the policy issues domain and enhancing public scrutiny of policy performance. A new wave of democratization and political liberalization has given greater freedom to different groups in society to articulate their positions on issues. Individuals and interest groups now have an impact on policy analysis and the policymaking process. Under the new regime, political parties are free to articulate their positions and policies. In addition,

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social groups such as businesspeople, nongovernmental organizations, youths, and women are better posed to articulate their interests. Greater dialogue has emerged with a significant increase in freedom of the press. The media now brings policy issues into the public domain, enhancing public awareness and facilitating greater public scrutiny of policy performance. It is becoming politically more risky and costly to make policy mistakes and to ignore the views of these groups, which are steadily gaining influence in the policymaking process. It is becoming increasingly clear that, in this new sociopolitical environment, policymaking is no longer a monopoly of the government. The state feels pressure to better manage diverse interests as they enter into the political dialogue. This has had implications on the demand for research institutions, which can inform government and other actors’ realities on the ground in various spheres in society. Change in Donor Attitudes and Concerns Donors increasingly promote stakeholder ownership of policies and development strategies as one way of enhancing aid effectiveness, broad-based accountability, and transparency of policy action. Concerned that standard policy packages prepared by international financial institutions have not delivered the anticipated results and that the effectiveness of aid has fallen below expectations, donors have increasingly come to accept the need to build domestic capacity for policymaking and to permit greater ownership of the development policy agenda. This has amplified demand for policy research and policy analysis in the country. Globalization Challenges of globalization arising from changing world market conditions and rapid technological advances have intensified, putting pressure on economies to perform in order to reduce chances of further marginalization. People recognize that competition is intensifying. Market access increasingly depends on the capacity to compete rather than on nonreciprocal preferential treatment. This puts further pressure on policy performance.

The Policy Process This section examines how macroeconomic policy decisions are made in Tanzania with respect to trade and policies and public expenditures, particularly in the mineral sector.

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Both policymakers and international financial institutions recognized the need for policy research and analysis as the country underwent the transitions described above. In the late 1980s and early 1990s, a substantial part of policy work was assigned to special commissions. The Special Commissions on Government Expenditure (1987), Tax Reform (1989), Financial Sector Reform (1990), and Export Promotion (1985) resulted from the rising demand for policy work in an environment where the capacity for policy research was deemed to be lagging behind. The policy debates that took place in the mid-1980s, led by the economists at the University of Dar es Salaam, made an impact on the policy process. These economists organized annual workshops beginning in 1984 in which they invited policy analysts and policymakers, public and private, to comment on policy research papers on current themes. This initiative helped build a working relationship between policymakers and researchers. A team of economists from the university was invited to work jointly with economists in government and the Bank of Tanzania on exchange rate policy from 1986 through 1988, and on the tariff structure in 1987. These are examples of the deepening relationship between bureaucrats and scholars. Government and researchers turned their attention to the mining sector in the early 1990s. The monopoly of the State Mining Company had been declared broken, and anyone could register a claim and sell minerals. Exploration and prospecting licenses to large areas were opened to foreigners and locals, sized according to capacity. Licensed buying arrangements were created but were not working well. A series of studies were carried out between 1992 and 1997, including a baseline survey and studies of environmental and institutional issues. In 1996, the Economic and Social Research Foundation (ESRF) of Dar es Salaam and International Business Initiatives (IBI) of Arlington, Virginia, began collaborating on the U.S. Agency for International Development (USAID)/EAGER-funded study on the marketing of minerals, under the guidance of a stakeholder advisory committee. The baseline survey had described the nature and scope of artisanal mining activity and shown that minerals were often smuggled out of Tanzania. The study team was asked to explore the markets in greater detail, analyze why smuggling was taking place, and develop policy options to create incentives for legal trade. The methodology of the study was to interview participants at every level of the marketing chain to determine marketing practices, prices, estimates of volumes going from each point of sale to each market, and incentives for using different markets. The team mapped the results and

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analyzed price, volume, and employment data to determine the magnitude of the trade in the national economy. It quickly became clear that the gold and gem trade was funneling into Nairobi, Kenya, from throughout Tanzania, most markedly along the northern border. Nairobi traders did not necessarily offer higher prices, but they paid cash on the spot and would buy all qualities of gemstones. No transaction taxes were levied on precious-minerals imports to or exports from Kenya, only a corporate tax on annual revenues. Tanzania was levying four transaction taxes totaling 10.2 percent, collected by four different services in two ministries. Foreign exchange earnings of dealers had to be repatriated under Central Bank control, costing another 3–5 percent loss in conversion. Additionally, Tanzania imposed the same level of corporate tax as Kenya. Mine workers had an incentive to smuggle goods out to escape profit sharing with mine owners. Brokers had an incentive because they could move goods more quickly. Dealers had an incentive to escape transaction taxes. With unfenced mines, it was clearly impossible to control smuggling by enforcement alone. Tanzania had to compete with Kenya in offering incentives. The next problem was to explore tradeoffs between offering incentives and losing tax revenues. Minerals are a depleting resource, so governments cannot responsibly open up tax-free exploitation to all comers, even if that results in rapid growth. The team developed several estimates of mining tax impacts: on dealers, government revenues, GDP (economic value added), and foreign exchange earnings. One model compared dealers hypothetically equipped with the same starting capital and obeying all laws, one in Nairobi, Kenya, and one in Arusha, Tanzania. Because mineral dealerships rely heavily on working capital, and transaction taxes deprived dealers of capital, the Tanzanian dealership steadily lost ground to the Kenyan dealership. Initially the Tanzanian government had better revenue collections. By year three, however, the Kenyan government was collecting more corporate taxes from the model Kenyan dealership than the Tanzanian government had collected in all types of taxes combined. Tanzanian government policymakers set about seriously trying to compete with Kenya for the trade in 1996, shortly after the team began reporting on its research. The Ministry of Energy and Minerals announced that export duties were eliminated and royalties on exports reduced. Merely sending this signal sharply increased the trade flowing through legal channels. When the mining marketing study was barely under way, it became clear that a major shortcoming of the sector was the absence of a mining

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policy. The Mining Act of 1979 needed to be revised to cope with the evolving socioeconomic situation. At this point (1996–1997) the government contracted ESRF to lead the team of stakeholders in the discussion of a draft mining policy that the Ministry of Energy and Minerals had prepared. The team took this opportunity to consult widely with previous and ongoing research projects and sought the input of various stakeholders to produce a revised mining policy. The Mining Policy of 1997 was the first comprehensive policy on mining since independence. It aligned mining policy to the new liberal economic context in Tanzania, and it laid the groundwork for a major new mining law. Policymakers initially interested in the EAGER mining marketing study were the Ministry of Energy and Minerals, the Tanzanian Mineral Dealers Association, and the Miners Federation and its component branches. A special Commission on Export Promotion had identified mining, along with tourism, as large potential growth sectors. Most people, in both the ministry and on the research team, assumed that large mining companies would account for most of that growth. Mining marketing dealt with how Tanzanian small miners sold their gems and gold on the open market, so it seemed like a rather small, neglected theme. In the course of the study, it became apparent that artisanal and small-scale mining was much more important than originally thought. It was generating foreign exchange that stabilized the currency and royalties that were important to the ministry. It turned out that mining had generated 550,000 jobs in five years, and reservation wages were six times their level in farming communities. Nearly all of these jobs were in poor rural areas throughout the interior provinces. These observations interested additional stakeholders with key roles in the policy process. The Ministry of Finance decides overall tax policy; the Tanzania Revenue Authority is responsible for collecting taxes; the Bank of Tanzania is interested in informal exports and their impact on the currency; elected officials, parliamentarians, and social ministries are interested in poverty alleviation, particularly in rural areas; and large mining companies were having trouble with overlapping claims and wildcat mining by artisanals. Eventually all of these groups were following the study results. The study was cited three years in a row in the finance minister’s annual budget speech to Parliament. The Tanzania Revenue Authority thought that it was losing out on significant tax revenues from smuggling in the sector. Yet, the study team recommended that Tanzania would gain revenues by abolishing export taxes and reducing royalties, as Kenya imposed neither of these

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on the minerals exported through Nairobi. Some miners also avoided banking their earnings to evade taxes and residual exchange controls. When the Ministry of Energy and Minerals had tried suppressing export taxes in 1996, trade going through legal channels had duly increased. Review of the tax policy is primarily the function of the Ministry of Finance, however. The study and policy response made officials aware of tax evasion practiced in the mining sector. The Tanzania Revenue Authority and the International Monetary Fund expressed the view that the government was giving too much to the miners, and the Ministry of Finance reimposed most of the taxes. Legal trade slumped again. Pressure from stakeholders in the mining sector ultimately prevailed. The new Mining Act of 1998 came into effect in 1999. Royalties were reduced by more than half and remaining taxes on exports eliminated. Legal trade volumes have since risen steadily as has the number of dealers making a living from gem and gold trading (Ministry of Energy and Minerals, minerals export statistics, 1996–2000). A surprising side effect of the economic analysis was the discovery that mining had generated 550,000 jobs in rural areas, at incomes averaging six times those in farming communities. If one takes formalsector jobs as a rough indicator of the number of middle-income jobs in the country, this was a 46 percent increase nationwide. The incomes were being generated in isolated rural areas throughout the interior of the country. The implications of this finding for poverty alleviation were enormous. No other job-creation program or combination of programs since independence had done so much to improve incomes for so many rural people. ESRF immediately incorporated a component on sustaining employment opportunities in small-scale and artisanal mining into the miningpolicy document and brought up the topic in other policy dialogues. Top government officials announced a policy of dual-track development, with large mining companies and small-scale mining coexisting. It will be a challenge to sustain these artisanal mining jobs. The easy pickings near the surface are quickly exhausted in any one area. Fortunately artisanal miners are discovering new lodes every day. Nevertheless, minerals are a depleting resource, which has to be taken into account as the sector goes forward. Job creation will increasingly have to come from downstream processing and synergies with tourism rather than directly from mining. As international mining companies develop large concessions, there is also room for collaboration between the companies and artisanal miners. The necessary policy framework for this cooperation is only partially in place.

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Having finalized the Mining Policy and the Mining Act, the Ministry of Energy and Minerals has been working on implementing institutions and regulations. It has commissioned additional studies on health and safety and on revision of the Explosives Act. The results of such studies have been used to fine-tune policies as the sector evolves. The ministry recognized, for example, that the licensed dealer system was not working very well. Several improvements were made to simply the procedures, reduce fees, and remove bond requirements. Consistent with the changes that have occurred in economic and political liberalization, the government has come to appreciate the place of the consultative process in the policymaking process. The Ministry of Energy and Minerals now regularly invites stakeholders to policy discussions and disseminates information on policies as they are approved. In practice, this has meant that researchers have been involved in generating the needed information through commissioned studies. The Ministry of Energy and Minerals now makes a concerted effort to disseminate policies to stakeholders. For instance, the production and distribution of guidelines and training manuals and manuals on the interpretation of the Mining Act is a step in the right direction.

The Funding and Conduct of Research There is no policy research unit within the Ministry of Energy and Minerals. This means that research results that are used in policymaking are usually generated from outside the ministry by local research institutions and consulting firms or foreign consulting firms. In addition to ESRF, the Ministry of Energy and Minerals has been working with several other local institutions such as Tan Discovery, University of Dar es Salaam (Geology Department and Institute of Production Innovation), and local and international consulting firms. Most of the studies leading to the formulation of the mining policy were financed by donor agencies such as the World Bank and the United Nations Development Progam. USAID funded the EAGER mining marketing study. The government has not managed to set aside a research fund. The willingness of the donors to fund policy research and other studies in the mining sector is part of the observed trend of change in donor attitudes. Donors today are concerned about the effectiveness of aid and its relationship to good policy. Research on the marketing of minerals under the EAGER project has shown that there is need to improve the environment for mineral

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market development. Improving the fiscal regime and tax administration is one aspect of encouraging the development of marketing minerals. The study recommends that the government provide support services such as information, training, and extension and training manuals and guidelines for use by miners. The collaborative arrangement between local and foreign scholars has been appropriate considering the realities of demand for good researchers. Good local researchers are in short supply and are often overstretched in many assignments. The collaboration between local and foreign researchers has resulted in research output being generated in shorter time and with respectable depth. In addition, the combined capacity of good local researchers and foreign researchers can be utilized not only to ensure quality research output but also to provide opportunity for on-the-job training of less experienced local researchers. Their combined efforts can contribute to the further development of junior researchers.

Policy Impact of Research In the light of experience with policy research in the mining sector, the team has concluded that a greater impact on policy changes is likely to occur if policy researchers actively engage in dissemination of research results. Policy influence is enhanced if there is a sense of ownership of the research results by the local researchers and policymakers. The involvement of local policymakers to oversee the research gives them a sense of ownership, gives policymakers an opportunity to influence the research design and formulation at an early stage, and raises the level of awareness of research that is being done. At the same time, the sense of ownership of the research encourages local researchers to commit their time to research execution and dissemination of the results. This happened in the case of the research on marketing of minerals and resulted in creative collaboration. The high-quality research output was well received by policymakers, who adopted many of the recommendations, sometimes before the reports were even written. The conduct of research in collaboration with policy analysts from the Ministry of Energy and Minerals has had a positive effect in terms of on-the-job training. The selection of a local partner institute that had already earned the respect and confidence of policymakers was a contributory factor. ESRF had successfully worked

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with several government departments. The working relationship that had been established in that process positively influenced subsequent utilization of research output from ESRF. ESRF coordinated stakeholders’ participation in discussions on the mining policy in 1996–1997. The trust that had been built over time enhanced the chances of utilization of research outputs from subsequent research projects. The ESRF had worked closely with the business community and Ministry of Finance on fiscal policy and the tax structure in 1996. One lesson drawn from that and conveyed to government is that high tax rates contributed to encouraging tax evasion. When the research results from the minerals marketing study showed that gold and gems were being smuggled out of the country to avoid high taxes, the message was listened to by the government, since by this time it was a familiar message. The policy action taken to reduce taxes in the mining study was consistent with the actions the government had taken between 1996 and 1999 in other sectors. The results of research on minerals marketing under the EAGER project have been used to answer questions in Parliament. This is an indication that government is aware of the findings and that it believes that the results shed useful light on developments in the sector. Parliamentarians also participated in the Mining Awareness Workshop organized by the Chamber of Mines under the EAGER project. It is reasonable to suppose that parliamentarians are aware of some key findings of the research. Those with mining communities in their districts are getting similar messages from their constituents.

Dissemination and Dialogue The EAGER research project was designed with dissemination and dialogue mechanisms. Right from the design stage, policymakers were consulted, and thus they supported the importance and relevance of the study on marketing minerals. As research teams returned from the field, they reported orally on their findings. As drafts were coming out, policymakers who were members of the advisory committee for the EAGER research project had access to them. The research results from the project were discussed openly in two workshops in which a wide range of stakeholders were represented. The participants were drawn from policymaking government departments such as the Ministry of Finance, Planning Commission, Central Bank, Ministry of Energy and Minerals itself, and Parliament, as well as from

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the private sector (investors in mining and associations of large-scale and small-scale miners), academia, and civil society. To the policymakers, the workshop played a dual role. It raised their awareness of diverse viewpoints on the subject and offered them an opportunity akin to a public hearing on their concerns as stakeholders. The act of subjecting the research results to public policy dialogue had a positive influence on the kind of public policy action that was taken to reduce the tax burden, disseminate information to stakeholders, and conduct consumer training workshops for miners. Media representatives were invited to both of the EAGER workshops that discussed the research results. The main points in the discussions were picked up by the press and were widely disseminated. Spokespersons for the Ministry of Energy and Minerals have popularized some of the key messages, such as competing with Kenya for the minerals trade, which have appeared in numerous newspaper, radio, and television interviews.

Recommendations Based on the insights and lessons learned in macroeconomic policymaking in Tanzania, with specific examples from the minerals study, the following recommendations are made on how policy-oriented research can be used more effectively to inform policy decisions: • Policy influence is enhanced if there is a sense of ownership of the research results by the local researchers and policymakers. This can be achieved by involving policymakers early in the design stage of research. • A greater impact on policy changes is likely to occur if policy researchers actively disseminate research results to policymakers and other stakeholders who can exert pressure on policymakers. • The selection of a local partner institution that has already earned the respect and confidence of policymakers can be a contributory factor. The chances of being heard are greater if the research institution is credible. • The policy impact of research is likely to be greater in an environment where policy research is in demand and its impact on policy performance is understood. Mounting pressure on policymakers to perform and to account for their actions is likely to create a more conducive environment for adopting research results.

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• An environment that permits consultative processes in policymaking is more likely to cultivate interaction between researchers and policymakers directly. This interaction can be reinforced by other stakeholders. Often they pick up on research results favorable to their interests. • Good local researchers are in short supply and are often overstretched with many assignments. Under these conditions, the collaboration between local and foreign researchers complements their capacity. Research output is thus generated in shorter time and with respectable depth. This arrangement can be designed to maximize learning and capacity building on the part of policy analysts and less experienced policy researchers.

6 Madagascar: Using Policy Research in Formulating Tax Policy Pépé Andrianomanana and Clive Gray

This chapter is based on “Enhancing Transparency in Tax Administration,” a 1996–1998 study of Madagascar’s tax system supported by USAID’s EAGER Project. Its point of departure was the consensus among observers of Madagascar’s economy that rapid inflation was retarding economic growth, depressing social expenditure, and undermining poverty reduction. To a significant extent, this macroeconomic imbalance stemmed from poor performance of the country’s tax system. Between 1987 and 1995, the International Monetary Fund (IMF) and Madagascar’s leading donors, the World Bank and France, fielded at least eight missions that dealt with various aspects of Madagascar’s tax system. Their reports and subsequent negotiations yielded substantial reforms in the tax code and its administration. These raised the ratio of tax revenue to GDP above 10 percent by 1998, following a nadir of 8.3 percent in 1994. As coordinators of the EAGER study, the authors saw no need to cover the same ground as the reports of the financing agencies. Instead, they posed the hypothesis that enhanced transparency in tax administration might improve the tax system’s performance still further. This transparency was expressed in open, official recognition of the elevated level of tax evasion and the introduction of untried approaches to reducing it. The chapter begins with a summary of the macroeconomic context of our tax policy research in Madagascar. The next section summarizes the thrust and impact of the aforementioned agency research. An outline of decisionmaking processes on tax policy in effect in Madagascar during the EAGER study is followed by a description of the study, its principal findings, efforts to disseminate them, and follow-up by government agencies. 129

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The Macroeconomic Context Madagascar’s mean annual inflation rate during 1980–1999 was 17.6 percent. Collapse of fiscal and monetary discipline in the mid-1990s led to a mean annual rate of 35.3 percent during 1994–1996 (Andrianomanana and Gray 2000). Revenue performance is illustrated in Table 6.1. Excluding all grants, the table shows revenue as percentages of GDP in Madagascar and sub-Saharan Africa (SSA) for three years: 1987, 1994, and 1998. The SSA parameter is the median for the set of countries for which the World Bank Africa Database 2000 gives data (World Bank 2000). When this chapter was prepared, 1998 was the latest year for which SSA data were available. The ratio of Madagascar’s revenue to GDP ratio sank to its lowest level of 8.3 percent in 1994. The rate of 14.7 percent—the highest revenue to GDP ratio since 1980—was recorded in 1987. During 1984–1998, the SSA median fluctuated within a narrow band, between 16.5 and 19.5 percent. Since 1989, Madagascar has not surpassed the bottom quintile of African countries. Apart from the implications for inflation, such performance reflects a paucity of public expenditure on social services and infrastructure. Table 6.2 compares Madagascar’s spending—on health in 1995 and on education in 1993—with SSA medians that were 50 to 150 percent Table 6.1 Government Revenue as Percentage of GDP and Madagascar’s Rank in Sub-Saharan Africa

Number of countries covered by: World Bank Africa Database 2000 Madagascar: Revenue/GDP Rank in sub-Saharan Africa corresponding to lowest:

1987

1994

1998

41 14.7% 27 37%

45 8.3% 40 11%

45 10.6% 36 20%

Table 6.2 Public Spending on Social Sectors in Madagascar and Sub-Saharan Africa Public Expenditure on: No. of countries Madagascar SSA median: Health SSA median: Education

n.a. 26 22

Health (1995) $ per capita $2.7 $6.5 n.a.

% of GDP 1.2 1.8 n.a.

Education (1993) % of GDP 1.9 n.a. 4.8

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higher: these years are the latest ones covering twenty or more African countries in the World Bank database. Parameters such as these are at the root of the continuous attention given to tax policy in recent years by the IMF, the World Bank, France, USAID, and Malagasy policymakers.

Tax Research by the IMF, the World Bank, and France Thrusts and Impacts During the period of the EAGER study, France, followed by the World Bank, were Madagascar’s principal sources of overseas development assistance (ODA).1 As a basis for their assistance, both looked to the IMF to give its imprimatur to government policies. It is not surprising that the government of Madagascar took seriously the tax policy research conducted by all three, along with the resulting policy changes that negotiators pressed its officials to adopt. Two overriding themes can be distilled out of the research: • How best to increase the proportion of the government of Madagascar’s revenue to GDP in order to counter inflation and expand public services • How to accomplish this while removing disincentives for exporters and simplifying the taxation of imports During 1987–1995, the IMF fielded six missions that dealt with various aspects of these themes (Abdel-Rahman, Goorman, and Mansoor 1987; Abdel-Rahman, Le Hourérou, Sidgwick, and Brandt-Pollman 1989; Abdel-Rahman, Aramaki, and Mansoor 1989; Abdel-Rahman, Corfmat, Sidgwick, and Steenlandt 1990; Abdel-Rahman, Goorman, Schneider, and Nizoux 1994; Bodin et al. 1995). The French Ministry of Cooperation and Development fielded a mission in 1990, while the World Bank fielded one tax mission (World Bank 1994) and issued a related policy research report, subsequently published in a French journal (De Melo, Roland-Holst, and Haddad 1993). By the end of the 1990s, Madagascar’s tax system incorporated major reforms recommended in the mission reports. The reforms can be summarized as follows: • Import taxes. From sixty-nine distinct rates, the number was reduced to five: from a maximum of 75 percent ad valorem (including customs

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duties and separate import taxes), the maximum was reduced to 50 percent and the most frequent rates were 10 percent, 20 percent, and 30 percent. • Export taxes. At their peak in 1987, export taxes accounted for 17 percent of total revenue, most coming from ad valorem taxes on vanilla (Abdel-Rahman et al. 1994). In the early 1990s, coffee and clove exports were also subject to special taxes, but these were gradually eliminated. The last remaining export tax—a specific duty per kilo of vanilla—was removed by the 1997 budget law. • Value added tax. The VAT was introduced in 1995, replacing a taxe unique sur les transactions (TUT) in effect since 1969. The VAT is currently 20 percent. • Excise taxes. Introduced in 1995 and currently applied to four product categories, these replaced consumption taxes on a dozen different products. • Establishment of large taxpayer unit. Le Centre Fiscal Pilote des Entreprises (CFPE) was established in 1997 to concentrate administrative resources on companies believed to have the largest tax liabilities. • Tax incentives for new investments. At the urging of the World Bank, a long-standing investment code was amended in 1989 and 1992 to rationalize tax holidays for investments. However, the Bretton Woods Institutions soon concluded that these concessions were generating too large a tax loophole; the code was repealed in 1996. To a considerable extent, the measures described above resulted by 1999 in an 11.4 percent ratio of tax revenue to GDP, the highest level since 1990 in Madagascar. The proportion of tax revenues derived from international trade dropped modestly, from 52 percent in 1987 to 50.6 percent in 1999 (International Monetary Fund 2000c). The 1990 French mission, known by the name of its leader, Jean Thill, is best remembered for its emphasis on the obstacles to tax administration arising from the “indigence” of Madagascar’s tax services (Thill et al. 1990). Its report noted that a general freeze on hiring of government staff, introduced under structural adjustment programs in the early 1980s, had quantitatively and qualitatively affected the tax collection agencies. The report maintained that the dilapidated state of the agencies’ premises and the virtual absence of vehicles and computers hampered review of tax returns and associated documents, along with the pursuit of defaulters. The result was substantial undercollection.2 By the late 1990s, the mission’s call for allocating more resources to tax administration had evoked little response. The tax services faced a personnel crunch: supervisory staff retired or approached retirement

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age with fewer trained cadres to succeed them. The only significant additional premises acquired were those occupied by the CFPE, to which the IMF assigned a French tax expert in 1997. This individual was withdrawn before the planned end of his tour, as he and his Washington backstoppers concluded that the government lacked the political will to crack down on major tax evaders.3

Decisionmaking for Madagascar’s Tax Policy Since the mid-1980s, decisions about tax policy in Madagascar have been oriented toward meeting targets set by the Bretton Woods institutions—especially the IMF—within the framework of the country’s program of structural adjustment.4 These targets have served as conditions for disbursements under the IMF’s Enhanced Structural Adjustment Facility. Termed “quantitative benchmarks and performance criteria” by the IMF, they have included ceilings for domestic financing of government, net domestic assets of the Central Bank, and nonconcessional external public borrowing, together with a floor on tax revenue (International Monetary Fund 2000d, table 1). Prior to formulation of the FY 2000 budget in late 1999, the conditions were based on closed negotiations between a coterie of government of Madagascar officials and periodic IMF missions.5 The Malagasy officials represented the Central Bank (BCM or Banque Centrale de Madagascar); two ministries with fiscal responsibilities, the Ministry of Finance and Economy and the Ministry of Budget and Decentralization, and the Prime Minister’s Office, through its Secrétariat Technique à l’Ajustement. No information is publicly available on the degree of involvement of the president, prime minister, or other senior politicians in formulating the government’s de facto response to IMF demands, but it can be presumed that they played a role. Certainly decisions (or lack of decisions) at presidential- and cabinet levels factored into the government’s repeated failure to meet the demands. This failure resulted in the withholding of IMF and World Bank program aid for nearly a decade, between 1987 and 1996. Conversely, the role of the legislature (Assemblée Nationale) in decisionmaking on tax issues has been minimal. The annual budget is presented to the Assemblée in early December, less than a month before it adjourns. In sum, until 1999 Madagascar had no formal consultative process where legislators, researchers, or other members of society could influence

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tax policy. In that year, employer federations were consulted on preparation of the FY 2000 budget; the process was repeated for the 2001 budget. However, participants reportedly complained that the consultations had little effect on modifying the government’s initial intentions. More recently, civil society has been participating in the evolution of the government’s Poverty Reduction Strategy Paper, though tax policy is not a major focus of that document.

