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Leapfrog Governance in Africa: Closing the Trust Gap

 

June 27, 2013

Doug Hadden, VP Products

We’re attending the Africa Debt Capital Markets Summit 2013 in London today. We’re one of the sponsors – that gives us an opportunity to talk about technology leapfrog. This is something that we’ve discussed before in the context of Public Financial Management (PFM). The presentation (embedded below) focuses in on two of the governance opportunities in Africa: transparency and decision-making.

It might seem unusual to suggest that governments and central banks in Africa can leapfrog more developed countries through the use of technology. Our research shows that the majority of software applications used in central banks, for treasury debt management and back-office financial management systems leverage legacy or proprietary software. Many established vendors provide legacy proprietary software.

If it isn’t broken, why fix it?

So what if software isn’t built on the most recent platforms? Who cares if the software is proprietary if it works?

Governments are starting to realize the importance of integration. Not “integration” in the sense touted by the larger enterprise software vendors of buying a suite from a single large company in order to get the software integrated. (There is a lot of evidence that intra-suite integration with the major ERP vendors is not all it’s made out to be.)

The expectation of integration has changed to component-level Service-Oriented Architecture (SOA) to enable integration among systems. To the support of open systems to facilitate integration methods and enable change.

Fully integrated government accounting, treasury and banking systems enables transparency and improved reporting across the entire budget cycle. Information systems in silos add risk that governments will not have the proper data to make timely decisions for debt, cash and liquidity management.

Transparency and the “New Normal”

Japanese and Korean automobiles and electronic goods were once considered of poor quality. How the world has changed! The financial crisis exposed poor banking, regulatory and public finance management systems in developed countries. Many developing countries, including those in Africa were more resilient to the crisis because of prudent financial practices.

The economies of many African countries are growing rapidly. Economists see that the majority of global growth is in developing economies and that, in a short time, the majority of GDP will be generated in these countries.

Yet, there is a general perception that doing business in Africa is very risky. (In much the way that buying a 1970 vintage Japanese car was a risky decision.)

My personal view is that there is a gap between the real risks of doing business in Africa and these perceived risks. Trust is required to close this gap. Government transparency can help reduce the perceived risk. Credit agencies and businesses can better understand the fiscal positions of government. Opaqueness creates suspicion.

Why is there a technology-driven opportunity?

African governments and central banks do not have as many silos of information systems. There isn’t as much of an investment in legacy technology. And, there tends to be country-wide information systems rather than the departmental model that we see in developed countries. Of course, we can learn from the mistakes from other countries to avoid software systems that are not financially sustainable.

Of course, we are a vendor is this market. My sense is that any objective observer with a PFM and software technology background would agree that:

1.       Open systems enables interoperability and data integration

2.       Proprietary systems are more difficult to integrate

3.       Integration among systems provides a single source of information for decision-making (through reports, dashboards, alerts, data mining etc.)

4.       Integration among systems provides a single source of information for transparency (open data and financial reporting)

Perhaps not everyone will agree to the notion that transparency improves trust. That’s because transparency can often expose problems within government. (And, that’s one of the reasons that many public servants are concerned with open government.) My sense is that transparency without a commitment to improve governance will result in lower trust. And, many businesses and credit agencies tend to think that opaque governments have poorer governance than they do.

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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