Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
Can the Implementation of Decentralisation Policy in Africa
Liberalise the Economy and Open It to Regional and
International Trade?
Emmanuel Innocents Edoun and Alexandre Essome
This article is set to argue that, the absence of credible institutions is the reason for
the failure of centralised governments in Africa to achieve economic liberation and
open it to regional and international trade. With the above in mind, the current
research convincingly posits that decentralized policy minimize economic exploitation
at all levels of government through transparency, accountability and citizen’s
participation in decision-making-process. From what may unfold from decentralization
policy, the initial findings hold that, in strengthening trade activities at local levels,
local governments should developed policies that encourage the creation of
sophisticated infrastructures that will facilitate inter and intra trade. The paper is
divided into five major parts. The first has introduced the subject under study, the
second section provides the forms of decentralization and economy liberalization, the
third part argues about trade and regional integration. The fourth explain the policy
implication The fifth part concludes and provides a set of recommendations for future
research.
Key Words: Africa, Centralisation policy, decentralisation policy, Economic
liberalisation Regional and international trade, transparency, accountability, citizen‟s
participation
1. Introduction
Most heads of State in Africa who came to power after independence in the late 50s
and early 60s used the centralization of powers as a policy to unite their countries
and maintain social cohesion. Even though some countries succeeded in
maintaining social cohesion, this policy literally failed to realize the required result.
This failure was related to the fact that, too much power was vested in the hand of an
elite group that was only eager to serve their own interest rather than the interest of
the majority. This centralized system facilitated the creation of dictatorial regimes
that rules with iron fist. Some of the rulers of these regimes could be found, in
Northern Africa, Central Africa, West Africa, East Africa. Experiences have shown
that, countries that have used centralization as a policy have rather groomed elite
groups that tend to accumulate wealth in a capitalistic way since economic and
monetary policies are formulated and implemented by these group to strengthen
their capitalistic ideology. Economic liberation under these conditions was almost
impossible to be achieved. Democratic governance institutions were completely
absent and this had a negative impact in the functioning of the state apparatus. This
article therefore argues that, the absence of credible institutions is the reason of the
failure of centralized governments in Africa to achieve economic liberation and open
it to regional and international trade where the benefits could stimulate economic
growth and reduce the gap between rich and the poor. The article therefore is rather
advocating for a decentralized policy that is good for the economy as this policy is
ought to minimize economic exploitation at all levels of government through
_______________________________________________________________
Emmanuel Innocents EDOUN, PhD, University of Johannesburg, Email: eiedoun@uj.ac.za
Alexandre Essome, University of Johannesburg, South Africa, Email: essome@un.org
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
transparency, accountability and citizen‟s participation in decision-making-process.
The article argues that, decentralized economy should take into consideration
citizens from grass root levels. Local governments that are decentralized organs
should play a leading role in achieving socio-economic development. They should
take the initiative of creating an environment that is conducive to local, regional and
international trade. The initial findings hold that, in strengthening trade activities at
local levels, local governments should developed policies and infrastructures that will
facilitate trade.
2. Forms of Decentralization and Economy Liberalization
This article has identified three forms of decentralization that may liberalise the
economy and open it to regional and international trade. Edoun (2011) in quoting
(Smith, 1985) and Ademolekun (1999) convincingly explained that, depending on the
context, when there is transfer by law and other formal actions, of responsibility,
resources, and accountability, decentralisation take the form of devolution .
Furthermore, devolution, as defined by Dyer and Rose (2005), refers to the power
formally held at sub-national level, where local decision makers do not need to seek
higher level approval for their action. According to Work (2002) and Lauglo (1995),
administrative decentralization refers to the transfer of decision making authority,
resources and responsibilities for the delivery of selected number of public services
from central government to other levels of government agencies. Oluwu (2004)
argues that, according to conventional definitions, when responsibility or authority is
transferred, but not resources or local accountability, this is referred to as deconcentration.
