Without concerted efforts to improve domestic revenue collection, increase effectiveness and decrease corruption, governments in Southern Africa may be unable to meet the growing public service needs of their young and growing populations.
Poor access to public services (such as education, health, infrastructure) could hinder human development and long-term growth. Meanwhile, lack of access to services and opportunities for a large, disenfranchised youth population could undermine peace and security in the region.
A recent report written by the African Futures Project (a partnership between the Institute for Security Studies and the Frederick S. Pardee Center for International Futures), in support of USAID/Southern Africa's regional development cooperation strategy, shows that the pace of improvements in government capacity will be a key driver of long-term stability and development in Southern Africa.
Governance lies at the heart of long-term, sustainable development. Avoiding internal conflict (security), extending service delivery (capacity) and fostering better political and social systems (inclusion) are essential elements in sustainable growth and development. However, the sequence, pace and context in which each dimension of governance improves varies widely across countries and regions.
Aid as a portion of government revenues is expected to continue to decline
Over the past 15 years, Southern Africa has been relatively peaceful. It has low levels of armed conflict compared to other regions in Africa, although it has an increasing number of protests and the highest rate of non-conflict violent deaths or criminal violence.
While this relative peace is expected to hold, there are structural drivers that heighten the risks of internal conflict, especially in Angola and Zimbabwe. The region also has relatively high levels of democracy (a core measure of inclusion), but Swaziland and Angola still operate more autocratically.
In terms of government capacity, defined as governments' abilities to generate revenue and effectively use resources, Southern Africa is generally on par with other developing regions.
Given the anticipated growth and relative youthfulness of the Southern African population, the pace of government capacity and effectiveness improvements will be a major driver of development and stability. But Southern African government capacity is expected to improve slower than other developing regions over the next 23 years. The reasons for this are two-fold.
First, aid as a portion of government revenues is expected to continue to decline. Put another way, increases in aid will likely not keep pace with growth and government revenue needs. This means that Southern African governments will need to get better at generating revenue domestically to keep up with public service demand (education, health, etc) of a young and steadily growing population.
Lacklustre domestic revenue mobilisation is partly caused by the large informal sector
Aid receipts as a percentage of government revenues are estimated to be 4.4% for the region, which is lower than other African regions but higher than South Asia or Latin America. However, there is significant variation across Southern Africa. For example, Botswana and South Africa are estimated to receive less than 2% of revenues from aid, while Malawi and Mozambique are estimated to receive over 40% of revenues from aid (see Figure 2 below).
Across the region, the ratio of aid-to-government revenues is expected to fall by almost half by 2040, which means Southern African governments will need raise the equivalent and more to keep up with economic and population growth.
Lacklustre domestic revenue mobilisation is partly caused by the region's large informal sector. Nearly 55% of the workforce operates in the informal sector, which is largely made up of low-income individuals who are outside the formal tax system. While the informal sector is expected to shrink as a portion of GDP and labour, it is still forecast to represent 44% of GDP and 16% of labour by 2040.
In low-income countries, the informal sector serves as an important source of income for those who are extremely poor and unable to participate in the formal economy. In other countries, a large informal sector can be a sign of a generally ineffective regulatory and governance system.
This leads us to the second major driver of government capacity: corruption.
Southern Africa ranks better on corruption than other African regions and is generally on par with other developing regions. Seychelles and Botswana score fairly well, whereas Angola and Zimbabwe rank the lowest in the region. But, again, the region as a whole is expected to improve at a slower rate than other regions.
Governance lies at the heart of long-term, sustainable development
This lack of progress in reducing corruption will compound government revenue issues, as rent-seeking behaviour from firms and lobbying groups can push corrupt officials to leak funds from the public purse. In other words, continued levels of corruption could siphon off government funds from already low domestic revenue base.
Moreover, sustained corruption can undermine the effective use of government funds. Preferential treatment of businesses competing for government contracts can lead to inefficiency, and collusion between state-owned enterprises can result in ill-advised investment or debt-management decisions. In the best-case scenario, the public sees less benefit from tax dollars; in the worst case, as seen in Mozambique recently, the government defaults and external assistance is pulled.
Slow progress or regression in these drivers of government capacity could undermine stability in the region. Southern Africa has a young and growing population, which means that service provision will become increasingly difficult and important, even in the absence of revenue and transparency issues. A persistently underserviced and largely unemployed youth population represents a significant risk to stability and inclusion.
Alex Porter, research consultant, African Futures and Innovation, ISS Pretoria
Join the ISS seminar with Alex Porter on 6 April, at 10:30am CAT for a discussion on this topic.