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Hemmed In: Responses to Africa's Economic Decline
Thomas M. Callaghy and John Ravenhill, editors
New York
1993
1. A Second Decade of Adjustment: Greater Complexity, Greater Uncertainty by John Ravenhill
Africa's economic decline has proved to be more prolonged and much more difficult to reverse than originally foreseen. More than a decade after the publication of the landmark Berg Report, which first focused the world's attention on Africa's economic problems, 1 few signs of sustained economic recovery are apparent. This chapter reviews Africa's experience with structural adjustment programs in the 1980s and suggests a number of lessons to be learned. Particular attention is given to the international financial institutions, as these have dominated the structural adjustment agenda.
In its first decade of structural adjustment Africa taken as a whole 2 has experienced further economic regression. Whereas the annual mean rate of growth of per capita income on the continent was 0.8% in the 1970s, it slumped to negative 2.2% per year from 1980 to 1989 and was projected to fall further in the first half of the 1990s. 3 Africa's total debt, which had reached $55 billion in 1980, ballooned to $160 billion by the end of the decade. Debt service accounted for 25% of the continent's exports of goods and services at the end of the decade; the ratio was projected to deteriorate further in the next few years. Economic decline was marked by import strangulation: import volumes in 1990 were only 84% of the level ten years earlier. And while imports declined and exports rose modestly, the deficit on the current account of the balance of payments amounted to more than 25% of the value of exports of goods and services. 4
Africa's continuing economic decline cannot be blamed on the process of structural adjustment that the continent has been undergoing in the 1980s. Few countries have made a sustained effort at implementing adjustment programs while receiving external financial support in the volumes required for the programs to be successful. Other governments have adopted the new vocabulary of adjustment in the hope of qualifying for additional financial assistance, but they have not made a sustained commitment to policy reform. It would indeed be premature to suggest that structural adjustment has failed in Africa; in many places it has barely been implemented. Yet to argue that adjustment itself has been the cause of Africa's woes in the 1980s would be to posit a very optimistic counterfactual about the possible results of alternative policies. On the other hand, any expectations that adjustment would bring a swift turnaround in the continent's economic conditions have been dashed-despite the occasional claims by the World Bank to the contrary.
In 1989 the Bank in Africa's Adjustment and Growth in the 1980s proclaimed success for its programs of structural adjustment. Countries with strong adjustment programs were alleged to have experienced higher agricultural growth, faster export growth, stronger gross domestic product (GDP) growth, and more investment than other African countries. These were quite extraordinary assertions particularly as another Bank study, Adjustment Lending: An Evaluation of Ten Years of Experience, published in the previous year, had lamented the slow response of African countries to adjustment lending. That report had noted (p. 36) that "inadequate commitment has limited the seriousness of reforms, especially in Sub-Saharan Africa," and recorded that average GDP growth rates had fallen even in countries undertaking adjustment in this region. 5
The belligerent tone of Africa's Adjustment and Growth signaled the ferocity of the debate that was going on within the Bank between hardliners, who blamed the inefficiencies of African governments for the continent's continuing decline, and moderates, who conceded African claims that the hostile external environment was a significant source of Africa's malaise. The report's denial of the importance of external factors, its argument that Africa had been unusually favored in receiving overseas aid, and its forthright claim of success for adjustment programs which, for the most part, had only recently been implemented, appeared to be an attempt to win continued support for the Bank's programs from Western donors and to head off criticism from the UN's Economic Commission for Africa (ECA) which was about to launch a proposed alternative framework for adjustment.
Africa's Adjustment and Growth proved to be an embarrassing exercise that not only damaged relations with African governments but also the credibility of the Bank's statistical analysis. The report's methodology was suspect. The ECA wasted no time in issuing a rejoinder claiming that the Bank had been able to reach its positive assessment of adjustment programs only by manipulating the data through such means as varying the choice of base year for time series analysis in order to pick the one most favorable to its conclusions, and by failing to weight the data so that the results for tiny Gambia were counted equally with those of Nigeria. As the ECA demonstrated, there were other ways to manipulate the data that could generate results quite different from those the Bank claimed.
Although indicative of one strand of thinking within the Bank, Africa's Adjustment and Growth was an aberration in the evolution of Bank commentary on Africa's problems. 6 As the various dimensions of Africa's malaise became evident in the 1980s, the Bank increasingly came to acknowledge the complexity of the situation that it was addressing. It also became more concerned with building bridges to African opinion, and with attempting to reach a consensus on policy measures to reverse economic decline (see chapter 2).
The design and implementation of structural adjustment programs in Africa has been very much a matter of learning by doing. Neither of the international financial institutions was well-equipped for the dominant role they were to play in Africa in the 1980s. The IMF, which had traditionally focused on short-term lending (usually no longer than three years) to correct payments imbalances, had very little experience with low-income countries. The short time period for which the Fund was authorized to lend money ensured that it could have very little concern with supply-side variables. The Fund assumed that supply in real terms would remain constant during the period of its program. Its primary focus was on easily quantifiable monetary aggregates. Although the Bank had far more experience with low-income countries, its focus until the late 1970s had been almost exclusively on project lending. 7 Structural adjustment lending was initiated in 1980; by the end of the decade the share of structural and sectoral adjustment loans in Bank lending had reached 25 percent.
The Bank's initial expectation was that a country's structural adjustment program would last for between three and five years by which time the economy would be restored to good health. A similar short time horizon was evident in the first of the Bank's major reports on Africa, Accelerated Development, which proposed a short, sharp shock treatment for African economies centered around "getting prices right." Of these the most important were the exchange rate, prices for commodity producers, domestic interest rates, and wages. The structural adjustment programs were intended to assist countries in overcoming balance of payments problems-in particular by providing finance for approved programs of policy reforms. The Bank's early approach dovetailed neatly with that of the International Monetary Fund, which became heavily involved in efforts to remedy Africa's balance of payments problems in the first half of the 1980s.
In a series of reports the Bank moved beyond the confrontational "get the prices right" and "get the government out of the economy" approach of Accelerated Development. Toward Sustained Development, issued in 1984, displayed a far greater awareness of the constraints-both internal and external-faced by African governments, and a greater sensitivity toward the aspirations of the Organization of African Unity for continental economic self-reliance. New emphasis was placed on the need for institution-building in Africa. Financing Adjustment with Growth in Sub-Saharan Africa, published in 1986, while continuing to emphasize the necessity of getting prices right, and for reducing the role of the state in the economy, made a powerful case that Africa's debt burden was "unmanageable" and that substantial rescheduling would be necessary to preclude widespread defaults, and asserted that domestic policy reforms would not succeed without a massive inflow of resources on concessional terms. It also admitted that aid policies toward the continent had been far from optimal and that donors had to accept some of the responsibility for the white elephants that had been constructed with their assistance. For the first time detailed attention was given to the necessity of reducing Africa's alarming rate of population growth.
Sub-Saharan Africa: From Crisis to Sustainable Growth, the Bank's November 1989 analysis of Africa's malaise, is its most comprehensive report yet. 8 In both substance and style it represents a victory for moderates within the Bank over hardliners. The 300-page report is a conscious attempt at bridge-building with African governments and their continental institutions; for the first time in the preparation of a major report, the Bank engaged in a lengthy process of consultation with African representatives. A Council of African Advisers was appointed, and 20 workshops were held in Washington and various parts of Africa to discuss the report.