In quoting Dyer and Rose (2005:), Edoun (2011) also inferred that, deconcentration and delegation of authority involve the shifting of management
responsibilities from the center to the lower level, but the center still retaining the
overall control of powers. When responsibility, authority and resources are
transferred, but accountability still resides in the centre, there is delegation. This is
equally confirm by Dyer and Rose (2005) who argue that delegation involves leaving
a degree of decision making to the lower level but the delegated system still rests on
the central authority where the power can be withdrawn. What is therefore the
implication of decentralization in liberalizing Africa‟s economy?
The reasons for considering decentralization policy to replace the centralisation of
power is related to the failure of the later to ignite socio-economic development and
the limits associated to the renewal of free-market theories included in structural
adjustment and macro-economic stabilization policies1.
3. Review of Literature
3.1 Decentralization and Its Implication on Trade and Regional Integration
In a decentralized economy approach, local authorities manage resources that are at
their disposal. Local resources are produced locally and could be sold in other part of
the country even in other countries depending on the trade related agreements
between countries belonging to the same Regional Economic Communities (REC).
Trade activities surely create jobs for local citizens in line with regional integration
1
http://www.ciesin.org/decentralization/English/General/history_fao.html
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
principles. A number of theories were created by imminent economists. These
theories were previously analysed by (E.I Edoun, 2011, 2012, 2015). These theories
are identified as:
 Myrdal causation theory
 The Growth pole theory
 The agglomeration theory.
According to cumulative causation theory (Myrdal‟s, 1957), some markets and
places or nodes attract capital and skilled labour force accumulating competitive
advantages compared to other locations. The theory further stressed that less
developed localities can have advantages from growth in developing areas due to
spread effect that derived from diffusion of innovations in lagging areas and rise in
export markets for products from these lagging areas. Edoun (2011) in his analysis
argued that, the study was not interested in scrutinizing development at national
level but the research focuses on the impact of LED at local levels. The study further
contends that, there are some impediments such as lack of good governance that
need to be overcome for cumulative theory to be more effective in countries such as
Cameroon. The effectiveness of cumulative theory in facilitating local economic
development in turn facilitates trade with local communities.
For further clarification, Henry (2007) asserts that, the cumulative causation theory is
a growth theory that attempts to explain why there are differences in the growth of
different regions. Growth and decline are viewed as self-reinforcing forces that
operate via markets. According to this theory, economic growth in prosperous
localities results in both positive and negative forces on surrounding regions. These
effects are known as spread and backwash effects respectively (Richardson,
1973).The spread effects occur when the prosperous region provides a market for
the non-prosperous regions. Conversely, the backwash effect occurs when there is
migration of labor and capital from the non-prosperous region to the prosperous
region. When the backwash effect is greater than the spread effect it could lead to
divergence in growth where the prosperous region continues to grow and the lagging
region declines in growth (Richardson, 1973). This theory goes farther than the
neoclassical growth theory because it explains regional growth and decline.
The theory does not, however, have an explanation for why regions become
prosperous in the first place. Likewise it does not explain how lagging regions
become so to begin with. From this theory, differences in regions affect growth. From
the literature, differences have been observed between highly urbanised areas and
rural areas (Rogerson, 1995). Urban areas may be likened to prosperous regions
and rural areas to lagging regions under the cumulative causation theory. From a
survey of county governments in the USA, Lobao and Kraybill (2005) find significant
differences between urban and rural counties with the latter being disadvantaged.
Further investigation by these researchers revealed that rural compared to urban
counties are likely to have reduced capacity and limited resources to efficiently
carryout added responsibilities brought about by decentralisation.
The difference between the two regions could be increased by migration of rural
residents to urban localities to find better opportunities and have access to better
public services. Since rural and urban counties have different resource endowments
and structural capacity, it is likely that policies that require inputs by local
governments will have different impacts and outcomes in rural compared to urban
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
counties. Due to differences that exist between rural and urban areas, it is possible
that policy effects will also have varied results depending on a given area rural
status. Also, rural areas are disadvantaged in terms of human capital and other
physical resources, and so it is likely that the impact will be negative and more
severe compared to urban areas. Based on the above, it is hypothesized that fiscal
decentralization causes lower economic growth in rural compared to urban areas
(Pillay, 2009).