EAGER Study on Transparency in Tax Administration A team of four Malagasy researchers carried out an EAGER study during 1996–1998, under the project’s Public Strategies for Growth and Equity component. Economics professor Andrianomanana was team leader. Others in the group included Henri Ranaivosolofo, a retired finance ministry and tax official; Louis Rajaonera, a lawyer and political scientist; and economist Claude Rakotoarisoa. The idea for the study arose in discussions between coauthor Clive Gray and nationals of Madagascar and Tanzania, along with representatives of USAID and other donor agencies who consulted in Antananarivo and Dar es Salaam in November 1995. The discussion partners included several persons at the director-general level (though not cabinet ministers). They stressed the need to strengthen macroeconomic stability by reducing national budget deficits through improved performance of the tax system. They also noted the extent to which weak revenue performance undermined the public sector’s ability to fund social services such as public health and education. Choice of Research Theme:Tax Compliance A budget deficit has two components: resources and expenditure. Some discussion partners suggested researching the expenditure side, yielding proposals for improved controls and other measures to reduce lowpriority expenditure. The research topic ultimately proposed for research specifically omits expenditure, though no claim is made that this component is necessarily of lower priority than improving tax performance. EAGER researchers refrained from going over ground covered by mission reports.6 Instead, the discussion focused on the government’s failure to collect a large share of the taxes legally due, and the implications of this failure for economic efficiency and equity. These are adversely affected when one set of taxpayers does not carry a fair share

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of the tax burden—assuming that the tax code distributes the burden more efficiently and fairly than ex post collections. When this happens, the government is forced to increase the deadweight loss imposed on taxpayers who are either more honest or more accessible to tax collectors. Voluntary payment of taxes occurs at different levels. At one extreme, the government’s paymaster general deducts pay-as-you-earn tax liabilities, calculated by statute on civil servants’ salaries, and transfers the proceeds to the treasury. Government employees have little room to try to evade these liabilities. At the other extreme, firms and households earn income from a multitude of sources that do not report the payments to the tax authorities. Earners are largely free to choose whether to declare the receipts. Countering the obvious incentive to maximize retention of income may be a fear of (at least partial) discovery and consequent pursuit by the tax service, a fear of disapproval as the evasion grows more blatant, or even a feeling of moral responsibility to make a contribution to the costs of running the state. In between the two extremes are certain payers of indirect taxes— notably legal importers and formal-sector producers of goods or services subject to VAT, excise, or sales taxes. At least part of their transactions are reported and valued in documents that are readily available to the tax services. These operators can—and frequently do—hide or undervalue a portion of their transactions. Discussion partners in Madagascar and Tanzania noted that the local tax services are far from passive in accepting voluntary declarations from taxpayers. Where they perceive underreporting, they frequently seek to expose hidden transactions, correct undervaluation, and assess taxpayers accordingly. However, in neither country could any discussion partner locate a record of the government bringing a criminal prosecution against any firm or individual for tax evasion. Moreover, with the exception of occasional cases of smuggling across international borders, neither government has ever publicly identified major tax evaders, or publicized the results of any effort to estimate the total volume of tax evasion. Neither have they elicited cooperation from the citizenry to reduce tax evasion in order to benefit the society. Transparency in Tax Administration Discussion partners in Madagascar and Tanzania suggested a tax enforcement universe largely devoid of transparency. When the tax service perceives evasion, it chooses whether to confront the evader, provided that

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his or her political protection does not provide a shield. If the decision is positive, a confidential assessment is presented. The eventual result is determined by negotiations involving one or more officials that lead to outcomes ranging between an assessment of zero and the full amount of the payment assessed. The opening for corruption is obvious. The proposal that emerged from these discussions was that the EAGER project should make a strategic contribution to enhanced (and more balanced) tax compliance, consistent with its mandate to devise policy prescriptions, and suggest concrete measures of implementation. It would do this in three different ways, including • Spotlighting the concept of transparency and its potential relevance to policy • Proposing a systematic, periodic effort to measure evasion and its trend • Recommending measures of increased transparency to motivate taxpayers and the tax authorities to reduce evasion Occasional references to transparency, evasion, and point estimates of evasion could be found in the existing literature on tax performance in Madagascar and Tanzania, but they appeared to be, grosso modo, a neglected area of tax research in those countries. For example, the IMF’s comprehensive survey of taxation in Madagascar (Abdel-Rahman et al. 1994) offered specific recommendations for increasing the tax services’ coverage and reducing evasion, but made no general estimate of evasion and did not refer to transparency. Accordingly, an EAGER research proposal was submitted to peer reviewers, stakeholders, USAID economists in the two countries, and USAID/Washington’s Africa Bureau. It was approved in early 1996. Hypotheses Regarding the Utility of Tax Transparency Key hypotheses outlined in the proposal or developed in the course of the study were the following: • As tax evasion becomes an object of open discussion—involving debate in the Assemblée, campaign speeches, and resolutions by stakeholder groups—pressure will build on major offenders to reduce the extent of their evasion. It will also pressure political leaders not only to reduce their own evasion (since they frequently number among the main offenders), but also to push the tax services to increase collections—or

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at least to refrain from obstructing the services, as and when they pursue prominent evaders. • The greater the level of detail in publicly distributed reports on tax evasion, the closer the reports will come to identifying and embarrassing the largest evaders. These public reports will also pressure the managers and their political overseers in the tax administration to increase collections. For example, if a published report reveals that only ten companies or ten individuals declared 1997 taxable income in excess of 100 million Malagasy francs but paid disproportionately much less in tax, serious economic journalists and other commentators can say, “The income consistent with widely observed consumption expenditure by this country’s ten greatest spenders should have generated ten times as much tax at established rates.” • A sizable share of tax delinquency is accounted for by state-owned enterprises (SOEs) in many African countries. Politically directed lack of pursuit of them constitutes implicit government subsidization. Increasing the public light shed on this phenomenon may augment understanding of the true social cost of SOEs, adding support to moves to privatize or liquidate them. • Publicly disseminating estimated evasion rates establishes a baseline against which the performance of the tax services can be measured more precisely, and also permits the posting of quantitative targets for reducing evasion. • Providing tax administrators and policy analysts with systematic estimates of tax evasion allows them to allocate collection and enforcement resources more efficiently, allowing them to come closer to maximizing collection of delinquent taxes for a given investment of resources. Objectives of the Study Since the Malagasy and Tanzanian tax services had never systematically prepared and disseminated estimates of tax evasion, the foregoing were not hypotheses of the study that field research could aspire to prove or disprove. Rather, the study pursued a more limited set of objectives. It sought to show policymakers and stakeholders that: • Evasion of many major taxes can be estimated systematically on the basis of economic parameters, allowing an aggregate estimate of the proportion of potential government revenue that is foregone through evasion. • The margin of error of the estimation is narrow enough to differentiate evasion rates among taxes, and to identify rough trends for evasion

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of different taxes—in other words, to say whether evasion of a particular tax is going up or down over time. • The taxpaying public is conscious of the phenomenon of evasion. Its acceptance of responsibility for helping to finance government expenditure is affected negatively by a perception that influential individuals and groups engage in massive tax evasion. • Tax officials are likewise conscious of the phenomenon, and their perceptions of evasion rates are consistent with estimates based on economic analysis. Moreover their diligence in collecting taxes due is affected negatively by perceptions that some of their peers and superiors accept bribes for collecting less than the full amounts due, and that politicians use their influence to protect major evaders. Components of the Study The research commenced in 1996 with preparation of a survey paper by Professor Satish Wadhawan of Howard University.7 The paper presented the study’s hypotheses, outlined a framework for the research, reviewed the theoretical and empirical literature on tax compliance, and examined the problem of measuring tax evasion in Madagascar and Tanzania. At the end of 1996, contracts were negotiated with teams of researchers in the two countries. The remainder of this chapter relates to the study as carried out in Madagascar, under contract to Harvard. The Malagasy team discussed the study with tax officials, enlisting their cooperation to obtain anonymous data on returns for certain tax categories. A research supervision committee (RSC) was established, consisting of representatives of the Finance Ministry, the Tax Service, the business community, and the academy.8 The RSC met three times: early on to discuss the team’s draft work plan, at mid-term to review a progress report, and, finally, to discuss the team’s draft final report. The team completed its report in March 1998, publishing it for local distribution two months later (Andrianomanana et al. 1998a). A high-profile workshop took place in April 1998, with some sixty attendees from government, academia, and the private sector. It was keynoted by Deputy Prime Minister for Budget and Decentralization Pierrot Rajaonarivelo. The transparency project yielded one other research paper, a study by coauthor Gray entitled “United States Practice in Estimating and Publicizing Tax Evasion” (Gray 1999b). The object of this contribution was to show how one industrial country systematically goes about estimating global tax evasion, apprehending and punishing tax evaders, and

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publicizing this activity. For EAGER researchers, officials and stakeholders in Madagascar and Tanzania, and, indeed, EAGER’s whole constituency, this study suggested ways in which African governments might utilize enhanced transparency to improve tax compliance. This section draws on the foregoing three papers—the 1996–1998 survey paper, the country team report, and the study on U.S. practices— as well as local responses to them and to accompanying efforts to disseminate proposals for enhanced transparency in tax administration. More than three years have passed since the major dissemination effort in Madagascar, and a number of events have embodied clear responses. Obviously it is too early to predict the long-run outcome of the study. For an indefinite period, resistance from vested interests may outweigh support for its proposals. Even among altruistic policymakers, a consensus may develop that enhanced transparency would bring minimal net social benefit. On the other hand, some elements in society may see merit in the proposals and advocate them until, at some future time, opposition is at least partially overcome. At this stage, we can offer no more than a few observations about the reception accorded our transparency proposals. It is our hope that stakeholders and researchers will return to the topic from time to time to trace the evolution (or lack) of transparency, whether in response to the 1995–2000 EAGER research or to future initiatives. Estimating Tax Evasion The study team devoted more than half its effort to assessing the scale of tax evasion, but was always mindful that the process of estimation was just as important as the figures derived. In other words, a key object of the exercise was to show policymakers that evasion could be estimated systematically, and that such estimates would be worth doing regularly. National accounts and trade data were used to estimate evasion of seven taxes. The customs service provided data on revenue forgone due to customs exemptions. Field surveys conducted in Antananarivo and Mahajanga yielded a rough estimate of underdeclaration of real estate rentals. The seven taxes and parameters used to estimate the theoretical tax base were: 1. Company profits tax: • For industrial firms: pre-tax profit according to a survey carried out by MADIO, a donor-funded affiliate of the government statistical service INSTAT

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2. 3.

4.

5.

6. 7.

• For service enterprises: extrapolation of net surplus according to a 10-year-old INSTAT survey, net of financial charges estimated from bank statistics and an estimate of the informal sector Value-added tax (domestic): application of a flat 15 percent rate to national accounts estimates of value added in the formal sector Sales tax: turnover as estimated for industrial establishments in the MADIO survey, and services extrapolated from the 1984 INSTAT survey Nonwage income tax: • For enterprises not subject to company tax, mainly sole proprietorships • For industry: the MADIO survey • For services: a current national accounts estimate of turnover of sole proprietorships, converted to net value added by INSTAT’s 1984 ratios of turnover and depreciation to value added, less financial charges estimated from bank statistics Value added tax (imports): c.i.f. value, plus customs duties, of imports excluding food, fuel, export processing zone inputs, and other goods granted temporary admission Other import taxes: base same as 5. Export taxes: volume of vanilla exports, by law subject to a specific duty of $20 per kilo.

Table 6.3 gives the evasion rates estimated for the seven taxes, showing a weighted average of nearly 60 percent, equivalent to 8.8 percent of GDP. Since 1994, revenue from all taxes amounted to 8.3 percent of GDP. Evasion exceeded revenue before taking into account evasion of taxes not included in the analysis—notably excises, taxes on wages and salaries, and taxes on real property. On this basis, revenue due from all taxes exceeded 17 percent of GDP. Table 6.4 shows customs exemptions as percentages of total revenue in 1995 and 1996 plus the exemptions. The denominator includes revenue that would have been due in the absence of the exemptions. In total, 18 percent of revenue—actual collections plus exemptions—was forgone via exemptions. In presenting these data, the team was not implying that all the exemptions represent de facto evasion. Exemptions are a prerequisite for nearly all project aid and technical assistance, although a given budget may transform them into a corresponding charge against local agency appropriations. Investment code exemptions are designed to

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Madagascar: Using Policy Research in Tax Policy Table 6.3 Madagascar: Estimated Evasion of Selected Taxes, 1994 Taxa A. Company profits tax B. Value added tax (domestic) C. Sales tax (part of the year) D. Nonwage income tax E. Value added tax (imports) F. Other import taxes G. Export taxes Weighted average evasion rate, taxes A–G

Estimated evasion as percentage of tax due 78.5 37.1 71.8 93.8 28.7 29.2 84.9 58.6b % of GDP

Estimated evasion, taxes A–G, ÷ GDP Total collections, taxes A–G, ÷ GDP Total collections, all taxes, ÷ GDP Total collections, excluded taxes, ÷ GDP

8.8 6.2 8.3 2.1

Source: Andrianomanana et al. (1998a), pp. 34–35. Notes: a. Because data were inaccessible, excises (including fuel taxes) and taxes on wages, salaries, and real property are excluded. b. Weights are total amounts of each tax estimated to be due. Table 6.4 Madagascar: Revenue Foregone by Customs Exemptions, 1995–1996

Entitlement Foreign aid Technical assistance Total exemption Partial exemptionb Investment code Government imports Total

% of hypothetical revenue (actual revenue plus exemptions) foregone through exemptionsa 3.4 1.4 0.7 7.0 5.6 0.1 18.2

Source: Andrianomanana et al. (1998a), p. 62. Notes: a. Equals exemptions granted in 1995 and 1996, divided by total revenue plus exemptions. Values for 1996 are deflated by 20 percent CPI increase in that year. b. Accorded to imports “lacking commercial character.”

stimulate capital formation, production, and employment. In Madagascar, they were found to generate so much abuse that the code was abolished in 1996. The entries labeled “partial” and “total” exemptions are likewise considered to have been subject to wholesale abuse. The team roughly estimated that landlords with rental property were understating rents by 40 percent. Estimates of taxation based on income

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from real estate was derived from a selective examination of municipal tax records and interviews with landlords and tenants. Perceptions of Tax Evasion Several reasons can be adduced for taking seriously perceptions of tax evasion. First, from the viewpoint of taxpayers, one may expect the extent of evasion to be correlated • positively with the prevalence of the attitude, “If a large share of the population is cheating, why should I pay to fill the fiscal gap?” • negatively with the perceived cost of evasion: the more taxpayers get away with cheating, the lower the likelihood and cost of apprehension and punishment Second, from the viewpoint of tax officials, evasion would likewise be correlated • positively with the prevalence of the attitude, “If my superiors are obviously tolerating large-scale evasion, why should I incur the disutility of pursuing evaders?” or “Why should I not benefit from the bribery that is evidently going on?” • negatively, with the expected cost of corrupt behavior With these considerations in mind, the team conducted a nonrandom attitudinal survey of taxpayers and tax officials at 230 places of employment. Reported views of taxpayers on tax evasion are highlighted below. • Large trading enterprises run by Indo-Pakistanis are viewed as the biggest evaders. Malagasy citizens come in second place, ethnically, followed by Chinese businesspeople. The French are in fourth place. • Company tax is perceived as the single most evaded tax, followed by VAT and personal income tax. • Complicity of tax officials is seen as the biggest single factor in tax evasion, coming ahead of excessive tax rates, political intervention, and administrative weakness. A law authorizing defaulters to negotiate their penalty up to a ceiling of four times the evaded tax is cited in this connection: the treasury receives only 25 percent and the remainder is divided among the officials involved in a case. Such arrangements are seen as epitomizing the system’s lack of transparency.

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• Aside from these negotiated settlements, sanctions against even flagrant defaulters are seen as “derisory.” • Government is considered to be indifferent to the contradiction between the meager tax collections often cited in the press and the highly visible expansion of luxury housing and the importation of new cars and other luxury goods. The survey of tax officials identified, inter alia, the following views: • The principal factor in tax evasion is seen to be deficient information and education of taxpayers, ahead of “taxpayer mentality” and inadequate service equipment (e.g., means of transport). • The main practices of noncompliance are considered to be underinvoicing and sales without bills or receipts, ahead of understatement of turnover and fraudulent deductions against VAT. • A majority of respondents accept as “partly justified” complaints of official incompetence, abuse of power and corruption, and the charge the tax service fails to pursue the most flagrant evaders, leaving the hapless remaining taxpayers to fill the government’s coffers.

Enhancing Transparency to Improve Compliance The team report offered several recommendations for improving taxpayer compliance (Andrianomanana et al. 1998a, pp. 75–76). Those related specifically to enhancing transparency are highlighted below. • The clarity of tax legislation and regulations should be increased, and more effort devoted to taxpayer education beyond the brief instructions included in tax forms. This would include regular publication of tax authority rulings with potential applicability beyond individual cases. • The analyses of evasion and tax exemptions summarized in Tables 6.4 and 6.5 should be updated as part of an annual report on Madagascar’s public finances. These should be prepared by the Secrétariat Permanent à la Prévision Macroeconomique, an economic staff unit in the Ministry of Finance and the Economy established in 1996 independent of the tax services. The report would be directed to both government staff and the public: the team calls for internal as well as external transparency. • The following should be published: names of major defaulters, amounts involved, and sanctions applied; similar information

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regarding tax officials dismissed or otherwise sanctioned for corrupt conduct; and names of recipients of tax exemptions, authority under which these were granted, and amounts involved. It is noteworthy that local EAGER researchers joined Malagasy policymakers in shying away from recommending the criminalization of even the most blatant forms of tax evasion and associated corruption. The EAGER paper on U.S. practices in estimating and publicizing tax evasion (Gray 1999b) cited 3,600 cases of tax fraud referred for prosecution from the Internal Revenue Service’s Criminal Investigation Division (CID) in 1996. Convictions were handed down on nearly 3,000 persons and almost three-quarters were imprisoned (Gray 1999b, pp. 8–9). The paper’s appendix reproduced sample press releases issued by U.S. district attorneys at various stages of such cases, along with excerpts from the CID’s Publicity Guidelines. The latter inform CID staff about the intent of the publicity, along with procedures to be followed to maximize impressions made on taxpayers about the likely cost of tax fraud. The Harvard coauthor of this paper hoped it would inspire local researchers and members of the RSC to propose the criminalization of a certain gravity of tax fraud and corruption, along with the publicizing of resulting sanctions to enhance compliance. The exhortation has been greeted with silence on all sides. Clearly there is a consensus—shared even by citizens who meet their tax liabilities—that putting people in jail for tax evasion is going too far. The common view seems to run: let the government gather evidence against evaders and sue them in civil proceedings, even, perhaps, penalizing the most blatant offenders by a multiple of their underpayment. But don’t criminalize the matter. One can speculate about the reasons for this consensus. Because accounting standards for objective determination of an individual’s or company’s tax liability are not yet well established, taxpayers may fear that the demonstrated arbitrariness of tax officials might entail unjust imprisonment, or might generate occasions where taxpayers are forced to pay large bribes to forestall it. Follow-up to the Study:The Dissemination Workshop The team circulated a near-final version of its report in early 1998. In the days preceding its all-day dissemination workshop in Antananarivo in April 1998, the press featured the EAGER report in articles carrying such titles as “Tax Evasion: 800 Billion Annually,” and “Figure of the Week: 339 Billion” (referring to customs exemptions).9 As follow-up to

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the study and the dissemination workshop, team leader Andrianomanana prepared and published or gave wide circulation to six documents.10 The workshop proceedings, reported in the Antananarivo press, endorsed and elaborated on the team’s proposals. Recommendations described as “new” were added to the summary distributed later to participants and government agencies (Atelier EAGER 1998). These recommended that relevant authorities • Introduce the theme of civisme fiscal (acceptance of a civic duty to pay taxes) in the national education system. • Calculate a threshold of tax tolerance for each taxpayer, taking into account in the tax ratio the burden of “parataxation,” notably local taxes and taxes on water and electricity. • Give the tax service the means to promote transparency, e.g., by allowing it to supplement its appropriated budget by retaining a percentage of taxes collected. The proceeds could be used to improve facilities such as transportation and to augment staff salaries. • Depoliticize the administration, inter alia, by funding political parties in a transparent manner from the national budget. • Outline a phased program of dissemination of information to follow up the workshop. Official Follow-up One: Exposing Defaulters and Exemptions Two months after the workshop, the Ministry of Budget and Decentralization released to the press lists of tax violators and recipients of exemptions, giving names and addresses. Table 6.5 summarizes these lists, which occupied the equivalent of five full pages in L’Express, a local newspaper. A connection seems likely between the workshop recommendations and release of the lists, given that the responsible minister (Deputy Prime Minister Rajaonarivelo) keynoted the EAGER workshop and many staff from his tax services participated in it. However, no formal credit was given to the workshop or the study, and no senior official is reported to have acknowledged it orally. On June 24, a week after the release of the lists, the minister announced he was rescinding all discretionary exemptions from import taxes, i.e., exemptions other than those specified by law (L’Express 1998b). Exemptions still outstanding as of that date were not listed, nor did the ministry indicate the value of discretionary and other exemptions accorded up to that time. The main employer federation, the Groupement des Entreprises Malgaches (GEM), together with a smaller grouping of Malagasy-run firms

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Table 6.5 Tax Violations and Exemptions Publicized by the Government of Madagascar, June 1998 Category or Status of Alleged Violations A. Formal complaints of tax evasion (not including B)a B. Formal complaints of tax arrears by rum bottlers C. Taxpayersb disqualified from exemption from PSIc Taxpayers in noncompliance with Customs: D. fictitious bonded warehouse E. referred to Courts F. unrecorded imports G. EPZ status, in noncompliance or undergoing customs investigation H. Taxpayers in arrears vis-à-vis indirect taxes Exemptions Taxpayers exempted from taxes and duties

Numbers of alleged: violators violations 113 7 131

191 7 n.a.

12 13 80

n.a. 13 96

37 26

n.a. 38

firms 35

Numbers of: exemptions 50

Source: L’Express, June 18–19, 1998. Tabulations by the authors; order of categories here differs slightly from that in source, in accordance with apparent logic. Notes: a. Two categories with virtually the same title—“infraction sur . . .” followed by singular and plural, respectively, of “procés verbal”—have been combined here. b. Source uses the term “personnes physiques ou morales,” i.e., “individuals or enterprises.” c. Preshipment inspection. Refers to importers who allegedly made false customs declarations to abuse an exemption from PSI.

(FIVMPAMA), responded publicly to what the press was already calling the “famous Rajaonarivelo lists” in early July. Their communiqué “On Government’s Attitude Regarding Tax Transparency” cited publication of the lists as “in principle, positive,” but went on to describe the manner of release as an “indiscriminate act bordering on public defamation,” and accused the tax services of “at best incompetence, at worse, bad faith” (L’Express 1998c). Specific complaints included: • The lists mixed “good” taxpayers with “bad” ones, some figuring in both categories. • A number of taxpayers had received no notice of formal complaints until they asked why they appeared in the lists. • A number of notorious tax evaders and “corrupters” were omitted. • Government arrears denied many suppliers the means to pay their taxes on time. • “The extra-legal, even unconstitutional granting of tax exemptions of all kinds” was the main cause of Madagascar’s low tax

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rate and weak revenues, meanwhile “undermining competition and strangling the few Malagasy industries.” The communiqué demanded publication of new, “exact,” and “exhaustive” lists of defaulters; exemptions granted in the last 18 months; and government creditors. It also demanded that future exemptions be restricted to those authorized by law, with recipients being identified in the government gazette. The existence of political feedback from the “Rajaonarivelo lists” is suggested by an Economist Intelligence Unit reference to the lists having drawn “unwanted public attention” to three members of the Assemblée—two from the deputy prime minister’s own party—who were named as tax defaulters (Economist Intelligence Unit Ltd. 1998). A few months later, tax transparency returned to public attention when the local economic journal, Economie de Madagascar, featured six articles on tax questions,11 and its editors sponsored a high-profile symposium on taxation. Once again, Deputy Prime Minister Rajaonarivelo keynoted the event. He cited Madagascar’s low tax rate, while noting a substantial improvement since 1994: from 7.7 percent of GDP in that year to a budgeted 11.4 percent in 1999 (Tribune 1999). He added that only about 400,000 taxpayers were financing the country, as against two million who should be contributing. (Another prominent participant added the qualification, after the vice premier’s departure, that the latter was referring only to direct taxes, ignoring the far larger portion of the population that shares in the burden of indirect taxes.) Enhanced transparency in tax administration was one of nine major areas of reform promised in the vice premier’s statement; suppression of tax exemptions was another. (According to a press comment, “Everyone knows that, even after exemptions were already prohibited, they were being granted just the same” [Tribune 1999].) That enhanced transparency is a prerequisite for restoring civisme fiscal was a major conclusion of the symposium (L’Express 1999).12 Emphasis was placed on transparency in executing laws concerning tax exemptions and in reporting outcomes—receipts, collection rates, and tax evasion. The group called for “a systematic policy of communication and information about objectives and performance” of the tax system. Official Follow-up Two: Reporting Tax Performance As of early 2001, the Malagasy authorities had taken no steps to implement this last-named recommendation or the related proposal emanating

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from the 1998 EAGER report, seconded by the April 1998 workshop. The report had recommended assigning periodic reporting on tax performance to the Economic Analysis Unit (SPPM) in the Finance Ministry, adding to its essential tasks of preparing the macroeconomic basis for budget estimates and monitoring the progress of structural adjustment in conjunction with IMF and World Bank missions. If this unit (or any other government of Madagascar agency) has been attempting to estimate tax evasion and follow trends in collection rates, no such findings have yet been publicly released. After the 1998 workshop, the local research team and the coauthors met with senior Malagasy finance officials to propose a concrete approach to collecting and publicizing tax performance data. Because few government agencies can afford to hire good local economists, the authors suggested seeking donor support to subcontract with local academic or private economists to draft reports on tax performance. While no donor representatives had committed themselves to such support, it seemed likely that the modest resources required to launch this work could be found from numerous foreign agencies that continually exhort the government of Madagascar to improve its tax administration. However, every government official to whom the proposal was presented politely diverted the discussion to an unrelated area in which he or she felt that technical assistance might be useful. No one said explicitly that the topic of tax performance was not worth pursuing or even potentially counterproductive, but the proposal clearly made our official discussion partners uncomfortable. What might be the reasons for this resistance? Malagasy officials often cite tax performance as an area rife with political interference, implying that serious analysis of evasion could get them into hot water with their superiors, right up to the nation’s president. Moreover, the idea of subcontracting with academic and private economists is unlikely to be popular. Few low-income countries—and certainly not Madagascar—subscribe to the Western practice of revolving doors between government and academia. Bureaucracies understandably resist exercises that result in setting concrete performance targets. One of the study’s hypotheses was that systematic analysis of tax evasion could lead to targets for improving the tax services’ rates of collection. Their likely reluctance to assume this burden was one factor behind the EAGER team’s suggestion that the work be entrusted to the SPPM as a separate economic staff unit. Political discomfort at overtly confronting tax evasion is not confined to low-income countries or Madagascar. After 30 years, the U.S.

