Development Dispatch: the rewards of a top-down transformation

What prompts change? Human beings are notoriously bad at it. We like continuity, even when the systems that provide it do not work well or, indeed, make much sense.

In development, we talk constantly about transformation. But for entrenched political and economic systems – particularly those with a history of being badly run – changing the trajectory can seem a hopeless task. The frustrations that ordinary Nigerians feel at the apparent inability of their political class to root out corruption or stimulate the non-oil economy is but one example.

Structural constraints and bad luck are part of the problem. It is hard to embark on a diversification programme in an oil-based economy when your main export drops in value by two-thirds, as was the case for oil markets in 2015.

Transformation, when it comes, is often the product of an unpredictable mix of luck, timing and long-term effort by groups agitating for change, often at great personal cost. However, the key catalyst seems to be political will. More specifically, the thrust for change and willingness to expend political capital to get there needs to come directly from the top.

Two examples come to mind: Ethiopia and Indonesia.

Ethiopia, a one-party authoritarian state, is undergoing a dramatic transformation. Under ambitious new prime minister Abiy Ahmed, a country that imprisoned tens of thousands during anti-regime protests in 2016 has released political prisoners and reconciled with its nemesis of over two decades, neighbouring Eritrea.

Mr Abiy has appointed a 50% female cabinet and, on November 23, 2018, named Bitrtukan Mideksa – one of the country’s most high-profile opposition figures – to head the election board. All of this has taken place since April, much of it representing a 180-degree change in ruling party policy.

Economic liberalisation is also advancing, albeit at a more cautious pace. Several state-owned enterprises are slated for privatisation, and there are promises to relax the state’s grip on the economy, piquing investor interest. How quickly this will happen is still unknown, but if the past six months are anything to go by, significant changes are in the offing.

Indonesia, by contrast, is a sprawling, messy democracy. For investors, this has proven a headache. The archipelago of 17,000 islands historically had poor infrastructure linking it, while its 34 regions and 500 municipalities and regencies all had the power to set their own rules for investors. Talking to investors and government officials on a recent trip, both agreed that Indonesia’s quagmire of red tape has long held back investment for development.

President Joko Widodo, elected in 2014, made it a priority to streamline Indonesia’s business environment and invest in infrastructure. The work is more prosaic than what is happening under Mr Abiy, but it is ongoing and the changes visible. The country jumped 19 places in the World Bank’s 2018 Ease of Doing Business report on the back of the deregulation drive.

The government launched an online portal for business registration in July 2018. In two years, registration times have been cut from 47 days to three hours. And despite strong opposition from many quarters within the political establishment, the work of streamlining regulation and legislation is being pushed forward.

The common thread here is heads of government who have staked their political futures on structural change; this involves risk. Too many politicians lose sight of purpose in favour of political survival.

For Mr Abiy, so far his reformist thrust is paying off. He is praised internationally and is consolidating power away from hardliners at home. For Mr Widodo, the outlook is mixed. He faces a tough re-election fight in 2019 against opponents who are using religion and high food prices – the rupiah fell 8% in 2018, one of the worst hit by emerging market outflows – against him.

Win or lose, however, these are two figures who, while flawed, understand that the point of power is to make a mark. To bring change, even at political cost.

The obstacles may be formidable, but leaders who say they are hemmed in by the intransigence of ‘the system’ are simply too lazy or too selfish to do what is necessary. Grassroots movements are important, but pulling the trigger on transformation comes from the top down.

Adrienne Klasa is the development finance editor at fDi Magazine.