Monday, 21 June 2010

Budget 2010: Designing a development strategy (1)

Joachim Ezeji
Newspaper reports last week had it that Nigerian senators brushed aside party differences to berate the executive branch over its consistent failure to implement successive budgets. The report said that senators were particularly worried about the problem of infrastructure, which they said had remained a national nightmare despite gulping billions upon billions of naira.
In the light of that senate disenchantment with the federal government of Nigeria, it is timely to challenge the government to use the opportunity offered by this timely feedbacks on the budget, to make year 2010 a transition year that would herald a new era of shared prosperity for Nigerians. Shared prosperity would not only mean the end of massive and unnecessary suffering among Nigerians who are trapped in extreme poverty but would also mean a safer and more democratic nation as to be showcased by scheduled elections, democratic institutions and politicians as well.
The idea that growth is market based is true, but that is only half of the story. Government action provides the foundations for long term economic growth by ensuring that key parts of the social and physical infrastructure are in place and working effectively. At a low level of economic development, government responsibilities involve investing in basic infrastructure, especially roads, power, primary schools, clinics, water and sanitation.
A study recently undertaken for the World Bank in 24 African countries shows that the poor state of infrastructure in sub-Saharan Africa – its electricity, water, roads, information and communications technologies – reduces national economic growth by two percentage points annually and cuts business productivity by up to 40%. The report titled: Africa’s infrastructure: a time for transformation; reveals that Africa has the weakest infrastructure in the world, but that Africans in some countries pay twice as much for basic services as those living elsewhere.
The study argues that well-functioning infrastructure is essential to Africa’s economic performance and that improving inefficiencies and reducing waste could bring major improvements to Africans’ lives. The report estimates that $93 billion is needed each year over the next decade, more than twice the amount previously thought. Almost half of this would be spent on addressing the continent’s power supply crisis. The new estimate equates to roughly 15% of the continent’s gross domestic product (GDP), similar to China’s infrastructure investment over the last decade.
The study found that existing spending on African infrastructure is much higher than had been thought, at $45 billion a year. Another surprise was that most of this is financed by African taxpayers and consumers. The study also found that there is also considerable wastage – efficiency improvements could potentially expand the available resources by a further $17 billion. However, even if major efficiencies were found there would still be a funding gap of $31 billion each year, much of it for power and water infrastructure in fragile states.
‘Relative to the size of their economies, the funding gap is daunting for the region’s low-income countries (who would need to spend an additional 9% of their GDP) and particularly for the region’s fragile states (who would need to spend an additional 25% percent of their GDP),’ the World Bank notes. Resource-rich countries such as Nigeria and Zambia face a more manageable funding gap of 4% of GDP. Particularly in light of the global financial crisis, investing in African infrastructure is critical for Africa’s future, the report adds.
Obiageli Ezekwesili, World Bank vice president for the Africa region, said: ‘Modern infrastructure is the backbone of an economy and the lack of it inhibits economic growth. ‘This report shows that investing more funds without tackling inefficiencies would be like pouring water into a leaking bucket. Africa can plug those leaks through reforms and policy improvements which will serve as a signal to investors that Africa is ready for business.’
Senator Uche Chukwumerije (PPA, Abia State) according to the newspaper report expressed concerns that the expenditure patter of the 2010 budget proposal was high on overheads and low in investment and sustainable economic projects. He was also miffed that the budget recorded low allocation to anti-corruption agencies, declaring that unless something drastic is done about corruption, the nation will ultimately be the loser.
To see how economic growth can actually be achieved, Jeffrey Sachs suggests that it is useful to trace the progression of economic development through four basic stages, each stage representing a higher level of income and development than the preceding one. According to Sachs’ the progression is from a subsistence economy, to an emerging-market economy, to a technology-based economy. Each of these stages represents a higher level of capital per person.
To be continued next week.

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