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Internal Revenue Service finally had to suspend its Taxpayer Compliance Measurement Program (TCMP) in 1995, for reasons described by another government agency as “budget concerns” (read: unwillingness of Congress to continue funding the TCMP) and pressure exerted by Congress, taxpayer groups, paid preparers, and others due to “its cost to and burden on taxpayers”(U.S. General Accounting Office 1996). What might be done to overcome the government of Madagascar’s reluctance to track tax evasion publicly? Certainly one hopes that local stakeholders—such as GEM, FIVMPAMA, the editorial board of Economie de Madagascar, and participants in the journal’s 1999 symposium—will continue to pressure the government in this direction. Moreover, there is an obvious role for multilateral agencies such as the IMF, one of whose permanent themes is improving tax administration. The IMF’s investment in developing the Malagasy tax service’s Large Taxpayer Unit has been noted. Though it ended in the premature withdrawal of the assigned expert, no publicly available IMF document calls on the government of Madagascar to conduct the type of open reporting proposed here.

Conclusions There is no doubt that tax policy research sponsored by the IMF, the World Bank, and France significantly influenced the structure and performance of the country’s tax system by the end of the 1990s. Nor is there any doubt that the EAGER tax transparency study temporarily engaged the attention of Madagascar’s tax policymakers and senior administrators—any participant in the dissemination workshop will testify to that. The study can also reasonably claim to have motivated the government of Madagascar to publish lists of tax defaulters and recipients of exemptions, thereby stimulating an open debate about issues of compliance. Very likely, the publicity and ensuing debate raised the perceived costs of engaging in and tolerating tax fraud, at least on the part of some taxpayers and tax officials. Did the study and its aftermath have a perceptible impact on the extent of tax fraud and discretionary exemptions? Were tax collections in 1999/2000 at least, say, 0.1 percent of GDP higher than they would have been in the absence of the study? As already noted, 1999 collections were measured at 11.4 percent of GDP, compared with 10.6 percent in 1998. The International Monetary Fund (2000b) attributes this increase to three factors: “Broadening of the base for the value added

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tax, higher excise taxes, including petroleum products, and the strengthening of tax administration” (emphasis added). However, no attempt is made to distinguish the impact of each factor, nor is any assessment made of the role of the 1998 debate on compliance in strengthening tax administration. As of early 2001, it is difficult to assert that facets of transparency recommended by the study have become securely lodged in the Malagasy tax system. The study team interacted with senior bureaucrats who expressed agreement with several recommendations, but these have not yet attracted lasting support from policymakers. Could such support have been increased, to some extent, by involving more politicians in the initial interviews and discussions? Would it have been useful to mobilize focus groups of tax officials or small business people? Should a simple, draft version of the report have been widely circulated for comment before being woven into a final version? The EAGER tax research (including the excise tax study) offered a window on the weak state of policy advising in Madagascar. It exposed the lack of transparency in decisionmaking, and it has highlighted the weakness of in-house analytical and data-gathering capacity. At the same time, the study contributed to improving local capacity to undertake tax policy analysis. A challenge remains in extending this capacity to substantially more people, including tax administrators, university teachers, economists, and students. What is the bottom line? The tax transparency study demonstrated that the greatest gains in achieving an acceptable revenue-to-GDP ratio are obtainable from improved compliance, including reduction of discretionary exemptions. But the study also made clear that these objectives carry a political cost, as well as a personal financial cost, to an oligarchy that includes corrupt politicians. It all comes down to how the administration views these political and personal costs, compared with the importance it attaches to social and economic benefits obtainable from improved tax performance— lower inflation, enhanced social services, and higher growth. Unfortunately, evidence of a visionary national leadership that would give substantially more weight to these benefits is lacking in Madagascar.13

Appendix: Other Recent Tax Policy Research in Madagascar Other tax policy studies were carried out by teams of Malagasy and foreign researchers not affiliated with the IMF, World Bank, or French

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government. The first two studies listed below are most directly related to policymaking. They address taxation of the informal sector and excise taxes. The following reports have been issued by Project MADIO, funded by France, the European Union, and the French foundation ORSTOM, and attached to INSTAT, Madagascar’s national statistical agency. • “La fiscalisation du secteur informel: Le gisement existe-t-il et peut-il être exploité?” (“Taxation of the informal sector: Is there a base and can it be tapped?”). This report assesses the informal sector’s tax potential, estimating that evasion of legal tax liabilities amounts to 64 percent of actual tax collections. • “L’impôt sur les facteurs de production est-il une solution pour fiscaliser les entreprises informelles?” (“Is a tax on factors of production a viable way of taxing informal enterprises?”) • “La fiscalité des entreprises: Exonerari ergo sum.” (“Company taxation: I am exempt, therefore I am.”) This study examines the impact of exemptions on receipts from company profits tax and VAT. • “Fiscalité Malgache, structure et assiette: Ou les entreprises payent-elles trop?” (“Madagascar taxation, structure, and base: Or, do companies pay too much?”) • “Pression, structure et réformes fiscales à Madagascar: Où en est-on?” (“Tax burden, structure, and reforms in Madagascar: Where are we?”) • “La fraude fiscale: Estimation et caractéristiques sur l’impôt sur les bénéfices industriels à Madagascar.” (“Tax evasion: Estimation and characteristics of Madagascar’s industrial profits tax”) A USAID-funded team from Cornell University prepared or participated in two tax studies: • “Politique fiscale à Madagascar: Options et impacts.” (“Tax policy in Madagascar: Options and impacts”) • “Incidence fiscale à Madagascar: Une analyse de la progressivité des impôts et des dépenses sociales.” (“Tax incidence in Madagascar: An analysis of the progressivity of taxes and social expenditure”) Project EAGER also sponsored a study of excise taxation titled “Les droits d’accise à Madagascar” (Andrianomanana et al. 1998a). The study team was led by this chapter’s Malagasy coauthor, who also headed the tax transparency team. IMF and donor-funded reports have long urged the government of Madagascar to take steps to incorporate enterprises at the margin of

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formality into the tax base. The MADIO studies support that concept, but insist that company registration procedures must first be radically simplified in order to reduce the costs to an enterprise of legalizing itself, i.e., entering the formal sector where the tax authorities can contact it. A tax labeled impôt synthétique, to be collected on behalf of local governments, was instituted in the 1999 budget. (Rather than “artificial,” synthétique conveys the sense of “all-in,” i.e., replacing turnover tax and direct taxes for which small enterprises are liable.) The tax provides for a schedule of flat sums based on indicators of revenue such as sector of activity, locality, floor space, and type of equipment. It has yet to be implemented. Noting that excise taxes accounted for 26 percent of tax revenue in 1996, the second EAGER study examined issues of elasticity and equity. It found scope for higher taxes on fuel (other than kerosene), but criticized the excise net’s coverage of nonluxury products and recommended narrowing it to the traditional objects of fuel, alcohol, beer, and cigarettes. Instead, the 1999 budget raised the petroleum tax and drew additional consumer goods into the net.

Notes 1. According to the Organization for Economic Cooperation and Development/Development Assistance Committee (2000), during 1997–1999, France’s net ODA to Madagascar exceeded that of the next bilateral donor by 180 percent and the net ODA of the World Bank by 107 percent. Over the period, IMF credit outstanding to Madagascar declined by $5 million (International Monetary Fund 2000a). 2. As described below, the EAGER transparency study sought to estimate the undercollection. 3. Personal conversation of coauthor Gray with IMF staff, 1998. 4. The division of labor between the World Bank and the IMF assigns primary (but not exclusive) responsibility for tax issues to the IMF and responsibility for public expenditure review to the Bank. 5. Our Malagasy coauthor reports that these transactions are described locally as tête-à-tête between the IMF and Malagasy participants. 6. These reports refer to Madagascar; similar reports exist on Tanzania. 7. At the request of USAID’s Africa Bureau, survey papers were prepared concurrently for most of the studies thus far approved under the two streams of the EAGER project (whose second stream was entitled “Trade Regimes and Growth”). The survey was presented at an international workshop at Howard University, Washington, D.C., in July 1996. The paper was revised by coauthor Gray and issued as an EAGER document (Wadhawan and Gray 1998), followed by a four-page EAGER Policy Brief (Wadhawan and Gray 1999).

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8. Harvard researchers Haughton and Gray participated as observers in one RSC meeting each. 9. These headlines were published in Midi on April 9 and 11, 1998. The figure of 800 billion refers to Malagasy francs, worth at the time about US$150 million, or 8.8 percent of 1994 GDP, as shown in Table 6.2. 10. These were • A summary of the workshop proceedings • A policy brief for the relevant ministers and public agencies • A two-page article in a local high-brow magazine (Andrianomanana 1998a) • A seventy-seven-page final report, issued as a soft-cover monograph by a local publisher (Andrianomanana et al. 1998a) • A quarterly bulletin published by a local accounting/management consulting firm that carried the summary of workshop proceedings, the policy brief, and a summary of the condensed version of the team report (Cabinet Ramaholimihaso et al., 1998) • An article in the fall 1998 issue of the local economics journal that contained a condensed version of the team report (Andrianomanana et al. 1998b). 11. The symposium took place in January 1999. Andrianomanana et al. (1998a) and Andrianomanana et al. (1998b) provide summaries of reports prepared under the EAGER project by Malagasy teams (in one case, including Harvard researcher Haughton). 12. Other recommendations referred to the need to collect a larger share of the taxes due by means of improved tax administration rather than increasing rates or introducing new taxes, and for a tax policy developed in consultation with civil society and tailored to the country’s objectives for growth and equity. 13. We again call attention to the IMF’s premature withdrawal of its expert in the large taxpayers’ unit, after concluding that the government lacked the political will to pursue major defaulters. For a discussion of “visionary national leadership” in Africa and its application to Madagascar, see Gray and McPherson (2001).

7 Ghana and Uganda: Considering Monetary and Exchange Rate Policies Charles D. Jebuni, Polycarp Musinguzi, and J. Dirck Stryker

Ghana and Uganda are two of the most intensively researched economies in Africa. The fact that Ghana was the first country south of the Sahara to become independent drew worldwide attention. In the immediate postindependence period, Ghana used well-known scholars to assist in elaborating its development planning programs (Killick 1978). Ghana was also the first country in Africa to embrace and sustain economic reforms, generally referred to as the structural-adjustment program (SAP). This program involved macroeconomic stabilization, trade and exchange rate liberalization, deregulation of markets, privatization of state-owned enterprises, and reform of the public sector. The reforms were put in place with the assistance of the International Monetary Fund (IMF) and the World Bank, as well as a number of local and expatriate advisors. Uganda came somewhat later to the reform process—and only after a long period of convulsive violence. In May 1987, Uganda initiated its Economic Recovery Program (Republic of Uganda 1987), which was a turning point in macroeconomic policy management. The adjustment process started with macroeconomic stabilization, and later shifted into policy reforms to move toward a market-oriented economy through liberalization of the trade and exchange rate regime, deregulation of domestic prices and marketing systems, and reform of the financial sector. By 1996–1997, Uganda had attained the objectives of stabilization and liberalization, but high levels of poverty persisted. The dramatic evolution of Uganda’s economy and its timely focus on poverty reduction attracted the interests of researchers, both Ugandan and foreign, in a manner quite similar to Ghana at an earlier date. 155

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In spite of the intensity of research in both countries, the use of the results of this research for policy design and formulation has been limited and uneven. The purpose of this chapter is to ask why that is so, and to use the specific example of research on monetary and exchange rate policy to gain insights into the answers to that question. The two countries have had very different experiences in this area. Ghana has suffered, at least since 1992, from persistent fiscal deficits and inflation. This has led to fairly continuous depreciation of the nominal exchange rate, which has resulted in criticism that this depreciation is in fact causing the inflation. Uganda, on the other hand, has maintained strong fiscal discipline, but has felt constrained in trying to manage the economy with a very limited range of policy instruments. In particular, there has been the overriding problem of how to stimulate economic growth, reduce poverty, and maintain macroeconomic equilibrium in the face of a series of external shocks. The following section describes the monetary and exchange rate policy environment in each of the two countries and how this environment has posed problems for effective management of the economy. This is followed by a description of the changing policy context, and the issues posed for policy-oriented research. The fourth section of the chapter analyzes the application of research to two critical policy issues and why this research has not been more successful in contributing to policy formulation in these areas. The fifth section draws a few conclusions regarding the conditions that are necessary to make policyoriented research more effective, and the final section offers some concluding observations on how this effectiveness can be achieved.

Monetary and Exchange Rate Policy Environment Research tools used for the analysis of monetary and exchange rate policy have evolved substantially over the past few decades. Some of these tools have been incorporated into the advice given the developing countries by the IMF. Others have formed part of the knowledge base utilized by local and expatriate researchers, some of whom have served as advisors to the Ghanaian and Ugandan governments and central banks.1 The usefulness of these tools for macroeconomic management, however, has depended very much on the institutional structures that have been put in place. It has also depended on the broader macroeconomic policies exercised by government and on the overall balance-of-payments environment.

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Ghana During the 1980s, Ghana went through a period of substantial reform in its monetary and exchange rate policies. Exchange rates and interest rates were freed up, residents of Ghana were permitted to hold foreigncurrency accounts, and the money supply began to be regulated through open-market operations and other indirect instruments rather than through discretionary credit ceilings. Monetary and exchange rate policies in Ghana have always been the responsibility of the Bank of Ghana (Republic of Ghana 1963, 1992a, 1992b). Proposals on monetary and exchange rate policy originate within the bank on the basis of either its own monitoring of the economy or in response to issues generated within the government or other areas outside the bank. Such policy proposals become the basis of debate and policy decisions by the board of directors. The influence of interest groups on monetary and exchange rate policy is incorporated either through the composition of the board of directors or through direct lobbying of the governor/chairman of the board. The Bank of Ghana may also employ consultants for specific policy assignments. Even in these cases, the policy recommendations pass through management to the board of directors. Thus it is the board that ultimately determines monetary and exchange rate policy, albeit under the watchful eyes of the government. Prior to the 1992 Constitution, the bank’s role was advisory and was therefore subject to control by the Ministry of Finance and Economic Planning. The 1992 Constitution, however, provided for legal and operational independence of the governor by guaranteeing the tenure of the governor/chairman of the board of directors (Bank of Ghana Law of 1992, Article 3d). In spite of the 1992 Constitution, the bank has not enjoyed legal or operational independence. It is encumbered under the Bank of Ghana Law of 1992 with several objectives that sometimes are in conflict. Furthermore, its monetary functions are explicitly rendered subservient to the economic objectives and needs of government. Thus, Part I, Section 3 of the law provides for the bank: (c) to regulate and direct the credit and the banking system in accordance with the economic policy of the Government [emphasis added]; (d) to promote by monetary measures the stabilization of the value of the currency within and outside Ghana; (f) to ensure effective maintenance and management of Ghana’s external reserves

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Given such a broad mandate, and with no clear overarching priority to guide its actions, the bank is forced to choose which objective to pursue. Moreover, management and the research department often find it difficult to follow a coherent, sustainable policy mix. As an example, in 1998 and the early part of 1999, the major objective would appear to have been the maintenance of a stable nominal exchange rate. While somewhat successful, the cost of this action was the running down of the country’s international reserves. This was in violation of the charter, as stated in Section 3(f) above, to ensure effective maintenance and management of Ghana’s external reserves. Subordinating the regulation of the credit and banking system to the economic priorities of the government (Section 3[c]) could and has often compromised the best efforts of the Bank of Ghana to pursue the broader objectives of achieving and maintaining macroeconomic stability. Indeed, the failure to regain macroeconomic stability in the Fourth Republic after 1992 can be attributed to large and persistent budget deficits, which had to be financed by domestic borrowing, international borrowing, or money creation. Despite substantial borrowing, both domestically and externally, money creation was a major channel for financing the fiscal deficits. Inflationary financing of government expenditures is in fact built into the law in Section 27, which allows the Bank of Ghana to “make advances and loans to the Government on overdraft” and to “make direct purchases from the Government of Treasury bills or securities representing obligations of the Government.” These advances, which create money, were a primary source of the explosions of reserve money in 1992 (32.2 percent per annum) and 1994 (35.4 percent per annum). High and variable growth in reserve money, in turn, resulted in correspondingly rapid and variable growth in “M2+” (broad money supply [M2] plus foreign currency deposits), causing high and fluctuating rates of inflation. At the operational level, the Ministry of Finance is represented on the Auction Committee, as are the controller and accountant general. This committee determines the value of securities offered at the weekly treasury bills auction. The problem is that the government gets first claim on the amount of securities sold to the Bank of Ghana. If the auction is undersubscribed, as is often the case, the bank is unable to resell these securities to the public. Thus it has often been impossible for the Bank of Ghana to use open-market operations to offset the inflationary consequences of government borrowing. Monetary policy has been subordinated to fiscal needs.

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Uganda In Uganda, monetary policy is formulated and implemented as part of the country’s overall macroeconomic, financial, and budgetary policy framework to ensure sound macroeconomic and financial stability, and, in particular, stability of prices, exchange rates, and interest rates—conditions conducive to sustainable economic growth. For Uganda, the mandate for “regulating the issuing of legal tender, maintaining external reserves and promoting the stability of the currency and a sound financial structure conducive to a balanced and sustained rate of growth of the economy” is drawn from the Bank of Uganda Statute (1993). Although this act provides for the autonomy of the Bank of Uganda in carrying out its roles, Article 162, Subsection (2) of the Ugandan Constitution of 1995 also emphasizes that “in performing its functions, the Bank of Uganda shall conform to this constitution but shall not be subject to the direction or control of any person or authority.” Although not explicitly stated by the legislation, the bank maintains price stability as its primary objective. Achievement of this objective is facilitated by the heavy emphasis placed within the Ugandan government on maintaining fiscal discipline. However, due to the weakness of the financial system and the size of the public sector, considerable coordination between fiscal and monetary policy is required to ensure price stabilization even though the bank is operationally independent. Following the revision of the Bank of Uganda Act in 1993, the bank was given greater authority in the formulation and implementation of monetary policy, as it shifted from direct to indirect control of the supply of money and credit. It was at this point that the Reserve Money Program (RMP), based on conventional financial programming, was adopted to guide the conduct of monetary policy by providing a framework for assessing liquidity conditions based on changes in base money. The Bank of Uganda adopted the RMP as a framework for monetary management for three major reasons: • Where monetary targeting is adopted, the most effective operational target is one that can be easily controlled by the monetary authorities, that is, the central bank’s balance sheet. • Data on base money becomes available with a shorter lag than data on broader monetary aggregates. • The RMP is underpinned by underlying economic relationships among base money, broader monetary aggregates, economic growth, and inflation.

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Application of the RMP has always allowed for developments in other macroeconomic variables, such as exchange rates, interest rates, and inflation, that could impact the final target of inflation. As this flexibility has increased, monetary policy decisions have had to be made not only by observing developments in base money but also by taking into account movements in other macroeconomic and financial indicators. The gradual approach to deregulating the foreign-exchange market commenced with legalization of the parallel foreign-exchange market in 1990. Over the first five years of deregulation of the exchange rate, the authorities reduced the premium between the official exchange rate and the parallel market rate from 1,000 percent to 7 percent before committing to a free and open exchange system in 1994. Uganda accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF’s Articles of Agreement and finally allowed full liberalization of the capital account in July 1997. Since the adoption of the floating exchange rate regime in 1993, the value of the shilling has been market-determined. Authorities also monitor the real effective exchange rate to ensure that it is moving in line with that of Uganda’s competitors and trading partners. The Bank of Uganda intervenes in the market solely at its discretion to smooth wide fluctuations in the exchange rate and to stabilize market conditions, rather than to resist the impact of changing fundamentals on the real exchange rate. This is consistent with the desire to promote export-led growth, on one hand, and stabilization of market conditions, on the other. In contrast to Ghana, where domestic fiscal deficits have been the major barrier to achieving monetary and exchange rate stability, the chief problem in Uganda has been difficulty in dealing with exogenous shocks. These have occurred because of changes in the terms of trade, shifts in inflows of foreign assistance, changes in flows of remittances and private-capital movements, changes in domestic weather conditions affecting agriculture, and other effects on the balance of payments that have largely been beyond the government’s or the Bank of Uganda’s control. The result has been rapid movements in nominal and real exchange rates, which have wreaked havoc with the profitability of exporters. The Bank of Uganda has responded with interventions to maintain order in the foreign-exchange market, but these have frequently been inadequate or have had undesirable effects on the domestic money supply. Efforts to offset these effects through open-market purchases and sales of treasury or bank bills have been stymied by the thinness of the secondary market for these bills.

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Application of Economic Research to Policy Ghana and Uganda had very different experiences prior to their periods of economic reform and structural adjustment. Uganda experienced violent ethnic conflict on a massive scale; Ghana’s experience was more one of the government trying to pursue a development strategy that relied heavily on the expansion of state-owned industry at the expense of export-oriented agriculture. By the mid-1980s, Uganda had virtually no modern economy left; in Ghana, incentives became increasingly distorted because of the government’s attempt during the late 1970s and early 1980s to maintain fixed exchange rates and relatively rigid prices in the face of persistent fiscal deficits (Stryker 1990). Nevertheless, the two countries had a number of things in common. Both had crippled their cash-crop export sectors—coffee, tea, and cotton in Uganda and cocoa in Ghana. Both countries had suffered severe declines in formal-sector output, especially in manufacturing. Both countries had also experienced substantial inflation and loss of confidence in the local currency. Finally, the local experts skilled in economic policy in the 1960s suffered the impact of violence and economic collapse, with the result that much of this human capital was lost by the time reforms were being initiated. This loss had an important impact on the links between policy and research. Ghana The history of reform in Ghana has been sufficiently long that one can identify two major phases during which research had a differing impact on policy. The stabilization phase, 1982–1990. The fundamental economic issues confronting Ghana during the 1980s related to reforming a highly controlled and distorted economy with a fixed exchange rate regime. A series of trade and exchange controls implemented within the context of state-led, import-substituting industrialization had resulted in a highly distorted and regulated economy. This was accompanied by fiscal imbalance and inflation, but it came to be recognized that the real source of instability lay elsewhere. By the 1980s it was already evident that the poor countries that had adopted market-based development strategies were developing, while those that adopted inward-oriented, high-regulation strategies were in

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decline. Hence, a reasonable diagnosis was that the crises were not necessarily manifestations of fiscal imbalance, but that many other policies needed reform. The task thus went beyond rectifying a crisis to reorienting a development strategy (Collier and Gunning 1999, p. 1) At the initiation of the economic reform program in Ghana, the fundamental policy need was not only that of stabilization but also, and more fundamentally, changing the broader development strategy. The basic policy concerns were related to levels, speed, and sequencing of reforms, taking into consideration the expected lags in supply response. For many of these issues, very little research or data existed. Several years of economic decline—from the second half of the 1970s to the first half of the 1980s—had seriously reduced Ghanaian research capacity. Declining economic fortunes of the country and accompanying poor conditions for academic staff resulted in outmigration from the universities to other sectors of the economy and to other countries. During the 1960s, it had been usual for research-inclined economists to leave the Ministry of Finance and the Bank of Ghana to go to the Department of Economics of the University of Ghana. Exchange arrangements with foreign universities, especially the University of Western Ontario (Canada) and the University of Strathclyde (Scotland), increased the staff strength and research capability of the department. Joint seminars between the University of Ghana, the Ministry of Finance, and the Bank of Ghana, as well as regular publication of the Economic Bulletin of Ghana by the Economic Society of Ghana, ensured lively debate and substantial research output available to local economists. As the economic situation deteriorated, the universities could no longer retain their staff. Increasing ratios of students to faculty members led to heavier teaching loads, crowding out research. The general lack of finance and underfunding of the universities worsened the situation. Lack of finance, in addition to poor staffing, led to low research output and the attractiveness of “lazy rhetorical research” (Green 1996, p. 4). Thus at the beginning of the adjustment program in Ghana, not only was there no ongoing research on the application of economics to policymaking, but also there was no institutional practice or memory in using research for policy formulation. Regular publication of official source data by the Central Bureau of Statistics and the Bank of Ghana had ceased several years before the adjustment period began. The general practice, instead, was to find whatever old research output was available and use it to justify particular positions. Monetary policy. In the initial years of stabilization and reform, inflation targeting drove monetary policy. The inflation target, which was

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jointly set by the Bank of Ghana and the government of Ghana, and agreed on with the IMF, formed the basis of monetary policy. The celebrated “Quantity Theory of Money” provided the framework for analyzing the influence of the money supply on the rate of inflation in the medium-to-long term. Applying this theory required agreement on a rate of growth of the money supply consistent with the inflation target and a predetermined level of real GDP growth. The implications of this monetary growth for the supply of credit by the banking system were calculated, leading to the imposition of global and sectoral credit ceilings. The interest rate was determined by a formula aimed at achieving a positive real rate of interest in the face of inflation. The monetary policy stance was evident from the level of the Bank of Ghana’s bank rate and its ability to meet its intermediate reserve money target. Although it was recognized that the institutional changes that were taking place could affect the multiplier linking this target with the broader money supply, no money market instruments, such as treasury or Bank of Ghana bills, existed at this time. Monetary policy was therefore restricted to use of the bank rate at which banks could borrow from the Bank of Ghana and the imposition of direct controls through credit ceilings. Groups of researchers, including staff of the Bank of Ghana and policy advisors, worked together to develop a monetary survey that would obtain data on the levels and operations of the monetary sector. No accurate database existed prior to this, and the main task was to obtain meaningful data that could allow advisors to set monetary growth targets and check the macroeconomic consistency of their programs. Very little research existed with respect to country-specific behavioral relations. In any case, it is doubtful that such research results, based on experience under the controlled regime and distorted economic behavior that had prevailed previously, would have been useful in a more liberalized economy. Policy advisors therefore had to contend with general assumptions about monetary relations and behavior. Exchange rate policy. Exchange rate policy was shaped by two analytical frameworks. A “Flow-of-Funds” model, with few behavioral parameters, allowed the Ministry of Finance and Economic Planning to check for macroeconomic consistency. This model at least allowed for consistency within the real sector with an arbitrary growth equation and with fiscal, monetary, and balance-of-payments constraints. The second analytical framework was the IMF’s Financial Programming model. It is important to observe that this model treated the exchange rate as a “residual,” though it was determined with the objective of affecting real