The report does not retreat from the basic messages of the Bank's earlier work: price distortions have been a central factor in Africa's economic decline; poor public sector management lies at the heart of unproductive investment projects; higher levels of domestic savings are required which may be obtained, in part, through more user charges; structural adjustment programs are necessary and have produced positive albeit modest results. But in assessing Africa's decade of adjustment, the Bank goes beyond its earlier work:
The Bank's recognition of the complexity of the task that African countries face in rebuilding their economies is realistic. It comes, however, at the expense of the coherence of its message-a consequence both of its recognition of the multidimensionality of the problems and of its attempts to reach a consensus with African critics. Whereas the prescriptions of the Berg report were universal and clear-cut, those of Sub-Saharan Africa: From Crisis to Sustainable Growth are more nuanced and dependent on the circumstances of individual countries. The agenda has also been substantially lengthened. The new approach implicitly acknowledges that the Bank had earlier made faulty assumptions about the nature of the "crisis," especially about the potential malleability of African economic and social structures. There is now an explicit recognition that decline is rooted not only in faulty economic policies but also in sociopolitical structures. "Getting the prices right" can address only one dimension of the problem.
The Bank's program has become far more ambitious. But it has shown few signs of recognizing the linkages and tradeoffs between the different dimensions of the reforms it advocates. Indeed at times From Crisis to Sustainable Growth reads like a long wish list that is all too reminiscent of the OAU/ECA's Lagos Plan of Action. 11 The Bank increasingly gives the impression that it is floundering in a sea of overwhelming problems with no clear idea of which policies will work. And, to compound matters, the success of the strategies it advocates is dependent, as it acknowledges, on the provision of external funding at a level that appears to be unrealistically optimistic.
The Bank may have identified few policies that can assure success but Africa's continental organizations have not devised any viable alternatives. Much of their activity has been confined to sniping at the content of "orthodox" stabilization and structural adjustment programs. African governments, through their continental organizations, the Economic Commission for Africa, and the Organization of African Unity, have questioned the appropriateness of these programs for African economies which, they argue, are characterized by weak productive structures and imperfect markets. As a consequence, the ECA asserts in its African Alternative: Framework to Structural Adjustment Programs for Socio-Economic Recovery and Transformation (AAF-SAP), that the reforms adopted by African countries in the 1980s have failed to bring any significant economic improvement but rather have led to a further contraction in Africa's productive base, growing unemployment, greater malnutrition, and decreased expenditures on health and education. While acknowledging the necessity for adjustment, the ECA advocates a strategy of "adjustment with transformation" instead of what it regards as the rigidities of conventional Bank/Fund programs.
The objective of the ECA's strategy is to reduce African dependence on external trade and financing through re-orienting economies toward greater individual, regional, and continental self-reliance. On many issues the ECA is not far apart from the Bank's views as expressed in From Crisis to Sustainable Growth:
The last two points represented a courageous step for the ECA in presenting a message that few of its clients on the continent wish to hear.
In addition to these proposals, the ECA report makes a number of useful criticisms of adjustment programs that the Bank appears to have taken on board in From Crisis to Sustainable Growth. In particular, the report condemns doctrinaire privatization, excessive dependence on market forces in situations where markets are structurally distorted, total import liberalization that threatens infant industries, and drastic reductions in expenditure on social services that threaten the welfare of the poorest groups. Furthermore, it is critical of the IFIs' preoccupation with short-term crisis management, and argues effectively for the necessity of a longer-term perspective.
Despite the overlap with the Bank's most recent report, there are significant differences between the two documents. In a number of respects the ECA report is flawed both in its analysis and prescriptions.
First, the ECA places excessive blame for deteriorating social and economic conditions on the continent on the effects of structural adjustment programs. Economic and social conditions were in serious decline in the 1970s, prior to the introduction of adjustment programs. In Ghana, for instance, in 1982-prior to the adoption of its structural adjustment program, real expenditures on health services were only 23 percent of the level in 1976. And, in many countries, governments have implemented programs in such a desultory manner that they can scarcely be said to have been given a chance to work. To be sure, by mandating budgetary reductions, structural adjustment programs have exacerbated cutbacks in social expenditures. But the Bank, and increasingly the Fund, have begun to acknowledge the need to address this problem even if the measures taken to date are far from adequate. The ECA makes no allowance for the evolution of the views of the international financial institutions over the decade, and mistakenly equates the programs of the Bank with those of the Fund.
Second, the ECA appears not to have shed the rhetoric of the New International Economic Order which controversially proclaimed the obligations of the industrialized world to assist the South. AAF-SAP (p.49) asserts, for instance, that "it is the responsibility of the international community" to support the alternative adjustment programs to be drawn up by African governments. Similarly, the ECA speaks of the marginalization of Africa as if this is a process in which African states have been entirely passive actors: in reality, African countries have largely marginalized themselves from the world economy.
Third, the ECA continues to maintain an excessive faith in the rationality of intra-African economic interactions and suspicion toward extra-continental actors. It asserts, for instance, that "the negative effects of the openness of the African economies should be seen only in the context of the region as a whole vis-à-vis the outside rather than in the context of individual African countries among themselves." 12 Why intra-African trade should be "less unequal" and therefore more beneficial than that with countries outside the continent is nowhere explained. The ECA thus continues to manifest a fear of the world economy, which causes it to conflate effective management of external economic relations with disengagement from the global economic system.
Fourth, the ECA continues to place great faith in statist prescriptions-which most analysts see as being at the heart of the problem in the first place. Its proposals for multiple exchange rates, selective trade policies, and administrative controls on prices open the way for the rent-seeking activities that underlie Africa's political malaise.
Coming to Terms with Complexity
Perhaps the single most important lesson learned from Africa's first decade of structural adjustment is how little we know not only about how African economies will respond to various policy measures but also about how key political actors will react to the hardships caused by stabilization programs. We are less certain than we once were about data on agricultural production 13 , about the supply response to changes in producer prices, about the most appropriate timing and sequencing of elements of reform programs, and about the likely political response to economic decline. 14 Some generalizations can be made, however, from the 1980s experience.
Getting the Prices Right: Necessary but not Sufficient
The results from Africa's first decade of adjustment have generally provided support for the emphasis the Bank has placed on the necessity of getting prices right. They have also shown, however, a more complex interrelationship between prices in different sectors than was anticipated, and demonstrated that getting prices right alone will not provide the required boost to productive activities on the continent.
One of the most important prices is the exchange rate: overvalued rates were a significant factor holding back Africa's economic growth in the 1970s. In this period the high rates of domestic inflation generated by large budget deficits were not compensated for by devaluation. The major focus given by the Fund and the Bank to exchange-rate realignment has proved to be warranted. In Nigeria, for instance, the manufacturing sector made substantial gains in providing local substitutes for goods previously imported following the devaluation in 1986. Unfortunately, however, the magnitude of some currency realignments, and the way in which they have been achieved, has sometimes been disruptive and has directly undermined some of the other objectives-including the realignment of other prices-that were being pursued.
