What is New?

Since the middle of the 2010s, governance and corruption issues have taken center stage in international fora. Recognizing the importance of institutions and the fundamental concept that governmental corruption— the abuse of public office for private gain— is a global problem that requires global solutions, most international organizations have revamped their approach to governance and corruption. In 2018 the IMF introduced a new framework, its “Review of 1997 Guidance Note on Governance— a Proposed Framework for Enhanced Fund Engagement,” to facilitate a more candid discussion with member countries on governance and corruption and to promote good governance in its lending conditionality. The World Bank also launched anticorruption initiatives to help countries address corruption. In 2017 the OECD adopted a new Recommendation on Public Integrity, calling for a comprehensive public- integrity system (OECD 2017). The momentum to improve integrity was also strong in Africa. The African Union named 2018 “the African anti- corruption year”¹ and approved a continental strategy to anchor national ones. The continental strategy advocated for more international cooperation to stem illicit cross- border transactions as a follow- up to the work led by the former South African president, Thabo Mbeki. Voices for better governance have been even more audible amid the suffering from the COVID- 19 pandemic.

The momentum rides on the evidence tying growth and stability to institutions and the difficulties countries experience in rooting out corruption amid growing public awareness. After the publication of North’s (1990) first comprehensive framework integrating institutional analysis into economics, empirical analysis led by Acemoglu and others (2003) documented the causal impact of governance and institutions on macroeconomic performance. This strand of economic literature reinvigorated calls for institutional reform to enhance integrity in public affairs. New surveys and indicators documented the importance of good governance for development and the need for faster progress, especially in sub-Saharan Africa. In its 2017 Recommendation, the OECD found that corruption was citizens’ number- one concern, ahead of globalization or migration. The results of the 2020 Corruption Perceptions Index showed that countries made little to no progress in tackling corruption in almost a decade (Transparency International 2020). Africa is no exception: Some 20 years ago, Afrobarometer reported that 8 out of 10 Africans believed their government officials were involved in corruption, and a 2018 Afrobarometer survey revealed that 7 out of 10 still considered corruption to have increased or stayed the same.² Social media are echoing news on governance failures and calls for reforms.

The COVID- 19 crisis exposed governance weaknesses that prevented the development of a resilient health system and numbed the response to the pandemic. At the other end of the spectrum, many countries that have made progress in implementing governance measures have addressed the pandemic well. In a report titled The Ignored Pandemic: How Corruption in Healthcare Service Delivery Threatens Universal Health Coverage, Transparency International documented how corruption was threatening the capacity of countries to provide universal health care to their people. During the pandemic, governments were required to make difficult choices to save lives and protect livelihoods. Governments who could afford to do so responded by scaling up spending to foster a rapid provision of health and disease- containment services and assistance to affected households and businesses. The extent to which the surge in spending translated into improvements in people’s protection and support depended greatly on the integrity with which public affairs were managed— and it continues to depend on this integrity at the present time.

The unprecedented increase in international financial support to back the surge in COVID- 19 spending drew the attention of civil society to governance weaknesses. The IMF, for example, pledged to use its $1 trillion lending capacity to help countries cope with the crisis. A year into the pandemic, the IMF disbursed $110 billion to 85 countries worldwide and approved about $700 million in debt relief, while advocating for progress on transparency and accountability for a more effective crisis response within countries. The call for more transparency reflects relentless work from civil society organizations in pointing at governance lapses and calling for more international pressure on governments to address corruption. In March 2020, 97 civil society organizations located around the world wrote to the IMF’s Managing Director to request that the IMF consistently and formally include anticorruption measures in its COVID- 19 pandemic- related emergency funding. Social media facilitated the work of these civil society organizations, which helped disclose to the world corruption cases amid global suffering from the disease. Reflecting these calls and the implementation of the IMF’s 2018 framework on governance (IMF 2018), out of the countries supported by the IMF, 65 included governance conditionality in their program. In sub- Saharan Africa, about three in five countries that received funding from the IMF committed to publishing procurement information, four in five committed to publishing information on beneficial ownership, and all of them committed to some kind of audit (IMF 2021).

