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The Big Saturday Read: Transnational networks, Africa and independence

Last week I introduced the topic of global governance and how it has an effect uponAfrica. In particular, I tackled the issue of governance by indicators as a technology of global governance. I explained how indicators, such as the Doing Business Index, Corruption Index and Credit Ratings are part of the technologies of global governance. The purpose of that article was to draw attention to the broader dynamics around and behind the downgrading of South Africa’s credit rating following President Jacob Zuma’s controversial Cabinet Reshuffle. I was a little hesitant when I wrote that article as I thought readers might struggle to follow a subject that is fairly complex. However, I was pleasantly surprised by the overwhelming response to it and the appetite for the subject of global governance. This week, I have decided to make a follow-up and discuss a related but equally pertinent technology of global governance and its implications for African countries. It is the subject of transnational networks and their impact on Africa and the question of independence.

While much has been written about these technologies of governance and their impact in the developed world, there is still little that relates to Africa. This article highlights key issues relating to African countries that are largely peripheral to the power dynamics in transnational networks. It is important to have a better understanding and a greater appreciation of the impact of these technologies of governance on African countries. This is fundamental in the context of governance in respect of post-colonial societies. Although independence is glorified in these countries, the role and impact of transnational networks remains understudied and under-appreciated.

Governance through transnational networks

The rise of globalisation in the last 30 years has brought both global opportunities and challenges which transcend the traditional nation-state. These global challenges have not spared the authority of the traditional nation-state. It is generally acknowledged that global challenges which invariably transcend the territorial boundaries of the traditional nation-state require global solutions. One of the responses is the increasingly dominant phenomenon of transnational networks. These transnational networks, which come in different forms, seek to respond to problems of a transnational character by promoting cooperation in policy formulation, setting standards as well as enforcement of those standards. The transnational networks operate in a broad range of areas, from security, social, environmental to economic sectors. They can either be private transnational networks, which include a wide range of private actors or transgovernmental networks, which involve parts of governments from different nation-states.

Although there is no uniform criteria, these transnational networks share a number of characteristics. Some of them are informal and the rules they produce are not legally binding and depend on the goodwill of members for their implementation and enforcement. Their members are either private actors or agencies of government which operate on an independent basis in their areas of operation. Sometimes there are no formal treaties which are the norm in the formal intergovernmental organisations. These networks are often voluntary and flexible organisations which are often led or directed by experts in their particular fields. Unlike treaty-based organisations whose conventions and treaties must be ratified by the national parliaments in nation-states, the agreements, standards and norms set by these transnational networks are often directly applied through the national agencies without the need for such ratification through parliaments. For this reason it is often argued that one of the virtues of transnational networks is that they are able to quickly and more flexibly respond to global challenges compared to formal treaty-based organisations which have to follow long and protracted processes and protocols.

Apart from this, transnational networks are favoured by the agencies that create them because it allows them to retain autonomy in their areas from political actors within their jurisdictions. Financial regulators in one country are more comfortable talking to financial regulators in another country compared to their relationships with politicians in their own countries. If the rules and standards that a financial regulator prefers have to be taken through the national legislative process, that might result in dilution by political actors. Regulators can by-pass these national legislative processes by engaging fellow regulators in foreign jurisdictions through their transnational networks. These transnational networks flourish because they are backed by these expert communities who like to retain autonomy in their areas.

Political economy and transnational networks

Pierre Verdier, who has written on transnational networks in financial regulation posits a theory of political economy to explain the prevalence of such networks in that sector. He argues that there are three key actors, all of whom are united by their interest in using transnational networks in regulating financial services. These three key players are:

First, the financial regulators who prefer to maintain autonomy in their areas of work without the interference of political actors and political processes. These regulators are communities of experts, who have an influential role in regulating financial services. Transnational networks allow them greater scope to formulate policies and standards without interference from political actors.

Second, there is the finance industry itself which prefers less regulation and therefore less interference by the political authorities. They would rather have the informal and flexible and non-binding regime offered by transnational networks than formal legislative rules made by parliaments. These non-binding standards and codes of conduct are easier and more flexible, reducing the costs of compliance.

