Good Governance Vital For Economic And Social Development

The MEFMI Executive Director, Dr Caleb Fundanga and MEFMI Programme Manager in the Macroeconomic Management Programme Ms Vivian Namugambe attended the African Economic Research Consortium (AERC) Bi-Annual Research Workshop in early December 2017 at the Mt. Meru Hotel in Arusha, Tanzania.

The event was graced by many renowned researchers including Prof. Benno Ndulu – former Governor, Bank of Tanzania, Dr. Kupukile Mlambo – Deputy Governor, Reserve Bank of Zimbabwe, Prof. Paul Collier – Professor of Economics and Public Policy, University of Oxford, UK, Mr. Mark Napier – Director, Financial Sector Development (FSD) Africa; Prof. Kinandu Muragu – former Executive Director, Kenya School of Monetary Studies (KSMS); and Dr. Rose Ngugi – Executive Director, The Kenya Institute for  Public Policy Research and Analysis (KIPPRA). 

The opening ceremony and the plenary session was presided over by Prof. Lemma W. Senbet, Executive Director of AERC. Prof. Senbert stated that AERC had made significant achievements during the twenty nine (29) years it has been in existence. He mentioned that AERC was currently globally ranked number 26 in the top fifty international development think tanks.  

Turning to the theme of the plenary session, “Quality Governance”, Prof.  Senbert pointed out that good governance was vital for economic and social development.  He stated that properly designed mechanisms to hold decision makers accountable both in the political and corporate spheres were essential. Hence, quality governance should be at the centre of transforming Africa including capacity building, knowledge generation, as well as soft and hard infrastructure development.

The workshop was officially opened by Mr. Seif Sharif Hamad, the Vice President of Zanzibar.  In his opening remarks, Mr. Hamad applauded the Consortium for the theme of the plenary session, citing its relevance and interest to both policy makers and researchers. He commended AERC for the significant contribution to strengthening research efforts in the region, and more importantly, focusing on research that meets policy. He mentioned that Africa is faced by two major challenges regarding the quality of research. First, there is limited funding for research – not only economic research, but all aspects of research. Secondly, there is inadequate data and statistics. He was happy to note that many African governments and institutions were starting to embrace the importance of data and statistics as a vital input for research. However, he stressed that there was need to do more, including involving the private sector in producing these statistics.

Mr. Hamad reflected on the poor governance which has slowed the development process in the African continent. He cited two important questions to think about; first, what are the core governance issues for contemporary socio-political African development, and secondly, what kind of institutions are needed to support this governance process.

He cited the deficient governance capacity as one of the issues faced by most countries.  He noted that there were missing links between the top and bottom structures, and there was no coherent organised system to mobilise the African young population into a leadership force, much needed for transformation and development.

In his concluding remarks, he indicated that he hoped the workshop discussions would motivate further research and actionable policy recommendations to address the governance issues in Africa.

Amongst the many presentations that were made at the event was results of a study on the link between tax compliance and good governance in selected African countries. The study was motivated by the current consensus that the mobilization of domestic income through the collection of tax revenues should top the list of policy priorities for financing the future development of Africa. It has also been argued that the degree of resource mobilization depends strongly on the extent to which people are willing to pay taxes. One hypothesis that has widely been investigated is that good governance increases the willingness to pay taxes.

Against this background, the study sought to analyze the effect of governance at the country and sub-national levels on tax compliance across 36 African countries, testing the hypothesis whether the quality of governance in the environment in which tax payers live affects the likelihood to be tax compliant.

The study used data from the Afrobarometer surveys on tax compliance, coupled with data on the World-wide indicators of governance over the period 2011-2015. The study employed a multi-level logit model (and for some few cases a multi-level ordered multi-nomial logit model) where the dependent variable was estimated as the probability that an individual living in a certain region from a specific country had a positive attitude towards tax payment.

The results from the study showed that the quality of governance such as the low level of corruption, more effectiveness and responsiveness, strong rule of law and strong voice and accountability, significantly affects the degree of tax compliance. In other words, individuals who live in countries and in regions with good quality of governance were found to be more likely to be tax compliant compared to individuals who live in countries and in regions with weak quality of governance.

These findings of the study reinforced the importance of improving the quality of governance in African countries and most importantly highlighted that the burden of tax avoidance that face many African countries could be reduced with better governance. The study noted also that the quality of governance at the local government level had to be taken into account too when tackling policies for better governance.