This book adds its voice to re-assert the critical importance of governance and integrity.³ It posits that the establishment of sound institutions that guarantee integrity in public affairs may be one of sub- Saharan Africa’s most important milestones in its journey to sustainable development. The book leverages extensive analysis at the cross- country level, global evidence, and country case studies to focus on the macro-governance links in sub- Saharan Africa.⁴ Beyond a special focus on governance in an emergency context, several chapters bring in the COVID- 19 pandemic perspective. This makes this book the first attempt to provide a comprehensive view of the relationship between the quality of institutions and the management of the COVID- 19 pandemic. The book argues that the approach to institutional reforms needs to consider the starting position of countries and calls for tailored approaches in fragile countries to consider capacity constraints and societal preferences. It shows how successful reform paths in normal settings become systematically inefficient in fragile environments. This path dependency also applies to the adoption of technological innovations in public affairs. Finally, the book brings in new governance reforms supported by the IMF in sub-Saharan African resource-rich countries.

Governance: Good for the Macroeconomy, Good for Government Operations

Enhancing governance and integrity in public affairs is probably sub- Saharan Africa’s most urgent challenge to sustainably root poverty out of the region. Sub- Saharan Africa grew by 4½ percent over the decade preceding the global COVID- 19 pandemic, and volatility of growth declined substantially. This performance reflected a more benign international environment (for example, debt relief, higher international liquidity, low interest rates, and high demand for commodities, especially from China) and sounder macroeconomic policies. It is, however, far below the region’s potential and what is needed to eradicate poverty sustainably. Poor governance, including lack of basic freedoms, such as citizens’ rights to hold their government accountable, has held back most countries in the region from entering the club of emerging middle- income countries, and has prevented others from escaping the fragility trap. For the region’s average GDP per capita to move to upper- middle- income status, growth will need to increase sustainably by 2 percentage points to 7 percent over a minimum of 15 years. This is about the increase in growth that studies estimate better governance can bring to the region (Chapter 1). Improvements in governance will also reduce inequality substantially. The combined impact of better governance on growth and inequality will accelerate the eradication of poverty in the continent.

Global evidence of the benefits of eradicating corruption for macroeconomic outcomes is vast. A large body of literature has shown that corruption impacts economic growth and therefore development through multiple channels, including those that relate to macrofinancial stability, investments in physical and human capital, productivity and its impact on public trust, and the efficiency of government. Corruption is also likely to undermine the inclusiveness of growth, increasing income inequality and poverty (Gupta, Davoodi, and Alonso- Terme 1998)—with negative feedback loops to the sustainability of growth (Ostry, Berg, and Tsangarides 2014). Chapter 1 shows how corruption hampers domestic resource mobilization and distorts public spending, moving it away from priorities; hampers central bank operations and financial supervision; weakens the quality of market regulations; and undermines the rule of law. Several examples confirm that governance reforms and aggressive anticorruption strategies can lead to significant improvements in growth and other measures of macroeconomic performance. Singapore epitomizes the benefits of governance reforms on people’s living conditions. In sub- Saharan Africa, Rwanda offers evidence of the impact of governance reforms on domestic revenue.

Corruption introduces inefficiencies into the economy through its negative impact on government operations, preventing macroeconomic policies from being effective. Most components of tax revenues relate negatively to higher levels of corruption, as they particularly undermine compliance (Baum and others 2017) because taxpayers escape tax or customs payments through payment of a bribe or other unofficial compensation, or because companies do not join the formal economy when tax exemptions are perceived as the result of a bribe (Dreher and Herzfeld 2005; IMF 2016). Corruption can diminish the efficiency of public spending and investment. In countries with weak institutional quality, governments may use capital spending as a vehicle for rent- seeking, leading to inefficient public investment (Albino- War and others 2014; Gelb and Grassman 2010; Grigoli and Mills 2014). As a result, investment efficiency is likely to be lower because project and contractor selection is less likely to be based on merit, and project costs are inflated because of poor procurement processes.

