PESA

Political Economy

We provide political economy research on each SADC country and a selection of other African countries, which allows us to provide accurate and balanced analysis.

 

We analyse economic growth and government finances; trade and regional integration; and the balance of payments and foreign direct investment (FDI) position for each country.

Economy and Government Finances

To evaluate fiscal policy, we focus on the context in terms of macroeconomic indicators such as GDP growth and the government’s response to changes in the socioeconomic and macro context. Despite the variety in government roles, which depend on ideological leaning and policies implemented, a common evaluating criterion is that: prudent governments respond to increasing GDP growth by reducing government spending in order to build fiscal buffers; and vice versa if GDP growth is declining. This, however, assumes that the central role of government is responding to market failure to balance the socioeconomic context – i.e. by increasing spending when GDP growth is contracting in order to grow aggregate demand and revive GDP growth.

Nevertheless, these fundamentals of public finance mean that regardless of the role of government in the political economy, governments can only secure fiscal policy sovereignty by maintaining sustainable public finances. Over indebted governments inevitably lose fiscal sovereignty and the ability to implement forward-looking policies over time: ultimately resulting in policy-makers ignoring national developmental priorities in order to meet the imperatives of repaying creditors, improving their credit rating status, and ensuring investor confidence to stabilise capital markets. This usually means fiscal austerity regardless of the national socioeconomic context. Therefore, our analysis of “prudent” fiscal policy conditions is balanced with fiscal sustainability analysis. We also evaluate the budget balance, government capital expenditure, public debt levels and debt-servicing costs.

Read all our political economy research on various African countries’ Economy and Government Finances here.

Trade and Regional Integration

Increasing intra-regional trade is one of the central tenets of regional integration. To evaluate trade and regional integration, we focus on the level of intra-regional trade for each country in its respective regional economic communities. Despite the disagreement on whether regional integration is a linear phased process, which starts with establishment of a trade area followed by a customs area and finally political union, a common evaluating criterion for evaluating integration is that: increasing intra-regional trade enables deepening of regional integration from the exchange of goods and service, to the exchange of financial and human capital; thereby encouraging economic and policy convergence. Increasing intra-regional trade also improves regional resilience and provides mutual benefit that encourages cooperation in broader areas such as regional security, economic and trade policy convergence, and the development of regional value-chains.

Read all our political economy research on various African countries’ Trade and Regional Integration here.

Balance of Payments and FDI Position

Management of a country’s external sector is one half of macroeconomic management which is usually performed by central bank authorities through monetary policy and exchange controls. To evaluate monetary policy, we focus on the context in terms of macroeconomic indicators such as the balance of payments by evaluating the current, capital and financial account balances; and the authorities’ response to changes in the exchange rate and international capital flows. We do not focus on the domestic aspects of monetary policy such as inflation rate policies, financial supervision and domestic capital markets because these are not major determinants of international trade and foreign capital flows.

Therefore, by evaluating the impact of current and financial flows on the balance of payments which recommend specific policy based on each country’s external sector context. Some of the key areas we evaluate the external sector include reviewing: the composition of exports and current account earnings, the composition of financial and capital flows, and the balance of payments and levels of gross official foreign exchange reserves. These fundamentals of monetary policy mean that regardless of the role of the central bank in the political economy, authorities can only secure monetary policy position by maintaining sustainable external buffers. External buffers can be achieved by increasing exports to enable a current account surplus, or transforming exports away from volatile commodities towards manufactured goods which low price elasticity of demand, and accumulation of gross official reserves.

Countries with low external buffers inevitably lose monetary sovereignty and the ability to absorb external shocks over time: ultimately resulting in policy-makers ignoring national developmental priorities in order to attract foreign capital inflows to balance international payments. This usually means liberalising or removing monetary and exchange controls regardless of the external sector context; which introduces exchange rate volatility and undermines sustainable export growth. Therefore, our analysis of “prudent” monetary policy conditions is balanced with analysis of external buffers.

Read all our political economy research on various African countries’ Balance of Payments and FDI Position here.

Cross-Cutting Issues

Sometimes we publish issues on cross-cutting issues. Hence, for these issues we publish Political Economy and Regional Integration publications to complement each other. The Political Economy publications examine the cross-cutting topic from a national economy or country perspective. Meanwhile the Regional Integration publication will complement this analysis by reviewing the same topic from a regional or SADC perspective. Read all our cross-cutting issues by selecting one of the topics from the list below:

 

See all our political economy research on a specific country by selecting it from the list below.

 

SADC Countries

Choose a country from the list below to read about its political economy.

 

Rest of Africa

Choose a country from the list below to read about its political economy.

 

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