Third, there is the group of powerful and influential industrial countries which have a dominant role in the global financial world. Their dominance extends to the development of rules of the game, which are often made through these transnational networks. As we shall see, virtually all the relevant transnational networks and rules in the financial world are initiated and developed by the leading industrial powers, through the G8 or G20 or the OECD and similar elite groups. Their collective interest in using and maintaining transnational networks means such networks dominate international financial regulation. We shall see later how this has an impact on developing nations.

Rational choice theory

Another theory offered to explain the dominance of transnational networks is the rationale choice theory. In simple terms, it means that an actor makes a rational choice between the different options available after balancing the costs and benefits of the various options. They are likely to choose an option that has less costs and more benefits. In terms of this argument, transnational networks and their informal and non-binding regime are favoured ahead of more formal and binding regime because they are less costly. Regulators and the regulated prefer the informal and non-binding systems because they impose less costs upon them. There is something referred to as sovereignty costs, which is essentially the impact felt upon a country’s sovereignty. The argument is that formal and binding regimes involve greater impact (higher costs) upon a nation’s sovereignty compared to informal and non-binding regimes which are generally optional. Transnational networks are therefore said to be favoured because they involve lower sovereignty costs.

Networks in financial regulation

I’m going to use networks in the regulation of financial services. Common examples include the Financial Action Task Force, the Financial Stability Board, the Basel Committee on Banking Supervision, and the International Organisation of Securities Commissions. These networks are quite influential on a global scale. These networks formulate policies and set standards and norms which states around the world are expected to comply with. Sometimes these networks implement and enforce policies and standards and their impact is far-reaching. The challenge with these networks is that developing countries are generally excluded from their membership and have very little if any voice in the formulation of policies that they are expected to comply with. I will use an example of one of these transnational networks – the Financial Action Task Force to illustrate my point regarding their impact on African countries.

Financial Action Task Force (FATF)

The FATF is one of the most important and influential networks which sets the standards designed to combat money laundering and terrorist financing. It describes itself on its website as “the global standard setting body for anti-money laundering and combating the financing of terrorism (AML/CFT)” which works to “protect the international financial system from money laundering and financing of terrorism (ML/FT) risks and to encourage greater compliance with the AML/CFT standards”. It was formed in 1989 by the G7 countries in response to the scourge of money laundering fuelled by the escalating trade in illicit drugs. The G7 countries were responding to a particular problem that was affecting their societies in a profound way and they believed the transnational drugs trade could be prevented through setting uniform rules and standards on money laundering since the main actors used the financial systems to move and clean their money.

Over the years, the FATF has expanded to 37 countries but its scope has also expanded to include recommendations on anti-terrorist financing. This was in direct response to the scourge of terrorism, which is supported by funding through the financial system. One response to terrorism has been to formulate and implement rules that would prevent the financing of terrorism through the financial system. It is evident from this that the FATF was formed as a direct response to specific challenges that affected those who created it.

Of its 37 members, only one, South Africa, is from Africa. Brazil, Russia, India and China complete the BRICS quintet. The majority of the FATF members are European countries along with the United States, Australia, Canada and New Zealand. Countries in South East Asia, such as Singapore, Malaysia and South Korea are also members. One common thread among the members is that they are all regarded as major financial centres, which tend to handle bulk financial transactions. The FATF also has observers and associate members and organisations. This is where regional organisations from Africa are included. One of them is the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) which has a similar mandate in the Southern African region.

It is evident from the membership alone that African countries only have marginal status in the FATF whose rules are nevertheless influential and affect them. The FATF is a policy-formulating network in that it sets the policies and standards on preventing money laundering and terrorist financing. Since its formation in nearly 30 years ago, it has produced a set of recommendations which specify the minimum standards on how to combat money laundering and terrorist financing.

