Research shows that the governance dividend for countries in sub-Saharan Africa is two to three times larger than for the average country in the rest of the world—even in regions perceived to have equally weak governance. Bringing sub-Saharan Africa’s governance to the world average could increase GDP per capita by an estimated 1 to 2 percentage points a year.
Low corruption and good governance are not the sole drivers of growth, of course. Some countries perceived as having weak governance have experienced episodes of strong growth driven by other factors—for example, natural resource wealth. In other cases, countries with good governance have not necessarily enjoyed strong growth. But we find that corruption tends to undermine economic growth, behaving more like sand than oil in the economic engine.
The governance landscape varies significantly around the world, with most developing regions performing poorly.
Some African governments are already showing a clear commitment to fighting corruption and strengthening governance. For instance, various segments of the South African government apparatus and institutions were made subservient to a select group of people during the so-called state capture episode. Since 2018, the government has been engaged in a bold fight to reverse the damage by improving procurement, fighting smuggling, and rebuilding the capacity of critical institutions such as the revenue authority and the anti-corruption agency.
Similarly, Angola had lost control over billions of dollars from its sovereign wealth fund. The money was siphoned off by a rogue fund manager, with others complicit, through complex financial transactions moving through offshore financial centers and invested in ventures of personal interest.
In other instances, however, retrograde processes such as kickbacks in the allocation of uncompetitive oil and gas contracts and the expropriation of private assets are still in place, undermining the sanctity of property rights and the rule of law, with damaging effects on investment and growth. In a few cases, the independence of central banks is under attack from politicians seeking expedient solutions to finance the budget or boost growth through monetary easing instead of reforms.
Improving governance is difficult, as the beneficiaries of corruption often fight back. It is a complex, drawn-out battle among the various players—government, institutions, civil society, media, and the private sector. Strong political commitment is thus an absolute requirement for success.
From an economic perspective, there are some basic principles that apply across countries and can boost governance, such as strengthening laws, improving government effectiveness, and shoring up fiscal and anti-corruption institutions.
Governance is a multifaceted issue cutting across politics, economics, and institutions. The indicators with the most significant economic ramifications include corruption (abuse of public office for private gain), government effectiveness (quality of public policies and services), regulatory quality (ability of the government to formulate and implement business-friendly policies and regulations), and the rule of law (respect for contract enforcement, property rights, and law enforcement).
Bringing the various governance dimensions into one indicator can be challenging, as aggregating subjective measures may not fully capture the reality on the ground, either due to cultural differences—corruption in one country may be a customary practice in another—or the fact that distinct attributes of governance are lumped together in one indicator. While corruption perceptions tend to be the main component of interest, most measurements are broad enough to be useful proxies for the quality of political institutions, government regulations, and policies.
Digitalization is opening up new ways of fighting corruption by providing governments with new platforms for engaging with citizens and entrepreneurs. It also promotes greater transparency and accountability by facilitating access to information. Many African countries are using this opportunity to improve service delivery and governance in a variety of ways.
In the area of taxation, for example, electronic processing of tax submissions, refund payments, and customs declarations saves time and lowers costs—as well as reducing corruption opportunities. Data analytics make risk-based auditing possible, allowing for faster processing of tax claims.
Digitalization can also improve spending efficiency. Biometric technologies and electronic payment systems are helping cut bureaucratic inefficiencies, better target people in need, produce fiscal savings, and facilitate the delivery of benefits. People are using digital payments—for example, for school fees—to reduce the scope for fraud and corruption by bypassing public officials.
Digitalization can also make procurement more transparent, inclusive, and efficient. Centralized procurement can reduce conflicts of interest and abuse, including at the level of state-owned enterprises, provinces, and local governments.
A Guest Editorial