In some countries, massive devaluation has occurred. In Ghana the currency was depreciated by 6,000% in nominal terms (90% in real terms) over the period 1982/3-1987. 15 Since then the cedi has depreciated further; one dollar then equaled 90 cedis, while at present it buys more than 360 cedis. As the Bank itself has acknowledged, changes of this magnitude can be severely destabilizing: "sudden large changes in prices may themselves hinder adjustment, as in Ghana where industrial firms had great difficulty financing the working capital requirements of a ten-fold devaluation in 1983." 16 Not only were imported inputs much more expensive but the size of the devaluation also made it difficult for companies to obtain bank credit because many more cedis had to be borrowed against the unchanged value of local collateral. 17 Similarly, large currency realignments can dramatically increase the prices of essential inputs for agriculture, e.g., imported fertilizer. Instead of having the expected positive effect on investment by making available a larger quantity of foreign exchange, devaluation may actually have a negative impact by pushing up the prices of imported capital goods and other inputs. 18 Here the question of timing and sequencing is crucial: if producers are to invest for the future, higher prices for their produce must be achieved before they are faced with significant increases in the costs of their inputs.
As the Bank argues, while devaluation may be necessary, in itself it is by no means sufficient and must be accompanied by complementary policies such as tight fiscal and monetary policies and/or an incomes policy if it is to be sustained. The danger is that massive devaluation will trigger hyperinflation and generate expectations of a continuing vicious circle of devaluation, inflation, and further devaluation. Prices and wages must be stabilized if devaluation is to be a successful policy instrument-and few African governments have yet demonstrated that they have the capacity to do this.
The extent of the overvaluation of most African currencies in the 1980s strongly suggests that devaluation was necessary, particularly as a means of paying higher domestic currency prices to producers of agricultural exports. Critics of the Bank have argued that such measures will have little impact on economies like those of Africa where, given that consumer goods already constitute a very small percentage of imports (often less than 20%), there is limited scope for import substitution. These arguments have been boosted by a cross-national study by Bank economists suggesting that devaluation did not lead to an improvement in trade balances but, among other things, contributed to a fall in output as a consequence of economies' reduced ability to import critical inputs and spare parts. 19 Again the preliminary evidence from Ghana substantiates this argument-underlining the necessity of supporting adjustment programs through providing adequate foreign exchange.
Devaluations automatically provide protection to domestic producers against overseas competition. They thus work against another adjustment objective: to force domestic producers to become more efficient. Some reduction in tariffs and other restrictions on imports thus is necessary to force African enterprises to become more competitive in international markets. Again, however, it is a matter of striking a healthy balance between introducing competition and running the risk of destroying Africa's fragile industries. Although devaluation may provide protection, it increases the costs of imported inputs. Other components of stabilization programs such as tight monetary policies, high real interest rates, and more diligent collection of taxes may further significantly raise local manufacturing costs. The Bank has acknowledged the complexity of these interrelationships by backing away from its earlier dogmatic stand and accepting the case for some continued protection of local manufacturing.
A second major area where the Bank has insisted on getting prices right is agriculture. The Bank has long insisted that higher producer prices were necessary to increase agricultural output. Governments found that low producer prices were indeed counterproductive. Food crops were simply sold at higher prices in "parallel" (that is, nonofficial) markets so that one objective that underlay governments' offering low returns to producers-to make cheap food available to urban workers-was frustrated. Low prices for export crops simply led to producers withdrawing from production or to the smuggling of crops to neighboring countries that offered higher prices. In chapter 11, Lofchie documents how different producer pricing policies pursued by neighboring East African governments produced a generally healthy agricultural sector in Kenya and agricultural disaster in Tanzania.
Preliminary evidence suggests that higher producer prices introduced as part of adjustment programs may have stimulated increased production. In Ghana, the trebling between 1983 and 1987 of local currency producer prices for the main agricultural export, cocoa, generated an immediate and significant rise in exports. In Guinea, the Bank reported a "dramatic" rise in exports of coffee once producers received higher prices following the replacement of the government's coffee-marketing organization by the private sector. As usual, however, the data are open to a variety of interpretations. With perennial crops such as cocoa having a three to five year gestation period, higher producer prices would not be expected to generate an immediate increase in production.
Besides higher producer prices, other factors have contributed to the recent improvement in agricultural performance in some countries. The ECA has asserted that the primary reason for Africa's improved agricultural performance in the last years of the 1980s was good weather throughout the continent. Although this undoubtedly was a relevant factor, few would accept that it was the primary explanation for increases in export crop production. Some of the reported "production growth" in response to higher producer prices undoubtedly represents the return to official marketing channels of produce that was previously being smuggled across borders or sold on "parallel" markets. Green, for instance, estimates that as much as one-third of the reported increase in Ghana's cocoa output in 1983-1986/7 was actually production that had previously been smuggled and sold in neighboring countries where producer prices were higher. 20 Similarly, up to 40 percent of the reported increase in groundnut production in Senegal is estimated to be crops previously sold on parallel markets. 21
A one-off increase in production can be achieved through raising producer prices. But whether significant additional gains can be made through price manipulation is open to doubt. Econometric studies have estimated that the long-term price elasticity of aggregate supply for agricultural crops in Africa is approximately 0.3, that is, for every 10% rise in prices, supply will increase by around 3%. In itself this suggests that higher prices will at best generate a modest increase in production. Higher prices thus are necessary but in themselves insufficient to achieve long-term agricultural growth. There is now almost universal agreement that non-price factors such as inadequate infrastructure, lack of availability of key inputs such as irrigation or fertilizers, and unproductive research and extension services are significant constraints on supply. 22 Furthermore, farmers are unlikely to respond to higher producer prices in the longer term unless there are consumer goods available on which to spend their higher incomes. Stabilization programs that depress government expenditures on infrastructure and support services for agriculture, and that curtail the availability of consumer goods, are counterproductive to longer-term goals of increasing agricultural supply. The various structural adjustment programs have yet to address supply side issues effectively.
To date, stabilization has come about predominantly through a reduction in demand rather than through a vigorous supply-side response. 23 The volume of African imports fell on average by eight percent each year in the period 1980-86; further declines were experienced in 1987 and 1988. The value of imports of machinery and transport equipment declined by 40 percent from 1981 to 1985-86. 24 Such falls do not bode well for economic growth in the future as economies are starved of the capital goods needed for future development. Export volumes grew by only 1.5% each year from 1980-86 but this increase was more than offset by declining terms of trade for Africa's commodities: as a consequence the purchasing power of exports fell each year in the 1980s so that at the end of the decade they stood at only 76.7% of the level of 1982. 25 In other words, movements in the terms of trade have cost African countries close to 25% of the purchasing power of their exports in the last decade.
Slow growth in demand from industrialized countries and intensified competition for market shares has caused commodity prices to tumble in real terms. These falls took place even though in the 1980s the industrialized world enjoyed its longest uninterrupted period of economic growth since the Second World War-a sign of the increasing delinking of the manufacturing sector from the primary producing sector. By 1986 average real commodity prices were the lowest recorded this century with the exception of 1932, the trough of the Great Depression. 26 And for two crops of vital importance for Africa, cocoa and coffee, prices fell even further between 1986 and 1989-by 48 and 55 percent respectively.
The ability of African governments to offer higher prices to producers of agricultural exports has been hampered by falls in world market prices. Côte d'Ivoire was forced in September 1989 to halve the price it paid to its cocoa farmers; Cameroon had earlier cut its producer price by 40 percent. 27 Recent trends in commodity prices support the argument of those who warned against the fallacy of composition in the Bank's prescriptions: the argument that what is good for one country acting individually is not necessary beneficial if a number of countries simultaneously pursue the same policy. The Bank has been encouraging higher levels of commodity output not only in Africa but also in other developing countries-for instance, it has supported the planting of cocoa not only in Africa but also in Brazil, Indonesia, and Malaysia. The result is that world output has risen far more rapidly than world consumption and is expected to continue to do so for most of the 1990s. As yields in Southeast Asia are often three times African levels, 28 these countries are able to produce profitably at price levels that would threaten the viability of African production.