The argument is that, if decentralisation policies are well adopted, Myrdal‟s model
could be well implemented in many African countries in the areas where
development is lacking. The study argument is that, the development of one area
could with the principle of this model leads to the development of surrounding areas
by diffusion or innovation through the rise of free trade- for example in export
markets for products from the lagging areas. Dawking (2003) also argued that, the
result of free trade among regions actually reinforce the process of cumulative
causation where growth is further catalysed in the more developed regions. The
argument from Dawking experience is that that, free trade usually generate
economic growth at local level, helping lagging areas to develop overtime, which in
turn may trigger local economic development.
The firms involved in free trade activities have positive implication on Growth Pole
Theory. Dawking further contends that, the implementation of decentralisation policy
may liberalise the economy and open it to international trade, to agreement between
local and foreign municipalities. Foreign direct investment (FDI) may have direct
impact locally, due to technology transfer. Even though, the study is not concern
about export activities, this study recognises that, trade activities within a
decentralised area can have positive impact on local economic development. Hence,
Myrdal theory may well fit in the analysis of this study.
3.2 Growth Pole Theory
The theory of (Perroux‟s ,1950) is related to Growth Pole theory and contends that,
economic development strategies should focus on investments on key sectors of the
economy in order to initiate development. The above theory comes in support of the
study view that, local economic development should take place, when various
stakeholders are involved. Such stakeholders may be firms, industries civil society.
The study argues that, investment from firms and other businesses for example in
the mining sector will generate employment and improve the living conditions of
citizens at local level. But, this study is not about the factors that lead to local
economic development, but the study is rather looking at the implication that
decentralisation as a policy has on LED. Hence, this theory does not fit in this study.
According to this theory regional growth occurs when concentration of economic
activity leads to dynamic forces of attraction that causes more economic growth. The
theory is used to explain the difference in growth between cities and their
hinterlands. Cities because of their concentration of manufacturing and service firms
are considered to be engines of growth and it is proposed that linkages between
rural and urban areas would lead to a „trickle down‟ of urban growth benefits to rural
areas (Richardson, 1973). Growth poles are defined as urban centers with some
threshold size with the rate of population growth and employment growth greater
than the region where it is located.
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
A second attribute is that the growth pole‟s growth should be greater than some
threshold percentage of the total growth of the region. This theory recognized the
fact that the spatial distribution of economic activity affects the rate of economic
growth. According to the growth pole theory, regions are in a state of imbalance and
imbalances such as excess demand and supply of goods and services can lead to
growth. In addition to growth being caused by price signals in decentralised markets,
this theory also pointed out that economic growth can occur through governments
and large enterprises exerting influence on the growth process (Daniels, 1989).
Agglomeration theory is another theory that generates development at local level
through the association of a number of economic activities of small and medium
enterprises.
3.3 Agglomeration Theory
Henry (2007) argues that according to growth theorists, sustainable growth may be
due to agglomeration economies (Richardson, 1973). Increasing returns that are
related to the spatial distribution of economic activity are known as agglomeration
economies. Krugman (1991) describes the process of regional growth as follows. He
explains how interaction of demand, increasing returns, and transportation costs
drive the process of regional divergence. Some businesses tend to congregate in a
region because of the advantages of being near other businesses. Classic examples
are chips in Silicon Valley and cars in Detroit (Krugman, 1991). A model of
geographic concentration can be used to explain these processes. Various factors
interact to cause concentration in a region. These factors are increasing returns,
transportation costs, and demand.
