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Why it pays to be small in Africa: Rwanda, Botswana, The Gambia and Lesotho can strut proudly

21 Aug 2015

Many African countries are currently battling a deep currency plunge and slashing their budgets with a collapse in the prices of several main export commodities including oil, gold and copper.

It looks like itís going to get worse before it gets better.

A few weeks ago, however, financial analysts Citi proposed reforming public sector management by simply paying attention of long-forgotten assets, observing that governments around the world have an estimated $75 trillion in public assets ranging from corporations to forests, which are often badly managed and often not even accounted for on their balance sheets.

Analysts say that much of the policy focus of most governments is on managing debt and reducing deficits, while a long-term sustainable solution would just be prudently managing the assets that already exist.

Given that in most countries public wealth is larger than public debt, just managing it better could help to solve the debt problem while also providing the finances for development, such as for infrastructure projects.

Africa desperately needs such investment Ė data from the World Bank indicates that Africa will need to invest $93 billion a year over the next decade to meet its infrastructure shortfall. Half of the continentís fixed infrastructure stock is in just four countries: South Africa, Algeria, Egypt and Morocco.

But these are hardly the countries that are best positioned to manage their assets properly. In fact, the larger and richer a country is in Africa, the more wasteful its government tends to be in spending public money.

Data from the World Economic Forum shows a negative correlation with a countryís gross national income (in absolute terms), and wastefulness in government spending.

The top five most prudent countries tend to be small economies: Rwanda, Botswana, The Gambia, Cote díIvoire and Lesotho, none of which has gross national income of more than $65 billion.

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