The recent experience in many commodity markets casts doubt on the Bank's argument that "Africa has an immediate comparative advantage" in agriculture. 29 Africa, the Bank asserts, "cannot afford to adopt a passive role and lose even larger market shares to more aggressive Asian and Latin American exporters." But does Africa enjoy a comparative advantage over these other producers? In a world of unemployed or underutilized resources, the answer is probably negative. Given the macroeconomic instabilities generated by stabilization programs, investors are unlikely to be attracted to African countries in preference to, for instance, Malaysia (which, of course, already provides much better infrastructure). And the debt problems of higher income developing countries will almost certainly guarantee that they will not voluntarily give up their gains in market shares from the last decade but will continue to market aggressively. The Bank's plea that "in negotiating commodity agreements, Africa's loss of market share should be seen as an argument for more favorable treatment" 30 reads like wishful thinking.
Cutting Budget Deficits and Reducing the Role of the State
The overextension of African states was reflected in the budget deficits that most African countries sustained throughout the 1970s-taxes seldom amounted to more than 70% of government expenditures. Budgetary deficits were inflationary as governments resorted to printing money, and tended to crowd out private investors from the market. The reduction of budgetary deficits thus was an important component of stabilization. The manner in which this has been achieved, however, has not been propitious for future growth.
Budget deficits have been reduced but this has occurred largely at the expense of investment expenditure-hardly a desirable outcome for the longer term prospects of the economy. In Senegal the agricultural budget was cut by 24 percent in real terms, and gross fixed capital formation as a share of GDP fell from around 30% in 1981 to less than 23% in 1984. 31 In Zambia, capital outlays were more than halved in real terms from 1982 to 1984; by the latter year they were more than 70% below the figure for 1974. 32 Governments have chosen soft targets for budget cuts, preferring to cut investment and maintenance outlays rather than personnel expenditures that sustain their patronage networks. 33 Van de Walle, in chapter 10, provides evidence of these trends from Cameroon. Consumption has been preserved at the cost of investment; expenditure on the military maintained at the expense of health and welfare. There is no evidence that reductions in public investment expenditure have been compensated by increased private investment. As the Bank has increasingly acknowledged, in many LDCs the problem is often not one of public investment "crowding out" private investment, but of insufficient public investment in infrastructure which is a necessary complement if not prerequisite for private investment. 34 The Bank noted in its second report on structural adjustment lending that the fall in investment in many African countries had been so severe that depreciating capital was not even being fully replaced. 35
Another area of budgetary policy where there are potential tradeoffs between current stabilization and future growth is the Bank's and especially the Fund's insistence on the abolition of subsidies, and the Bank's concern with ensuring that governments recover part of the cost of programs through the user pays principle. A strong case can be made that many of the subsidies dispensed by African governments have been wasteful, part of the network of patronage whereby scarce resources were directed toward political supporters. Subsidies on agricultural inputs, for instance, usually were of primary benefit to the wealthier farmers. Universal food subsidies were wasteful, benefiting the poor and the wealthy alike. But complete abolition of food subsidies may cause considerable harm to the poor-especially in highly urbanized countries like Zambia-and directly threaten a government's legitimacy and prospects for political survival. Gradually the Bank has come to appreciate that a more nuanced approach-with continuation of subsidies but their targeting at the most needy-rather than a theological insistence on complete abolition may not only be consistent with improving human productivity in the long term but also the only politically feasible approach.
The Bank continues to insist, however, that countries attempt to recover costs of providing services through increased user charges. Again there is some justification for this: there is no good economic reason why scarce resources should be deployed on subsidizing services to those who can afford to pay for them. And user charges do provide an incentive to farmers to increase their output in order to have access to services. On the other hand, such charges may prevent the poor from gaining access to health, water, and education services-which again conflicts with the long-term goal of providing a healthy and educated workforce for development. And there must also be some doubt as to whether charging for some services is a cost-efficient means of raising revenue. Green cites internal Bank studies in suggesting that a realistic maximum of 10 to 20% of health and education services can be self-financing. 36
Attempts by the Bank to insist on the privatization of state-owned enterprises-both for budgetary reasons and because of its preference for privatization-have generally met with resistance, one reason for which has been the threat that such action would pose to the state's patronage network, especially its ability to provide employment to urban school-leavers. Against this, however, governments have to balance the possibility that the sale of state corporations could itself become a source of patronage-in some countries where privatization has occurred, e.g., Senegal, the organizations have been sold cheaply to regime supporters. 37
Divestiture has also been hampered by the lack of accurate information on the assets and liabilities of state corporations, the difficulty of valuing assets, and the inadequacies of local capital markets. Beside the threat to the government's patronage capacity, divestiture has also been unpopular politically, especially with organized labor, because it is seen as selling off the national patrimony. With governments implementing restrictive monetary policies and high real interest rates, foreign buyers may be much better placed than nationals to bid for the enterprises. As Gyimah-Boadi records from the Ghanaian experience, even local businesspeople who support privatization in principle have opposed divestiture where the program "favors the well-capitalized, better organized, and better-networked foreign investor." 38
In many African countries where "crony capitalism" is the norm, the dividing line between the state and the private sector is far from distinct. Whether private monopolies-either under domestic or foreign control-will be any more efficient than the state monopolies they succeed remains to be demonstrated.
Adjustment, Poverty, and Redistribution
Structural adjustment programs inevitably have had significant redistributive effects. World Bank presidents' reports on structural adjustment lending have acknowledged that there are likely to be significant negative social effects in the short run from adjustment. Expenditure reduction policies often result in lower real wages and consumption levels. Public sector workers are often retrenched as part of expenditure reduction measures. Trade liberalization and tariff reforms may result in employment losses in inefficient enterprises that cannot withstand the new competition. And the poor may face higher prices, especially for food, and reduced access to social services because of cuts in social expenditures. 39
These effects have been particularly pronounced in Africa. Here, structural adjustment programs had a conscious goal of engineering a major change in the urban-rural terms of trade in favor of rural producers-a trend that was already well under way by the end of the 1970s as a consequence of the rise in food prices and decline in manufacturing output. Urban wage earners have been the group most adversely affected by economic decline and subsequent stabilization. The index of real wages in Uganda fell from 100 in 1972 to 9 in late 1984; in Zaire the purchasing power of the minimum wage in 1982 was only 3% of the 1970 level. In many countries it appears that the flow of remittances from urban to rural areas has been reversed. Even though an increasing proportion of urban dwellers now grow part of their food requirements, there is evidence of growing malnutrition-in part because of Fund and Bank insistence on the dismantling of food subsidy programs.
Requirements for reductions in government expenditure have also led to major cuts in budgets for education and health care. UNESCO figures show a fall in education expenditure from $32 per capita in 1980 to $15 per capita in 1987 in a continent where more than one-quarter of the population is illiterate. 40 While not all of the decline in social expenditures can be blamed on adjustment programs, as the general economic crisis had already led to severe cuts in some states before adjustment programs were adopted, the dilemma is that the requirements for stabilization undermine the foundations-an educated, healthy population-for longer-term growth.
