"Paradigms adopted within the past 25 years which marginalised the state in African economies did not work," said Janvier Nkurunzia, economic affairs officer with UNCTAD in Geneva

In what is considered a fundamental shift from its previous economic convictions, the United Nations Conference on Trade and Development (UNCTAD) urged African countries in its latest report to adopt a developmental state model. The report suggested that Africans should make greater use of domestic financial resources in a bid to achieve sustained and higher rates of economic growth.
 

"Paradigms adopted within the past 25 years which marginalised the state in African economies did not work," said Janvier Nkurunzia, economic affairs officer with UNCTAD in Geneva, upon delivering a presentation of the report last Wednesday, September 26, 2007, at the United Nations Economic Commission for Africa (UNECA). "Africa, therefore, should learn from its mistakes and rely more on domestic financial resources with a better role of the state if it wants to own its development process."
 

Past reports of UNCTAD focused on external finance and its efficient utilisation; the focal points of the reports in 2004 and 2005 were debt cancellation and foreign direct investment (FDI).

However, the lesson that UNCTAD claimed to have gained from several Asian economies that are practising the 'developmental state' concept initiated it to recommend similar prescriptions for African states.
 

"It takes courage to acknowledge that something failed," Mr. Nkurunzia stated.
 

Prime Minister Meles Zenawi had also articulated in his doctoral dissertation that the developmental state paradigm is the best option for Africa to adhere to. Though, this, for some economists, means economic interventionism based on the Asian model to achieve targeted development, there are other economists who argue that it is indeed the right medicine for countries like Ethiopia.

"Markets are not efficient in Ethiopia and the private sector is not as vibrant as it should be," Wolday Ameha, president of the Ethiopian Economic Association (EEA) told Fortune. "For the time being, the state has to manage the economy."
 

However, Wolday argues that the state should gradually pull its hands out of the economy and make sure that the private sector stands on its feet.
 

In classical economics the private sector is the engine of growth; but there is doubt among economists in Ethiopia that free market conditions can initiate the growth needed to alleviate poverty in one of the poorest countries in the world.
 

UNCTAD listed four major roles that the state, not the private sector, would play in order to jump start the highly aspired growth in the region through strong institutional frameworks.

The report contended that improving tax collection capacity could double tax revenues in some countries. Large variations in the ratios of tax revenues to gross domestic product (GDP) suggest that countries with very low ratios have the potential to increase revenues dramatically. Analysts consider Ethiopia a part of this group.
 

The second role of the state according to the report is formalising economic activities so that the tax base would potentially increase. The informal sector has become an increasingly important segment of economic activity in many African countries due to economic liberalisation and state roll-back policies pursued over the last 25 years, the report says.
 

Also included in the report is the creation of a condition in which more remittances are channelled through banking systems. Unrecorded remittances, unlike the recorded ones, spur consumption rather than investment, which adversely affects the growth of a country.
 

UNCTAD also argues that capital flight is continuously denying African economies large amounts of the continent's resources for investment. A study made in 2000 estimated that the stock of capital flight from Africa is higher than the stock of the continent's debt, prompting some analysts to conclude that Africa is a "net creditor" versus the rest of the world.
 

Mr. Nkurunzia asserted that, following profit maximisation motives, the private sector on its own is not concerned directly with these four crucial areas needed for growth enhancement.
 

"The state should ensure that private interests converge with collective interests," he said. "Ignoring collective interest, development cannot come into the fore."
 

However, it is feared that the latest report would be frowned upon by international institutions like the World Bank and the International Monetary Fund (IMF) as they tend to adhere to the more classical approach advising African countries to create an economy in which the role of the state is minimal.
 

"We should not apply across the board prescriptions by these financial institutions," Wolday told Fortune. "The government and the private sector should work in collaboration to bring about the change we long for."
 

Nkurunzia however, believes that these institutions consider this move as a compliment to their policy prescriptions, which is now tilting to the desire for a strong state that effectively mobilises its domestic resources efficiently.
 

By MICHAEL CHEBUD

FORTUNE STAFF WRITER