Change with stability and continuity: A Political Homework. Part X

A number of readers aired their worries on the impact of political change to economic development of our country, in the event that our political homework is not prudently executed and the consequences, therefore, which as pointed out are more immediate knock on effect to the entire country, than in other sectors. However, many readers requested to understand the difference between economic growth and economic development, and how these react to political uncertainty. Economic Development Vs Economic GrowthEconomic development is a value loaded term, quite recent in origin, and sometimes used by different people to mean different, and sometimes un-rerated conditions. Indeed its importance has been overstated, mainly because it is the opposite of ‘under-development’, regarded as undesirable state of any economy. It is thus an all embracing term, which entails improvement in the standard of living and quality of life of a people in a given country, over a given period of time. It is also a process by which the entire social system takes on a sustainable upward movement. It encompasses both economic as well as non-economic variables jointly responsible for the upward push of the underlying social systems. It is thus a multidimensional process involving major changes in social structures, popular attitudes and national institutions, as well as acceleration of economic growth, the reduction of inequality, and the eradication of absolute poverty. On the other hand, economic growth (where the variable equals the rate of real per-capita GDP growth) is a quantitative aspect of economic development, but they are not synonymous, as growth means a sustainable increase in quantity of goods and services produced by a given society, which enhances better standards of living. And so economic growth measured by GDP is one the factors responsible for economic development for the latter refers to other non-economic factors as education, health, cultural and political factors. Nonetheless, economic growth remains the fundamental factor responsible for economic development as it provides a mechanism of financing other factors responsible for economic development. As pointed out in the earlier article therefore, our country has experienced fundamental changes in most variables defining economic development as a process. A process that has a causation process itself, the fundamentals of which is political economy in place and especially its stability without which the process of economic development could not have been in the first place. In our case however, the impressive economic growth we have registered for sometime now, has in many ways facilitated our economic development, a process that is just starting to take shape, and one that demands long span of political stability and certainty for it to be irreversible ie be in self propelling mode. Thus, whereas we are on the right track with our economic growth as measured by GDP, our economic development is but starting to shape. Both processes that reinforce each other demand unquestionable political stability if we are to uplift more people not only out of poverty, but also to ensure that, those that are out already, can stay course. The unhappy truth is that, both processes are highly vulnerable at their current stage, and indeed easily reversible if the underlying political economy changes for worse which is why our political home work has to factor in, the context and indeed the complexity nature of our economic development that is so much anchored on our current predictable, stable, and focused leadership by President Kagame. As pointed out earlier, our country lacks many main fundamental ingredients of economic development such as natural endowments associated with natural process of development except our human capital, and this makes our economy and indeed the process of economic development, extremely vulnerable much more to internal shocks as well as external shocks. The main internal shock remains political instability. Period. The main factor behind our current hat-trick rapid growth is our efficient and exemplary political dispensation which is our main stock-in-trade, which questions the rationale of the current debate, if this severs only to question the viability of our current political dispensation, which is merely an insult on the same. Informed Research on Political ChangesResearch done by Alesina et al. (1998) points to the fact that political uncertainties and instabilities unequivocally reduces growth by as much as 3 percentage on average, and in the extreme wipes out economic gains registered by a country over time. Also in his research on political economy in Africa, Fosu (1992) observes that, “political instability resulting from change in political set up may serve to reduce the availability of factors of production. Investment in physical capital will be discouraged as the risk of capital loss will tend to rise with political instability primarily because political and economic rules governing investments are likely to change with changes in political regimes, increasing uncertainty in future net returns and hence lowering real rates of return associated with investment projects”. He further observes that, “such increased risk would raise the cost of capital, as the likelihood of loan default also increase with political uncertainty”. He further points that, “both domestic savings and imported capital (Foreign Direct Investments - FDIs) would be discouraged due to such risks. And that “ indeed capital flight might be characteristic of political unstable situations”. These two informed voices, put our home work into context/perspective and the implication of not doing the same or approaching the same with emotive mindset whether of indifference, or otherwise which would only serve to open the flood gates of economic doom and groom. One does not have to be an economist to predict this.This certainly increases our political risks and as such we have to take cognizance of broad range of policy risks that span a broad range of political initiatives consequent. That most of what we have attained in our very early stages of our economic development is not only work-in-progress, but most of the critical ones are still in their blue print form is not debatable. Which mean therefore that, tampering with our current political dispensation would be the highest gamble our country can make. In economic development as is the case in real rational life, gambling on lives is anathema, a situation that can only befall a country through external forces, and not by design. That we were given a home early enough, is meant to reduce any approximate to this, and to give premium to prudence. If it’s not broke, don’t fix it.As a number of readers have pointed out, we need to think out of the box. Sure enough, but do we have boxes here? Exemplary leadership by President Kagame has enabled the economic development we have registered so far, and pundits are of the view that, unless we keep course, all we have attained are revisable and indeed a deep dive into uncharted waters. But this is true in the sense that, the strategic planning we have evolved for some time, and the discipline of execution of most of our plans, and programs from infrastructure, to heath, education to Agriculture all required dedicated, determined and a committed political goodwill and one that has delivered rare common good for Rwandans. This is not one we can gamble with in the name of being politically conformity to norms that disregard the very common good they are espoused to serve. We owe our development to ourselves, and ourselves alone and generations after us. We can also lose by ourselves, and for ourselves only. As pointed out by honourable AbuBakr Ogle of East-African Legislative Assembly “Like the revered Lee Kuan Yew of Singapore, Rwandan President Paul Kagame presently enjoys singular popularity for his personal charisma, no-nonsense approach and a commitment to pursue what he thinks is right for the common good of the country.Under his benevolent guidance, Rwanda is further capable of attracting regional and international capital and draw on the biggest banking and financial institutions already operating in the East African Community (EAC), for which he is one of its leading cheerleaders.Thus as the adage has it “if it isn’t broke why fix it?” we may also reasonable say “if isn’t broke, don’t beak it. To be continued…The writer is an economist and financial expert based in Kigali.