The Bank-under pressure from UNICEF-has increasingly acknowledged the problem and started to address the human dimension through such measures as the Programme to Mitigate the Social Costs of Adjustment in Ghana, and similar measures introduced in Côte d'Ivoire, Gambia, Guinea, Mauritania, and Senegal. The Bank's two reports on adjustment lending concluded that because domestic inefficiencies have proved to be more intractable than anticipated and external uncertainties have continued the focus of adjustment should be shifted from short-term crisis management and stabilization, which dominated the first decade of adjustment, to more fundamental issues of long-term growth, development, and poverty reduction. As noted above, this new emphasis is reflected in From Crisis to Sustainable Growth.
To date, however, the sums raised to finance human development fall far short of those required even to maintain previous real levels of expenditure. And a review of adjustment programs found that the conditions the Bank imposed for the release of successive tranches of adjustment loans seldom included the adoption of measures designed to improve social conditions. 41 In a continent where the Bank estimates that two-thirds of the population are living in absolute poverty, there is little scope for further downward pressures on living standards. Even under optimistic assumptions about growth in per capita incomes, the Bank projects that the number living in poverty in Sub-Saharan Africa will rise by 85 million to 265 million by the turn of the century: Africa will then account for more than 30% of the developing world's impoverished compared with 16% in 1985. 42
Structural adjustment programs may well lead to increased levels of inequality in Africa. Much depends on the structure of production for the export crops that are being favored. Where they are grown primarily on plantations, as for instance in Malawi, or large farms, which usually enjoy the advantage of better transport links, then the benefits of higher producer prices may accrue disproportionately to a favored minority. Growing reliance on fertilizers and other expensive inputs may similarly favor the more prosperous farmer. In Ghana, for instance, Kraus estimates that 20-25% of cocoa farmers capture 50-55% of income; a 1987 survey of four villages in Ashanti found that 32% of farmers received 94% of gross cocoa income. 43 More specific targeting of poor rural producers will be necessary if the benefits of adjustment are to be widely disseminated.
Adjustment, Debt, and Financing
The generally slow supply response that has characterized the adjustment process in Africa, coupled with the financing requirements for new loans that donors have provided in support of countries that have adopted reform programs, has produced a worrying increase in indebtedness. 44 Ghana's total debt rose from $1.1 billion in 1980 to $3.4 billion in 1988; similarly Zambia, which canceled a structural adjustment agreement with the IMF in 1987, experienced an increase in total debt from $2,187m to $6,592m over the same period. 45 Debt service ratios rose accordingly-for both countries to in excess of 60% of total export earnings by 1987. Martin addresses these issues in chapter 4.
Another worrying dimension of the experience of countries that have implemented adjustment programs has been the low levels of investment experienced-both from domestic and foreign sources. As the Bank has acknowledged in its second report on adjustment lending, investment has suffered in the rush to restore external balances and maintain debt service. Where output has increased, this has often come from better use of existing capacity: if higher growth rates are to be maintained then greater investment will be required. Domestic investors, however, have been deterred by restrictive monetary policies, high interest rates, devaluations which increase the cost of imported inputs, and trade liberalization. Foreign investors, on the other hand, appear yet to be convinced that African economies have turned the corner and offer good investment prospects for the 1990s. In Ghana, where the PNDC government made vigorous efforts to attract foreign investment after 1985, there has been negligible interest other than in the financing of gold and timber exports. 46
There is inevitably a time lag between the adoption of a structural adjustment program and a positive supply response. The Bank's second report on adjustment lending suggests that devaluation should lead to a positive output response in two to three years. Elsewhere, however, the report admits that the experiences of Korea, Chile, and Thailand suggest that it may be four to eight years before a country enters a "virtuous circle" in which adjustment induces a positive investment response. 47 Two perceptions will play an important role in investors' decisions: first, whether the potentially favorable conditions brought about by stabilization will be sustained (the continent's unhappy record of political instability which, as argued below, may well be exacerbated by current demands for democratization, gives potential investors few grounds for confidence); second, the extent to which the debt overhang will constitute a significant tax in the future on investment returns. 48
Africa's growing debt problems and inadequate investment are in part a consequence of the poor response from industrialized countries in support of African governments that have embarked on painful adjustment processes. The argument about resource availability is not that countries would have been better off without adjustment nor that finance should be supplied regardless of whether appropriate adjustment measures are implemented, but rather that the necessary finance to sustain the import requirements of a growth-oriented adjustment process has yet to be provided-and made available on such concessional terms that it does not add to the continent's debt-servicing problems. Despite the widespread adoption of adjustment programs, African countries paid back more (a total of $1.8 billion) to the IMF in the years 1986-90 than they gained in new borrowing. More than 4% of Africa's exports were devoted to Fund charges and repurchases, the highest figure for any continent. 49 Nigeria, which adopted a rigorous adjustment program of its own design in 1986, recorded a net outflow to the World Bank of $34.9 million in 1989. The total net transfer by the World Bank and its soft-loan affiliate, the International Development Association, to the region in 1989 was $876.7 million after taking into account repayments and interest/charges amounting to $1.38 billion. 50
Inflows from official creditors were used in part to finance a net outflow of private capital. Most recently, the Bank has allowed the International Development Association to provide funds to help countries no longer receiving World Bank loans to service their previous borrowing from the Bank. A complex paper chase has been under way in which credits and debits have been shuffled from one institution to another with little positive impact to date in terms of net inflows to African countries. Indeed, if debt relief and arrears are not taken into account, an IMF study has calculated that net inflows to the continent were less than $1 billion per year in 1986 and 1987. 51
Given the unpromising investment climate, inflows of private capital to Africa have been negligible in the last decade. Only Kenya, Niger, Côte d'Ivoire, and Mauritius received net inflows of private external capital in 1987, while Nigeria and Ghana recorded net outflows. In 1981-87, foreign direct investment in all non-oil exporting African states (including North Africa) averaged less than $300m per year. 52 The last year in which Africa received a net positive inflow of officially supported export finance-which covers a larger share of capital flows to Africa from private financial sources than to higher-income developing countries-was 1983. In 1989, although Africa continued to experience a net outflow on export credit finance, there was an upturn in new commitments. But the share of transportation projects in these was 53% whereas industry received only 16%. 53
With negligible net inflows of private capital and export credits, Africa has come to depend heavily on the international financial institutions for its financing needs. The danger of relying on borrowing from the IFIs is that such debt cannot officially be rescheduled. In practice, some rescheduling has taken place as the Bank has set aside 10% of IDA reflows and investment income to lend to countries pursuing adjustment programs that have outstanding debts to its main loan account, the International Bank for Reconstruction and Development. The IMF has also proposed a complex system whereby countries in arrears to the Fund that are pursuing approved adjustment programs would be able to accumulate borrowing rights from the Enhanced Structural Adjustment Facility (ESAF). These rights can be activated once other donors pay off the arrears. The ESAF funds would then be used immediately to pay back the donors. The net result of this scheme-designed to maintain the fiction that the IFIs do not reschedule loans-will be that the IMF's own ESAF funds are used to pay off a country's overdue obligations to the Fund. But this elaborate arrangement is clearly intended as an emergency measure designed to give access to the Fund to countries that otherwise would be ineligible-and is not designed to be a significant mechanism for rescheduling. 54
Beside the rescheduling problem, IMF purchases, in accordance with the original intention of the Fund as a lender to help countries overcome "temporary disequilibriums," have traditionally been of strictly limited duration, and carry a market rate of interest (over 8%). The need to repay short-term IMF credits often produces a "bunching" of debt obligations that severely strains debt servicing capacity. The World Bank has advised some African countries against further borrowing from the IMF on conventional terms. In an attempt to overcome these problems, the Fund introduced in 1987 a Structural Adjustment Facility (SAF) and the Enhanced Structural Adjustment Facility. Loans from both have a five and a half year grace period, and must be repaid over the following five years including an interest rate of one half of one percent. For the SAF, loans cannot exceed 70% of a country's quota; for the ESAF the maximum loan is 250% of quota. 55 But these loans, even though they are on longer and softer terms than conventional IMF borrowing, are still relatively short-term. And there have been delays in disbursement: only 20% of the total resources of the SAF and ESAF had been disbursed during the first four years.