According to Krugman when there are strong economies, firms would rather locate in
a concentrated manner. To decrease transportation costs firms tend to locate near
markets (local demand). At the same time local demand will locate close to areas
where employment can be found. Transportation networks could also be a force that
creates geographical concentration of industry. As far back as 1920, Alfred Marshall
identified three main reasons for localization of industry. First, concentration allowed
an industrial center to have a pooled market for workers with specialized skills. This
rich source of labor benefits both workers and firms in an area. Other advantages
are that localization provides a constant market for skill.
Employers seeking to minimise their search cost will also want to locate close to the
labor pool. Likewise, labor is likely to gravitate towards areas where employers
seeking their skills are located so that they can be gainfully employed. There is
therefore a concentration of skilled labor and specialized support firms, which further
add to the pros of concentration. When an employee loses their job in one firm it is
less difficult to obtain one in a nearby firm. The second reason put forth for
localization is that it creates the provision of non-traded inputs that are industry
specific. These are provided at reduced costs. The Provision of specialized inputs
and services makes industries more efficient when there is localization.
Lastly, there are technological spillovers, which make geographical concentration of
firms and people advantageous. As workers from different firms interact with each
other, they are likely to transfer information on inventions, improved technology, and
production methods that are efficient (Krugman, 1991). In summary, Marshall‟s three
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
reasons for geographic concentration and subsequent economic growth are labor
market pooling, supply of intermediate goods, and technological spillovers. All these
processes help to promote growth. From the concentration of economic activity and
the benefits of agglomeration, two hypotheses are derived for this study. First,
people move to localities where they can find jobs. Second, employers tend to move
to localities with a skilled labor supply.
These location decisions help all labor to increase employment opportunities and
employers to decrease search and operating costs. This shows that areas with high
population will attract more businesses (employment). Thus the presence of high
population in an area will potentially lead to an increase in employment in the region.
In the same way, if an area has high employment opportunities people will move into
the region and cause an increase in population. These processes reveal the positive
effect that population and growth have on each other. It is therefore hypothesized
that population growth has a positive effect on employment growth and vice versa. In
the model that is discussed in the next chapter agglomeration effects are captured
by population density and employment in manufacturing as a share of total
employment. These are commonly used measures of agglomeration in the literature.
According to Krugman (1991), the interaction of increasing returns and
transportation costs can be used to explain the uneven development of regions.
Thus regions that get a head start with production tend to attract industries away
from regions that start with less favorable conditions. As time passes these effects
reinforces themselves thus resulting in distinct differences in regional development.
The above theory thus emphasizes increasing returns rather than comparative
advantage as the source of economic growth. Little attention is, however, paid to
governments in the model. Differences in growth could also result from opportunity
costs of engaging in growth activities. Regions with fewer resources such as rural
counties tend to have a higher opportunity cost as they engage in economic growth
initiatives due to decentralisation. This could further create disparities in the growth
of localities. The above are some theories of economic growth. This dissertation
proposes for instance that fiscal decentralisation affects these growth processes by
influencing the location decisions of firms.
Armstrong & Taylor (2000) confirm that agglomerations economies emerges on the
basis of economic association of a big number of economic activities that do not
need to necessary be in the same industry. They argued that, the concentration of
big number of firms are created to serve various industries, including for example
urban transport and communication, well organised labour markets, social and
private services, cultural and recreational activities, firms organized in cluster and
geographic concentration of innovative activities.
The current study contends that, the above theories can become effective, only
when decentralisation is successfully implemented. Cheka (2007) argued that,
decentralisation should be considered as a strategy and its implementation should
generate positive results. Strategy implementation can thus be defined as the
process that turns strategic plans into a series of actions tasks, and ensures that
these tasks are executed in such a way that, the objectives of the strategic plan are
achieved.
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
In the light of the above outcomes from various theories the paper mentioned, it is
clear that, various economic activities from different industries will grow the economy
through the effect of trade related activities. These activities certainly contribute to
the expansion of other regions. The liberalisation of the economy becomes effective
through Local authorities (decentrilized entities) who are tasked to implement local
economic development policies for the development of their respective regions.