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depreciation during the period of structural adjustment. The overall balance-of-payments position was determined by the capital accounts in the form of donor-capital inflows, with a background objective of building international reserves, which had been depleted at the outset of the Economic Reform Program. It was generally accepted that the exchange rate was highly overvalued, but the extent of overvaluation, the level of the equilibrium real exchange rate, and the lag between exchange rate changes and export growth were unknown. Purchasing power parity computations were made at the outset even though these did not take into account the impact on the equilibrium exchange rate of the major structural reforms that were under way. Between 1983 and 1986, policy advisors also resorted to sectoral estimates of the effective exchange rate as a guide to the level of changes in the real exchange rate that were required to make these sectors competitive. The negotiating document between Ghana and the international financial institutions presented these sectorspecific exchange rates, which were based on in-house surveys and analyses of traditional export sectors that took into consideration levels of capacity utilization, speed of response, and operating costs. Such research was aimed largely at estimating the exchange rate required to achieve certain levels of export response. These in-house studies were funded by the government of Ghana and fed directly into the policymaking process. IMF staff also undertook some of these studies. Most other research during the stabilization phase of Ghana’s economic reform was funded by the World Bank, USAID, and other bilateral donors.2 Foreign economists and consultants implemented these studies. Ghanaian participation in this research was very limited. While several studies related to trade and exchange rate regimes, parallel markets for foreign exchange, and the monetary and inflationary implications of exchange rate liberalization, they concentrated on sectoral and project-related issues because donor funding of research concentrated on the areas in which particular donors were involved. The bilateral donors in general consigned macroeconomic policy to the IMF, which in turn used standard prescriptions for its modeling and policy advice. The results of the research that took place outside the Bank of Ghana and the government appeared too late to be of much use for policymaking in Ghana. Ghana’s monetary and exchange rate policies had changed, and the policy issues were different from those addressed by these works at the time their results were available. These results, however, should

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have been useful for other reforming African countries, except that they were published either as working papers abroad or in economic journals that were not generally accessible to Africans. The post-stabilization period, 1991–present. The situation changed considerably in the 1990s, facilitating greater linkages between research and economic policy debate, formulation, and advice. By 1990, fiscal deficits were under control, inflation had largely been tamed, and Ghana had moved to a managed floating exchange rate. In 1991, there was also a shift from direct controls on money and credit to a system for indirect monetary management. By this time, the country’s development strategy had changed from import-substitution industrialization to export-led growth. The poststabilization period of economic reform in Ghana posed issues of a different nature for economic policy management. Ghana’s export-oriented development strategy required that the country avoid a misalignment of the real exchange rate. The rate was either to be maintained at a stable level or to be slightly depreciating. Some even argued that Ghana, at this stage, should have maintained an undervalued exchange rate, though the central bank was genuinely concerned with the inflationary implications of such a rate. Monetary and exchange rate management was carried out within the context of a frail economy subject to frequent and recurring external shocks, which gave rise to booms and busts. These external shocks consisted of changes in external aid inflows, changes in the external terms of trade, and changes in weather conditions and other environmental conditions affecting traditional exports and the mainstay of the economy—agriculture. In addition, starting in 1992, Ghana also experienced strong inflationary pressures generated by fiscal deficits, which severely complicated the use of monetary and exchange rate policy for stabilization purposes. Starting about 1989, through the activities of the African Economic Research Consortium (AERC), Ghanaian researchers in the universities, the Bank of Ghana, and other research institutes started producing research related to the macroeconomic situation. Articles on exchange rate policy and the trade regime (Jebuni, Oduro, and Tutu 1994), inflation (Sowa 1996), monetary policy (Sowa 1994; Dordunoo and Donkor 1998), and the public debt appeared in academic publications. The Overseas Development Association of the United Kingdom and USAID funded other research work on economic reforms and the exporting incentives system.

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These results were very technical and were published in sources that were not accessible to policymakers and advisors. They therefore generated very little policy debate in Ghana; neither did they have a direct impact on policy design and formulation at the time. In more recent times, three broad areas of research have been much more useful for the design, formulation, and advice given with regard to monetary and exchange rate policies in Ghana. Research related to the “Dutch Disease” literature was important. Foreign assistance played a major role in Ghana’s economic reforms. Most of the aid, however, went to the public sector, which exchanged the foreign currency for domestic currency. This tended to cause the real exchange rate to appreciate with adverse consequences for the export sector. It also led to an expansion of the domestic money supply with inflationary consequences. To contain the consequences, the central bank resorted to tight credit controls, crowding out the private sector. Steven Younger therefore recommended a move toward tighter fiscal policy combined with looser monetary policy to promote the private investment sector (Younger 1992). According to Ravi Kanbur, this work helped “frame one’s thinking in an area where muddle-headedness was common. It has also provided me with analytical ammunition when I argue in favor of budgetary restraint” (Kanbur 1993, p. 5). Related to this research, but dealing specifically with the exchange rate and the emerging dollarization of the economy, were two works funded by USAID, partially under the Equity and Growth Through Economic Research (EAGER) project. The first dealt with dollarization. The liberalization of controls on foreign exchange made it easier for Ghanaians to hold foreign-currency accounts in Ghana, and the operations of the Foreign Exchange Bureau eased the costs of foreigncurrency transactions. This led to foreign currency being held not only as a store of value but also increasingly as a unit of account and even as a medium of exchange. Research on dollarization by J. Dirck Stryker (1997) and the Centre for Policy Analysis (CEPA, Accra) led to an immediate response from the Central Bank with its own study (Gockel 2000). The eventual imposition of an 8 percent reserve requirement on foreign-currency deposits held by deposit money banks was supposed to level the playing field for the mobilization of domestic savings. Concerns about the effects of dollarization also led to invocation of the Exchange Control Act of 1961. These were attempts to deal with the symptoms, not the basic causes, of dollarization. The fiscal restraint needed to generate confidence in the economy and reduce dollarization was not attempted.

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The need for policymakers to understand how fiscal, monetary, and exchange rate policies operate in an open economy with a managed floating exchange rate, which moreover used other foreign currencies in addition to domestic currency, were addressed in another EAGER research project, entitled “Monetary and Exchange Rate Policy in Ghana.” Using an analytical framework based on the portfolio balance model, this research applied vector error-correction modeling to estimate the equilibrium real exchange rate and its short-term dynamics for Ghana (Jebuni and Stryker 1998). Apart from the role of monetary and fiscal policies in influencing the exchange rate in the short run, the study’s conclusions with respect to external shocks (terms of trade and aid inflows) were also pertinent. Its results suggested that for a country pursuing an export-led growth strategy, intertemporal smoothing would suggest the desirability of an asymmetric policy rule with respect to the exchange rate, which would be biased toward a real depreciation in responding to external shocks. Both the analytical framework and elements of the results of this study were introduced into meetings of the board of directors of the Bank of Ghana. They were also featured in publications of CEPA and incorporated into CEPA’s advice to the government of Ghana (Centre for Policy Analysis 2000). Nevertheless, as we shall see below, the central lessons from this research were ignored by the government and the Bank of Ghana because of the strong political pressures that were pushing Ghana in the direction of fiscal imbalance. Uganda Uganda undertook its program of stabilization and structural reform some years after Ghana. By the time the program got under way, thinking regarding the need for indirect monetary policy and flexible exchange rates in developing countries had evolved considerably, so that Uganda moved very quickly toward these goals. From the beginning, heavy emphasis was placed on fiscal and monetary stabilization. Specific programs were established to control the money supply and to maintain fiscal balance. This substantially facilitated the implementation of monetary and exchange rate policy. Nevertheless, Uganda experienced major problems trying to deal with external shocks. There was also some conflict between broader development goals and stabilization programs that were revised to try to incorporate the broader goals. The role of research in guiding these efforts was significant. Much of the relevant research was initiated under the IMF’s aegis because of the initial shortage of qualified local researchers. However, as local

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economists were trained and gained experience, in part as a result of the AERC’s program, they began to take on an increasing role within the Bank of Uganda’s Research Department, research institutes (such as the Economic Policy Research Center [EPRC]), and the university. In the meantime, the analytical and procedural tools used by policymakers were beginning to fall in place. These included the Bank of Uganda’s Reserve Money Program, the Medium-Term Expenditure Framework (MTEF), and the EAGER project model used for analyzing monetary and exchange rate policy in Uganda. Reserve money program. Uganda’s RMP is a flow of consolidated assets and liabilities of the central bank. In determining the demand for base money, the main steps followed include: • Qualitative analysis of the overall macroeconomic objectives in terms of desired real GDP growth, inflation, and balance of payments • Making projections for monetary growth, consistent with macroeconomic objectives and assumptions regarding the velocity of circulation • Projecting the growth of base money, initially on an annual basis and thereafter based on the seasonal money demand The supply of base money is affected by factors that are not directly under the control of the central bank, and nonautonomous factors, which are driven by bank policy considerations. For any particular month, the out-turn of base money is compared to the desired level and the gap dictates the direction of monetary policy (easing if base money is below that desired and vice versa), bearing in mind developments in the prospective autonomous supply of base money and other macroeconomic variables (inflation, exchange rates, and interest rates). The monetary instruments used in the conduct of monetary policy include: • Open-market-type operations in the treasury bill and Bank of Uganda bill markets • Cash reserve requirements on demand, time, and savings deposits to influence the monetary base • Bank rate to regulate commercial bank borrowing from the central bank • Rediscount rate to regulate liquidity by impacting on treasury bills

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• Foreign-exchange operations, largely in the form of spot transactions (and in some cases arbitrage), to stabilize conditions in the external sector • Additional instruments that have recently been developed to enhance the conduct of indirect monetary policy, particularly the Lombard facility and repurchase and reverse purchase agreements One of the major challenges faced in implementing the RMP is deciding when to determine the direction of monetary policy based on other macroeconomic indicators instead of the policy stance derived from the RMP. Other things being equal, the gap between actual and desired levels of base money should set the direction of monetary policy, but there is no rule on the size of deviation necessary to trigger a policy change. As a result, any action has to be strongly supported by developments measured by other indicators. Another problem is forecasting the autonomous factors affecting banks’ reserves, such as foreign-assistance inflows, external public debt payments, and domestic financing of the fiscal budget (excluding treasury bills). Another source of uncertainty is the stability of the money multiplier, which is the underlying relationship between the monetary base and the broader money aggregate. Beginning in 1998–1999, the money multiplier became very unstable. This was partially due to the banking crisis that began in 1998–1999 and saw the closure of four banks, a flight to quality loans in the banking system, a slowdown in credit leading to high excess reserves, and a change in portfolio behavior as people shifted into currency and demand or foreign-currency deposits. Portfolio behavior was also affected by the terms-of-trade shock, which led to a rapid depreciation of the shilling. These factors made it difficult to predict the impact of RMP monetary policy on the money supply. Medium-term expenditure framework and the role of fiscal policy. A major reform in the fiscal management process was the introduction of the MTEF. MTEF is a government-wide multiyear framework for integrating policymaking with economic planning and budgeting. It defines medium-term funding through a series of sectoral ceilings, which are based on affordability and intersectoral priorities. It also provides a framework for implementation of the Poverty Eradication Action Plan (PEAP). The key objectives of the MTEF include: • Improving medium-term macroeconomic management by ensuring that government spends within available resources. The framework

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also signals to the private sector that the government is to maintain prudent macroeconomic stability, which builds credibility. • Improving strategic resource allocation ensuring that sectoral allocation of resources is consistent with the objectives of the PEAP and with overall fiscal goals • Increasing predictability of budgetary policy and resource allocation by providing three-year rolling projections and sectoral budget ceilings • Improving efficiency and effectiveness of use of public resources by providing more autonomy to the line ministries and agencies, and within a budget constraint, establishes output-based budgeting and accountability through performance benchmarks During the first stage of designing the MTEF, which began in 1993, the main aim was to restore aggregate fiscal discipline and macroeconomic stabilization. Consequently, a medium-term macroeconomic framework was formulated to set the levels of budgetary expenditure needed to deliver macro stability. This stage also introduced selected medium-term budget issues, including wage bill planning and prioritization of road sector allocation. In 1996–1997, the objectives of fiscal discipline and stabilization were extended to include funding linked to specific sectoral objectives, providing a predictable flow of resources while leaving the detailed budget management to the line managers. The MTEF currently comprises: • Consistent with the macroeconomic objectives (e.g., growth and inflation), projections of domestic tax and nontax revenue, foreign grants and net borrowing, and the government domestic borrowing or saving are used to derive estimates of available resources. • Current and medium-term costs of implementing existing budgetary policies are estimated and the costs of new initiatives are evaluated. • Matching of costs and resource availability is undertaken, with reprioritization where the two do not match. An institutional mechanism exists for making the trade-offs inherent in planning and budgeting, and for facilitating a transparent process of reprioritization and reallocation. At the operational level, the MTEF manifests itself in the annual budget process from which the budget framework paper is produced. A

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financial-programming exercise that links the macro objectives with the policy instruments also yields the targets for monetary and fiscal policy, consistent with specified objectives and constraints. This determines the appropriate budget balance, growth rates of prices and the money supply, and implications for the balance of payments and growth of the economy. In order to impose strict limits on expenditures, however, a cash-flow management system was adopted so that expenditures are controlled by monthly releases made by the Ministry of Finance in line with actual and projected resources and the overall macroeconomic environment. During the post-1992 period, fiscal management has played a very important and significant role in successfully implementing monetary and exchange rate policy. Because excessive printing of money had earlier been responsible for high inflation, financing the budget had to change to less inflationary means. Furthermore, the infancy of the financial system meant that few instruments were available as authorities moved from direct control to indirect monetary management, but also that effectiveness of monetary policy was highly constrained. Because monetary policy is of limited potency, built-in flexibility in cash-budget management allowed fiscal policy to respond to volatile movements in the foreign-exchange market, unrealized revenue performance, and shortfalls in external budgetary support. Examples of this flexibility included surrendering of the treasury bill instrument to the monetary authorities, imposition of a coffee stabilization tax during the 1994–1995 coffee price boom, and expenditure cuts whenever there were shortfalls in programmed revenues, as was the case in 1998–1999. The concern over the impact of these actions on fiscal programs was outweighed by the benefits associated with a stable macroeconomic environment. Monetary and exchange rate policy in Uganda. The EAGER project sponsored a study of monetary and exchange rate policy in Uganda, which developed a model currently being used by the Research Department of the Bank of Uganda. This model estimates the real exchange rate in terms of a number of fundamental variables that are not directly influenced by monetary policy, as well as the effects of monetary policy. Equilibrium values of the fundamental explanatory variables determine the equilibrium real exchange rate. Departures of the real exchange rate from the equilibrium real exchange rate are explained both by departures of the fundamentals from their equilibrium values and by monetary shocks. The model also estimates the effects that changes in the real exchange rate will have on the real value of exports, imports, government expenditures, and tax revenue.

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The target audience for this research on monetary and exchange rate policy and the macroeconomic policy coordination process consisted first and foremost of officials of the Bank of Uganda and Ministry of Finance, Planning, and Economic Development. Policy-oriented empirical research improved these officials’ ability to present high-quality budget speeches and background to the budget speeches, and policy statements to the public and other stakeholders on the subject of monetary and exchange rate policy. The research enhanced their capacity to formulate, conduct, and anticipate the consequences of their foreignexchange market operations, domestic open-market operations, and other uses of monetary policy instruments. In addition, other members of the banking and financial community benefited from a clear and more transparent understanding of how monetary, fiscal, and exchange rate policies function in Uganda, and the limitations of these policies. Exporters and importers now better understand the movements of the nominal exchange rate in relation to changes in domestic prices, and the implications of these changes for the profitability of their operations. Finally, the target audience included other members of the business community, journalists, academicians, politicians, and the general public, who have gained a better understanding of one of the crucial issues affecting Uganda’s trade, growth, and poverty eradication prospects, in general, and Uganda’s export-sector competitiveness in particular.

Application of Research to Particular Policy Issues The major dilemmas confronting policymakers concerned with monetary and exchange rate policy in Ghana and Uganda include: • How to use monetary and exchange rate policy to offset the impact of fiscal deficits on inflation, interest rates, and depreciation of the exchange rate. This has been a particular problem in Ghana. • How to use monetary and exchange rate policy to dampen the effects of external shocks to the balance of payments caused by changes in the terms of trade, variations in capital flows and current transfers, and fluctuations in weather conditions that impact agriculture. These external shocks produce sudden changes in the real exchange rate and undesired secondary effects on economic activity, competitiveness of the export sector, inflation, interest rates, and economic growth. Although both Ghana and Uganda have experienced problems with these shocks, they have been relatively more important in Uganda.

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The EAGER project provided the analytical framework for studying these adverse effects. This framework was available to the central banks of each country, and the staffs of their research departments were familiar with how the models worked and what their principal conclusions were. Nevertheless, the result was continued inflation and depreciation of the cedi in Ghana and substantial external shocks affecting the exchange rate and the economy in Uganda. The reasons for the lack of impact reveal the limits that research can have on policy and how that impact can be increased. Fiscal Imbalance in Ghana The immediate postindependence policy regime in Ghana was based on a mixture of industrialization and socialism that associated industrialization with development (Frimpong-Ansah 1996). It was also based on the dominant development paradigm of the 1960s that saw free international trade as being inimical to economic development (Killick 1978). According to J. Clark Leith and Michael F. Lofchie, this policy regime both rewarded urban interest groups and led to their growth. These groups became powerful forces in the maintenance of these policies. The groups were composed of politicians, civil servants, workers and managers of the protected state industries, some traders, and the military. According to studies of the Ghanaian economy (including Frimpong-Ansah 1996), the ruling coalition pursued its inappropriate policies beyond the point for optimum rent extraction. As a result, cocoa producers, small-scale farmers, and other economic actors used parallel markets and smuggling to leave the formal economic system. As they did, the rents that held the ruling coalition together diminished and the very survival of the country was threatened. The crisis forced the Rawlings regime to adopt market-based reforms in 1983. A major source of the economic crisis that Ghana found itself in at the time was due to fiscal expansion accommodated by monetary policy. The rents that held the ruling coalition together had disappeared because of the decline in the level of economic activity that occurred under increasingly distorted incentives. Thus, increased government expenditures were required to generate social cohesion and to rehabilitate basic infrastructure. The government’s strategy was to increase—not reduce—government expenditures while raising revenues to finance them. This strategy resulted in a built-in consumption bias, with a persistent tendency for government

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expenditures to escalate. Throughout the reform period, while government revenues increased substantially as a proportion of GDP, government expenditures increased at a faster rate. Nevertheless, with considerable donor support, Ghana started running budgetary surpluses by 1987. The rate of inflation dropped significantly. Ghana, it appeared, had struck the right fiscal, monetary, and exchange rate policy combination. This relative stability continued until the new constitution was put in place in 1992. The main concerns at this time were how to maintain the macroeconomic stability that had been achieved, how to sustain the tempo and credibility of the reforms, and how to accelerate the pace of economic growth. These were now to be achieved, however, under a liberal democratic system where the political economy of fiscal management would be more complex. Under this new system, the social demand for spending could only increase. As the economic reform program progressed, especially with liberalization of the foreign-exchange market and abolition of import licensing in 1989, the business community began to resent certain aspects of the reforms. In particular, it resented the increased costs of foreign exchange and imported production inputs, exposure to rigorous international competition resulting from trade liberalization, and taxation to increase revenue, which they perceived as extortionate (Gyimah-Boadi and Jeffries 2000). For ideological reasons as well as political survival, the government remained ambivalent in its underlying attitude both toward the idea of a market-based economy and toward private enterprises (Leith and Lofchie 1993). The Provisional National Defense Council under Rawlings came to power on an essentially socialist philosophy. This philosophy was based on the notion that the economic woes of the country were the result of exploitation of the masses and the corruption of the system. Only when the system threatened to collapse did he accept the need for market-based reform. However, the ambivalence remained. The philosophical ambivalence created a credibility gap that discouraged private investment and stalled the reform process. Thus the Ghanaian reform program was driven largely by public-sector expenditures and investments funded largely by external resources. When the level of external support declined in the 1990s, the program ran into a crisis from which it has yet to recover. The government lost control of its expenditures, running huge deficits that resulted in the accumulation of domestic and external payments arrears, rising inflation, high interest rates, depreciation of the currency, and decelerating economic growth.

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The extent of this macroeconomic imbalance was clearly stated in a series called “Macroeconomic Review and Outlook,” put out by CEPA. In particular, CEPA used the EAGER research to indicate the extent to which the real exchange rate was overvalued as a result of the government’s concern that exchange rate depreciation was driving inflation and the resulting diminished competitiveness of Ghana’s export industries.3 However, the government disregarded the analysis, and private exporters were unable to counteract the government’s actions, perhaps because the government perceived existing private-sector operators as belonging to their political rivals. External Shocks in Uganda Although Uganda experienced economic growth rates well in excess of 5 percent annually since 1992, this strong performance masked a number of weaknesses. The most important was export stagnation, due partly to a decline in the terms of trade and partly to problems of drought and disease in the coffee sector. This offset the stronger performance of nontraditional exports. Despite the lack of export growth, imports have continued to rise from US$1.3 billion in 1994–1995 to US$1.8 billion in 1999–2000. The increase in the trade deficit was financed through private transfers and foreign assistance. With the current account deficit, exclusive of grants, running at 14.6 percent of GDP in 1999–2000, Uganda is extremely vulnerable to external shocks affecting the balance of payments (Republic of Uganda 2001). This vulnerability was demonstrated in the late 1990s by the substantial depreciation of the exchange rate that occurred. “The real effective exchange rate, which measures the real value of the shilling vis-à-vis a basket of currencies of Uganda’s major trading partners, has depreciated by about 30 percent since . . . early 1997” (Republic of Uganda 2001, p. 3). Unlike the situation in Ghana, this was not due to excessive inflation, which remained below 6 percent, but to external shocks. Vulnerability was also shown during the mid-1990s, when the coffee boom caused the Ugandan shilling to appreciate in real terms against the basket of currencies. The Bank of Uganda tried to limit the appreciation by intervening in the foreign-exchange market, an action that resulted in an expansion of the domestic money supply that could not be absorbed through open-market operations because of the weakness of the secondary market for government securities. As a result, the government was forced to impose a temporary coffee-stabilization tax. On other occassions, the government cut expenditures to accommodate

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the effects of external shocks on the balance of payments. Cutting expenditures was considered to be less of a problem than the potential instability that shocks might otherwise have engendered. Recent experience suggests that the consequences of trying to stabilize the exchange rate in the face of external shocks may be worse than letting the exchange rate move to absorb some of the effects. For example, in early 2000 the Bank of Uganda intervened in the foreignexchange market and tightened monetary policy to reduce the impact of a decline in exports. However, “realising that the cost of establishing the exchange rate in the light of significant changes in the fundamentals—especially the terms of trade shock and poor export performance—through high domestic interest rates would turn out to be too high, the burden of the adjustment was shifted to the exchange rate” (Bank of Uganda 2000, p. 3). The Bank of Uganda’s monetary program also tried to accommodate foreign-assistance inflows through sales of dollars in the foreignexchange market. This tended to cause nominal and real exchange rates to appreciate, which can damage export competitiveness. “The other alternative is to squeeze the private sector credit through higher interest rates, but this has implications for the real economy” (Bank of Uganda 2001, p. 9). In the end, the choice is between the gains to the private sector resulting from increased government expenditure and the losses associated with decreased competitiveness. The EAGER study on monetary and exchange rate policy in Uganda had an important impact on thinking about these issues within the Bank of Uganda. It also had some influence on discussions outside of the bank. The magnitude of the shocks to Uganda’s balance of payments was such, however, that the bank moved away from a rigid goal of maintaining the real exchange rate at its equilibrium level and toward using movements in the real exchange rate to absorb some of the impact of these shocks. Established that the real exchange rate has an equilibrium level and that any longer-term departure from this level will have adverse economic consequences (Antingi-Ego and Sebudde 2000).