Substantially more finance on concessional terms is needed in order to relieve Africa's debt burden and to give adjustment programs a chance of achieving success. Africa is now the world's most heavily indebted continent in terms of the ratio of debt to GDP. With current debt-servicing requirements, much of the income from economic growth immediately flows back to the IFIs and Western donors-hardly a situation that is likely to engender popular support for the programs. By the end of 1989 a total of $6 billion of African debt had been canceled, but because this consisted mainly of loans that had been made on highly concessional terms, the debt cancellation reduced debt servicing payments by only about $100 million in 1990. Seventeen countries have benefited from consolidation of debt totalling $5 billion under the terms agreed at the G7 Toronto summit but again this provided savings of only $100 million on total debt servicing of over $9 billion per annum. A 1989 IMF study suggests that even if full rescheduling of forthcoming principal payments occurs over the next five years, and export earnings grow at about 3.5% each year, there will still be no growth in nominal import capacity. 56
In From Crisis to Sustainable Growth the Bank assumes that debt relief measures will keep debt service payments in the 1990s at or below the level of the 1980s. This is probably a reasonable assumption (even if official rescheduling is not forthcoming, countries will probably give themselves de facto "relief" by going further into arrears). But with debt payments still running at the high levels of the 1980s, and export prospects poor, the Bank is forced to place a great deal of faith in increased overseas development assistance (ODA) as a means of bridging the financing gap for the continent's development needs in the 1990s. The Bank asserts that ODA must grow at 4% each year in order to finance the program that it recommends. If funding fails to reach this level the Bank concludes that "Africa's decline is likely to continue in the 1990s." Yet the Development Assistance Committee of the Organization for Economic Cooperation and Development projected in its 1989 annual report that there would be only a two percent increase in ODA in real terms in the 1990s, and that this increase will be heavily dependent on continued growth in aid from Japan. Africa's share of global ODA disbursements has already grown from 23% in 1980 to 30% in 1987 57 and there are signs that "donor fatigue" has set in as industrialized countries become disillusioned with the slow progress in Africa. The ninth replenishment of the International Development Association-on which Africa draws disproportionately-only maintained its funding in real terms, whereas a significant increase had been hoped for; the EEC's funding for the fourth Lomé Convention also fell far short of expectations. Together IDA and Lomé provide 20% of all aid to Sub-Saharan Africa. Even if Western countries are willing to devote some of the "peace dividend" to fund additional ODA, the demands of the Eastern bloc for Western capital will inevitably compete with Africa's claims. The relatively modest flows of assistance to Africa can be compared to the $12 billion capital that Western countries have pledged to the newly formed European Bank for Reconstruction and Development, and the estimated $11 billion in new credits, grants, food aid, and loan and investment guarantees the Western countries have pledged to Eastern Europe-mainly Poland and Hungary-in the period since the overthrow of their communist regimes. 58
Even if all of the Bank's optimistic assumptions are fulfilled, per capita income in Africa in the 1990s will rise by at most 1% per year. And, if the Bank's targets are to be met, this modest amount will not be available for consumption but rather must be used to raise the savings rate. Furthermore, for its scenario to be realized, the efficiency of investment must improve by about 50% over the levels of the 1970s, a similar increase of 50% must be achieved in domestic savings and net transfers as a percentage of GDP, and food production must increase at 4% a year (whereas agricultural production over the past 30 years has risen at only 2% a year). The Bank assumes that improving the income levels of the bottom 95% will occur through squeezing the consumption levels of the top 5% of the population-which is making a gigantic leap of faith in terms of political feasibility.
If the Bank's calculations of Africa's financing needs for the 1990s are correct then the continent's future looks very grim indeed. To increase per capita incomes even by only one per cent per year appears to require levels of financing substantially beyond those that can be expected from Western donors.
Building Political Coalitions in Support of Adjustment
The agenda for adjustment in Africa has been further complicated by the demands of Western donors and the World Bank, following on the collapse of communism in Eastern Europe, that African governments should not only liberalize their economic systems but also democratize their political systems. Pressure from external agencies has added to an unprecedented wave of popular protest throughout the continent against corrupt, authoritarian regimes. The restoration of democracy would be another leap into an area of great uncertainty. Africa's post-independence democratic experiment was short-lived and in most countries merely a prelude to prolonged political instability.
Structural adjustment inevitably imposes heavy burdens on politically significant sections of the population-urban dwellers, public servants, and employees of state-owned enterprises and, if the program is properly implemented, the military. Austerity is never popular-advocating it is unlikely to be an election-winning strategy. The problem is that the benefits from adjustment accrue slowly, while the losses are usually immediate and significant ones for politically influential groups. 59
The evidence from Africa's first decade of structural adjustment suggests that people will tolerate austerity for a while-especially if economic and social conditions have become wretched under the previous regime. But tolerance for austerity has its limits; popular expectations are that adjustment will bring the desired improvements in welfare within a short period. As already noted, however, the process of adjustment in Africa has proved to be much lengthier than anticipated: while some degree of stabilization has been achieved in some countries, there is little sign of sustained economic improvement. As Herbst discusses in chapter 9, the problem then becomes one of building a coalition that is willing to support adjustment over the long haul.
Chazan makes a persuasive case that Africa's most sustained adjustment effort-Ghana under the Rawlings regime-has been facilitated by the insulation of the ruling PNDC from the demands of strong sociopolitical groups. This situation arose in part because such groups had been severely weakened by previous economic decline and in part because of the regime's deliberate decision to break with postcolonial elites. 60 Democratization would be likely to bring such groups back into the center of the political arena. The PNDC also has not hesitated to invoke authoritarian measures when faced with opposition to its policies.
The Bank's expectation appears to be that democratization would be likely to bring to power a pro-adjustment coalition in which rural elements, the anticipated beneficiaries of the ending of urban bias, would be dominant. The logic is reminiscent of the Maoist strategy of having the countryside encircle the towns. There may be fatal flaws to this logic, however. First, as already noted, the benefits from adjustment programs will not be evenly spread through the rural community. Those farmers who have to purchase food in some parts of the year may find that gains from higher export prices are offset by the increased cost of foodstuffs and may not be enthusiastic supporters of adjustment. Second, there is no assurance that in a political contest farmers will in fact be mobilized as farmers rather than along regional, ethnic, or religious lines. 61
Farmers are notoriously hard to organize. The larger the number of small farmers, the more difficult it is to mobilize them. Whether in an open election they will give their support to an administration that has raised producer prices or whether they will support parties that attempt to capitalize on communal, linguistic, or religious cleavages is an empirical question that has yet to be answered. It is of course true that regimes may increase their legitimacy by holding elections-but full, open, national elections may place adjustment programs at risk. Democratic elections may increase legitimacy but so does good economic performance-the first may come at the expense of the second.
