Many countries in neighbouring Africa could have done much better economically had they acted firmly to arrest the scourge of corruption undermining their governance structures
Although much spoken about today, the notion of good governance became popular only in the 1990s. Small crashes here and there in different countries had pointed out the need to rein in the excess liberties being taken by certain operators with their enterprises from time to time, putting the public interest at risk. This is where some international regulatory bodies made explicit rules to be respected in specific sectors of activity having an impact on public life.
Accordingly, Mauritius made its first regulatory guideline on corporate governance in 2001, pertaining to the domestic banking sector. This was followed by the Code on Corporate Governance for Mauritius (published by the National Committee on Corporate Governance) in 2003; the latest edition of this Code was made public in mid-2017, setting out rules for rigorous, prudent and transparent management of domestic enterprises, in accordance with law.
As a relatively small economy, Mauritius has to keep demonstrating its strict abidance by the rule-of-law in order to remain attractive for business. Mauritius has generally stuck to this basic requirement, the main blip in this respect having been its poor showing in terms of good governance in 2015 and 2016 on account of clumsy political mishandling of certain cases calling for urgent regulatory action. Hopefully, lessons have been learnt and we will keep occupying the best performing positions in international classifications of good governance.
The financial crisis of 2007
Ten years ago, in August 2007, the first signs of a potential meltdown of globally systemically important financial institutions, hit the world. The crisis came with such force and speed that the US and EU had to quickly intervene to save key financial institutions from crashing and pulling along with them the most important global economies. It came because financial institutions kept bending regulatory rules to suit their convenience, being focussed on making as much profits as possible.
Huge amounts of money had to be injected by governments into financial institutions that had been lending so recklessly that they didn’t even have the capital to sustain themselves. Had this not been done in a timely manner, everyone – including those who had nothing to do directly with the crisis – would have landed into a rudderless global economic condition. If at all it was necessary, this major incident showed how far-reaching are the consequences of a loss of good governance in a single sector of activity.
Other than injecting capital and large amounts of liquidity in concerned financial institutions, the US and the EU took a number of actions to re-regulate the crisis-ridden financial sector during the past ten years. The Dodd-Frank Act of 2010 signed by Barak Obama was part of this protective legal arsenal.
The reinforcement of financial regulatory rules has worked positively, inasmuch as the crisis has been averted and the concerned financial institutions have now become stable and profitable again. The economic crisis which followed in this wake is still with us at this time, albeit much mitigated by now. The pace at which the world economy was expanding before the crisis has considerably toned down however.
But in February 2017, Donald Trump, the new US President, announced that those financial regulations are obstructing the financial sector. In other words, they need to give way. It is said that when advocating doing away with financial regulations, the President has come under the sway of his newly appointed Treasury Secretary, a chief executive till late of Goldman Sachs.
In the face of renewed lobbying by Wall Street, can it be said that lessons have really been learnt from the earlier period of unruly mis-governance in the US financial sector before the crisis, which the financial regulations have managed to bring under control? It may be the reason why, Janet Yellen, Chairperson of the US Federal Reserve, speaking at a global central bankers’ gathering last weekend at Jackson Hole, stated that those financial regulations have contributed to stabilise the financial system’ i.e., have their place. Notwithstanding that her present mandate comes to term in February 2018 and may not be renewed.
If good sense were to prevail, only regulatory rules that are no longer needed, now that the crisis is over, may be thrown out but not those rules of good governance requiring financial institutions to have adequate capital to parry against the worst to come or to lend prudently so as to recover their dues eventually. Usually, regulations are reviewed from time to time but not jettisoned altogether.
We need not go too far out to see the disastrous effects on good governance of political interference.
Many countries in neighbouring Africa could have done much better economically and socially had they acted firmly to arrest the scourge of corruption undermining their governance structures. The closest example of projecting a bad image comes from South Africa, once seen as the beacon of hope for other African countries. On 9 August 2017, its President Jacob Zuma survived the eighth no-confidence vote against him in Parliament, having been severally charged by opponents of indulging in extensive corruption.
Unfortunately, South Africa is not alone among African countries vying for the worst forms of bad governance. Various types of mis-governance at home lay at the root of current massive migrations – having cost tens of thousands of lives during Mediterranean crossings – from the Middle East and from different northern and western African countries towards Europe. In quite a few cases (Libya, Syria, Afghanistan, Mali, Niger, Nigeria), the countries have been war-torn for long in struggles for power and there is hardly a recognizable central authority to hold them together.
Disruptions have manifested themselves in several guises. Lives have been and are being randomly lost on a regular basis. Formal organisations, such as companies, have proved unsustainable in the disrupted domestic environments. Even in countries where unified governments exist, rules of governance are treated as secondary to private interests needing to be propitiated first: people speak increasingly of Robert Mugabe – who has been in power since Zimbabwe’s independence – being likely succeeded by Grace Mugabe, his wife. Thus, politics and administration are inextricably and unpredictably mixed up in a process of clannish appointments to key public positions, not necessarily based on merits. Power is usurped for self-gratification or rewarding of selective persons having affinity with the rulers.
It is this absence of accountable governance that explains Africa’s current unfortunate plight in the global community. Nigeria and South Africa, two economies with the highest potential on the Continent, have been or still are in economic recession. When private interests take over brazenly against all norms of good governance, economic and social uplift go for the exit, inflicting untold sufferings on the people. No one knows for now if and when the scales will be reversed for the better, if at all.
Good governance is a delicate matter, needing to be dealt with in a subtle and responsible manner. If this is what Janet Yellen meant at Jackson Hole, there will be good reason for the US administration not to act like a bull in a china shop. Mauritius has even more reason to tread on the path of caution if it is minded to pull up on the strength of its credentials in terms of good governance.