Conditions for Effective Policy Research In Ghana, the difference between the more recent research, which had a considerable policy impact, and earlier research lies both in the method by which topics were selected and the participation of policymakers in the research. The EAGER research on monetary and exchange rate policy

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and on dollarization concentrated on restoring macroeconomic stability, an issue identified by CEPA as of critical importance. The research involved two members of the Bank of Ghana’s board of directors, as well as the bank’s acting director of research. Younger’s (1992) research resulted from his interaction with the World Bank office in Accra. Thus, this research arose from policy dialogue and the issues emerging at the time, and was both relevant and timely. In contrast, most earlier research was conducted outside the government and the Bank of Ghana, isolated from the decisionmaking process, and those results were neither widely disseminated to policymakers nor timely. The EAGER research on monetary and exchange rate policy in Uganda contributed to policymaking because it directly involved the central bank researchers most directly concerned with monetary and exchange rate policy. The management of external shocks was deemed to be of central importance to the bank at the time the EAGER research was being formulated. The EAGER-sponsored workshops in Kampala, Accra, Dar es Salaam, Dakar, and Johannesburg, as well as the All-Africa EAGER conference in Gaborone (Botswana), proved to be particularly good venues for presenting and discussing research results and for learning how other countires dealt with similar problems. This was especially important with respect to monetary and exchange rate policy in both Ghana and Uganda. One critical lesson learned is that close integration of policymaking and research is no guarantee that the research results will be used. This is abundantly illustrated in Ghana, which has persisted in running fiscal deficits and efforts to dampen exchange rate depreciation despite clear analysis that this is detrimental to economic growth. The political pressures have been just too intense. In this environment, the only way that research can contribute to policymaking is if it enters the public dialogue on these policy issues and provides ammunition to those who have a vested interest in seeing that detrimental policies are corrected. A more conducive environment for policy debate has recently emerged in Ghana and may ultimately influence decisionmaking in constructive ways. The development of civil-society institutions that can utilize research results and bring them to bear on emerging issues in a format accessible to policy advisors and policymakers is important in creating a link between research and policy design and formulation. Since about 1994, the policy research and dissemination institutions established in Ghana include CEPA, the Institute for Economic Affairs (IEA), and the Policy Division of the Ghana Institute of Management and Public Administration (GIMPA). CEPA, in addition to doing its own research, incorporates the work of other researchers into its publications,

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which are available to policymakers, policy advisors, parliamentarians, and the private sector. Both the IEA and the policy division of GIMPA sponsor seminars to debate issues emerging from research results. Civilsociety institutions are probably better equipped to play a watchdog role than the research centers themselves. There is also a need for continuous synthesizing of findings to benefit the policy community: “This may include synthesizing the findings of country-specific research or of the latest developments in theory” (Kanbur 1993, p. 12). In both Ghana and Uganda, the changing system of governance, which requires that policies be justified before both Parliament and the broader population, influence the use of research by encouraging a more critical review of the assumptions behind policy advice. For example, committees are established in Uganda with representation from government, the private sector, and assistance donors to consider various policy issues to be discussed at the Consultative Group meetings led by the IMF and the World Bank. There is increasing and widespread use of the results of publicpolicy analysis and research by the private sector. In Ghana, the newly emerging financial institutions—the Ghana Stock Exchange, stock brokerages, and asset managers—are increasingly questioning official data sources and using other sources for their economic assessments and advice to their clients. Traditional beverage and detergent manufacturing enterprises are subscribing to CEPA publications to inform their corporate plans. However, this demand is not yet sufficient to lead the private sector to fund or commission independent macroeconomic research. The promotion of policy debate and interaction involving policy advisors and researchers has been useful in drawing attention to the results of research on emerging issues. Not only is the volume of research important in the link between research and policy, but also the method of dissemination. There are two important elements of research dissemination: physical availability and access at the technical level. Physical availability is promoted through seminars and workshops involving the policymaking community; publications in local journals may also increase the availability of country-specific research. However, seminars and publications may still not be accessible on technical grounds; thus, communication may be the more important factor in dissemination. Policymakers and researchers do not speak the same language. Technical level and length can discourage policymakers from reading and absorbing research. Researchers should consider summaries and other

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techniques to simplify their submissions to policymakers and their top advisors (Kanbur 1993). Effective policy analysis may also require building the capacity of the media on technical issues. Experience also suggests that institutional use develops the practice of incorporating research in policy formulation over time. For long periods in both Ghana and Uganda, policy advisors and bureaucratic analysts used no research results, implying there was no institutional memory. Perceiving the civil service as an administrative body also played a role. More recently, however, the professional level of staff, particularly at the central banks, has substantially improved. Interaction with external donor agents and the gradual buildup of experience is therefore leading to greater reliance on research for policy design and formulation. Most research within government is commissioned by policymakers when it is to be done within their departments, or by broader committees when the research is done outside. In the latter case, policymakers may have only a consultative role. Much Internet government research goes unpublished and hence unnoticed because it is not considered to be part of the normal office work for the institutions involved. Adequate incentives (funding, publication, etc.) are needed to carry out proper research and ensure its widespread dissemination. For example, the Bank of Uganda recently started publishing its research work through Bank of Uganda Research Papers and the Bank of Uganda Staff Papers Journal. The Bank of Uganda also produces monthly, quarterly, and annual economic reports analyzing the macro economy. These reports are used by the general public, academic institutions, financial institutions, and other entities to follow economic developments. Improvements could include enhancing incentives for local researchers to conduct research contributing to the policymaking process, and providing for more widespread dissemination of this research. There is also a need to establish clear and transparent conditions for how research is to be used in the policy formulation process, and to design a framework for monitoring the impact of policy research on macroeconomic policy.

Concluding Observations The analysis of the impact of research on monetary and exchange rate policy in Ghana and Uganda leads to a number of important conclusions. First, it is clear that at the beginning of their period of economic reform, capacity to undertake research in these countries had been

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severely weakened by the extraordinary disruptions experienced by their economies in terms of inflation, economic distortions, and civil conflict. This meant that research, if it was to be conducted at all, required outside expertise. Outside expertise was thus supplied by the international financial institutions who needed the research to support the reforms being negotiating with local governments. The difference in access to methodologies and data created a very unequal relationship in which Ghanaian and Ugandan counterparts found it difficult to relate to the experts of the IMF and World Bank. Expatriate researchers from the university community sometimes assisted local researchers, but their orientation was often quite academic in nature and research results frequently appeared too late and were not well integrated into the policymaking process. A second conclusion is that in-house research is important for policymakers. Although the quality of in-house research sometimes left something to be desired, especially in the early days of reform, it was readily available and timely for decisionmakers. This suggests that inhouse analysts should participate with outside researchers in the analysis and presentation of results for research to be useful for policymaking. Outside publication of in-house research is also a good way to promote closer relations between government policy analysts and outside researchers. Another finding from the study is that policymakers need to be thoroughly involved in determining the research agenda. Left to themselves, researchers are apt to undertake research on topics that they find of personal interest rather than on issues particularly important for policy. This involvement also helps to assure that research results will be used to influence current policy decisions. The capacity of local researchers to undertake high-quality policy research has increased substantially in recent years, due partly to AERC’s work. Also important has been the work of independent research centers such as CEPA in Ghana and EPRC in Uganda, which have built a cadre of highly qualified researchers capable of making informed, independent assessments of government policy. At the same time, the experience of both Ghana and Uganda demonstrates how the quality of research of government analysts can be improved in ways that feed directly into policy. Ultimately, what this suggests is that research activity should involve policymakers, outside research centers, independent researchers, and government analysts working together to identify topics of importance for upcoming policy decisions, undertaking

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research in a collaborative fashion, and feeding the results of the research into the policy formulation process. Even if relevant research is available to policymakers in a timely fashion, there is no guarantee that it will be used—especially if external and domestic pressures are such that policymakers feel they have little choice regarding economic policy. The best that can be hoped for in this situation is that all stakeholders have access to the researchers’ information and analysis so that this can used to reinforce their positions in the dialogue with policymakers. Dissemination of research results has been facilitated in both countries by the growing importance of democracy and of civil-society institutions that serve as fora for communication between researchers and policymakers. The private sector is also a growing market for research results. Frequently, both civil-society institutions and the private sector have strong vested interests and can be counted upon to express their views forcefully in the policymaking process. It is important, therefore, that they have the results of good policy research communicated to them in readily digestible form. This requires that dissemination of research be carefully targeted to the intended audience. Over the longer run, policy research is likely to contribute much more to policy formulation and the public dialogue if relationships between researchers, policymakers, government analysts, and civil society are continually strengthened in ways that all parties see as beneficial. This requires that researchers remain visible as participants in the policymaking process in order to build the trust and confidence required for policy to have a strong empirical and analytical base of support.

Notes 1. The African Economic Research Consortium (AERC) has played an important role in upgrading the skills of African researchers in this area. 2. For samples of such early works, see May (1985), Chibber and Shafik (1990), and Islam and Wetzel (1991). 3. Some of the mechanisms used to support the overvaluations included in partial reversals of trade liberalization efforts. For instance, lobbying resulted in Parliament imposing a special duty of 20 percent on imports in 1999. The Bank of Ghana also attempted to control the rate of nominal depreciation, which led to real exchange rate appreciation.

8 South Africa: Policy-Oriented Research on Labor Markets and Poverty Haroon Bhorat

South Africa, with its first democratic elections in 1994, left behind decades of official segregation and racism encapsulated in the nationalist policy of apartheid. While political liberation was achieved in April of that year, the economic vestiges of the past remained, and indeed continue to challenge the new government. Policymaking in South Africa has thus increasingly taken on an orientation of activating different levers of the economy to ensure high levels of growth and competitiveness together with significant attempts at reducing existing levels of poverty in the society. It soon became clear, however, that such policymaking could not take place in an information vacuum. What one found, then, was that during the course of the new dispensation, government officials began increasingly to turn to researchers in both academic and nonacademic institutions to assist them in the formulation of these new policies. This chapter will attempt to describe this link between policymakers and researchers in one thematic area—that of poverty and labor markets. As will be shown, this area in and of itself yielded a series of fruitful (and in some cases less fruitful) linkages between research and policy formulation. In addition, while remaining quite focused, the chapter hopes to deliver an analysis that may be representative of experiences in other facets of the South African policy research landscape.

The Origins of the Research-Policy Relationship South Africa does boast a fairly high level of engagement between the research community and policymakers. In most of the economic 183

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ministries, which essentially include the Office of the President, Department of Trade and Industry, Department of Labour, National Treasury, and to some extent the Department of Welfare, there is a significant degree of interaction between individuals within these government departments and the research community. The research community in South Africa encompasses individuals and institutions based at universities, those working as private consultants on an individual or company basis, and nongovernmental organizations (NGOs). It needs to be remembered that South Africa has a highly organized work force, represented by a very strong and vocal trade union movement. This movement is represented in the main by the Congress of South African Trade Unions (COSATU), which is a federation consisting of some nineteen sector-specific unions and a total membership of about 1.8 million workers. While historically COSATU has had an alliance with the ruling party—the African National Congress (ANC)— more recently there have been significant differences on a range of policy issues between COSATU and the ANC. This has led to a second layer of relationships between researchers, on the one hand, and pressure groups interested in shaping domestic economic policy, on the other. COSATU is the most visible representative of this pressure group, but it encompasses NGOs, church groups, and a range of disparate community organizations. One therefore has researchers and research institutions also assisting pressure groups in thinking about alternative policy formulation in the country. Ultimately, these are two broad layers of engagement between researchers and the policy arena in South Africa. The first is represented by the engagement between researchers and government. In the areas of poverty and labor markets, the key departments would be the National Treasury and the Department of Labour. To a lesser extent, the Departments of Trade and Industry, and Welfare, and the Office of the President have also been part of this interaction. The second layer is that of the interaction between organized labor and the research community, wherein the former the COSATU remains the key protagonist. In each of these two cases, the type of research provided, the nature of the engagement, and the final impact on policy formulation differs. While this chapter will allude to these latter linkages, it is the former that will disproportionately engage the reader here. It is important to try and describe how these linkages and relationships originated. Prior to 1994, most intellectuals who had opposed the minority government had found a home for themselves either in academic research institutions, academic departments and faculties, or in donor-funded

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NGOs. These were invariably social scientists who had leftist leanings and a strong association or high levels of sympathy with the liberation movements. In some cases, individuals were simultaneously political activists as well as researchers or academics. In addition, many of these intellectuals were employed in the trade union movement. For example, the current minister for trade and industry, Alec Erwin, was a high-ranking official in the National Union of Metalworkers of South Africa—an affiliate of COSATU. Indeed, perhaps a more powerful example is that the personal aide to Nelson Mandela, Professor Jakes Gerwel, was previously the rector of the University of the Western Cape. In essence, many of South Africa’s intellectuals and political activists have had some form of interaction with the research community. Herein lies the source of the strong level of association between researchers and the policy community. With the onset of majority rule, the ANC began to draw on members both within its organization and in sympathetic organizations such as COSATU for some of its key political and bureaucratic positions. Many individuals who were in the leadership in COSATU were drawn into senior positions in government, with some serving in the first cabinet of the new government. For example, the general secretary of COSATU, Jay Naidoo, was appointed as “minister without portfolio” (and subsequently minister of telecommunications) in the 1994 cabinet. Many well-known academics in university structures were appointed either to bureaucratic positions within government, or as special advisors to ministers. For example, two lead researchers based at the University of Cape Town were appointed variously as special advisors to the minister of trade and industry and the minister of labor. Very soon after the April 1994 elections, the academics, researchers, and unionists of yesteryear had become either full-time or part-time members of the newly transformed public sector. In the two departments that focus on poverty and labor market research, the National Treasury and the Department of Labour, more than half of the current senior management of these institutions are individuals with a past either in the union movement or in academia. The very fact that the network of intellectuals, researchers, and political activists overlapped extensively in South Africa means that, as a consequence, policymaking in the country is significantly influenced not only by research-oriented individuals but also indirectly by research being produced on policy-relevant issues. Very often, policy-oriented research was carved out and conceived of on the back of personal links between individuals in government on the one hand, and those remaining in research institutions on the other.

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The current environment can therefore be explained by the three “responses” that the change in 1994 has elicited from individuals. First, a clutch of individuals left the research milieu and union movement in 1994 or soon thereafter, and have never returned. They represent the rising class of new bureaucrats within the public sector, although they strongly retain their interest in and appreciation of relevant research. Second, a number of individuals entered the public sector in 1994, but have since left. Many of these individuals have returned to the research world (and a minority even back to the unions), although a significant number have joined the private sector. Finally, there are those individuals who retain a strong link with their erstwhile comrades from the liberation struggle (who are now in government), but have chosen to remain in research or in the trade union movement. It is in pigeonholing these three “individual types” in the South African policy research arena that allows one to anchor an analysis around the nature of interaction and engagement between government and researchers in the poverty and labor market areas. It speaks of a fairly fluid, yet highly efficient, network of individuals who have at one point or another engaged with the research community. These three categories of individuals form the axis around which the South African research and policy dynamic is engineered and ultimately sustained. The above suggests that poverty and labor market policymaking is to a significant, but not necessarily dominant, extent influenced and shaped by the various research programs and initiatives that were underway in academic and other institutions. Initially these research questions and themes in fact were the drivers behind much of the labor market and poverty thinking in government. For example, one of the key debates that took place within the Departments of Labour and the National Treasury was around wage-employment elasticity. This was fueled by the research work ongoing within academic institutions. However, more recently there is increased evidence of a change in this relationship, as the new bureaucrats have become ensconced and hence more assured in their positions. This has resulted in the latter being more influential in shaping parallel research agendas and issues. While this will be further discussed below, it is clear that this poses both an opportunity and a threat to the work of intellectuals and research institutions. The opportunity lies in the fact that research can be very closely tied to policy formation within government. The threat emanates from the loss not only of independence in the research process, but also the loss of academic rigor in the pursuit of producing digestible and accessible outputs for government departments.

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Ultimately, though, the research community, in the first instance, supports the protagonists of both national labor market and antipoverty policy in the form of the key economic departments of government. In addition, this same community also provides support and assistance to the union movement, the dominant alternative interest group to current economic policy. It is also evident that such a high level of synergy between these groups has been a function of how most of the individuals in these different environments have all, in some way or another, been linked to the research world. This has assured both an appreciation for the centrality of research and ultimately its importance in determining the broad direction of policy. We now turn to specific labor market and poverty research initiatives and the ways in which they can or cannot be held up as good examples of policy-linked work.

Labor Market Research Initiatives The Department of Labour (DoL) in its early period was forced, as with most government departments, to concentrate on internally restructuring and transforming from an apartheid-run bureaucracy to one truly representative of a postapartheid society. This meant that personnel changes had to occur, although they remained hamstrung by an eleventh-hour transitional agreement that protected the jobs of all civil servants from the previous era. Hence the bureaucracy within the DoL changed slowly and the minister and his senior staff found themselves, for the initial period, without any lieutenants that they knew and trusted. One route around this problem in the short run was to appoint special advisors that the minister could bring in from the outside. These advisors became the minister’s trusted, skilled, and well-known policy agents. The minister of labour, like many other cabinet members, duly appointed his special advisor, David Lewis, in 1995. The advisor was a well-known and highly regarded researcher who at the time of his appointment was in fact the director of an academic research institution. He continued for a period of about two years to be both a researcher and policy advisor to the minister. The importance of this fact cannot be overstated. The fact that one had a respected researcher in a high-profile policy position immediately meant that policy formation within the DoL soon after the elections was going to be shaped, informed, and underpinned by a comprehensive research program. It was precisely this individual’s simultaneous links with the union movement and the political struggle from the vantage point of

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being a researcher, that allowed for this type of appointment. Indeed, many of the early appointments to the higher end of the public sector can be explained in this manner. This attempt at combining a set of detailed policy questions and issues with a research process was perhaps most potently evident in the appointment of the Presidential Labour Market Commission (LMC) in May 1995. The commission was formed essentially to derive a set of policy suggestions on a series of issues relating to the labor market, ranging from an appropriate macroeconomic policy strategy for employment generation to the importance and necessity of reducing discrimination in the labor market. Specifically, the commission dealt with the following themes: • • • • • • • • •

Macroeconomic policy for labor market policies Industrial strategy and the labor market Wage determination A policy framework for productivity enhancement Social plan initiatives Unemployment insurance and public works programs Employment equity Labor migration An accord for employment and growth

The brief of the LMC was both exhaustive and laden with possibilities for detailed labor market research. Indeed, this fact was made more obvious given the presence of some eight researchers within a commission of fifteen individuals. A core policy mechanism of the DoL was therefore heavily represented by academics and researchers. In theory, the deliberations of the LMC were to form the basis of future labor market policy thinking in South Africa. Herein lies a key example of the strong synergies that exist between policy and research in the field of labor markets within South Africa. Table 8.1 provides an account of all the commissioners on the LMC and attempts to detail their links to the research community. Their affiliation refers to their job status at the time of the LMC’s deliberations. It is evident, as stated above, that eight commissioners were directly linked to the research community, either as members of an academic department at a university, or as members of the broader policy research community. In addition, some individuals, such as Moss Ngoasheng, the co-chairperson of the commission, and Adrienne Bird, have had long strong links with the research community, either directly or indirectly.

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Table 8.1 LMC: Commissioners and Their Affiliation Commissioner’s name D. M. J. A. H. S. D. A. M. G. G. N. M. S. N.

Lewis Ngoasheng Baskin Bird Cheadle Buhlungu Kaplan Lamprecht Leibbrandt Mantashe Mhone Nattrass Romano Santho Segal

Affiliation University of Cape Town President’s office Trade union research institution Trade union Labor lawyer University of the Witwatersrand University of Cape Town Private sector University of Cape Town Trade union Research consultant University of Cape Town Private sector University of Lesotho Private sector

A further elaboration on the LMC, and one that reinforced the policyresearch synergy, was that the International Labour Organization (ILO) was drawn into the commission’s deliberations. The DoL had sought the technical assistance of the ILO. The ILO’s brief was to undertake and provide research to the LMC, to ensure that the policies it suggested were based on high-quality and credible research. The ILO was therefore asked to coordinate a comprehensive overview of the South African labor market. One thus had an in-house research process ongoing within the LMC, coupled with a larger and far-reaching initiative through the ILO. Both were to provide the empirical and analytical basis for the policy suggestions and formulations that were to emanate from the deliberations of the LMC. It should be noted that apart from the generous sprinkling of researchers within the LMC, it was well represented by leaders from both the business community and the union movement. The LMC, some thirteen months after its formation, produced its 200-odd-page report. To this day, many of the policy proclamations within the DoL in one way or another bear a strong resemblance to the results derived in the LMC report. For example, the Employment and Growth Accord was in fact the origin for the Presidential Job Creation Summit that eventually transpired some three years later. This summit brought together union, business, and government leaders in a bid to table tangible proposals for short-term job creation strategies. Within this narrowly confined brief, the summit can be said to have succeeded in its objectives—thereby vindicating the policy position of the LMC. Simultaneously with the LMC report release, the ILO produced its more

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research-focused labor market study. Herein lay the first tangible example of the strong synergy between labor market policy formation and research in South Africa. On the one hand, a government-sanctioned and tripartite-agreed document on labor market policy in South Africa was produced. And matching this policy document was the ILO’s research report, which, on the other hand, was heavily directed by the LMC’s thinking but also helped shape and mold the debates within the commission. It remains probably the prime example of the close association in South Africa between research and policymaking in the area of labor markets. One of the outcomes from the LMC was that the minister came into closer contact with the researchers in the commission. As a result, at least three of the commissioners were offered senior positions within the department once the commission had wound up. These individuals then found themselves departing their respective research institutions to take up employment within the DoL. Needless to say, they took with them their own research networks and, with these individuals in senior bureaucratic positions, the link between them and the research world in the area of labor markets was only strengthened. It should be noted that the LMC also drew on a panel of international experts in its deliberations. These were individuals drawn exclusively from academic and research backgrounds. Most had a specialized interest in South Africa and did much to heighten the quality of debates within the commission. The international experts were handpicked by the commission. The individuals co-opted onto the LMC were: • Professor Sam Bowles, University of Massachusetts, Amherst • Professor Ben Fine, School of Oriental and African Studies, University of London • Professor Richard Freeman, Harvard University • Derek Robinson, Institute of Economics and Statistics, Oxford University What is important about this, though, is that through this policyoriented body, international researchers were drawn into assisting with labor market policy formation. What was in the first instance representative of synergies between local researchers and domestic policymakers had also widened through this commission to include international researchers and South African policymakers. These international academics in turn developed (or in certain cases deepened) their network of

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local contacts, assuring that the research-policy linkage included a dialogue with non–South African researchers and their institutions. As the DoL began to mature as an institution, assisted no doubt by its increased absorption of new and skilled minds into its ranks, the nature of engagement between the DoL and the research community became more regular and perhaps more formalized. In this respect, the DoL, through its internal resources and outside funding from the U.S. Department of Labor, began a comprehensive program of research in consultation with domestic research institutions. Although the DoL was still trying to differentiate between encouraging research outside the department and doing its own internal research, the importance here is that the LMC was the catalyst that pointed to the necessity of undertaking focused labor market research. This was made possible given the background of many of the senior staff within the DoL, who had an appreciation for the value of research. In addition, there was a general recognition that despite the fact that labor markets remained at the center of South Africa’s economic challenges, a dearth of information and analyses in fact existed on the multitude of issues around this factor market. An important addendum to the above is that labor market research had been constrained in the past due to poor data. However, since 1993 the quality and coverage of this data improved tremendously. For example, since 1993, South Africa has been producing an annual household survey that provides valuable labor market and poverty data. This data was assured by the political changes that took place in 1994. However, what was also important was that the government statistical authority, Statistics South Africa (SSA, formerly known as the Central Statistics Service), appointed a new head who came from a research institution. He also drew on his network of researchers and institutions, both domestically and internationally, to assist in reconfiguring both the internal structures of SSA, as well the quality and type of data they produced. The national data gathering and reporting institution of the country, soon after 1994, was thus heavily influenced by the thinking of the research community. The outcome of new and better data sets also meant that the DoL was able to ask more interesting and important research and policy questions. The revitalizing of SSA had meant that answering these questions was now imminently possible. For example, researchers could provide very detailed descriptive overviews of employment, unemployment, hours of work, wages, education levels, and so on by a range of

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covariates such as race, gender, location, and age. These empirical overviews of the labor market, utilizing these new data sets, probably represented the first major phase of research on labor markets and poverty in South Africa. Importantly, the data sets and the emphasis on empirical policy work also meant that the arena of labor market research was opened to economists as opposed to only labor lawyers or other social scientists. The data therefore provided an all-important new dimension to the character of research that could be done, and also the type of researchers and research institutions that could undertake such work. The entry of economists into the field of labor markets meant that research programs and initiatives between labor economists and the DoL could be operationalized. One such program again typifies the research-policy linkage that exists in the country at present. The African Economic Research Consortium (AERC) kick-started the initiative by agreeing to fund a continental program focusing on poverty and inequality in sub-Saharan Africa. South Africa was one of eight countries selected for the research program. The South African study was entitled Labor Markets, Poverty, and Inequality in South Africa, and drew on a team of researchers from three different universities around the country. What was important about the study is that in its conception phase, the South African research team assiduously and actively sought the involvement and interest of the DoL. The research proposal was shared with them, and their ideas and suggestions were subsequently incorporated. The DoL, through this engagement, agreed to cofund the project. In addition, they agreed to attach one of their in-house researchers to the project. Through constructive engagement with the DoL, the research project had managed to garner both financial and human capital assistance from the department. The above project became known as the joint AERC–South African DoL project. The project also allowed for a period of background research and study at an institution abroad. The research team chose Cornell University, well known internationally for its strength in labor economics. As a result, two university-based researchers and the DoL researcher spent an extended period at Cornell University’s Institute for Industrial and Labor Relations. This represented an extension, in terms of a research network, of the program from a continental one to an international one. Indeed, the links made with colleagues at Cornell have continued to the present and will in all probability be extended. But in terms of policymakers, it meant that an internal member of the public sector was being exposed to the same environment that researchers were.