The Ghanaian model of holding local and district elections may prove to be a useful means of allowing popular participation and mobilizing rural support for the government while continuing to insulate the political center from group demands. "Getting politics right" will inevitably be a delicate balancing act. Cross-national studies have shown that adjustment under democratic regimes is not impossible; they do suggest, however, that newly democratized governments face special problems as a result of raised expectations-often compounded by the populist stance of the governments-and high levels of political participation. 62 Universal prescriptions for wholesale democratization may well be unhelpful at this stage of Africa's adjustment process.
There is no disputing the need for a stable investment environment if Africa's economic decline is to be reversed. This requires the establishment of a rule of law, which has been markedly absent from Africa's systems of personal rule. Good governance in the sense of political arrangements supportive of rapid economic growth, however, should not be equated with democratization; it can be provided through various types of political systems. And there have been plenty of examples of democratic political systems that have not provided a stable foundation for sustained economic growth. Indeed, the historical record suggests that successful industrialization since the middle of the 19th century has been associated far more often with authoritarian than with democratic regimes. These issues are taken up by Callaghy in chapter 12.
Africa requires not only a less personalized, more institutionalized form of rulership, but also greatly improved bureaucratic capacity. Again, the effects of stabilization policies in necessitating cutbacks in government expenditure including salary outlays for public servants may have a detrimental effect on the longer term prospects of the economy. Limits on expenditure in some countries have reportedly prevented governments from recruiting additional professionals. As Huntington suggested a quarter of a century ago, "the problem [is] not to hold elections but to create organizations." 63
What Makes for Successful Adjustment?
Evidence from Africa's first decade of adjustment suggests that programs need a substantial amount of good luck in their early stages. In Ghana, the introduction of the program coincided with the ending of a drought-the subsequent good harvest provided much-needed foreign exchange and gave the program a morale-raising boost. In contrast, the introduction of Zambia's program occurred at a time when copper prices were undergoing yet a further fall; the resulting deterioration in the country's terms of trade immediately invalidated the calculations that had been made of the country's external financing needs (see Martin's discussion in chapter 4). Similarly, Gulhati argues that the positive impact of reforms in Malawi was swamped by negative developments: falling commodity prices, transport disruptions, and the inflow of refugees from the conflicts in Southern Africa. 64
To be successful, programs require a genuine and sustained commitment on the part of governments to reform. This has clearly been lacking in a number of countries where governments made nominal commitments to programs to gain access to initial loan funding but had little intention of carrying through the conditions. Cancellation of the programs was fully expected with a subsequent impasse until governments and donors once again sat at the negotiating table. We may be witnessing a rerun of the "ritual dances" between African governments and the donor community that Callaghy observed in earlier negotiations on debt rescheduling. 65
As the Bank has noted, reform programs will not be successful unless they are "owned" by the government concerned. 66 In what circumstances do governments make a genuine commitment to implement an adjustment program? Regimes that have just acceded to power have proved to be more committed to reform-Rawlings in Ghana, Babangida in Nigeria, the Mwinyi government in Tanzania, and the military junta in Guinea. Governments that have just assumed power have no vested interest in defending the policies previously pursued, probably have fewer key decisionmakers and clients who have materially benefited from the policies previously pursued, and enjoy a honeymoon period during which the population may be willing to accept tough measures. In contrast, those regimes which have been in office for a long period and which are least insulated from networks of clientelist relations have proved to be unwilling and/or unable to make a radical break with the past. Included in this category would be Kaunda's Zambia, Houphouët-Boigny's Côte d'Ivoire, Moi's Kenya, Mobutu's Zaire, and two francophone governments where new leaders inherited well-entrenched clientelist systems in the 1980s-Diouf's Senegal, and Biya's Cameroon.
Programs have been most successful where governments have maintained the same teams of economic advisers and given them consistent backing. This has been the case in Ghana and Nigeria, but not so in Zambia where President Kaunda sacked the two leading figures involved in the implementation of the IMF program, and eventually canceled it. 67 Moves by the Bank to insert its own officials in the administration of some African countries, most notably Liberia and Zaire, in an attempt to ensure compliance with program targets have been unsuccessful as these officials were simply bypassed by the local regimes. Indeed, the evidence suggests that programs have been most successful where local officials have played a major part in drawing them up-most notably Nigeria and Ghana. Elsewhere limited bureaucratic capacity and/or commitment has caused the programs to be drawn up in Washington and often presented on a take it or leave it basis by the IFIs. Representatives of some African governments have complained that the IFIs have made insufficient attempts to involve them in the design of adjustment programs. 68
A combination of domestic political commitment and adequate external finance is necessary if programs are to have a reasonable chance of success. In the first decade of adjustment there were a number of instances where the necessary external financial support was not forthcoming. Real devaluation is unlikely to be sustained unless donors make available sufficient foreign exchange to enable import capacity to be maintained. The Bank now acknowledges that Zambia's termination of its programs with the Fund and Bank in 1987 was prompted in good part by the failure of donors to provide the foreign exchange promised in support of its introduction of exchange auctions. A former senior Bank official has complained that Western governments have frequently failed to come to the party, leading to serious underfunding of programs. 69 Improved performance by Western donors as well as African governments will be required if Africa's decline is to be reversed in the 1990s.
Conclusion
Looking back on Africa's first decade of structural adjustment and looking forward to the end of the century, there are few grounds for optimism. Few countries have been able to sustain a multi-sector program of adjustment, while, in those that have, several key economic indicators give cause for concern-especially the increasing levels of indebtedness, and the failure of investment to revive. Yet if adjustment has not brought the quick results that were hoped for, no viable alternative has been put forward. A counterfactual situation of sustained nonadjustment in Africa is simply untenable; it would produce an even more rapid decline. This is not to suggest that all elements of the adjustment packages pursued in the 1980s were either necessary or well-conceived; rather that the economic imbalances Africa faces have to be rectified.
The international financial institutions were ill-prepared for the dominant role they were to assume in Africa in the 1980s. In consequence, the decade has been very much an experience of learning by doing. In addition, the IFIs, while clearly unprepared for the complexity of the problems they would encounter, have increasingly acknowledged that the initial prescriptions of short-term stabilization and getting the prices right have provided a totally inadequate foundation on which to reconstruct Africa's economic trajectory.
The problem faced by African governments and by the IFIs is that the context is so unsupportive of economic growth. Among the main problem areas are:
As noted above, some elements of the context have been further weakened by the initial impact of adjustment measures: the fall in investment has affected not only manufacturing but also the social and physical infrastructure essential for future growth; the much-needed inflow of funds that has accompanied some adjustment programs nevertheless has had the negative effect of increasing countries' debt-servicing problems. It is scarcely surprising that the Bank commented that "Many people in and out of Sub-Saharan Africa feel a growing sense of hopelessness." 71
Many of these contextual elements are interlinked. This produces the dilemma that corrections to many are necessary but-like getting prices right-in themselves insufficient to bring about economic growth. Much of the laundry list of contextual factors that is identified in the Bank's long-term perspective study is not amenable to short-term solution. The priority for Africa's second decade of adjustment must be to identify those elements that can be improved in the immediate future, and to provide the necessary finance to enable such improvement to be engineered.
