NATURE AND CHARACTERISTICS OF GOOD GOVERNANCE
3.10 DEVELOPING INSTITUTIONS FOR ENHANCING GOOD GOVERNANCE
3.10.2 Role of the private sector
A relatively new trend in the field of governance, and more specifically in the area of service delivery, is the role of the private sector as a partner in government. This brings about a change in corporate culture and public management.
More than a decade of political reform Africa has fostered a new and growing awareness among policy-makers about the merits of increasing private-sector participation in the economy, with a corresponding reduction in the role of the state in the productive sector. According to the ECA Report (1999: 4-5) this recognitiun - indeed consensus - that the private sector should take a lead role in economic development, with governments providing the enabling environment, has initiated considerable activities in reviving private investment and entrepreneurship in Africa. Many of the countries in Africa have clearly moved away from centrally planned economies towards economic systems based on a free market approach, (Ethiopia, Mozambique and Tanzania are examples).
Recognising the vast potential for private sector activities, some countries have adopted policies designed to expand and diversify private sector activities and stimulate and sustain private investment, both domestic and foreign. Among the more important policy changes are: sound macro-economic policies, efficient economic infrastructure, laws that facilitate creation of private enterprise, effective and efficient capital markets, agile investment promotion agencies, strong partnership between the public and private sector, and a supportive legal and regulatory framework for investment. Examples are Kenya, Uganda and Mauritius (ECA, 1999:5).
In an attempt to create a more market and investor market friendly climate, the ECA Report (1999:5) maintains that countries have substantially changed their investment codes and established investment promotion centres to serve as focal points for the promotion, co-ordination and support system of local and foreign investments. Large-scale state owned enterprises are being increasingly privatised and money-losing parastatals are being restructured and liquidated, examples being Tanzania, Ethiopia and Zambia.
According to the ECA Report (1999:5) the scope of privatisation of state owned enterprises has widened, although unevenly. Some countries have extended privatisation to public infrastructure enterprises. Many are using management contracts, leasing arrangements and various forms of concessions to transfer the management of public enterprises to the private sector.
3.10.2.1 Culture of good corporate governance
The culture of good corporate governance in the private sector can make a significant contribution to good governance in a country.
This can also enhance the ability of bureaucrats and politicians to understand the business perspective.
The Johannesburg Securities Exchange's new listing requir~mfIlts,
which came into effect in September 2003, are an attempt to enforce good corporate governance practice among listed companies by adopting King 11 guidelines. Speaking at a corporate governance conference in Durban, Louis de Koker, the director of the Centre for the Study of Economic Crimes, said it was up to investors to enforce a culture of good corporate governance.
It has been further asserted that... "board of directors should, as a minimum requirement, have an audit committee and remuneration committee, with formally defined roles and written scope of authority.
Non-executives have an important role to play in these board committees, which should preferably be chaired by an independent non-executive director." (Business Report, 5 September 2003: 6).
Shareholders are increasingly demanding better governance of companies, assurances that companies demonstrate high standards of business and behaviour by directors, officers and employees. They also require companies to set and maintain good policies on a range of employee and customer dealings.
The purpose of the King 11 report is to promote the highest standards of corporate governance in South Africa. Issues to be addressed in an employee code of conduct include relationships to third parties, gifts, anti-bribery provisions and provisions for whistle-blowers. Initiatives that may be considered in implementing the code include:
• Customising the code of conduct to reflect South African values and to obtain employee buy-in;
• Integrating the values into the employee appraisal process;
• Differentiating between hospitality and bribery;
• Raising the level of awareness of the Protected Disclosures Act (more commonly referred to in South Africa as the whistle- blowing legislation) (Business Report, 2 October 2003:4).
3.10.2.2 Good governance and transparency for investment
The Organisation for Economic Co-operation and Economic Development (OECD) claims that good governance and transparency
are as important in attracting foreign direct investment (FDI) as other factors such as macroeconomic policies, market size and risk.
The organisation's business and advisory committee says investors seek markets that are "stable, transparent and predictable to give them the confidence to take the risks inherent in investing capital".
The GECD must be taken seriously when it says that for many firms their critical focus when making investment choices centre on "the reliability and clarity of the host government's administration <'lnd decision-making process" (Business Report, 19 November 2003: 2).
Transparency reduces the opportunity for bribery and corruption and helps ensure that rules and exemptions do not become a hidden barrier to investment. While aspects of a country's competitiveness - in fields such as labour productivity, infrastructure and technology- cannot be altered dramatically in the short term, public governance may be improved more rapidly if and when they are.
The advisory committee of the GECD says greater transparency helps to level the playing fields among competing firms and promotes democracy by giving the greatest opportunity for the views of the populace to be heard. It also says that if good governance is to be supportive of attracting private sector investment it needs "as minimum" to free the process from administrative measures such as screening and approval requirements for foreign investments (Business Report, 19 November 2003: 2).
Investors ask themselves questions such as:
• How layered and complex is the government decision-making?
• Is someone truly in charge, can they be identified, and ,vill they make a timely and binding decision?
• Are the different levels of government su pportive of each other?
If different levels of government are supportive of each other, this creates confidence for the private sector. Investors and the private sector demand a good climate of good governance in a particular country for them to invest.