These channels highlight a substantial potential to boost macroeconomic outcomes in sub- Saharan Africa and the urgency of action. The literature suggests a significant dividend from governance and anticorruption reforms in sub- Saharan Africa. As indicated in the preceding discussion, according to empirical studies, increasing the average sub- Saharan African country governance level to the global average would boost the region’s long- run per capita GDP growth significantly. This substantial potential payoff, which is two to three times larger than in the rest of the world, justifies prioritizing governance reforms in the region. The historical fact that reforms to reduce corruption may take considerable time and work is another reason to prioritize the reforms without delays. Another critical reason for the region to step up reforms is the worrisome degradation in measures of political stability an increase in violence. This degradation finds its root in the combination of rapid population growth, poverty, inequality, and illiteracy, which can also be affected by governance reforms. Given the implications on migration of a growing young population and associated security risks, the international community has an obvious interest in undoing the status quo and supporting strong governance reforms.

Drawing Lessons from a wide Range of Country Experiences

Countries around the world that have reformed their governance systems are reaping the dividends. New Zealand, some Nordic countries (Finland, Iceland, Norway, Sweden), and Singapore consistently feature amongst the 10 best performers on most indicators of the quality of public institutions and corruption perception. They hold transparency as an overarching principle in public affairs, and their governments typically provide adequate information to citizens on how public resources are levied and spent. In these countries, inequality measured by the Gini coefficient is also lower than the world’s average. These countries are enjoying a low level of conflict, stable and sustained positive per capita growth, a low level of uncertainty, and a high resilience to shocks. Against this backdrop, emerging economies are reflecting their aspirations for better living standards for their populations in deep- rooted reforms to improve the quality of institutions and eradicate corruption. Over the past 20 years, most of the countries that have achieved the fastest progress on the measurements of governance and corruption are middle and low income countries. Some of them are still grappling with the inheritances of fragility and conflict, and pervasive corruption was a common trait before governance reforms were initiated (for example, Georgia).

Many good examples are from sub- Saharan Africa. This book features three country cases (Botswana, Rwanda, Seychelles) that are among the countries in the region that are leading in the effort to improve governance. Each country has leveraged its unique combination of societal preferences and resource endowments to formulate a vision for better management of public resources. Botswana developed a good policy framework to help prudently manage its wealth from mining resources. Rwanda rebuilt itself from a devastating conflict by adopting more advanced institutional models. Seychelles, a small island state, responded decisively to its 2008 debt crisis by embarking on a comprehensive program of economic and institutional reforms. Beyond their individual circumstances, decisive political will and leadership strong enough to build a societal consensus underpinned the drive for governance reforms in all three countries. Common characteristics of their governance frameworks are the transparency of their economic policies and supervision, sound protection of economic rights, and criminalization of corruption. While these countries have successfully established key pillars of governance, the book makes the case that further reforms— including strengthening and improving information on government- service delivery performance— would help ensure accountability and sustained implementation.

Other countries in the region are following this path. Angola, Liberia, and Sierra- Leone have been encouraging examples of countries outside the club of the 20 best performers on the Worldwide Governance Indicators⁵ that improved the overall quality of their institutions. All three countries, which are emerging from economic fragility, were afflicted by conflict and had dismal governance performance twenty years ago. They are now faring better on political stability and have reduced civil strife, including by boosting the population’s voice and participation in public affairs through elections and by strengthening mechanisms to hold public officials accountable. The way Sierra Leone’s supreme audit institution has been promoting a sound management of Ebola and COVID-19 resources through its real-time audits is a telling example. This book provides further illustrations of the power of accountability, narrated by stakeholders who led or participated in the reforms of the management of public funds in sub- Saharan African countries. These countries are, however, still below the global average standards on the perception of corruption and have a long journey to reach the sub- Saharan Africa region’s average performance on the effectiveness of government, the quality of regulations, and the rule of law.

A good understanding of the political- economy context is necessary for successful governance reforms. This is particularly important in fragile states and resource- rich countries, where stakes are high because of extreme scarcity or abundance of resources. A strong social consensus through which stakeholders acquiesce to the process and substance of change is a critical building block of a successful governance strategy. The book discusses how analyzing indicators of fragility and natural resource management could be helpful in framing the social dialogue and how international partners can help. Featuring three fragile countries (Comoros, Democratic Republic of Congo, Madagascar), two resource- rich countries (Nigeria, Republic of Congo) and one resource- rich currency union (Economic and Monetary Community of Central Africa, CEMAC), it discusses how the political settlement, the main fault lines in society, broad social expectations, and the capacity of the state should be brought together in charting governance reforms. Insights from these countries suggest that the societal consensus should aim to secure adequate laws and regulations and improve the capacity of the civil service to enforce them. Priority areas to boost revenue mobilization and enhance the state’s ability to deliver good- quality public services include the rule of law, transparency in anti– money laundering and combating the financing of terrorism, external controls, and internal audit systems. Countries should also leverage membership to regional bodies to advance reforms as evidenced by some successes in the CEMAC zone.