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Here, then, was a virtuous circle of a research project being undertaken by researchers from both academia and the public sector, funded by a continental organization and a government department, and ultimately being able to draw on the expertise of developed-country labor economists. This represented another example of the nature and character of synergies that can and should prevail between government departments and the research community. At the time that the DoL was beginning to formulate its research program, one of the numerous international donors working within South Africa, USAID, had just awarded a contract to a U.S. research institution to undertake and manage economic policy research in South Africa. The idea was that the managing institution would organize research in areas where government departments felt there was a need. The research would be undertaken by South African researchers alone or, in certain cases, in combination with U.S.-based institutions. This research arm of the USAID initiative was termed the Support for Economic Growth Analysis Project (SEGA). In addition the grant provided for training of black South Africans in Ph.D. programs in the United States via the Mandela Economic Scholarship Programme (MESP). These newly graduated students would then have a contractual obligation to return to South Africa and work for an extended period in a prespecified government department. In both the SEGA and the MESP, the donor had ensured that there would be a very strong synergy between government departments’ needs and priorities on the one hand, and the type of training and research that would be undertaken by researchers and research institutions on the other. Thus far the SEGA program has acted as an excellent catalyst for drawing policymakers and the research community closer together. Two examples here will suffice. The first involves the funding by USAID of a two-year comprehensive research program on labor demand and labor supply in South Africa. The second concerns a shorter, yet equally interesting, project on the economics of labor market mobility in South Africa. The first example involves the proposal of the Development Policy Research Unit (DPRU) based at the University of Cape Town. Through intensive consultation with the DoL, the DPRU initiated and crafted a wide-ranging, long-term research proposal on the economics of the South African labor market. The proposal grew out of the fact that while the labor market loomed large after 1994 as the source of some of the economy’s key constraints, very little detailed research had been done on the subject. Apart from descriptive labor market overviews, which

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focused primarily on the supply side, there was a surprising absence of work analyzing the labor market in the context of the parallel challenges facing the economy. Contributing to the feasibility of the proposal was the availability of better time-series and survey data sets, which made the analysis wholly possible. Based on these factors, USAID funded the DPRU for two years to undertake the research. In awarding the contract, the donor assiduously ensured that the DoL had been consulted on the research content would benefit from the results. Furthermore, the program was structured so that the DoL would be involved in research content, quality control, and dissemination. For instance, the DoL set up a seminar series to facilitate dissemination and discussion of the research results. In addition, the DoL ensured that executive summaries of the research outputs were prepared and sent to the minister of labor. Ultimately, the two-year project constituted another prime example of close collaboration between policymakers in government and academic researchers. An important lesson is that while the networks between the policymakers and researchers are a necessary condition for close linkages between the two communities, they are clearly not a sufficient condition. An agent, such as a donor, is almost always required to ensure that such collaboration and linkage are realized and strengthened. USAID also funded the second example of the SEGA project’s catalytic role. This shorter project on mobility in the labor market was implemented by the National Treasury. The department’s creative input, however, was very strong because its personnel were significantly involved in the conception and details of the research proposal. Nevertheless, the project remains a prime example of the importance of research networks in facilitating research collaboration. The researchers were two international scholars from Cornell University and one local academic from the University of Cape Town. The three had collaborated on the earlier AERC-DoL project, demonstrating that the network established in an earlier project had been solidified and extended through an additional project. The role of such international research networks in ensuring both the type and quality of work cannot be emphasized enough. In this instance, this established network was enhanced by the support of a government department that was interested in a particular policy issue (in this case, labor mobility) and by a donor organization, whose funding allowed for the research to be carried out and indirectly perpetuating the network. The labor mobility project promoted synergies between a government

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department and local and international researchers, while simultaneously improving the research community’s internal network. Donors play a crucial role in ensuring the maintenance of contacts between researchers and policymakers. One prime example is the DoL’s ongoing Skills Development Program (SDP), housed within the Directorate for Skills Development. Substantial European Union (EU) multiyear funding, purely focused on skills development programs, was provided to the DoL. The DoL provided some funding and personnel transfer. Human capital transfer meant that the DoL’s SDP benefited from a suite of EU consultants working either full time for a few years or on shorter consultancy stints. The result was an enormous boost to the DoL’s ability to deliver, in conjunction with local officials, on the goals of the national skills development initiative. EU involvement also facilitated the inclusion of local researchers and academics into the skills development program work plan. For example, they were involved in the production of background papers on the nature of South Africa’s labor demand patterns by skill levels, and the relationship between existing training programs for the unemployed and the potential effect on the employability of the individuals being trained. This is yet another example where the DoL, through its access to foreign donor support, has been able to maintain and promote greater synergy between policymakers and researchers. The EU-funded SDP is, however, a departure from previous government-researcher linkages in one important respect. This program caused the DoL to determine more concretely—and perhaps more coherently—its specific research needs. Immediately after 1994, the early research projects of the DoL, and indeed most government departments in the early stages of the new rule, tended to be constructed and formulated by researchers. Thus it is fair to argue that researchers had disproportionately shaped and determined the policy research agenda. Although strong input was provided by policymakers, the process was essentially driven by researchers. However, this interaction changed gradually as the government departments began to find their feet, and indeed, as departmental policy positions began to ossify. The research needs of departmental policymakers became more specific and more closely tied to the new policy positions that had developed within their departments. In the area of labor market research, this tendency was perhaps most evident in the SDP’s work. The DoL, with the assistance of the EU consultants, focused research on a clear line of inquiry directly related to the SDP

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outputs. Broad and academically rigorous papers on skills and the labor market, while appreciated, were no longer requested. Instead, SDP officials approached researchers to undertake research on, for example, appropriate objectives and success indicators for their skills development program. Once the research was completed, other researchers were used to critique the results. Clearly this work is not the stuff of journal articles, and researchers found themselves beginning to do much more applied labor market work. While their economic and technical skills in labor market issues were still pertinent, they were being used in a highly applied manner. Technical, yet applied, research seems to be characterizing much of the more recent interaction between the DoL and the research community. This does not mean that policymakers do not have a high regard for pure academic research, but it does mean that they have been able, over the years, to define more concretely what they consider to be useful, important, and relevant. Academic research continues to interest DoL policymakers, but only if it relates to policy outcomes of very specific use and interest to the DoL. This focus has forced academic researchers, when they wanted their work to reach policymakers, to think more carefully about the policy ramifications of the results of their analysis. The new maturity in shaping research so that it directly benefits policymakers is also reflected in the work of the DoL’s Minimum Standards Directorate. This directorate is concerned, inter alia, with the possible impact of reduced working hours, minimum-wage legislation, and strike activity on employment and other labor market variables. Rather than allowing researchers to rush headlong into semi-theoretical arguments about the relationships between these variables through the use of time series and survey-based econometric models, directorate officials have been very clear about the content of the research they require and the specific outputs they expect. Examples of topics that the Minimum Standards Directorate has asked researchers to examine include: • The wage-employment trade-off • Wage levels by sector and region (to assist the minister of labor and the Employment Conditions Commission [ECC] to set minimum wages as they are required to do in terms of the Basic Conditions of Employment Act [BCEA]) • Hours worked by workers in all sectors of the economy and possibly other conditions of employment, such as maternity leave • The impact of the BCEA on small, medium, and micro enterprises

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• Wage differentials and inequalities as they pertain to the Employment Equity Act It is clear from the list that these themes are directly linked to the DoL’s work. The research is expected to feed directly into the DoL’s policy formulation process. Researchers are being asked to provide information and analysis that policymakers can use to implement labor market policy. For example, an analysis of agricultural wage levels by region can be used to promulgate legislation to set out minimum-wage levels for specific agricultural subsectors by region. Or, rather than exploring the generic issue of how labor legislation may hinder or encourage the growth of the small, medium, and micro enterprise sector, the research program calls for a very specific analysis of the impact of one piece of legislation. The linkage between the DoL’s policymaking process and the research community can be illustrated by outlining the sequence of events in the process. Figure 8.1 uses a specific policy proclamation—in this case a wage determination for domestic and farm workers—to provide a sense of the policy process within the labor market area and at which stage researchers are involved. Once the minister has decided to call for an investigation into a particular policy issue, the DoL staff—in this case the Minimum Standards Directorate—are required eventually to submit a report to the minister. Researchers are called on to provide background research relevant to the composition of the paper or analysis of the issue, such as international experiences with minimum wages. For instance, researchers may be asked to provide simulations of the job losses that would occur at different minimum-wage levels. Thus, members of the research community influence to a significant extent the shape, character, and content of the recommendations ultimately made to the minister of labor. But not only the research community: DoL officials also contribute to the report through their own individual research initiatives. The maturing relationship between the DoL (and government departments in general) and the research community necessitates a shift in mindset for many researchers. Researchers no longer drive the linkage and the content of the research; government officials are increasingly able to identify and distill the key policy questions that they face and to request more specific and applied outputs from researchers. The mature relationship promises a closer and perhaps more sustainable link between researchers and policymakers—a trend endorsed by foreign donors as well. While accepting the need for rigorous, high-quality work, researchers also recognize that their primary focus in many cases

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Figure 8.1 Example of Policy Process Within the Department of Labour (DoL)

Step 1 Minister instructs director-general to undertake investigation into minimum wage determination for domestics and farmworkers

Step 2 DoL publishes “Terms of Reference”

Step 3 DoL holds public hearings, gathers information, and does in-house research. Outside research is commissioned

Step 4 DoL produces an internal report with specific recommendations

Step 5 The report is submitted to the Employment Conditions Commission (ECC) for ratification

Step 6 If the ECC accepts the report, it is forwarded to the minister of labor for acceptance

Step 7 If the minister accepts the report, it is published in the Government Gazette as a sectoral wage determination. If not, the queries raised by the minister are sent back to the ECC and the process may go back as far as Step 3 above.

is to support government’s research needs and that this is perhaps a very healthy development reflecting a stronger and more independent central government.

Poverty Research Initiatives One of the difficulties of undertaking and monitoring poverty-related research is that it remains, in South Africa and elsewhere in the developing

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world, a multidisciplinary exercise. In South Africa, this has meant that no single government department can take on the issue alone, although there are clearly numerous potential candidates. The issue of poverty is equally important and relevant to the work of the Departments of Finance, Labour, Welfare, Health, Housing, and, to a lesser extent, Transport and Environmental Affairs and Tourism. In 1994, the new government tried to deal with all poverty-related issues and projects by establishing a Reconstruction and Development Programme (RDP) Office with its own cabinet minister. However, the attempt at becoming a cross-department ministry failed. Coordination lies at the heart of trying to devise an integrated poverty-reduction strategy, and the difficulty of coordination is one key reason that the strategy has been so hard to define. One result of this fragmentation is that poverty-related research has also been rather haphazard and disparate. An examination of the process that led to the Poverty and Inequality Report illustrates the difficulties of undertaking poverty research. The Poverty and Inequality Report was commissioned by the Office of the Deputy President (then Thabo Mbeki) in 1997, and was to be a nationally representative and all-encompassing report on poverty and inequality in South Africa. An academic researcher of high standing, Julian May, was appointed to head the research program and was tasked with delivering a final report to the deputy president. When Thabo Mbeki was appointed president, the Poverty and Inequality Report became a project of the Office of the President. The project was funded variously by the United Kingdom’s Department for International Development (DFID), the World Bank, the United Nations Development Program (UNDP), and the Dutch government. The project was eventually to run for approximately two and one-half years. To reach the program’s objective, the research team had to examine broad themes relevant to poverty and inequality as follows: • • • • •

• • •

The measurement of poverty and inequality The impact of macroeconomic policy on poverty and inequality Poverty, inequality, and the labor market Social service expenditure (health, education, and welfare) and the impact on poverty and inequality reduction Infrastructural service expenditure (water, transport, energy, and communication) and the impact on poverty and inequality reduction The role of institutional reform in poverty and inequality eradication Poverty and inequality as a regional phenomenon in South Africa Sustainable livelihoods and asset building for the poor

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Addressing this extensive list of issues required the skills of a range of researchers with contrasting backgrounds. In addition, the policy focus of each theme meant that the research would have to reflect issues important to many different departments, including Education, Health, Welfare, Labour, Finance, Environment and Tourism, and Agriculture. The project produced a timely report, which was eventually published as a book entitled Poverty and Inequality in South Africa: Meeting the Challenge (Julian May 2000). The book covered all the areas listed above, but it was less comprehensive than originally intended. The first difficulty with the program was that it drew on researchers who were primarily, but not exclusively, economists. By its very nature the study of poverty is a multidisciplinary endeavor, and trying to anchor it around a single field of expertise (in this case, economics) was always going to be difficult—despite the undoubted expertise of the lead team and their researchers as economists. The product that the project finally delivered was probably the best that could have been achieved in view of the intrinsic difficulties of multidisciplinary research. The policy link meant one or more government departments had a specialist interest in each of the thematic areas. While the project team tried to ensure a seamless and interlinked document, it also had to deal with policymakers who—legitimately— required that the project deal very specifically with their own intradepartmental issues. Thus, the Poverty and Inequality Report project was inevitably drawn in two different directions. The conflict between the need for a balanced, integrated approach and the need to address narrow, specific departmental concerns probably represents the nub of the difficulties associated with undertaking poverty research in conjunction with policymakers in South Africa. The country’s poverty-reduction strategy illustrates the difficulty of doing comprehensive poverty work within the ambit of individual government departments. At present, no single department is the lead institution in the country’s national poverty-reduction strategy. This is not due to a lack of recognition that poverty is a problem. On the contrary, from the president’s office to the smallest government department, poverty alleviation and the reduction of inequality are viewed as one of the central goals of most work plans. One result of this simultaneous interest is that poverty policy per se is not implemented through a clearly articulated and integrated national strategy. Responsibility for labor market or public finance issues—for example—is lodged within a single government department, but this is not the case for poverty interventions.

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The multiplicity of institutional players means that researchers doing comprehensive poverty work have found it much harder to form sustainable and coherent linkages on poverty issues with any single or subset of government departments. Research institutions find it much easier to network with policymakers on narrower issues: for example, with the DoL on labor market issues clearly within that department’s domain. This makes synergy between policymakers and researchers (with donors on board) more easily promoted and sustained. Poverty research is so broad that it does not allow for the development and promotion of such synergies. Difficulties of focus also affect donors, who have had to try and spread themselves across different government departments to do comprehensive poverty research. In some cases, donors have remained with a single government department, mindful that this meant very specialized research linked to only one or a few aspects of poverty. Socialscience researchers interested in poverty have become involved as welfare or poverty experts on much larger research teams within a government department. For example, the Department for Environmental Affairs and Tourism has been involved in the formulation of a sustainable coastal development program. The program drew in microbiologists, botanists, and other marine scientists. To facilitate research into the potential impact on poverty levels within coastal communities, a social scientist (invariably an economist) was drawn in to assist the different teams that had been set up to do the research. Thus, work on poverty drew researchers into the policy milieu, but only within a specific government department and with a focus on a particular aspect of poverty with a fairly narrow constituency and thematic area. The study of poverty is cross-disciplinary by its very nature and cross-departmental in the policy context. However, to achieve strong, high-level, and sustainable linkages between policymakers and government departments, it seems essential that a single government department take the lead in the area of poverty. The Reconstruction and Development Programme office recognized this necessity, but is now defunct. The Office of the President may provide leadership, but it has been struggling to retain key personnel, a problem common to most national government departments. Without a lead antipoverty department, synergies between the research community and policymakers become more difficult to promote. This lack of synergy in the area of poverty research is increasingly important in view of emerging international thinking on the relevance of poverty and inequality issues to the developing world. Globalization is

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a key factor. Economic liberalization and globalization more broadly offer numerous benefits, but an important possible outcome is an increase in poverty and inequality between and within countries. The World Bank’s recent work and statements focus on this possibility. International donors have accordingly focused on new and emerging issues, such as trade policy and poverty, labor standards and poverty, and so on. This environment increases the necessity of having a coherent link on poverty and inequality between policymakers and researchers in South Africa. The better the synergies between these two groups in South Africa, the more articulate its internal antipoverty policies and its engagement with global institutions are likely to be. We have broadly sketched the nature of the linkages between researchers, policymakers, and the policy process in the areas of labor markets and poverty in South Africa. In the labor market area, synergies are fairly well developed, have been nurtured, and are maturing over time. This has not been the case thus far with poverty-related research. Arguably, the lack of synergy has been a function of how government departments have perceived the poverty issue. However, the difficulties and problems of researchers and policymakers apply in many instances to both areas of research. The next section goes on to explore past and current problems in the linkage between the research community and government departments with a view to extracting possible lessons that will help illuminate the policy-research nexus.

Government and the Research Community: Difficulties and Problems Perhaps the single most important problem of the research community is the failure to adequately appreciate the policy environment that governs policymakers. Commonly in South Africa, and perhaps even in other developing countries, researchers disproportionately focus their research by formulating its methodological approach and reporting the results and the drawbacks of the technique used. The result is usually an impressive piece of academic research, but the policy conclusions are appended briefly at the end. In the best-case scenario, the policy conclusions are specific, yet brief, and bear some resemblance to the analytical work. In the worst-case scenario, the policy conclusions are grandiose and very general, and bear very little relevance to the analysis. The latter approach is not a problem if the research was intended purely for an academic audience. This approach is a problem, however,

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for research commissioned by and produced directly for policymakers—and it is fair to say that some research in South Africa suffers from this problem. A key obstacle to strengthening the research-policy process linkage is that the research community pays far too little attention to deriving hard and specific policy conclusions from its research. Only by thinking more carefully through the policy implications of research will the dialogue improve between the two groups. Communication is even more difficult because policymakers very often do not have formal technical skills, or only have skills that depreciated rapidly after moving into government. Research that delivers much in the way of the newest econometric techniques but little in the way of hard policy conclusions is virtually worthless to the policy practitioner. The challenge for researchers is not to abandon their techniques but to utilize them to reach important policy conclusions. The research community also needs to appreciate and expand its understanding of the policy environment to improve its engagement with policymakers. Researchers should continue to apply their technical skills in their work, but they also need to respond to government officials’ policy problems. A second issue that complicates the linkage between researcher and policymaker stems directly from the dearth of skilled researchers. Unlike the developed world, South Africa possesses a fairly small base of trained economists, although the supply far outstrips that found in most other African countries. The shortage of well-trained economists has meant that researchers are very often overstretched in terms of commitments. The quality of research tends to decline as researchers try to meet numerous deadlines for materials promised to a number of clients. The shortage of researchers also means less competition for research and hence policymakers may not necessarily have the option of choosing another researcher or research institution should they not be entirely satisfied with the final product. Clearly, a more competitive researcher market is required to create a long-term, high-quality stream of research products for the policy community. The dearth of skills in this area (and in other thematic areas as well) in South Africa means greater competition is still some way off. The shortage of well-trained black economists in South Africa is a particular problem. A legacy of apartheid, it is a problem that can only be rectified through a concerted and concentrated effort by numerous institutions. Expanding the number of black research economists remains critical to the sustenance and, ultimately, legitimacy of the relationship between policymakers and researchers. One of the difficulties

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in expanding the pool of black economists is the poor educational system, which still crowds out many potential economics students at the tertiary level. And once potential economists enter a university, they will likely choose a course of study offering the best long-term return— clearly not a career as a research economist! As a result, research institutions are forced to compete for a very small number of black economists, encouraging them to pursue a career in academic research that may not be as lucrative as a career in the private sector. The problem of expanding the base of black economists undoubtedly hinders the synergy and long-run legitimacy of the linkage between South African policymakers and the research community. Solving the policymakers’ foremost problem would require an adequate supply of human capital. Researchers and policymakers agree that government departments are chronically understaffed. The lack of highlevel managers—as with the research community, a direct result of the dearth of skilled individuals in the society as a whole—is particularly acute, which means that the research-policy nexus is less effective than it could be. The shortage of high-level managers does not mean that the public sector is devoid of skilled individuals, but it often means that contact with researchers is reliant on a few highly skilled individuals who both understand and appreciate the necessity for good-quality research. Without these key individuals, the link between researchers and government departments and the policy process would be seriously jeopardized. An initial problem—by now probably resolved—was the issue of government departments doing research in-house. In the early postapartheid years, and soon after establishing the Labour Market Commission, the DoL felt it necessary to set up a Research Directorate to manage commissioned research and to initiate its own internal research program. Although correct in principle and potentially a new and perhaps more powerful link between policymakers and the research community, the model of a research program located within government is simply not tenable. One reason—relevant to all government departments—is that research does not reflect their core business activity. However, the core business of universities (and academic entrepreneurs) is research. We may not be sure what the core business of government is, but we certainly know what it is not. One of the key reasons that the DoL’s early attempts to do its own research foundered is that the DoL lacked the necessary complementary resources, such as libraries, statistical software programs, visiting lecturers, links to international research organizations, and so on. Undertaking a high-quality and ongoing research program is a specialized endeavor not easily performed by a government department.

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The second reason that government in-house research efforts failed is a typically South African, or developing country, problem. From the outset, the DoL’s Research Directorate was severely understaffed. And because the rest of the DoL was underresourced, the individuals within the research division got drawn into the department’s day-to-day activities. Indeed, senior DoL research managers became involved in many labor market policy issues far removed from the research world. DoL had set up a directorate that undoubtedly had a role in research—but not a role encompassing direct research itself. Realizing the difficulties of doing research in-house, the DoL shifted its role to that of an intermediary in the research process. DoL’s Research Directorate solicited foreign donor money for its research program, disbursing funds through a competitive process to research institutions around the country. The DoL was thus able to remove itself almost entirely from the direct research process and recast itself as a facilitator of policy-relevant research. Using departments as facilitators, rather than to conduct research directly, is probably the best use of government resources. Creativity and output in policy-relevant research is hindered because it often cannot be linked to a number of different government departments—as it ideally should be. For example, one key South African labor market issue is the nature and extent of the skills constraint and the policy options available to ease the constraint. Ostensibly, this is a DoL research issue. However, a close examination of the issues reveals that, at a minimum, the Departments of Education and Home Affairs would be crucial to implementing the research program’s policy recommendations. However, researchers will find that the necessary linkage between government departments is not usually present, and where it does exist, it is fairly tenuous. It is not necessarily the case that departments are unwilling to cooperate, but rather the usual problem of having insufficient resources to accomplish even their own internal tasks. What happens is that policy-oriented research is usually delivered to one government department with little coordination or involvement from other relevant government departments. The skills issue is a prime example: the DoL used commissioned research to develop highly nuanced policy positions although severely limited by the lack of interaction with the Departments of Education and Home Affairs. Therefore, in most cases the synergy between the research community and policymakers on any given research project is confined to one government department. However, there are many cases where the quality of the research would be improved by collaboration between departments. The

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lack of collaboration between government departments hinders both the research output and ultimately the nature of policy recommendations emanating from the research. Fortuitously, labor market research did not always require interdepartmental collaboration. But such collaboration is almost always required in the area of poverty research. Accordingly, the development of a strong link between poverty researchers and policymakers is likely to be severely hindered as long as collaboration between the different government departments is not fostered and encouraged.

Conclusions This chapter establishes that, for various historical and political reasons, the linkage between the South African research community and policymakers is fairly well developed. It also makes clear that the linkage has been maintained essentially through personal contacts over time between individuals in the research community and those in government. The informal nature of the linkage makes it less sustainable than, for example, a formal institutional arrangement; however, the small base of skilled research economists and bureaucrats, combined with the fairly high rate of movement of individuals between the two environments, makes this linkage a strong and sustainable one. The chapter also shows that the linkage between the DoL and the research community was active and initiated by the appointment of the Presidential Labour Market Commission in 1995. During the ensuing five years, the DoL supported and encouraged labor market research by social scientists generally, and by economists in particular. The involvement of international donors was crucial. But over this same period the DoL also altered its institutional approach to research. Initially, the research agenda was shaped by researchers from the outside; more recently, senior DoL management began to demand more applied and policy-relevant products from the research community. This has been a healthy development, indicative of a maturing department. Simultaneously, it has meant that researchers would need to orient their skills to undertaking more applied labor market research. Ultimately, the DoL’s change augurs well for the long-term relationship between policymakers and researchers in the area of labor markets. The overview of poverty research suggests an entirely different picture, resulting in large part from the multidisciplinary—and multidepartmental—nature of the issue. The chapter made clear that there are

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no well-developed synergies between antipoverty policymakers and the research community at present. While this was in part intrinsic to the nature of the subject matter, the lack of coordination between government departments was also partly to blame. Thus, in one of South Africa’s key economic policy challenges, there is no coherent linkage between government officials and researchers. The current problems in the research-policy nexus range from a lack of skilled researchers, and specifically a poor supply of black researchers, to the failed attempt by the DoL to initiate an in-house research division. Nevertheless, South Africa possesses a very healthy and lively policy research environment. Despite problems and difficulties, the research environment has deepened and, in some cases, matured. Where skills shortages are alleviated and interdepartmental collaboration improved, the synergies between the research community and policymakers will only strengthen in years to come.

9 Conclusions Diery Seck and Lucie Colvin Phillips

Better Policies and Impacts The chapters in this book show that the frustrations of the early 1990s with prepackaged structural adjustment are giving way to a more productive approach. Positive impacts reflect better overall macroeconomic management, particularly in the areas of taxation and budgeting, currency management, trade liberalization, and development of export sectors. Many governments now recognize that budgets have to be balanced without recourse to printing new money. Andrianomanana and Gray’s chapter drove this point home on tax administration in Madagascar. Better-balanced budgets relieve inflationary pressures that hitherto discouraged savings and investment and impoverished those on fixed incomes. Getting taxpayers to accept their obligations and tax collectors to enforce them fairly is still difficult. The habit of tax avoidance is ingrained at all levels of the system. Both collectors and payers benefit from the present system—the treasury and the people lose. The Madagascar research team therefore emphasized transparency, with an adversarial approach to policy dialogue to stimulate responses from both government and taxpayers. Floating exchange rates have been perhaps the most successful reforms throughout Africa. Merchants, industrialists, consumers, and producers all laud the freedom that floating exchange rates have given them. They can better control their economic affairs and have confidence in taking new initiatives. The chapter by Jebuni, Musinguzi, and Stryker shows that managing floating exchange rates is still a challenge. The central banks of Ghana and Uganda instituted new surveys to track money supply. They had to develop competent internal research services. 209

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In-house researchers developed new analytic procedures, sometimes in collaboration with external researchers. They began producing analytical reports on a timely basis. Researchers, nevertheless, are still struggling to convince policymakers of proper management procedures. Often they fail, particularly at election time. In Ghana, the practice of monetizing government budget deficits could not be ended. Short-term political considerations continued to prevail, throwing a monkey wrench into improved currency management proposals. Employment and labor policy are among the most politically sensitive issues faced by African policymakers. The issues raise fundamental questions of equity and growth. Contrasting policies proposed in Kenya and South Africa illustrate the dilemma. Both countries are experiencing rapid population growth and high unemployment. Pro-union analysts argue that imposing minimum wages and working conditions and favoring unionization are the best ways to produce equitable growth. This point of view dominates in South Africa, where the Congress of South African Trade Unions was a key partner in the struggle for majority rule. Researchers at the Development Policy Research Unit of the University of Cape Town have been asked to calculate the impacts of imposing minimum wages for domestic workers and farm laborers. A minimum-wage policy is slated to be introduced in late 2001; in this context, to what extent can researchers emphasize the likely trade-offs in reduced formal employment? Their approach is rather to seek ways of mitigating anticipated trade-offs. In Kenya, the research took a different tack. Top government officials had assumed that the challenge of rapid population growth implied a focus on family planning. Researchers within government had to convince these officials of the need to recognize that those already born in 1986 constituted a rapidly growing labor force for at least the next twenty years. Thus the government would have to devise job creation strategies to ensure that new entrants into the labor force would be able to earn their livelihood. The first step was to get high government officials to recognize that it was a political problem—their political problem. With this accomplished, the strategies proposed were of greater interest to policymakers. The team also found that it had to address the problem of food security at the same time as population growth, because of the deeply rooted and widely held belief that food security was a basic need. The chapter on Tanzania’s mineral sector shows that Tanzania adopted a thorough approach to trade liberalization, much more so than, for example, most Francophone African countries. All price controls

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were removed, monopolies ended, and resources opened up through generalized licensing. The results in the mineral sector were spectacular. First, small miners, and more slowly, major international mining companies, discovered gold, gems, and several other valuable mineral deposits. A policy study that analyzed minerals markets and smuggling showed that the trade was benefiting GDP substantially, even when exported through Kenya. Tax policy was the main vehicle for attracting more trade to Tanzania. A new research focus also clarified the socioeconomic implications of trends in mining. Miners, many part-time farmers in isolated rural areas, were earning six times what they could in farming. Within five years, the number of rural jobs generated by mining jumped from a few thousand to an estimated 550,000, raising the number of middle-income jobs by 46 percent. How citizens are dealing with structural adjustment has been the major unasked question for many years. Economists from the international financial institutions have tended to blame resistance on the vested interests of a small elite. The chapter by Lewis and Bratton on public opinion in Nigeria shows that the situation is far more complex. While there is strong support for most market concepts and principles, a majority of Nigerians believe, for example, that the government should be responsible for providing jobs, and oppose privatization of key state enterprises. The survey also identified a major untouched area for reform: Nigerians were asked whether rural land should be privately owned and openly traded, or communally owned under the administration of traditional chiefs. Three-quarters favored private ownership of land. While private property is universally recognized as a foundation of a liberal economy, African countries have generally declined to move in that direction. Mineral and oil rights are universally vested in governments, and most farmland is under complex family/lineage/village/ tribal usufruct systems of tenure. After a few brief and tumultuous ventures into funding dialogue on land tenure (e.g., in the Senegal River Valley), donors and international financial institutions have been silent on the subject.