Member states are expected to implement these recommendations through their laws. However, the reach of the FATF recommendations is wider than that as non-member countries are also expected to comply with the recommendations. Countries that fail to meet the recommendations are regarded as non-cooperative and high risk. It states on its website: “The FATF has identified jurisdictions with strategic deficiencies in their frameworks to combat money laundering and the financing of terrorism and proliferation …” Once placed on the list of non-cooperative countries, they will be subject to a regime of financial sanctions, which it refers to as “counter-measures” and includes “targeted sanctions”. Businesses from member countries will be discouraged from trading with businesses from non-compliant countries. In a recent statement regarding Iran, while noting that the country had made progress to implement the FATF recommendations, the FATF still called on its members and urged all other jurisdictions “to continue to advise their financial institutions to apply enhanced due diligence to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19”.

Most non-member countries cannot afford to risk this type of exclusion from the international financial system. The costs of not complying would be too heavy for them. Therefore, even though they are not involved in the formulation of the anti-money laundering and anti-terrorist financing policies, marginal or non-member countries have little choice but to align their laws with the FATF recommendations lest they be classified as high risk and non-cooperative.

Challenge to constitutionalism

One thing that we can observe from the example of the FATF is that its recommendations have far reaching effect on the laws and policies of the nation state – in both developed and developing nation states. It means, essentially that policies and laws on combating money laundering and terrorist financing are coming from external actors. These recommendations have a significant impact on the banker-customer relationship as well as fundamental freedoms and liberties. The role of legislators is simply to adopt the recommendations and implement them as directed. I have used the example of the FATF and anti-money laundering but the same line of argument could apply to any other area where there is a transnational network which formulates policies and enforces standards. It has an important effect upon the sovereignty of the traditional nation-state. It means power is located beyond the nation-state and in this case, it is emanating from an external source. But to whom is this external authority accountable? This raises important questions about the relevance of constitutionalism.

Constitutionalism refers to legal limits on the power of the state. In the traditional nation-state there is a national constitution which regulates the relationship between the state and citizens and the interactions between the organs of the state. A good constitution is one that ensures that there are sufficient checks and balances between the organs of the state. However, this state-centred constitutionalism is increasingly getting challenged by the proliferation of networks. As Hamann and Ruiz Farah have argued, state-centered constitutionalism is losing ground to independent regulatory agencies and government networks. Since the nation-state is ceding control on key areas in the public sphere, state organs are “no longer the sole wielders of public power.”

In this regard, we have already seen how the FATF recommendations are the actual source of anti-money laundering laws. The FATF is not only generating policies but it is also the enforcer of rules. This seems to confirm what Hamann and Ruiz Farah have argued that, “nation-state sovereignty which is based on territoriality and the exclusion of external actors from interference has diminished significantly. Globalisation is challenging the relevance of the notion of nation-state sovereignty. These processes mean there are new forms of governance beyond the territorially defined nation-state.” The FATF demonstrates the effect of these new forms of governance beyond the territorially defined nation-state. But whereas citizens have always relied on traditional instruments to hold state actors to account, how do they hold transnational actors like the FATF to account? Are national constitutions adequately equipped to deal with these challenges posed by transnational networks and other technologies of global governance? Is constitutionalism, based as it is on a state-centered model becoming marginalised?

In short, how relevant are national constitutions formulated with a state-centred notion of public power in an age where public power is emanating from new sources such as transnational networks which are not provided for in those constitutions? These questions are occupying the minds of constitutional lawyers and ought to be taken seriously within the Sub-Saharan African context, where as we have observed, the challenge is worse in that these countries are excluded from membership of these transnational networks.

Enhancing the executive

Traditional constitutional law views public power as shared between the executive, legislature and the judiciary. The principles are designed to ensure there are checks and balances. However, there is an argument that transnational networks tend to enhance the power of the executive creating an imbalance in relation to other organs of the state. Haman and Ruiz Farah express the fear that executives are able to circumvent control by other state actors, “since it is largely impracticable to hold executives democratically accountable at the national level for actions in the transnational sphere.” This is because policy decisions affecting the public sphere are transferred to transnational networks and this allows the executive to bypass the legislature. When these transnational networks prescribe norms and standards they are passed on to domestic regulators for implementation, often bypassing national parliaments, rendering them redundant.

