The transformation of any society requires three things; first the profound realisation that it must change, second is finding those practices that will cause the change and third is adopting those practices. I think this is the case in Rwanda where appropriate policies and institutional architecture have been established for fundamental national transformation as articulated in the National Strategy for Transformation (NST1).
"The Developmental State" is a term coined by Chalmers Johnson that is used to describe states which follow a particular model of economic planning and management. It was initially used to describe post-1945 Japan and its rapid modernisation and growth.
A simple definition would be that "A Developmental State is a state where the government is intimately involved in the macro and micro economic planning in order to grow the economy", with the addition "whilst attempting to deploy its resources in developing better lives for the people".
What are the characteristics of a developmental state?
The United Nations lists the characteristics of Developmental States as the following:
·A government with the necessary political will and legitimate mandate to perform the required functions;
·A competent and neutral bureaucracy that ensures effective implementation. This requires a strong education system and efficient set of public sector organisations with little corruption;
·An institutionalised process where the bureaucracy and government engages with other stakeholders; and
·An established development framework and a comprehensive governance system to ensure the programme is implemented e.g. a central function responsible for overall coordination.
China, Singapore, India, Thailand, Taiwan, Vietnam, Malaysia, South Korea, Philippines, and Indonesia are all categorised as developmental states.
"Accordingly, it is agreed that the developmental state not only refers to the collective economic and human development, but also describes the state's essential role in harnessing national resources and directing incentives through a distinctive policy-making process."
The state's role is to partner with the private sector in the national industrial transformation. The state is a therefore catalytic agent and the business sector responds to the incentives and disincentives which the state establishes.
Rwanda's NST1 is the driver towards vision 2050 and aspires to take the majority of Rwandan people to high living standards by the middle of the 21st century, and to ensure high quality livelihoods for all. The NST1 seeks to provide the vehicle towards vision 2050 aspirations which focus on five broad priorities: High Quality and Standards of Life, Developing Modern Infrastructure and Livelihoods, Transformation for Prosperity, Shared Values for Vision 2050 and International cooperation and positioning.
The Economic Transformation Pillar of NST1 presents a strategy to accelerate private- sector-led economic growth and increased productivity. This means that it is the role and intention of the government to create an environment conducive for inclusive economic growth and to unleash the creative and entrepreneurial energy of all, particularly the private sector including SMMEs, the latter which currently dominate the business sector.
This, therefore, means that the private sector must be empowered and have access to the necessary tools to deliver.
The critical success factors of private sector led growth include; a stable macro-economic environment, access to long term affordable capital, access to new markets, efficient infrastructure and skills development and, last but not least, peace and political stability.
Macro-economic stability is the absence of currency fluctuations, high debt burden and unmanaged inflation which can result in economic crises and collapse in GDP. It also includes minimising economic vulnerability from both internal and external shocks and the pursuit of consistent well thought-out economic policies which create predictability and allow effective business planning and growth. Fiscal and monetary discipline, as well as a sustainable balance of payments position are therefore key.
Access to long term affordable capital remains a limiting factor in many economies including Rwanda. Traditional commercial banking practice will not provide long term friendly or affordable capital, nor take the necessary risks as may be required from time to time. The government must therefore come up with innovative means to ensure capital is available in those sectors where commercial banks are unwilling to take risks but have long term upside in terms of job creation and economic value add. Other countries have established state owned industrial development corporations, which provide long term equity capital in those sectors where banks are unwilling to take the risk but are critical for long term economic development. These can then be disposed of to the private sector once they are viable and have gained economies of scale.
Regional integration is a game changer and will create access to a market of in excess of 800 million consumers for the Rwandan business sector. This will provide economies of scale and the need to stay competitive and spur innovation and creativity to the benefit of the economy. Significant steps have been made in that direction to date, but a lot still needs to be done on trade infrastructure and logistics to allow the easy flow of goods and people within the region.
There is no argument that a well-developed infrastructure leads to faster economic growth and improves the ease of doing business while ensuring that the business sector remains competitive. Economic growth and development cannot be achieved without the availability and the provision of appropriate economic and social infrastructures. The need to improve the quality of infrastructure services in any economy is therefore the cornerstone of achieving sustainable inclusive economic growth. Key infrastructures which lead to ease of doing business and reduced doing business costs and efficiency include; consistent and affordable energy, adequate and clean water supply, good sanitation and sewerage systems, decent roads, widespread telecoms, cost effective air transport, access to broad based internet, modernised border trade infrastructure, well run railways and public transportation.
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On the issue of skills, Rwanda certainly has a skills deficit in many sectors and human capital development must and is a priority. Rwanda, however, does have a comprehensive human capital development strategy which will take time to develop. In the mean-time, it may be prudent to attract urgent skills required now from the diaspora and this will certainly accelerate skills development and transfer to the benefit of local talent. In my opinion, there are many skilled professionals out there who are ready and willing to contribute to Africa's and especially Rwanda's development which continues to stand out as a beacon of hope for an African success story.
Added to the above, is the importance of a stable and peaceful socio political environment. Investors are certainly not attracted to a country where there is continuous political uncertainty. A stable socio-political environment contributes to growing confidence which in turn creates a virtuous cycle of positive energy for the future. On this score, Rwanda is doing very well.
One can therefore safely conclude that yes indeed, Rwanda does meet the characteristics of a transformational developmental state in the making. What is critical is to maintain the current momentum and implement the NST1 effectively in an inclusive manner.
Vince Musewe is an economist at Resource Africa Limited.