Governance in an Emergency Context

The COVID- 19 pandemic has intensified the call for good governance and transparency in an emergency funding context. As established in the economic literature, poor governance and corruption undermine resilience and leave countries more vulnerable to crises. Similarly, crises are times when vested interests profit from the relaxation of governance standards to foster a rapid deployment of emergency public help. In its 2020 Corruption Perception Index, Transparency International argues that “ COVID- 19 is not just a health and economic crisis, but a corruption crisis,” because countries with lower perceived corruption invest more in health care and could thus rely on more resilient health and public financial management systems when the pandemic struck (Transparency International 2020, page 8). In combating the disease, they were better able to test, provide universal health coverage, and deploy help to the needy, while upholding democratic norms and institutions.

Lessons from the COVID- 19 crisis extend more broadly to emergency contexts, such as conflict, other health crises, and natural disasters. In countries with inefficient and ill- prepared public financial management systems, the need to respond quickly in emergency situations creates governance vulnerabilities, which can be overcome only through transparency and external scrutiny. Some countries (Botswana, Ghana, Kenya, Mauritius) created funds under their general budget law to support emergency spending, which can underpin good governance in the use of these monies, while others took longer to establish a legal basis for the funds to operate. These experiences offer lessons and guiding principles by which countries may benefit from these funds, while mitigating the risks from the relaxation of the normal budgetary processes. Other countries bolstered supreme audit institutions, which leveraged agile compliance audits ( real- time audits) to ensure accountability and prevent and detect corruption, including in the execution of emergency funds. A sound legal framework that safeguards central bank autonomy and establishes strong transparency and accountability practices should supplement the efforts in the public financial management area. The book presents lessons from emergency situations and the role of the IMF in helping its members foster a culture of accountability supported by strong audit capacity in public financial management systems and in central banks through its safeguards assessment.

Spotlight on Innovation

In moving toward meeting their individual governance strategies, countries in the region are exploring a range of innovative options. Over the past 10 years, governments have intensified the use of internet- based innovations to provide digital government services, such as business registrations and applications for business licenses and birth certificates. In June 2020 International Telecommunication Union experts concluded that IT infrastructure could cut by up to half the pandemic’s adverse economic impact by enabling more flexible employment models, digital delivery of services and products, and e- commerce to connect firms to consumers amid travel restrictions and by minimizing the loss of human capital via online learning. Consumers and businesses alike seem to have internalized this approach according to surveys that show that the pandemic accelerated digital transformation by several years (ITU 2021). Globally, the adoption of these innovations is tightly linked to wealth, with the sub- Saharan Africa region lagging all others. However, within the region, there are high performers in harnessing digitalization and big data analytics to improve their populations’ living conditions, including through their impact on the quality of public institutions.

Indeed, the evidence across countries suggests that digital solutions can support the good governance agenda and macroeconomic performance. This book presents insights into the potential of these innovations to improve government effectiveness and reduce corruption through transparency, checks on government officials’ discretionary powers, and more accurate policymaking. It discusses causality between technological innovations in public services and the quality of governance and suggests research directions to settle the debate on the direction of causality. Based on available insights, good sequencing of innovations is critical to maximize their impact on governance and macroeconomic performance. Indeed, through better governance and integrity, e- government can boost government revenue mobilization and enhance public spending effectiveness. The book offers empirical analyses of the negative association between governments’ digital adoption and public perception of the corruption of tax officials. The book finds as well that intentional shutdowns of the internet weaken the link between efforts to improve governance through digitalization and views toward corruption, as shown through perception indicators. This is especially important in countries where a culture of “ gift- giving” coexists with low public- sector wages. In light of these findings, the book calls for reforms to digitize revenue collection processes and publish government spending.