Nicolas Maduro recently returned from his round-the-world trip seeking financial help from the friends of the Bolivarian Republic to appease the growing tensions in Venezuela prompted by low oil prices. It's still not clear what the Venezuelan president accomplished from this tour. With his approval rate sinking by the minute, Chavez's successor should be learning from what other commodity-dependent countries, especially in Africa, have done in terms of policy instead of desperately begging for loans.
At least 10 African countries will have elections in 2015. The continent is one of the world's fastest-growing regions, but poverty, corruption, and violence are still commonplace in most countries. As new leaders take office, they will also have to address these challenges amid low commodity prices that will likely limit their budget. African leaders must prioritize building strong institutions and adopt good governance practices through which they can ensure inclusive development and establish a resilient economy to reduce their vulnerability to the volatility of commodity prices.
Africa's continuous economic growth has been higher than the growth rate of the world economy since the 2000s. An improvement in political stability combined with high commodity prices prompted analysts to argue that the continent was finally reaching a turning point. Many countries have enhanced their macroeconomic management and the imminent emergence of a consumer class has contributed to boost the continent's economy. While poverty has fallen significantly, over 40 percent of the population in Sub-Saharan Africa still lives with less than $1.25 a day. Entrenched corruption and increasing inequality have hindered the continent's ability to transform its economic growth into fast inclusive development.
The Policy Imperative
Similar to Latin America, translating economic growth into development requires African leaders to design long-term policies and transparent institutions that are able to tackle the continent's poor services and infrastructure. Investing in these two sectors is pivotal in order to continue integrating the African economy into global value chains and ensure sustained economic growth. Countries that have implemented structural reforms are more likely to attract Foreign Direct Investment (FDI). Notwithstanding, pertinent developmental policies are necessary to keep on competing with other developing regions. Investing in human capital and infrastructure is pivotal to minimize the bottlenecks that negatively affect growth and economic diversification.
For many years Africa has been susceptible to the volatile nature of the commodities markets, resulting in long periods of economic stagnation, accompanied by reductions in social spending and living standards. To counteract these effects, countries like Botswana have created sovereign wealth funds to better manage the revenue from the extractive industries and invest in long-term development.
Good Policies, High Political Costs.
Policy instruments like deploying sovereign wealth funds might seem obvious to adopt but many governments often face opposition to their creation, even if they are a proven mechanism to better distribute the surplus of the extractive industries. Traditional African elites have benefited from the revenues of natural resources for many years; scandals of corruption and misuse of resources are not something new in the continent. The creation of a sovereign wealth fund or adhering to an international standard such as the Extractive Industry Transparency Initiative (EITI) directly affect such elites as the revenues of the national natural resources are more transparently and better distributed amongst the population. But in countries like Venezuela where the leaders were too eager to use the oil revenues immediately to sustain their approval ratings, long-term policies were quickly put on the back burner.
Goodluck Jonathan faced strong criticism when he established the Nigeria Sovereign Investment Authority (NSIA), the body in charge of managing the country's surplus income from oil. The creation of the NSIA proved Jonathan's determination to prioritize building institutions and blocking loopholes in the system. But the creation of a much-needed sovereign wealth fund has not been well received by everyone in the Nigerian political elite as it threatened their personal interests. Many governors claimed the fund was unconstitutional, because according to Nigerian law, the Federation must distribute oil revenue between local, state, and federal governments -- no mention of investing abroad.
The creation of a the Nigeria Sovereign Wealth Fund aimed to curtail the poor management of the surplus oil revenues by creating a more transparent system and building a saving base for the Nigerian people. As part of Jonathan's Transformation Agenda, a policy package destined to reform the country, NSIA manages Nigeria's oil wealth through three funds: the Stabilization Fund, the Nigeria Infrastructure Fund and the Future Generations Fund. The Nigeria Infrastructure Fund receives 40 percent of the oil surplus revenues is now serving as one of the main instruments to invest in the transformation of the country's power sector that had been ignored for decades and is one of Nigeria's main obstacles to industrialization.
A hurdle to Nigeria's economic development could come from the upcoming February presidential elections. The contender, a former general and one-time military dictator, Muhammadu Buhari, is running on a populist platform that resonates with that of Maduro. A man known for his hardline security measures, Buhari has attracted many voters on the sole promise to stop Boko Haram in two months. However, the once military dictator has failed to provide any coherent details about his economic and social policy plan if he gets elected. A glaring example is the opposition's plans to scrap the NSIA, which has been a key mechanism to overcome the low oil prices.
While implementing policy instruments that facilitate good governance and accountability is pivotal to achieve inclusive development, their results are not immediate. For many politicians, like Jonathan, implementing policy reforms represents a high political cost especially when other issues eclipse the not-yet-tangible benefits of such policies. That is probably why Hugo Chavez preferred spending the revenues from the oil boom in the early 2000s on short-term economic development policies instead of investing in the future. Had Chavez created an oil stabilization fund, as Jonathan did back in 2003, perhaps Venezuelans would not be struggling as much today. But unlike Jonathan, Chavez was more of a charismatic leader than a policy maker. Unfortunately for Venezuelans, Maduro is neither.
Like most countries in the region, Nigeria must overcome the twin challenges of preserving political and social stability. However, only focusing on security would revert many of the improvements that are showing encouraging signs in other sectors of the country. Once the Boko Haram threat is minimized, it will be key to sustain inclusive growth and reduce poverty in the areas most affected by the organization. The biggest African economy just needs to look at what is happening in the Latin American OPEC countries: populist discourses might win elections, but they soon turn into bad policy making and stagnant economic growth.