Redefining Policy Change and Research in Africa The case studies in this book made us revise our conceptions of the policy process. We had tended to think that the process could be approached in linear fashion, beginning with a policy problem or situation that called for new thinking, followed (sometimes) by research on options and

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impacts, then dialogue, pressure from stakeholders for different options, decisionmaking, legislation, and finally implementation. In reality, all of these processes—and others—are taking place simultaneously. An existential concept of time and space fits better than a linear model. There is no starting point, and no end point. Current practice and its institutional history need to be taken into account, as customary behavior has great momentum. Based on his experience in policy reform, T.C.I. Ryan proposes in Chapter 4 that policy be defined as “what is done on a sustained basis.” It is part political culture, part institutions, and part law. Policymaking models often presuppose a linear method of decisionmaking and a limited set of actors. The processes that contribute to policy innovation include the following: • Identifying a national or sectoral problem or opportunity • Researching the problem, or at least gathering some form of information • Laying out options • Dialoguing on the merits of each option • Choosing the best option • Pronouncing policy • Issuing policy documents • Revising legislation • Implementing ordinances • Developing regulations through independent regulatory agencies • Issuing executive orders on new procedures and job descriptions • Retraining implementers • Fostering political, economic, and cultural legitimacy Ideally, these steps take place in linear fashion, one step leading logically to the next. In fact, what we found could be better represented using the image of time and space in Amos Tutuola’s writings. Parts of all of these steps were taking place simultaneously in different realms. Sometimes, what one group was thinking or working on converged with that of other groups. Sometimes groups were at cross-purposes. A sectoral ministry or parastatal entity might have identified a problem and commissioned research on it, even as a regulatory agency was about to issue new regulations, the president’s office was promising something entirely different to another group of stakeholders, and the Ministry of Finance was changing the parameters by revamping the tax and tariff structure. If senior policymakers do not clearly identify the problem as

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theirs, no one can follow through to ensure that solutions were found and implemented. And what government agents in the field were actually doing may have had little to do with any of the steps above—they just might be doing what they considered their position entitled them to do. This makes even Ryan’s cautious definition of policy problematic. At what point does government failure to correct abuses and enforce official law and policy become policy itself?

Experience of Research-Policy Nexus Policy-oriented research is different in many ways from academic research. It is also different from in-house analysis by policymaking institutions. It requires a focus on a particular policy or set of policies that are likely to have significant impact on the society and economy as a whole, and on specific sectors within the economy. Policy-oriented research needs to be done by experienced researchers, capable of doing rigorous research on a tight timeline, often with press coverage throughout the process. The researchers and/or those who commission the research have to become advocates for the policy implications of the research, or they have to communicate a full understanding of the research and policy implications to advocates within the government. This process breaks with many academic norms. It calls for envisaging the conclusions and policy implications of research far more quickly than is customary. It violates the usual division of responsibilities between researchers and policymakers. Many researchers are happy to analyze, but unwilling to become advocates for the implications of the research. For policy-oriented research to be needed and to have significant impact, a special set of circumstances has to converge. • • • •

A propitious moment Recognition of a problem Policymaker ownership of the problem Demand for understanding of both the problem and potential solutions • Definition of policy options with impact assessments • Exploration of the impacts of each option Policy research by external think tanks is needed mainly when major change is under way. The collapse of Africa’s postindependence economic institutions and the process of structural adjustment that

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ensued ushered in such a moment. But not all countries faced up to the challenge. Some merely collapsed, or are still gradually collapsing into bankruptcy. Countries such as Kenya, Togo, and Cameroon adjust marginally around the edges with minimal change in practices on the ground. In such times and places, policy research bears little fruit. Often a propitious moment comes when a change of government accompanies major economic crisis. The new team has fewer vested interests in past policies and institutions, so it seeks new solutions and is motivated to implement them. Research on exchange rate management, for example, was only useful in countries that voluntarily moved to flexible exchange rates. In the CFA (Communauté Financière Africaine) zone, it is neither relevant nor feasible. In contrast, policy research done on that subject in Ghana and Uganda produced a sounder economy at home, and provided lessons for other countries with similar exchange regimes, such as Tanzania. Once the major moment of change has passed and economic institutions reach a new stasis, in-house analysis is likely to supplant much outside research. In Africa, central statistics offices, the sources of basic economic information, had fallen into a sad state. Statistics were little used, collected less and less often, and subjected to no timely analysis. This situation is changing, at least in some countries. Line ministries and central statistics offices are collecting and publishing more timely data. Central bank reports, sometimes merely collections of tables, now include analysis of economic trends. Local think tanks also publish analyses of the state of the economy. Investor groups and donors avidly collect and analyze statistical reports. The net result is an improvement in statistical quality and availability. As market-friendly economic policies and institutions begin functioning more viably, in-house analysis is likely to become more common and external research less needed. Another lesson from the research experience is that one cannot sell solutions unless policymakers take ownership of the problem. Before proposing new policies, top policymakers have to see that a problem exists and that it is important to them. Usually, this means showing that the problem is now or potentially a political risk. If policymakers clearly recognize the problem, they will support the search for solutions. This situation has a chicken-and-egg aspect: it is well known that if people are unaware that solutions exist, they are likely not to recognize a problem. They resign themselves to the status quo unless they know that a better option exists. When policymakers recognize a problem and seek solutions, one has the precondition for demand driven research. The policy research process works when those conditions are present, and when researchers are competent and capable of laying out options.

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Often, the exploration of options seeks those that will make a specific institution or policy work best; for example, balancing the budget by enhancing tax revenues, or increasing foreign investment by offering incentives. Frequently, making the system work toward an agreed goal is considered a sufficient objective, and no real stakeholder analysis is done. Chapter 2 on the struggles to introduce a value added tax in Ghana is a good example. There was neither research nor dialogue in that case. The proposal came from the IMF, and the documentation studied by the implementing committee consisted primarily of sample texts of laws. He concludes that any major economic policy should require a business impact analysis. We would broaden that concept to propose a full stakeholder analysis. Economic and social impact analysis calls for identification of all stakeholder groups—self-conscious or not—and an analysis of the impacts of each option on each group. USAID, the World Bank, and other donors have developed analytical approaches, but there is no consensus on methodology. All begin with standard cost-benefit analysis, as has been done by companies and organizations for generations. One practitioner quipped that this process can become too mechanical. The analyst called upon to propose options identifies the one that the analyst thinks best and then posits other options that are either illegal, immoral, or financially ruinous, thus ensuring adoption of the favored recommendation. In addition to the problem of mechanistic approaches, socioeconomic impact analysis faces a much larger dilemma. In performing a corporate or organizational cost-benefit analysis, the analyst can assume that it is the costs and benefits to the organization that matter most and deal with a limited number of actors. Socioeconomic policy analysts, however, have to define a wide range of actors and groups, each of which experiences costs and benefits. Computable general equilibrium models of the economy and other simulations may help understand which option will benefit defined groups and yield a sound macroeconomic picture. The groups and actors defined in the social accounting matrices that underlie the model, however, are often based on Western concepts of group identity. Often, the more sophisticated the model and model user, the less likely the results will get through effectively to policymakers. The policymaker’s political instincts may tell him that retrenching the civil service will affect one ethnic group more than another. Paying higher prices to cash crop producers likewise will benefit mostly the ethnic group concentrated in that cash crop zone. Both the civil servants who are retrenched and their rural relatives will feel the impact of retrenchment as

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a blow to the family’s or clan’s chances for advancement, whereas a few dollars per year for the cash crop will only marginally mitigate the poverty of the rural relatives. Social accounting matrices generally miss such points because the input table defines urban and rural residents as different interest groups. Moreover, the models demand a level of quantitative sophistication; this attracts mathematically minded researchers who sometimes have a low interest in political economy. Such researchers may focus on a single researchable variable, finding it difficult to place that analytical relationship in the context of all of the political variables a policymaker is weighing. They may be unable to translate their findings into plain language or to present them in ways that connect with policymakers. What might have more policy impact in Africa today than computable general equilibrium models is political-philosophical debate on the nature of the common good. Ethnic competition saps African countries’ economic growth by an average of 2 percent per year (Easterly and Levine 1996). Politicians’ calculations and stakeholder analysis both need to go beyond how any specific group will benefit or lose. There needs to be a vision of what balance of policies will maximize benefits to the largest number while protecting the fundamental rights of minorities and individuals. Debate on such a vision is beginning to emerge in the African press. Election campaigns bring out party platforms that raise relevant questions. However, most countries are far from a national consensus on, or even a practice of referring to, the concept of national self-interest.

Assessing the Performance of Policy Research The foregoing highlights the main characteristics of the policy process in Africa and the extent to which it can be influenced by economic research. The previous section briefly depicts the actual experience of the link between research and policy. Assessing properly the potential synergy between research and policy requires measuring the extent to which research has fulfilled its role. In other words, has research under the EAGER project usefully influenced economic policymaking in Africa? Such an assessment requires use of criteria that allow for an objective, albeit qualitative, evaluation of the research projects described in the preceding chapters. Chapter 1 sought to identify the main features of good policy-oriented research.

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This introductory analysis led to the conclusion that effective research must have certain primary qualities, which include rigor, relevance and timeliness, and completeness, and secondary qualities of digestibility and legitimacy. Primary qualities can be distinguished from secondary qualities because they must be embodied in the research process and output, and consequently are the responsibility of the researcher. Digestibility and legitimacy refer to responsibilities that can be assumed by a third party without diminishing the overall worth of the research. The preceding chapters provide an assessment of the performance of the research conducted under the EAGER project—not to grade each individual project, but to give a fair idea of what can be accomplished in the current African context through a project whose size and scope are relatively representative of research initiatives that are implemented on the continent. The goal of the assessment is to provide a few examples of research projects that have significantly satisfied each underlying quality listed above. The ultimate goal is to better understand what makes a research initiative successful and how to turn the lessons learned into a set of best practices. The primary quality of rigor is exemplified in Chapters 2 and 7, which provide a glimpse of the professionalism that can characterize research in Africa. Both provide a clear exposition of the policy issues being investigated and an accurate description of the investigative tools being used, and are supported by an exhaustive collection of facts and figures that have a bearing on the analysis. Both projects arrive at unambiguous results and conclusions, proving that rigorous research is possible and is currently conducted in Africa. The high degree of rigor that characterizes these two projects does not imply that their findings cannot be challenged or improved upon. It does show that diverse research methods and foci are yielding rigorous research, a pattern that should become a more common feature of research than has been the case in the past. The projects described in Chapters 5 and 6 seem relevant and timely for the purpose of policy formulation and debate. In these cases, the policy issues researched pertained to the welfare of large groups and involved social choice decisions and consistency with a broader policy framework. Promoting job-creating reform in tax policy in Tanzania and fostering tax transparency in Madagascar became the goals of policy stakeholder groups that were mobilized in response to the research projects’ recommendations. The projects adopted dissemination strategies that sought to include and reach out to a broad spectrum of

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constituencies. This made the research results the main platform for policy debate on the issues under discussion and brought the policy formulation process into the public eye, away from the less-than-transparent corridors of power. Note as well that, in the Madagascar case, the authors of the research projects played an active role lobbying on behalf of the projects’ recommendations. Because of their narrow policy focus, all research projects fare rather low on the criterion of completeness. Chapters 4 and 8 provide a mild exception although, unlike the other chapters, they are not related to a specific research project. However, as set out in the introductory chapter, completeness is more likely to depict a whole body of research than a single research project. This observation underscores that completeness requires policymakers and other policy stakeholders to take into account not only the particular findings of a specific research project, even if commissioned, but also all the facts and views bearing on the policy issue under consideration. Assessing the research projects against the secondary-qualities criteria, digestibility of research output is best exemplified in Chapters 5 and 6. It is noteworthy that these chapters refer to research projects on issues that were high on policymakers’ agendas. Considering that their dissemination was followed by policy decisions that echoed some of their respective recommendations, one could assume that a research report is more likely to be clear and digestible if the authors identify the intended target of their output. However, digestibility can also be promoted through offspring documents, such as policy briefs or other widedissemination media. In this regard, professional media specialists, who can simplify technical jargon and disseminate main findings more widely, would enhance the digestibility of the results of policy-oriented research. These same projects also illustrated the extent to which research can be legitimized when policy stakeholders champion the findings and seek to force implementation of the recommendations. In Madagascar, even though the governments agreed to follow some of the research reports’ recommendations, sections of civil society pressed harder and faster for policy reform than policymakers themselves. The media, even though it did not have any specific interest vested in the issues, proved to be a strong and influential factor in the resolution of the policy tension created by the publication of the research results. It is worth mentioning that in one of the countries, researchers declined the government’s offer to make the research report confidential and exclusively

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for its internal use. This move allowed them to maintain the potential legitimization of their research efforts by nongovernment policy stakeholders.

The Road Ahead Future Challenges for the Research-Policy Nexus What are the practical areas in which the link between research and policy could be improved upon in the African context? Based on the conceptual and historical perspectives presented above, four broad categories of challenges would need to be tackled first: (1) adequacy of research services, (2) the role of research centers, (3) networking and regional policy issues, and (4) capacity building in policy-oriented research. Adequacy of research services. Enhancing the adequacy of policyoriented research in Africa requires first that researchers have a sense of a long-term vision and the ability to respond quickly and diligently to burning policy issues. They must demonstrate a capacity to foresee and investigate policy challenges that have not yet come to the attention of policymakers but whose resolution, when they come to the fore, will prove critical. This visionary role is clearly predicated on researchers’ capacity to remain constantly attuned to the policy environment and devote a significant amount of time to unsolicited research work. Quick responsiveness applies equally to research activity that is either commissioned by policy stakeholders or initiated by researchers. Setting the research agenda is also important. Issues of concern to policymakers and other stakeholder groups must inform the research agenda and will affect the likelihood that research output will be used. Tension over the research agenda includes the need for African researchers to increase their income by marketing their skills through consulting work. Pursuing their short-term financial remedies may, if excessive, undermine researchers’ capacity to display long-term vision and to build up specific expertise. Another source of tension arises from the researchers’ need to pursue their respective institutions’ long-term research agenda, which may conflict with research activities addressing unexpected shorter-term and current policy issues. Ensuring an adequate provision of research services clearly requires a delicate balance between these two.

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Role of research centers. Often overlooked in the discussion of the link between research and policy is whether the individual researcher or the research institution is the main actor on research. A related issue concerns the roles that the foreign consultant and the African research center should play in the African market for policy ideas. Many cite the need for high quality and timely delivery as the main motives for the use of foreign consultants or experienced individual African researchers. However, many also advocate that African centers play a bigger role in the research-policy nexus because they have strong potential that has long been eclipsed by chronic underfunding. Further, African centers are familiar with local conditions and constitute an institutional counterpart to policymakers. A key factor is that, unlike most goods and services, research-based knowledge has a dimension of continuity. It is generated continuously and its end-users frequently come back for additional knowledge. The continuity requirement may serve as a benchmark in defining the respective roles of institutional research and individual or consultancy research. The role that African research centers need to play is best seen in areas where they can achieve policy influence, scientific credibility, and visibility with all actors in the policymaking spectrum. Helping African research institutions achieve this multifaceted role provides one of the best rationales for capacity building to tackle some of the current challenges in linking research and policy. Networking and regional policy issues. To fulfill its role properly, research needs to provide support in all relevant policy areas. Regional integration and policy issues are increasingly dominating African policymakers’ agendas. In response, researchers need to help design and formulate regional policy packages and resulting national actions harmonizing and complementing regional initiatives. The importance of these issues underscores the need for a concerted research agenda at the regional level, and for the emergence or strengthening of regional research institutions or regional research networks. The recent record seems to indicate that there is significant room for improvement in both areas. Capacity building in policy-oriented research. Providing adequate research support to policymakers requires the present and future existence of a corps of competent and experienced researchers. This requirement is best satisfied if graduate training programs in economics provide a constant influx of young researchers who are properly trained and made

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more familiar with policy issues by direct participation in policyoriented research. The pool of research skills can also be enhanced through staff development programs. The emerging regional integration agenda points to the need to harmonize the level of research skills and research practices across countries. A special emphasis would be warranted on bringing the Francophone research community into the mainstream of international research activity, thereby overcoming its linguistic isolation and improving its markedly different and somewhat weaker research tradition. The Challenge of Neoclassical Economics in Africa The ideological struggle that pitched capitalism against the communist doctrine during the Cold War of the 1950s and 1960s coincided with the independence of most developing countries and their thrust onto the world scene. One of the key goals of many economists in the developed, free-market countries was to show how market-friendly economic policies could help the new nations achieve economic development. Their main challenge was to apply the neoclassical economic paradigm that has dominated economic thought in the West to the reality of developing countries by making theoretical and practical allowances for their specific situations. Many development economics theories and schools of thought arose from that collective effort. As a result, over the last forty years—and especially since the collapse of communism and the Soviet Union accompanied by increased democratization in most developing countries—neoclassical economics has become the dominant theoretical bedrock that underlies policies formulated in the developing world by countries or the international financial organizations that assist them. It will then come as no surprise that most of the economic research aimed at informing policy in developing countries is couched in the neoclassical corpus. Consequently, any attempt to assess the effectiveness of these countries’ record of policy reform is unavoidably also an assessment of the validity of neoclassical economics, applied to the reality of developing countries in general and African countries in particular. It is now generally accepted that structural-adjustment programs (SAPs), the main policy reform rationale in Africa for the last twenty years, have not delivered the expected results. SAPs were a product of neoclassical doctrine, applied, at least in the early years, with little consideration of the uniqueness of each national economy. The current search for a new conceptual anchor for economic development, in which neoclassical theory will presumably play a big role considering

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the dearth of credible competitors, will need to successfully address a number of obstacles. The first issue is: Whose welfare function are policymakers seeking to maximize? The notion of the nation-state is still weak in many countries and is often superseded by policymakers’ stronger sense of duty to a smaller group (tribe, region, religion, clan, etc.) than to the entire political constituency from which they draw their legitimacy in power. As a result, policy-oriented research that postulates that, a priori, the groups targeted in the search for common good include all segments of society, may lead to solutions for problems that policymakers do not recognize as problems or do not consider to be a priority. Thus, African policymakers’ seemingly irrational decisions resulting in suboptimal use of resources could very well appear to be rational if the true preference function of policymakers was clear. Such situations can be easily obfuscated by the usual charges of cronyism, corruption, or nepotism leveled at African leaders but could, upon further review, allow for a new definition of the scope and scale for addressing and researching economic policy issues. One of the striking developments was that leaders in many African countries claimed to have implemented all or most of the prescribed reforms but waited in vain for positive outcomes. The issue is not whether they are right in making such claims, but that they believe them. Since most of these reforms were supposed to create a more market-friendly environment, they logically expected some responsiveness from domestic and foreign markets. Policymakers point to economic liberalization, political openness, and a proclaimed enhanced observance of the rule of law as factors that should have spurred significant supply-side responsiveness. Disappointing results were seen as proof that the externally proposed reform packages had simply failed. The usual counterargument is that African countries did not genuinely implement the needed reforms and have only themselves to blame. It’s true that African countries undertook policy reform with varying degrees of commitment. Yet not one has become a success story or radically changed its economic fortune over the last twenty years, the time span it took East Asian countries to make impressive economic progress in the 1970s. It is thus imperative to reexamine neoclassical theory, assessing its applicability to African reality or identifying prerequisites for its successful deployment on the continent. This does not necessarily imply that there is a need for a theory of economic growth that would be specific to Africa, but rather that there could be a set of important factors that have so far been overlooked.

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The third challenge could be worded as: Is there a resource threshold below which growth-inducing policies cannot succeed? It is usually argued that crippling debt service stemming from an oversized external indebtedness and rampant corruption are major impediments to the implementation of badly needed development programs. Furthermore, the high level of uncertainty surrounding African countries’ income may exacerbate behavior that already reflects severe resource scarcity and a constant concern for outright physical survival. To what extent can neoclassical economics provide policy answers under conditions of low, highly uncertain resource availability? Political economic challenges. The relationship between leaders, political organs, media, and people is an oft-neglected aspect of economic policy research. For policy research to have impact, it must resonate with all of these groups. Some market reforms are appealing to all groups, some to a few groups, and some to hardly anyone. Leaders throughout the continent are experimenting with new leadership styles and creating new economic and political institutions. They are not yet getting the hoped-for results. In large part this is because political dynamics conflict with and weaken economic reforms. The currencies of African politics derive from traditional patronclient relations. These attachments are much more personal and are expected to be longer lasting than links between voters and politicians in democracies. In the most basic exchange, African patrons provide protection and family-style aid (e.g., jobs, land, marriages, food supply) in exchange for loyalty, votes, and services (e.g., contributions to hospitality, donations in kind and in cash, gifts of greeting). This is how bloated civil services became such a common problem in Africa: both patrons and clients expected a good patron to put everything he had into building his client network. And if the state had to manage trade much like mercantilist governments in early modern Europe to achieve that outcome, it was not a major problem for voters. While African voters have welcomed democratic reforms, they still cling to expectations of patronage from their newly elected leaders. Issues of jobs, fiscal discipline, and corruption in trade and investment illustrate the political-economic transition many African leaders are trying to orchestrate. Patronage jobs and private-sector jobs have different political dynamics. In the old system, the patron got the client a job directly, so there was no confusion in either one’s mind about who was beholden to whom. The idea of new private-sector jobs is attractive to all constituencies, because private-sector jobs are typically the best-paid.

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But politicians are just beginning to figure out how to take credit for creating jobs. To do so, they now have to point to statistics. Thus, central statistics offices that used to have little sense of urgency about producing their reports now have politicians clamoring for data. Publicopinion polling is beginning to offer another means by which politicians can find out how well their employment policy is working for them politically. Many job seekers would rather have a secure government job than a competitive private-sector one that might be lost if business is bad. The government job is often poorly paid, but it gives a person a place in the group, a hierarchy to climb, and a base from which to engage in business for oneself. So, as election time comes around, African bureaucracies tend to expand. Politicians and electors revert to familiar ties. The Nigerian population, as Chapter 3 shows, is nearly unanimous in holding politicians responsible for economic outcomes. More than 80 percent of respondents wanted democratic leaders to support basic political liberties, such as freedom of expression. Yet more than 90 percent said full employment, universal education, and universal access to basic necessities such as shelter, food, and water were the most important expectations they had of their leaders. These would be classed as economic goals by Westerners; they are considered fundamental to democracy by Nigerians. Failing to maintain fiscal discipline is another reform issue. Prereform African governments became accustomed to spending more than they took in and printing new currency to make up the difference. The result was de facto currency devaluation, in many cases complicated by currency controls and foreign-exchange rationing. Now the IMF insists on progress toward a balanced budget, and other multilateral and bilateral donors fall in line if governments miss their budget targets by a wide margin. Meeting budget targets forces governments against a wall politically. Cut budgets? Cut military pay and perks? Raise taxes? Crack down on evasion? Dismiss civil servants? The immediate options are politically costly. The long-term consequences of devaluation seem more abstract. The best reformers make progress for a while, but at election time discipline breaks down under the force of political pressures. Political economic explanations of resistance to policy change often focus on corruption and the vested interests politicians and civil servants have in current practices. The most obvious are officials who use their positions to extort bribes: for example, officials who collect commissions or gratuities on government procurements and new investment or customs agents and tax collectors who collect bribes for ignoring taxable

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items. Police road stops and harassment of trade are serious obstacles to regional trade. When these practices become standard, they are extremely difficult to rein in. Some progress may be made when top leadership changes and a new government proposes a fresh start. Some of the problem may rest with the laws themselves, which are overly strict and provide encouragement and incentives for civil servants by offering opportunities for commissions for each violation penalized. For example, Tanzanian gem exporters were obliged to pay five different transaction taxes and register each export with three different agencies to operate legally. Following the rules consistently would make it impossible to compete, either locally against smugglers or internationally against Kenyan and international rivals. In exchange for less-than-draconian legal penalties, tax collectors may feel morally justified in collecting personally at least the equivalent of their commission on the fine they could have imposed. Merchants’ and investors’ objective is to bribe less than the maximum legal penalty and remain competitive with their peers (or to eliminate competitors, if possible), but enough to keep a network of official friends. That way the outcome appears as a win-win situation for those on the inside. When tariff barriers came down in most countries, overseas trade and currency exchanges were liberalized and most African leaders began to call for private-sector development. However, it is abundantly clear that a system fostering corruption, as described above, is one of Africa’s major obstacles to new investment. A few countries are now trying to tackle the problem from both ends, reducing tax rates while increasing collections. This approach is beginning to prove successful in all three East African Cooperation countries, establishing a path of hope for the rest of the continent. These examples show that the problem of economic reform is deeply interwoven with political change. The primacy of patronage economic relations is not just a habit of a few older politicians. It is part of the political fabric in African countries. For that reason researchers and reform leaders will inevitably work toward a different mix of economic and political reforms in Africa. Future policy researchers need to keep a focus on the political dynamics as they research the workings of the economy. The New Economic Policy for African Development, initiated recently by the presidents of South Africa, Senegal, Nigeria, and Algeria, promises changes in both the economic and political paradigms by which African economies have functioned. The economic platform rests

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on market economics, but with significant modifications rooted in African realities. Politically, it proposes to end the donor-debtor syndrome and replace it with coordinated African leadership to deal with African problems. It aims to base the relationship between African countries and the developed world on trade and investment partnerships rather than donor assistance and contingency-driven reforms. It has generally been welcomed by political and economic leaders on both sides. There is hope that it will go beyond dialogue to produce concrete results.