Products from local industries are sold locally and abroad through trade related
activities for profit maximization. As the economy is growing, the Tax Man will act to
generate income that is ought to contribute in building new infrastructures. These
newly build infrastructures support trade activities within the countries and hence
within the region. These trade activities are set to consolidate regional integration
through mutual policies that facilitate the movements of good and people.
Good infrastructures of course are the backbone for strong economies as they
facilitate intra-industry trade in the form of export and import of products of the same
nature. What is important here is that, the effectiveness of intra industry trade in a
country overall trade could be calculated as an index taking into consideration the
data on exports X and imports M.
Trade related activities could enhance government expenditures so that it can further
invest in additional infrastructures that encourage local and foreign direct
investments.
GDP= C+ I+ G + (X-M)
Where:
GDP= Gross Domestic Products
C = Consumption
I
= Private Investment
X-M= Net Export
We are more concerned here with the net export X-M
X=Export
M=Import
When X-M=0, There is trade balance where X=M
When X>M, There is trade surplus where exports exceed imports resulting in a
positive balance of trade
When X<M,
there is trade deficit, where imports exceed Export resulting in a
negative trade balance
4. Policy Implication
The paper has detected findings that have major implication on trade related issues.
From theories in which the paper found evidence of the effectiveness of
decentralisation on trade related issues, governments are called upon to reinforce
total transfer of power and resources from upper to lower levels of government
where local authorities are expected to play a significant role in local economic
development (LED). Local authorise should work tirelessly to maintain existing
infrastructures and create new ones in support of local and Foreign Direct
Investments (FDI) from which the Gross Domestic Product (GDP) could increase
significantly. Decentralisation should therefore be viewed as a policy and a strategy
as convincingly demonstrated by ( Edoun, 2011).
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
5. Conclusion
Past studies have shown that, trade contributes significantly to economic growth and
to the development of a country as well as of a region in making for economic
integration. Local economic development therefore hugely contributes to Economic
integration which is a process where countries belonging to a particular economic
bloc decide to agree on a number of rules and procedures. They can for instance
decide to remove trade barriers and tariff.
It was demonstrated in this paper that, local economic development facilitates the
creation of industries that are later involve in trade activities. These are very
important for economic integration. The three theories analysed in this paper, namely
the Myrdal causation theory, the Growth Pole theory and the agglomeration theory,
all convincingly demonstrated that, local activities contribute in expanding trade in
other parts of the country until it is able to start trading with other countries at
regional level. An equation was generated to explain, the expenditures approach of
determining the gross domestic product. As a result therefore one could agree that,
the implementation of decentralisation policy in Africa can liberalise the economy
and open it to Regional and international trade
References
Adamolekun 1999, “Decentralisation, Sub national Governments and
Intergovernmental Relations.” In L. Adamolekun, ed., Public Administration in
Africa: Main issues and country studies. Boulder, CO: Westview Press, pp.4967.
Bray M 1985, Education and decentralization in Less Developed Countries. Sage
Publication
Cheka 2007, The State of the Process of Decentralisation in Cameroon. Volume 32.
CODESRIA. Dakar Senegal.
Cheema DS & Rondinelli DA eds, 1983, Decentralisation and Development: Policy
implementation in Developing countries, Beverly Hills, Sage.,
Cooke B and Kothari U 2001, The case for participation as tyranny? London 2ed,
Books 1-16
Dyer C & Rose P 2005, decentralization for Educational Development? Aneditorial
introduction. Compare; 35(2)
Edoun, E I 2012, Decentralization and Local Economic Development, Effective tools
for Africa‟s renewal Vol 7(1) 2012. The Institute for African Renaissance
Studies
Edoun, E I 2011, Decentralisation as a condition for local economic development
policy and strategy in Cameroon, PhD thesis, the University of the
Witwatersrand, Johannesburg, South Africa
Erie, SP 1992 , How the urban west was won: the local state and economic growth in
Los Angeles, 1880-1932, Urban Affairs Quarterly, 27, 4, pp.519-554.
