Change with stability and continuity: A political homework. Part XI

The current debate becomes more intriguing if only we factor in our current budding development process, which as I pointed out in the earlier articles, is the main culprit of change especially so if this change, changes for course of our current economic development set up, and mainly its structure, a structure as pointed out earlier is extremely vulnerable, and cannot survive an internal shock, specially change in our current political economy.Every political dispensation in any setting has just one end. To boost and scale up the welfare of citizens through wealth accumulation which essentially means ensuring stable and steady economic development, and one that is inclusive. That we have come from very far in terms of growing our economy is not in doubt. What is in doubt however is whether, the development trends attained so far can be sustained amidst uncertain political dispensation that any change may bring about. If one moves from viewing our current development paradigm as given (certainly not) but rather to viewing through the prism of our historical context, one is bound to capture the consequences of doing our home in abstract.Direct ImpactNevertheless, one sector of our economy that takes immediate direct hit from political uncertainty, and is extremely sensitive to changes , is the financial sector. This true, both in advanced economies as it is in developing economies. Financial development is always critical to a development process as it avails financial resources with which the country uses to manipulate other factors of production, i.e. labour, land, human resources as well as technology. The earliest research done on the role of financial development in economic development is that of Schumpeter (1912). He did point out that, well functioning financial systems spur economic development by identifying and funding those entrepreneurs with the best chance of implementing innovative and viable products. On his part Goldsmith (1969) points out that, ‘financial infrastructure of an economy accelerates economic growth and improves economic performance to the extent that, it facilitates migration of funds to the best users ie to the place in economic system where the funds yield the highest social returns possible’.Savers and indeed investors are averse to many risks, but one that they all place premium over, is the political economy in place, and how stable and sustainable it is, to cushion them of any possible losses in their underlying financial assets. The saving and investing agents are brought together by risk/return trade-off, which is only possible under political certainty.Change in political economy whether real or perceived, sends negative signal to these agents, whose decision making process captures this. If these agents perceive that, changes may erode the value of their financial assets, they will either convert them into other forms that are secure (out of circulation from the real economy), or keep these in safe havens normally out of the country which then leads to capital flight which not only erodes the value of the country’s currency, but also compounds the enormity of balance of trade deficit, a situation that is as rea as it can be in our case.Nonetheless, financing our ambitious development agenda will require huge amounts of capital, which can only be raised if our political landscape is certain and secure enough for savers be they local or foreign, to stake their money in our country. And although development partners have done a very commendable job in financing our development agenda, nonetheless the hurdles ahead are rough and tough if we are to achieve our development endeavours we have set for ourselves which really calls for massive private financing than we have attracted so far. What it means therefore is that, unless we maintain predictable and stable political environment and especially strong and exemplary leadership, and one that can give assurance to savers and lenders and also one they can believe in, our development agenda will stay in blue print.Al Carte Strategy will failOur current efficient-business-like government management and ownership of our affairs will have to be sustained if we are to realise our dreams, be they in vision 2020, or any other development goals we set for ourselves. Our visionary leadership under President Paul Kagame has reduced lethargy in government decision setting, where national efforts relate activities to set goals in such a manner that, we have been able to realise results uncommon in African political leadership. Thus, many readers of these series have expresses their concerns as to the consequences of possible changes in our political panorama, most arguing that, why the change in the first place. Some have then come up with such perusable and sensibly valid hypothesis as: for stability, maintain President Kagame. For Sustainability, maintain President Paul Kagame. And for continuity; maintain the visionary and focused leadership that has delivered, tested and proven already. I personally agree with their hypothesis as a valid and authentic for our political home, for we cannot have an al carte strategy for our political home work, but a holistic contextualised one.Successful Bond IssueThat our financial development has to kept in check is informed by the recent bond issue.This bond issue enabled our country raise USD 400 million is a serious vote of international confidence among international investors in the leadership of President Paul Kagame. A euro bond is issued in a currency other than the currency of the country or market in which it is issued. It simply means that, international creditors (like it is true for a bank) have total faith and confidence in our leadership and thus our country and a people that are credit worth and can be intrusted with international creditors’ money, and use it for the purpose for which is it is intended. What has surprised many financial analysts is that, the yield (interest) on the bond is far below international market rate pricing was estimated to have been between 8-9%). Given that our rating by Standard & Poor’s as well as Fitch stand at single B, the highest being AAA + the only explanation for this low than potential rating bond yield lies in the strong and positive perceptions of international lenders who over-subscribed our bond by over USD 3.5 billion. Which also means that we could have raised more funds by selling this bond.Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment. Ventures in which funds raised will be invested should generate sufficient cash flows to repay this bond. But this calls for strong and visionary leadership, for they can also abused or misused. Not with our present leadership, which questions the change at stake further.Eurobonds give issuers (Rwanda) the opportunity to take advantage of favorable regulatory and lending conditions in other countries. Such finance is not only flexible to use, but also does not carry any other known bully conditions associated with funds from other bilateral of even multilateral financing instruments our country has used for some time now, and some with conditions that are invoked for any perceived political or even economic strategies/plans usually passed on to these stakeholders by people with questionable and hostile agenda for our country. International lenders are extremely rational, and their vote of confidence or even otherwise supersedes any sovereignty and mighty. That this confidence has been given to our leadership is telling. Telling us that, the political home work at hand, goes beyond our boarders and so are implications from the same. The cost of conviction is always high. Ours will be too dear, if our home work is done below the stairs.To be continued…The writer is an economist and a financial expert.