SADC Tribunal and the challenge to constitutionalism

One illustration of the challenge to state-centred constitutionalism is provided by the conflict between Zimbabwe and the SADC Tribunal, which eventually led to the disbandment of the regional court a few years ago. A group of white commercial farmers were unhappy with the Fast Track Land Reform Programme, a major policy which had been implemented by the Zimbabwean government after February 2000. They had taken their legal challenges through the Zimbabwean judicial system, as provided for in the national constitution. Having exhausted all internal remedies, they approached the SADC Tribunal which found in their favour, ruling that the FTLRP was unlawful and a violation of the rule of law. The Zimbabwean government refused to recognise the SADC Tribunal’s decision. When the matter came before the Supreme Court of Zimbabwe, which had previously ruled in favour of the FTLRP, it rejected the SADC Tribunal’s findings, holding that it did not have jurisdiction over the matter. This was a classic case of a clash between domestic constitutional bodies and an external judicial actor in regard to the use of public power. It is worth noting that the position taken by the Zimbabwean government was understood by its SADC counterparts, which acceded to its demands, leading to the disbandment of the SADC Tribunal.

Governance by experts

One of the important features of transnational networks is the role played by experts in the relevant fields. It could be a transnational network involved in finance, the environment, food, judiciary, etc the key actors are usually experts in their field. As already pointed out, these experts have an interest in keeping things within transnational networks where they are likely to have greater autonomy and power compared to formal, state organs where they would have to submit to the oversight and control of political actors. Thus in the area of financial regulation, experts who work within regulatory agencies are more likely to favour engaging their like-minded counterparts in other countries than their own politicians. The result is that there is a layer of governance, via transnational networks, which is controlled by experts rather than the elected representatives. This has given rise to a phenomenon referred to by scholars such as Frank Vibert as the rise of the unelected. We have already seen how these networks produce their own norms and standards which gradually replace or are reproduced as domestic laws. The problem is enhanced where networks are not subject to traditional constitutional controls and might even overlook or circumvent human rights. The challenge of governance by experts is one that African countries, already marginalised in the transnational networks ought to be aware of.

Where does Africa fit into all this?

I have raised the issue of governance by transnational networks in relation to Africa principally to point out the continuation of the continent’s marginal status in the arena of global governance. At best, Africa remains marginalised, and most of the time, it is actually excluded from policy formulation and enforcement at the global level. The major networks such as the FATF, the Financial Stability Board, the Basel Committee and various others in different areas are dominated and driven by the wealthy industrial nations. African countries are recipients of policies and standards from above – their role is to implement, even though they are not active participants in policy formulation. Thus, this particular technology of global governance, the transnational networks tends to augment and fortify the power of the powerful industrial nations while keeping the developing nations at the periphery.

A quick survey will demonstrate that the headquarters of virtually all these transnational networks are either located in Western Europe or the US, giving an indication on the geography of power dynamics in global governance. I also wanted to demonstrate the growing significance of the role of experts, who are principal drivers in these transnational networks, an issue which also raises an important angle to the power dynamics at the global level. It’s not just the industrial nations that continue to exert their power and promote their interests but also the growing role of epistemic communities who within those jurisdictions are also exerting their own power. For Africa, all this raises questions of accountability and legitimacy as well as questioning the continued relevance of traditional notions such as constitutionalism, separation of powers and the rule of law.

More broadly, it calls into question the whole idea of independence. How much autonomy do these post-colonial states have in an age of new technologies of global governance, such as governance by indicators, discussed last week and governance through networks, discussed today?

Conclusion

The purpose of this article was to demonstrate the challenges arising from transnational networks as a technology of global governance, particularly as it relates to African countries. I have used examples in the area of financial regulation, where industrial counties and experts generally have a dominant role and where African countries have at best only a marginal role. They are recipients rather than generators of policies. The big industrial nations have dominant and influential roles, as members of these networks and as formulators and enforcers of policies. But what does this all mean for the notion of independence in these countries? What does it mean for their constitutions and constitutional democracy in these countries? How much autonomy do they have to respond to local issues as opposed to externally determined issues which might have little is any bearing to their circumstances? As Zimbabwe celebrates the 37th anniversary of its independence, these are important questions, in addition to the local questions they have to grapple with.

Wamagaisa

wamagaisa@gmail.com

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