Acronyms

ACBF ADB AERC ANC BCEA BCM CDD CEPA CID CFA CFPE CNRS COSATU DFID DoL EAGER ECA ECC EPRC ESRF EU GCA GDN GDP GEM GIMPA

African Capacity Building Foundation African Development Bank African Economic Research Consortium African National Congress (RSA) Basic Conditions for Employment Act (RSA) Banque Centrale de Madagascar Centre for Democracy and Development Center for Economic Policy Analysis Criminal Investigation Division Communauté Financière Africaine Le Centre Fiscal Polote des Entreprises Centre National de Recherche Scientifique Confederation of South African Trade Unions Department of International Development (UK) Department of Labour (RSA) Equity and Growth Through Economic Research Economic Commission for Africa Employment Conditions Commission (RSA) Economic Policy Research Center Economic and Social Research Foundation European Union Global Coalition for Africa Global Development Network Gross Domestic Product Groupement des Entreprises Malgaches Ghana Institute of Management and Public Administration 227

228

HIID IEA IFAN IFES ILO IMF INEC INSTAT IRD ISAC LMC MESP MSI MTEF NEPA NGO ODA ORSTOM PEAP RDP RMP RMS RSA RSC SAP SDP SEGA SISERA SSA TCMP UK UNAIDS UNDP USAID VAT WVS

Acronyms

Harvard Institute for International Development Institute for Economic Analysis (Ghana) Institut Fondamental d’Afrique Noire International Foundation for Election Systems International Labour Organization International Monetary Fund Independent National Electoral Commission (Nigeria) Institut Statistique (Madagascar) Institut de Recherche pour le Développement Industrial Sector Adjustment Credit Labour Market Commission (RSA) Mandela Economic Scholarship Program (RSA) Management Systems International Medium-Term Expenditure Framework National Electric Power Authority Nongovernmental Organization Overseas Development Assistance Office de Recherche Scientifique et Technique d’Outre-Mer Poverty Eradication Action Plan (Uganda) Reconstruction and Development Programme (RSA) Reserve Money Program (Uganda) Research and Marketing Survey (Nigeria) Republic of South Africa Research Supervision Committee Structural Adjustment Program Skills Development Program (RSA) Support for Economic Growth Analysis Project (RSA) Secretariat for Institutional Support for Economic Research in Africa Sub-Saharan Africa Taxpayer Compliance Measurement Program United Kingdom United Nations Acquired Immune Deficiency Program United Nations Development Program United States Agency for International Development Value Added Tax World Values Survey

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The Contributors

Pépé Andrianomanana earned his Ph.D. from the University of Paris X, Nanterre, France. Since 1975 he has taught at the University of Antananarivo, Madagascar, where he is professor of economics and director of the Centre d’Etude Economique. He has consulted with several international and national agencies on issues of environment, privatization, taxation, and financial sector development. Professor Andrianomanana led the Malagasy teams that conducted studies of transparency in tax administration and excise tax policy under the USAID-funded EAGER project. Haroon Bhorat is an expert in labor economics and poverty-alleviation issues in South Africa. His areas of interest include labor markets, poverty and inequality, and econometrics. He holds an M.A. from the University of Stellenbosch, South Africa, and is currently director of the Development Policy Research Unit of the University of Cape Town, where previously he served as senior researcher and lecturer. He also worked as research coordinator of the Comprehensive Labor Market Commission of South Africa’s Ministry of Labour. He has published studies on a variety of issues, encompassing the impact of trade on sectoral unemployment, household inequalities, inflation dynamics, and public expenditure in South Africa. Fred O. Boadu is currently associate professor at Texas A&M University’s Department of Agricultural Economics. He holds a J.D. from Georgia State University and a Ph.D. in agricultural economics from the University of Kentucky. Since 1998, he has been involved in the USAID-sponsored EAGER project, conducting research in the areas of 237

238

The Contributors

law, regulatory and judicial reform, competition law, and policy and private sector divestiture. His area of expertise includes sub-Saharan Africa and its issues of water, land, and privatization. Dr. Boadu has conducted evaluative studies on varied commerce sectors in Africa, such as the cocoa industry in Ghana and the rice industry in Nigeria. His latest works include studies on governance and market-monitoring institutions in sub-Saharan Africa and barriers to regional trade in West Africa. Michael Bratton is professor in the Department of Political Science and African Studies Center, Michigan State University. His books include Democratic Experiments in Africa (1997), Governance and Politics in Africa (1992), and Peasant and Party-State in Zambia (1980). He has published more than fifty articles and chapters on democratization, civil society, and voluntary associations in Africa. Professor Bratton has received grants from the National Science Foundation, the Ford Foundation, the Rockefeller Foundation, the Fulbright Senior Scholar Program, and the Swedish International Development Agency, among others. Over the past twenty-five years he has served as a consultant to USAID, UNDP, the World Bank, and other governmental and nongovernmental development agencies. He is a cofounder and codirector of the Afrobarometer. Clive Gray holds a Ph.D. in economics from Harvard University. For over thirty years he was a fellow at the Harvard Institute for International Development, which in July 2000 was folded into the university’s teaching faculties. Dr. Gray spent fifteen years as resident advisor in economic policy agencies in Kenya, Colombia, Ethiopia, Indonesia, and Morocco, directing Harvard teams in the latter four countries. He is a senior fellow in development at Harvard’s John F. Kennedy School of Government. He served as chief of party of the Public Strategies for Growth and Equity cooperative agreement under USAID’s EAGER project. Charles D. Jebuni is an international economist specializing in policy analysis, impact assessment, and economic modeling. He received an M.S. in economics from the University of Ghana and a Ph.D. from the University of Strathclyde. Dr. Jebuni has conducted research on a wide range of topics, including the impacts of trade-related intellectual property rights on African economic development, African development policy options in relation to the World Trade Organization, and trade liberalization and

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239

regional integration in Africa. In addition to undertaking consultancies throughout Africa, Dr. Jebuni has previously served as the external director of the Bank of Ghana’s board of directors and is currently a core fellow at the Center for Policy Analysis in Ghana. Peter M. Lewis is associate professor at American University’s School of International Service. He specializes in the politics of developing countries, African politics, and comparative political economy. He holds a Ph.D. degree in politics from Princeton University. An expert on Nigeria, he has studied civil society, political economy, and development, and he has written extensively on the prospects for Nigeria’s democratic consolidation. Dr. Lewis has also conducted research on the role of public opinion in Ghana’s evolving democracy and the processes of political transition and economic reform in Indonesia. He has been a consultant to the Carter Center, the National Democratic Institute for International Affairs, the Ford Foundation, the World Bank, and the Council on Foreign Relations, among others. Polycarp Musinguzi has experience leading research teams dating from 1980 and holds a Ph.D. in monetary economics from the University of Southampton, United Kingdom. He is currently the executive director and head of the research function of the Bank of Uganda and is also a board director of the Uganda Investment Authority and the Economic Policy Research Centre (and chairman of its Research Advisory Panel). He has previously served as consultant and team leader for several projects in Uganda for the World Bank, the UNDP, and the Common Market for Eastern and Southern Africa (COMESA). Dr. Musinguzi has extensive experience in empirical, policy-oriented, computer-based research in monetary, financial, and macroeconomic developments in developing countries and has solid skills in statistical and econometric analysis and computing. Lucie Colvin Phillips is president of IBI–International Business Initiatives, a consulting firm committed to sustainable development led by private initiatives. She is a leading researcher on trade patterns, trade and investment promotion, and policy reform in Africa. She holds a Ph.D. from Columbia University in African economic history and an A.B. from Smith College. She was senior advisor on USAID’s EAGER project from 1995 to 2001, which involved coordinating twenty studies throughout the continent. She coauthored two studies on trade policy reform and another empirical research project on the hitherto unexplored trade issue

240

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of the smuggling of gems and gold in East Africa. Her work on regional trade began in the 1970s with a book on the regional economy of the Sahel. She recently coauthored a study of the relationship between foreign and local investment in Uganda, Kenya, and Mauritius. She has spent large parts of the last twenty-five years in Africa, including a decade as the wife of a U.S. ambassador. She teaches a course as a professorial lecturer in African political economy at the Johns Hopkins School of Advanced International Studies. T. C. I. Ryan, an expert on Kenya, received his M.S. and Ph.D. degrees from the Massachusetts Institute of Technology (MIT) and has had wide experience at the academic and practical policy levels. He has taught at Harvard University, MIT, and the University of Nairobi. His main areas of interest are in macroeconomic, developmental, and international aspects of the discipline. His recent writings have been in the area of political economy, examining both the aid/reform questions and the institutional questions relating to structural adjustment. Dr. Ryan was for many years the economic secretary of the Ministry of Finance in Kenya. He currently is a professor in the Economics Department in the University of Nairobi and works as a consultant, mainly to various governments on the African continent and to international bodies. He serves as a resource person for the African Economic Research Consortium. Diery Seck is an expert in financial economics and policymaking in Africa. He is currently executive director of the Secretariat for Institutional Support for Economic Research in Africa (SISERA), a donorfunded secretariat that provides financial and technical support to African economic research and training institutions. He holds a Ph.D. from Laval University in financial economics. Dr. Seck has worked with economic and policy research in Africa through USAID’s EAGER project and has conducted numerous studies on macroeconomic policy and management, economic development and planning, and financial liberalization. Haji H. Semboja currently serves as the senior research fellow and capacity-building coordinator of the Economic and Social Research Foundation (ESRF), a nonprofit policy research institute focusing on capacity building in economic and social policy and development management in Tanzania. He holds a Ph.D. degree in economics. Dr. Semboja has previously worked in research, where his areas of interest are public finance, economic and social analysis, and micro, macro, and industrial

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economics, including manufacturing, agriculture, mining, and tourism. His areas of expertise also include Kenya and its industrial and economic development and the effects of the information revolution on economic and social exclusion in developing countries. J. Dirck Stryker is president of Associates for International Resources and Development (AIRD), a research and consulting firm in Cambridge, Massachusetts, that specializes in the analysis of economic problems of the third world. He has worked extensively with USAID, the World Bank, the Development Assistance Committee of the Organization for Economic Cooperation and Development, and other bilateral and multilateral foreign-assistance agencies directing studies in the areas of international trade policy, monetary and fiscal policy, agricultural development, poverty analysis, and natural resource and environmental management in Africa, Asia, and Latin America. Dr. Stryker obtained his Ph.D. in economics from Columbia University and has taught at Yale and Tufts. From 1995 to 2001, he was chief of party of the Trade Regimes and Growth component of USAID’s EAGER project, in which capacity he supervised over thirty studies dealing with various aspects of trade and investment in Africa. Samuel M. Wangwe is currently executive director of the Economic and Social Research Foundation (ESRF), a nonprofit policy research institute focusing on capacity building in economic and social policy and development management in Tanzania. He holds a Ph.D. in economics from the University of Dar es Salaam, Tanzania. Dr. Wangwe has over twenty-five years of experience in academia, research, and consultancy work with both local and international institutions. Over this period, he has published more than sixty papers in the areas of industrial development and technology aid, policy reform, trade, regional cooperation, globalization, and poverty. He has undertaken extensive policy advisory work for the government of Tanzania and international organizations.

Index

Abacha, Sani, 66, 69 Abubakar, Abdulsalami, 66, 69 Accountability, and policy research, 127 African Centre for Economic Growth, 113 African Development Bank (ADB), research focus of, 16 African Economic Research Consortium (AERC), 165; credibility of, 113; engagement of African researchers by, 12, 13–14; poverty and inequality study, 192–193 African economies: democratic marketoriented goal of, 7; and group equity concept, 9–10; historical perspectives on, 7–12; macroeconomic crisis in, 9–10; and poverty alleviation, 12–13, 199, 202; and privatization, 11; and rentseeking, 11, 217–218; and structural adjustment programs, 1, 3–5, 11; structural commonalities in, 8–9; systems of subsidies and patronage in, 8, 10, 11, 223–224 African National Congress (ANC), 184, 185 African researchers, 13–19, 23,33, 219; comparative-research training programs for, 15; and computer/ Internet access, 19; funding for, 13–14, 19; policy focus of, 13; poverty research of, 12–13; shortage

of, 203; teaching-research relationship and, 18–19 Afrobarometer surveys, 70 Annual Economic Report on Africa, 15–16 Associates for International Resources and Development (AIRD), 17 Babangida, Ibrahim, 66, 84 Bank of Ghana, 34–35, 162, 165, 167, 177 Bank of Ghana Law, 31, 157–158 Bank of Tanzania, 122 Bank of Uganda, 175; policy research, 172; Reserve Money Program, 159–160, 168, 169 Bank of Uganda Act, 159, 176 Bretton Woods Institutions, and Madagascar’s tax policy, 132, 133 Center for Economic Policy Analysis (CEPA) (Ghana), 26, 174–175, 177–178; leadership of, 34–35 Centre for Policy Analysis (CEPA), 166, 167 Confederation of South African Trade Unions (COSATU), 22, 184, 185 Cornell University, Institute for Industrial and Labor Relations, 192 Democracy, African, public opinions on, 67. See also specific country Dia, Mamadou, 4

243

244

Index

Donor agencies. See International and donor organizations EAGER (Equity and Growth Through Economic Research) Project, 19–20, 129; activities and mandate, 17; Minerals Marketing Research Project, 117, 120–127; monetary and exchange rate studies in Ghana and Uganda, 171, 173, 175, 176–177; tax administration study in Madagascar, 134–150 Economic Management Team (EMT) (Ghana), 33–35 Economic policymaking: assessment, 3, 216–217; characteristics, 211–216; in democratic regime, 5; economic and social impact analysis of, 215; formal arenas for, 2; linear approach to, 211–212; “muddling through” process in, 3; political challenges to, 223–226; and policymakers’ ownership of problems/process, 214; rational model of, 3, 5; role of research in, 1–5; social accounting matrixes, 215–216; and statistical quality/availability, 214 Economic Recovery Programme (ERP) (Ghana), 41 Economic and Social Research Foundation (ESRF), 120, 123, 124, 126 European Union (EU), and South Africa’s research programs, 195 Exchange rate policy analysis, research tools for, 156. See also specific country Food-crop markets, resistance to reforms in, 11–12 France, and Madagascar’s tax system, 129 Ghana: business-government relationship in, 41, 42–43, 44, 45tab, 51–52; civil society, 44–45; consumption tax collection in, 28; courts’ policy roles in, 26–27, 50–52, 62; credit and banking regulations, 158; democratic commitment in, 72; development strategy, 161–162, 165; dollarization research, 166, 176–177; donor

organizations’ role in, 30–33, 164; economic laws, 32; economic policymaking and reforms, 25–63, 161–167; economic research sources, 32, 33–35; economists’ policy role in, 25, 30, 59, 162, 163, 164; exchange rate policy and research, 22, 163–167; fiscal deficits and inflation, 156, 158, 161, 173–175; impacts of external shocks in, 172–173; independence, 155; IRAs (independent regulatory agencies), 27, 36–37, 60, 61, 63; interest groups and lobbies, 57–59, 63, 157–158, 173; legislative/regulatory impacts in, 30–33, 37–41, 42, 46–49, 52–59, 60–61; market-based reforms, 41, 81, 173–174; media, 33, 43, 44–45, 52–56, 63; monetary policy and research, 22, 31, 34–35, 162–163, 165–166, 167, 172–173, 177; monitoring institutions, 33, 49–57, 62–63; objective measures of policymaking in, 25–26; open records law, 53; Parliament, 28, 29, 30, 32, 37, 41, 42, 43, 52–59, 60; and parliamentarians’ educational attainment and training, 45–46, 59–60; parliamentary selfmonitoring, 49–50, 62; participatory governance, 42–43; policy debates and policy research, 155, 156, 162–167, 176–181; policy process, 26, 30–35; postindependence policy regime, 173; poverty/poverty reduction policy in, 155; private advocacy and research institutions, 26, 34, 177–178; private sector’s role in, 25, 26, 40, 41–43; rule of law and human rights in, 50–51; structural adjustment programs, 41, 155; VAT (value added tax) law and regulations in, 20–21, 27–30, 40–41, 43, 45, 47–48, 50, 53, 60, 61, 62, 215 Ghana Ministry of Finance, 162, 163 Global Coalition for Africa (GCA), 12 Global Development Network (GDN), 12 Globalization, and policy performance, 119 Group equity research, 9–10

Index Harding, Gilbert, 110 Harvard Institute for International Development (HIID), 17 Household budget and consumption surveys, 13 Industrial Sector Adjustment Credit (ISAC), 105 Information technology, 15 Institute for Economic Analysis (IEA) (Ghana), 26; “Freedom of Information Act” proposal, 34 Institute for Statistics and SocioEconomic Research (ISSER), 35 Institutional Support for Economic Research in Africa (SISERA), 15, 16, 17 International and donor organizations: changing attitudes and concerns of, 119, 124; methodology, 215; monitoring and empowerment role of, 33; policymaking role of, 30–31; reform prescriptions of, 10. See also specific agency; Structural adjustment programs International Development Research Centre (IDRC), 16 International Labour Organization, 189–190 International Monetary Fund (IMF): and Africa’s macroeconomic crisis, 9–10; Articles of Agreement, 160; Enhanced Structural Adjustment Facility, 133; Financial Programming model, 163–164; and Ghana’s economic reforms, 34, 41, 156, 164, 167; and Kenya’s economic reforms, 98, 99–100; and Madagascar’s tax system, 129, 131, 136, 149; policy conditionality, 1, 66–67, 84; research data, 112; and Tanzania’s mining policy, 123 Kenya: ad hoc decisionmaking, 101; agricultural policy, 105; AIDS data, 112; banking crisis, 103; compensation policy, 103; democracy, 98; divesture and restructuring, 110–111; donors’ agenda, 101, 104, 107; dual economy, 96, 97; economic

245

liberalization, 22–23, 107–109, 110; economic policy documents, 98–100; economic rents and corruption, 95, 97, 101, 102, 103, 104; fiscal policy, 99, 109–110; food policy/security, 103–104, 111; grain marketing policies, 95–96, 111; import liberalization, 105; industrial sector, 101–102, 107; informal sector, 101–102; job creation, 108–109; macroeconomic modeling in, 99; market economy, 96; media, 100; mineral trade, 121, 122–123; oral policy statements, 100–101; parastatal reform, 110–111; policy reform advocacy, 100–101, 104; policy reform characteristics, 101–102; policy reform motives, 103–106; policy research, 111–114; policy reversals (backtracking) in, 95, 102, 109–110; population policy in, 109; presidential access, 95; price decontrol, 105, 106–107; privatesector research, 113; research organizations, 112–113; and research presentation, 95; research relevance in, 114–115; rule of law, 98; social capital investments, 97; statist policies, 102–103; traditional institutional structure, 96–97; tribal/ethnic discrimination, 103 Kenya Gazette, 98, 105 Kenya Revenue Authority, 106–107 Labor Markets, Poverty, and Inequality in South Africa (study), 192–193 Lagos Plan of Action, 15 Lewis, David, 187–188 Madagascar: civil society, 134; development assistance, 131; donor missions’ research in, 131–133; ratio of tax revenue to GDP, 129, 130, 132; revenue performance, 130; social welfare, 130–131; tax evasion, 21, 134–143, 145–147; tax policy and reforms, 129–152; tax policy recommendations, 143–150; and utility of tax transparency, 136–137 Mali, rent-inducing agricultural policy in, 217–218

246

Index

Mandela Economic Scholarship Programme (MESP), 193 May, Julian, 199 Mbeki, Thabo, 199 Monetary policy: and “Quantity Theory of Money,” 163; research tools for analyzing, 156; and structural adjustment reforms, 11. See also specific countries Mule, Harris, 110 Nairobi Stock Exchange, 107 National Treasury (South Africa), research role of, 184, 185, 186 Ndegwa Report (Kenya), 110–111 New Economic Policy for African Development, 225–226 Niger-Bus (survey), 69 Nigeria: civil society, 68; constitutional regimes (First and Second Republics) in, 65; crime and government legitimacy in, 89, 91–93; democratic culture of, 65, 67, 68, 71–75, 79, 80–81; economic reforms and performance, 84–86, 87–88; elections, 77; employment, 82; equity in, 86, 91; government performance assessment, 68–69, 75–79, 80, 89, 90; human rights abuses, 66; market values, public support for, 81–89; military, distrust for, 73–74; military rule, 65–66, 67–68, 72; official corruption, 90– 91; petroleum revenues, 66; political and economic liberalism in, 86–89; public sector, 84–85; rule of law in, 89, 92; social welfare, 66, 83; structural adjustment reforms, 66–67, 84 Nigerian Politics: The People’s View, 68 Nyachae, Simeon, 110–111 Obasanjo, Olusegun, 66; anticorruption efforts of, 90–91; performance rating of, 69 Ouko, Robert J., 100 Peil, Margaret, 68 Policy process, 106. See also Economic policymaking Policy research: assessment, 216–219; capacity building in, 220–221;

degree of rigor in, 217; dissemination strategies, 217–218; in domestic think tanks, 14, 15; empirical (applied), 17–18, 23; in-house, 214; qualities of good research in, 6–7; redefining, 211–213; regional initiatives and networking in, 220; requirements, 213–216; salary disparities and class differences in, 13. See also African researchers; EAGER Project Poverty and Inequality Report project (South Africa), 199–200 Poverty and inequality research, 12–13, 199, 202 Poverty Eradication Action Plan (Uganda), 169–170 Poverty Reduction Strategy Paper (Madagscar), 134 Presidential Labour Market Commission (South Africa), 188–190 Private Enterprise Foundation (PEF) (Ghana), 26, 33, 34, 61 Public attitudes, and democratic consolidation, 67 Rajaonarivelo, Pierrot, 145–147 Rational-choice model of policymaking, 3 Reconstruction and Development Programme (RDP) (South Africa), 199, 201 Researchers. See African researchers Reserve Money Program (RMP) (Uganda), 159–160, 168–169 Saitoti, George, 109 South Africa: democratic commitment in, 72; donors’ policy research in, 201; economic research, 21–22; economists’ role in, 22; European Union’s research support for, 195; government in-house research, 204–205; government statistical authority, 191–192; job creation, 189–190; labor issues, 22; labor market research, 185, 186, 187–198; minimum wage policy, 210; obstacles to policy research in, 202–206; post-apartheid bureaucracy, 185, 187–188, 198–202; poverty

Index policy and research initiatives, 185, 186, 198–202; research networks, 184–187; shortage of skilled researchers in, 203–204; trade union movement, 184, 185, 187 South Africa’s Department of Labour (DoL), 184, 185, 186; Minimum Standards Directorate, 196–197; research community and, 187–207; Research Directorate, 204–205 State Enterprises Commission (Ghana), 36 Statistics South Africa (SSA), 191–192 Structural adjustment programs: conditionalities, 1, 21; cultural factors and, 4–5; failure of, 10–11, 211; impacts on households and individuals, 13; lack of coordination in, 4; lack of stakeholder ownership n, 12; rational-behavior model applied to, 3–4; sequencing problems in, 4, 11. See also specific countries Support for Economic Growth Analysis Project (SEGA), 193 Tanzania Ministry of Energy and Minerals, 122, 123, 124, 125, 126 Tanzania Revenue Authority, 122, 123 Tanzania: democratization and political liberalization, 118–119; donor agencies in, 119, 123; dual-track development policy, 123; economic liberalization, 118; economic policy context, 117–119; gem and gold trade, 23; globalization and, 119; incentive-based trade approach, 23; local economists role in, 120, 127, 128; media, 118, 119; mineral marketing study, 120–127; mineralssector liberalization, 23; mining policy, 122–123; mining taxes, 121, 123; parastatals’ position in, 118; policy research impact, 125–128; policy stakeholders, 122, 126; policymaking and policy research in, 119–124; political parties, 118–119; small-scale and artisanal mining, 120, 123; smuggling of minerals in, 122–123, 126 Taxation: on consumption, 28; on mining, 121, 123; and tax evasion,

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134–143, 224–225. See also specific countries Thill, Jean, 132 Trade and Investment Program (Ghana), 40 Trade policy, and structural adjustment reforms, 11 Uganda: exchange rate deregulation in, 160; external shocks in, 172–173, 175–176; fiscal policy, 156; loss of human capital in, 161; medium-term expenditure framework (MTEF) in, 169–171; monetary and exchange rate policy, 22, 156, 159–160, 167–172; monetary policy instruments in, 156, 168–169; policy research, 167–168, 171–172, 179–181; poverty reduction plan, 169–170; reserve money program, 168–169; stabilization and structural reform programs, 155, 159, 160, 167; trade deficit, 175 United Nations: Acquired Immune Deficiency Program (UNAIDS), 112; Development Program, 124; Economic Commission for Africa (UN-ECA), 15–16 United States, tax policy of, 138–139, 144, 149 University of Cape Town, 185, 193–194 University of Ghana, policy research of, 35, 162 U.S. Agency for International Development (USAID), 33, 164, 166; economic reform program in Ghana, 33; Support for Economic Growth Analysis Project (SEGA), 193 Value added tax (VAT): in Ghana, 20–21, 27–30, 40–41, 43, 45, 47–48, 50, 53, 60, 61, 62, 215; in Madagascar, 132 Wadhawan, Satish, 138 Wappenhans, Karl, 12 World Bank, 35, 41, 177; and African researchers, 12, 13; and Africa’s macroeconomic crisis, 9–10; Ghana

248 research, 164, 177; import liberalization study, 105; internal research focus of, 12–13; Kenya research and agreements, 98–99, 112; poverty research, 199, 202; structural-adjustment programs, 1,

Index 21, 66–67, 84; tax system research in Madagascar, 129, 132, 133 World Trade Organization, 4 World Values Survey (WVS), 68–69 Zambia, democratic commitment in, 72

About the Book

When African countries embarked on the first round of structural adjustments in the 1980s and 1990s, there was little opportunity to first determine what programs would work where—instead, governments reluctantly implemented policies that were imposed by international financial institutions and based on theoretical models. The ensuing process was eventful—and the results checkered. Now, however, it is possible to learn from a decade of research on the actual impacts of economic policy changes. The authors of this book report on programs across Africa, focusing on the research-policy connection in the context of measurable results. Their challenging goal is to contribute to the design and implementation of more productive, more equitable development strategies. Lucie Colvin Phillips, a development economist, is president of International Business Initiatives. She has worked with governments and private entrepreneurs throughout Africa to assess policies and implement change in the areas of governance, health, education, and private-sector development. Diery Seck is director of the UN African Institute for Economic Development and Planning, located in Senegal. Previously he served as executive director of the Secretariat for Institutional Support for Economic Research in Africa, and for eight years he was coeditor of the Journal of African Finance and Economic Development.

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