Eskeland, GS and Filmer D 2002, “Autonomy, Participation and learning in Argentine
Schools” findings and their implications for decentralization.World Bank Policy
Research Working Paper 2766. Washington, D.C.
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
Eyoh , D and Stren R 2006, Decentralisation and the Politics of Urban Development
in West Africa. Wooldrow Wilson International Center for Scholars.
Washington, D.C.
Faguet, JP 2001, Does decentralisation increase responsiveness to local need?
Decentralisation and Public Investment in Bolivia. Working Paper 999, Center
for Economic Performance, London School of Economics.
Fay, B 1987, Critical Social Science: Liberalisation and its limits. Ithaca, NY: Cornell
University Press.
Garry and Harland 1998, The generic code for social development. Work in Progress
on general theory of development. The World Academy of Art and Science.
The university of Minnesota, USA.
Gordon, C and Christof H 2008, Decentralisation in Africa, A Pathway out of poverty
and Conflict?/Amsterdam University Press
Hussein, MK 2004, Decentralisation and Development: The Malawi experience.
(Africa Development 24(2).
Hunther and Shah 1997, Public expenditure under adjustment lending lessons from
the World Bank
Laclau, E and Mouffe C 1985, Hegemony and Socialist strategy: Towards a radical
democratic politics, verso, London.
Lane, J & Murray, M 1985,The Significance of Decentralisation in Swedish
Education. European Journal of Education, 20 (2-3).
Lauglo,J 1995, Forms of Decentralisation and their Implications for
Education.Comparative Education. 31(1)
Lemarchand, R 1998, „La face cachée de la décentralisation: réseaux, clientèles
etcapital social‟, in Bulletin IPAD, Décentralisation, pouvoirs sociaux et
réseaux,Sociaux, No 16, LIT, p. 9-18.
L‟Oeil, RP1989, Main issues in decentralisation, Strengthening Local Government in
Sub-Saharan Africa. Proceedings of a workshop held in Italy, 5-17 March,
World Bank.
McGinn, N. & Welsh, T. (1999). Decentralisation of Education: Why, When, What
and How? (Paris, IIEP).
Naidoo, J 2003, Implementing Educational Decentralisation. Policy and
Strategy Paper: second draft,South Africa.
Nicholas, H 2007, Public Administration and Public Affairs, tenth edition. Printice-Hall
of India, Private Limited, New Delhi.
Olowu, D and Wunsch J 2004, Local Government in Africa: The Challenges of
Democratic Decentralisation.
Olowu, D 1994, Beyond the failure centralized state in Africa. Strengthening African
Local initiatives: Self Governance, Decentralisation and Accountability.
Oyugi, WO 2000, „Decentralisation for Good Governance and Development‟
Regional Development Dialogue, Vol 21, No 1,pp3-22.
Oyono, D 2006, National Programme for Governance. Saint Paul Edition, Yaounde
Cameroon.
Pillay, P 2009, Decentralisation and Service delivery: The Politics of Service
delivery. Wits University Press.
Rondinelli, DA & Cheema, GS 1983, Implementing Decentralization policies: An
Introduction in Decentralization and Development, Cheema, GS & Rondinelli,
DA (Eds) California, Sage Publishers.
Rondinelli, DA and Nellis, JR 1986, “ Assessing decentralisation Policies in
Developing Countries: A Case for Cautious Optimism” , Development Policy
Review 4(1):3-23.
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
Smith, BC 1985, Decentralisation: The Territorial Dimension of the State.London:
Allen and Unwin.
UNDP, 1999, Decentralisation: a sampling of definitions, October.UN, NY.
UNDP, Human Development Report 2003, "Millennium Development Goals: A
compact among nations to end human poverty", UN, NY.
Work, R 2002, Overview of Decentralisation Worldwide: A Stepping Stone to
Improved Governance and Human Development.
Wunsch, JS & Olowu D 1990, the failure of the Decentralised
State and Self
Governance in Africa, Goulder Westview Press.