Why it pays to be small in Africa: Rwanda, Botswana, The Gambia and Lesotho can strut proudly

The larger and richer a country is, the more wasteful its government tends to be in spending public money.

MANY African countries are currently battling a deep currency plunge and slashing their budgets with a collapse in the prices of several main export commodities including oil, gold and copper.

It looks like it’s going to get worse before it gets better.

A few weeks ago, however, financial analysts Citi proposed reforming public sector management by simply paying attention of long-forgotten assets, observing that governments around the world have an estimated $75 trillion in public assets ranging from corporations to forests, which are often badly managed and often not even accounted for on their balance sheets.

The analysts say that much of the policy focus of most governments is on managing debt and reducing deficits, while a long-term sustainable solution would just be prudently managing the assets that already exist.

Given that in most countries public wealth is larger than public debt, just managing it better could help to solve the debt problem while also providing the finances for development, such as for infrastructure projects.

Africa desperately needs such investment – data from the World Bank indicates that Africa will need to invest $93 billion a year over the next decade to meet its infrastructure shortfall. Half of the continent’s fixed infrastructure stock is in just four countries: South Africa, Algeria, Egypt and Morocco.

But these are hardly the countries that are best positioned to manage their assets properly. In fact, the larger and richer a country is in Africa, the more wasteful its government tends to be in spending public money.

Data from the World Economic Forum shows a negative correlation with a country’s gross national income (in absolute terms), and wastefulness in government spending.

The top five most prudent countries tend to be small economies: Rwanda, Botswana, The Gambia, Cote d’Ivoire and Lesotho, none of which has gross national income of more than $65 billion.

But the bottom five in the sample of 38 countries includes some of Africa’s heavyweights. Libya is at the very bottom; Zimbabwe, Egypt, Nigeria and Burundi round out the last five. Burundi is kind of the exception, but three of them - Libya, Egypt and Nigeria are large economies, with huge resource endowments and geopolitical heft (although the last three years have been testing for Libya).

There’s even a stronger correlation with land area. The smaller a country is in terms of land mass, the less wasteful its government tends to be. Bigger countries seem to have more “cracks” through which money can be lost –  maybe it’s more difficult to keep an eye on things if you have such a large territory to preside over. 

And there’s political pressure that every little corner of the country should have “their own” big, visible project – such an industrial park, power plant or university  – whether or not it is financially prudent to do so.

Interestingly, there’s no correlation between wastefulness of government spending and wealth per capita, which is a measure of income adjusted for population. Poor, densely populated countries, such as Rwanda (ranked first place), can do just as well as rich, sparsely populated ones (e.g. Botswana in second place).

So to have an efficient government in Africa, it doesn’t really matter if you have few people, or many people to preside over in your country. What matters is that it should be small geographically, and not so rich. 

That should be some comfort to those small, “forgotten” countries in Africa. Many of them are quietly working, while the big ones are throwing their weight around with little more than white elephants to show for it.

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