Ethical confidence is essential for growth

It is an encouraging start that growth figures for Africa are mostly positive, and the Sub-Saharan Africa (SSA) region to expand 3.8% in 2016.

However, the growth rates produced by FocusEconomics vary – from Ethiopia, Cote d’Ivoire and the DRC at the top with GDP growth rates at or above 7.0%, to South Africa, Angola and Botswana at the lowest end of the scale.

Despite the overall positive prospects, the need for increased economic growth across Africa remains a very important goal – especially for the many consequent benefits such as job creation, the provision of infrastructure and the transfer of technology know-how.

In most of Africa economic growth depends not merely on local investment, but also relies quite heavily on meaningful foreign direct investment (FDI). Being able to attract sufficient FDI is made more difficult by the inherent “competition” that exists between countries and by factors such as the slowdown in global foreign direct investment.

The crucial question therefore is how do countries attract more investors and retain their current investors.

There are many factors that cannot be controlled, such as the volatility of the global economy or falling commodity prices. The focus should thus be on identifying the primary factors that are within the country’s control, and expanding or boosting those factors that would better attract investment, and minimising the impact of those factors that are likely to deter investors.

Among the relevant factors that would influence investment decisions, ethics and governance looms very large. Unethical conduct and poor governance are a huge deterrent for investors. Regular reports of corruption, fraud, misappropriation of public funds and wasteful expenditure all create a risk profile that discourages investment.

Sound ethics and good governance are certainly not the only factors that can promote economic growth, but they are especially noteworthy because they represent the crucial foundation factors. In the absence of a sense of security about ethics (and all that being ethical implies), investors are likely to look at lower risk opportunities.

Building and maintaining a reputation for sound ethics and governance should therefore be a priority. The task may seem daunting given the low rankings for public sector corruption in many SSA countries - as, for example, evidenced by the results of Transparency International’s annual Corruption Perception Index. However, the situation can be improved. The following represent four of the key issues that would need to be addressed.

Ethical leadership that truly serves and uplifts the people

In order to improve or turn around a country’s ethical status, ethical leadership is essential. Being an ethical leader encompasses all the obvious behaviours like complying with laws and rules and upholding the country’s core values, such as those enshrined in the South Africa Constitution. The crucial added element rests on whether the leader’s primary focus is on self or on others. Do they concentrate on personal benefit and advancement or on the upliftment and empowerment of others? Especially in developing countries, ethical leadership warrants that leaders use their power and influence to benefit their country and their people. Nelson Mandela was lauded as a world icon, and one of the reasons was his unequivocal commitment to the betterment of others.

The other leadership requirement stems from the need for more ethical role models. This entails not merely advocating ethics for public consumption or demonstrating an intolerance of misconduct when in the spotlight. Throughout the continent we need more than that from our leaders. An example that illustrates what is needed is the commitment of the many social activists who loudly and visibly supported the struggle for democracy. That is what ethics now needs: ethics activists who stand in prominent opposition to corruption and who clearly promote and support ethics at all times.

Zero tolerance for corruption

Tackling corruption is central to building a more ethical state. Government, as the primary authority in a country, occupies a role relative to corruption which eclipses that of the private sector, mainly because of the far greater impact of its actions and decisions. It is therefore crucial that governments move beyond rhetoric. The proverb that ‘actions speak louder than words’ may be clichéd, but it is nonetheless very apt as regards corruption.

This entails that all cases of bribery, fraud and corruption are fully and promptly investigated without fear or favour. It means that the poor enforcement of laws, rules, regulations and disciplinary measures cannot continue, and that regulatory measures are consistently applied to all transgressors, irrespective of their ranks, status or political connections. When found guilty, the sentence needs to be served. The dictum that ‘not only must justice be done; it must also be seen to be done’ is especially relevant to correct the perception that powerful friends can make one impervious to the law and its consequences.

What this amounts to is a zero tolerance approach to all facets of bribery and corruption. Crucially, for this to be effective, it requires the consistent and unqualified support of all leaders. Without political and leadership will and the accompanying courage to make (and live with) tough decisions, this will remain a goal and not an achievement.

Valuing honesty above loyalty

A challenge that needs to be overcome to give effect to a zero tolerance approach involves placing the value of honesty above loyalty.

Strong bonds of loyalty can arise from many circumstances, such as when people have a shared cultural heritage or a common tribal affiliation or when they have shared a profound or difficult experience. A pertinent example of the latter is the struggle for freedom in South Africa.

While both honesty and loyalty are good and desirable values, when they are pitted against each other it can present a difficult choice: between looking the other way or supporting (and covering up for) a long-standing comrade who is guilty of misconduct in the name of loyalty, instead of reporting him/her to the authorities for a breach of ethics in the name of honesty. While the choice of loyalty may be understandable, it nonetheless erodes honesty and condones unethical behaviour, especially when it involves prominent leaders.

Good levels of accountability

A factor that is pertinent to ethical leadership, the fight against corruption and the importance of honesty above loyalty is the level of accountability among public officials.

This does not only apply in terms of whether action is taken against those who are found guilty of misconduct, or if those who are politically connected are excluded from being held accountable. Accountability is also very relevant in terms of how public money is spent. It extends to investors needing the assurance that investments in infrastructure or social upliftment will be spent on those projects and, if misappropriated, the guilty officials will be held fully accountable. Malawi's Cashgate corruption scandal, the systematic looting of around $32m from the state and the consequent freeze on aid, highlights the importance of accountability.

A fair and stable regulatory framework

Uncertainty as regards the application of legislation and regulations is an important consideration for investors. There needs to be clarity as regards all applicable standards, encompassing legislation, rules, regulations and policies. And to build and maintain investor confidence, laws and regulations need to be fairly and consistently applied, free from any hint of arbitrary action. Similarly there needs to be reasonable access to the courts and the judiciary needs be independent.

These four factors will go a long way to boosting ethical confidence in the country. Adding to that, the fact that investor confidence based on sound ethics represents a sustainable approach to attracting and growing investment makes ethics an indispensable factor for economic growth.

By Cynthia Schoeman
Published in The Official NEPAD Yearbook 2016, May 2016