Note 1: World Bank, Accelerated Development in Sub-Saharan Africa (Washington, D.C.: World Bank, 1981). Back.
Note 2: In this chapter Africa is used as shorthand for Sub-Saharan Africa excluding South Africa. Back.
Note 3: Data for 1970s from Accelerated Development for 1980-89 from World Development Report 1990 (New York: Oxford University Press, 1990). According to the World Development Report 1992 (New York: Oxford University Press, 1992), p. 32, per capita income fell by a further 2% in 1990 and a further 1% in 1991. Back.
Note 4: Data from International Monetary Fund, World Economic Outlook May 1991 , (Washington, D.C.: International Monetary Fund, 1991). Back.
Note 5: Similarly, an earlier IMF report had found that only one-fifth of the African countries wth Fund programs had achieved the targeted levels of economic growth. Close to 20% of the programs had been canceled for noncompliance. Justin B. Zulu and Saleh M. Nsouli, Adjustment Programs in Africa: The Recent Experience (Washington, D.C.: IMF Occasional Paper No. 34, April 1985). Back.
Note 6: The Bank prepared a detailed rebuttal to the ECA document but decided, for political reasons, not to publish it. Back.
Note 7: The Bank itself acknowledges that "Some early SALs [Structural Adjustment Loans] caught the Bank quite unprepared to give specific advice in a number of instances." World Bank, Adjustment Lending: An Evaluation of Ten Years of Experience (Washington, D.C.: World Bank, 1988), p. 65. Back.
Note 8: World Bank, Sub-Saharan Africa: From Crisis to Sustainable Growth (Washington, D.C.: World Bank, 1989). Back.
Note 9: Some of the Bank's earlier projections proved to be far too optimistic. The Berg report had projected, for example, that the index of coffee prices (1980 = 100) would be 96.7 at the end of the decade; the actual figure was 36.1. Similarly cocoa prices, which were predicted to be at 66.2% of their 1980 level, had slumped to 39.2% by the end of the decade. Back.
Note 10: The Bank argues that investment rates should rise from their current level of about 16% of GDP to 25%. Expenditure on human resource development is targeted to increase from the current 4 to 5% of GDP to 8 to 10% annually. The Bank launched a Social Dimensions of Adjustment Program in December 1987. Its 1989 review, Adjustment Lending, concluded that programs designed to ameliorate the social costs of adjustment needed further intensification. According to the Annual Report 1989 (pp. 87-88) the Bank's executive directors agreed that "economic growth, while necessary, was not sufficient to resolve the poverty problem. It was agreed that growth must be supplemented by additional efforts to ensure that development reaches the poor. Such efforts need not involve trade-offs with efficiency standards. . . ." Back.
Note 11: For criticism of the Lagos Plan see John Ravenhill, "Collective Self-Reliance or Collective Self-Delusion: Is the Lagos Plan a Viable Alternative?" in Ravenhill ed., Africa in Economic Crisis (New York: Columbia University Press, 1986), pp. 85-107. Back.
Note 12: United Nations Economic Commission for Africa, African Alternative Framework to Structural Adjustment Programmes for Socio-Economic Recovery and Transformation (AAF-SAP) [E/ECA/CM.15/6/Rev.3] (June 1989), p. 5. Back.
Note 13: Philip Raikes, Modernising Hunger (London: Catholic Institute for International Relations/James Currey, 1988) Back.
Note 14: Henry Bienen, "The Politics of Trade Liberalization in Africa," Economic Development and Cultural Change 38, 4 (July 1990): 713-732. Back.
Note 15: Simon Commander, John Howell and Wayo Seini, "Ghana 1983-7" in Commander ed., Structural Adjustment and Agriculture (London: Overseas Development Institute, 1989), p. 109. Back.
Note 16: World Bank, Adjustment Lending p. 51. Back.
Note 17: Jon Kraus, "The Political Economy of Stabilization and Structural Adjustment in Ghana" in Donald Rothchild ed., Ghana: The Political Economy of Recovery (Boulder: Lynne Rienner, 1991), p. 134. Back.
Note 18: Riccardo Faini and Jaime de Melo, "LDC adjustment packages," Economic Policy 11 (October 1990): 491-519. Back.
Note 20: Reginald Herbold Green, "Articulating Stabilisation Programmes and Structural Adjustment: Sub-Saharan Africa," in Commander ed., Structural Adjustment and Agriculture, p. 38. Back.
Note 21: Simon Commander, Ousseynou Ndoye and Ismael Ouedrago, "Senegal 1979-88" in Commander ed., Structural Adjustment and Agriculture, p. 156. Back.
Note 22: Jacobeit suggests that the massive investment in infrastructure and rehabilitation in Ghana after 1983 that connected farmers once again to the world market was a significant factor behind the growth of cocoa production in this period. Cord Jacobeit, "Reviving Cocoa: Policies and Perspectives on Structural Adjustment in Ghana's Key Agricultural Sector" in Rothchild ed., Ghana: The Political Economy of Recovery p. 223. Back.
Note 23: Faini and de Melo, "LDC adjustment packages." Back.
Note 24: United Nations Secretary General's Expert Group on Africa's Commodity Problems, Africa's Commodity Problems: Towards a Solution (Geneva: UNCTAD, 1990), p. 23. Back.
Note 25: World Bank, Annual Report 1989 (Washington, D.C.: World Bank, 1989), p. 33. IMF, World Economic Outlook May 1991. Sub-Saharan Africa's terms of trade fell by a further 3% in both 1990 and 1991. IMF, World Economic Outlook May 1992 (Washington, D.C.: International Monetary Fund, 1992). Back.
Note 26: Overseas Development Institute, "Commodity Prices: Investing In Decline?" Briefing Paper (March 1988): 1. Back.
Note 27: Africa Recovery 3, no. 3 (December 1989): 22. Back.
Note 28: Merrill J. Bateman, et al., Ghana's Cocoa Pricing Policy (Washington, D.C.: World Bank Working Paper WPS 429, June 1990). Back.
Note 29: From Crisis to Sustainable Growth, p. 8. Back.
Note 31: Commander et al., "Senegal," p. 149. Back.
Note 32: Jurgen Wulf, "Zambia Under the IMF Regime," African Affairs 87 (October 1988): 589-590. Back.
Note 33: Kydd reported that the Zambian government's administrative controls over the economy enabled it to protect aggregate consumption levels while sacrificing investment. Jonathan Kydd, "Coffee After Copper? Structural Adjustment, Liberalisation, and Agriculture in Zambia," Journal of Modern African Studies 26, 2 (June 1988): 235. These findings reinforce those of the Bank itself which recorded in Adjustment Lending (p. 24) that "the burden of adjustment fell heavily on investment, as is shown by the relative worsening of the investment/GDP ratio for nearly two-thirds of the [adjusting] countries." Back.
Note 34: World Bank, World Development Report 1991 (Washington, D.C.: World Bank, 1991), p. 121. Back.
Note 35: World Bank, Report on Adjustment Lending II (Washington, D.C., World Bank, 1990), p. 85. Back.
Note 36: Reginald Green, "The Long Road to Development," Africa Recovery 4, 1 (April-June 1990): 28. Back.
Note 37: Commander et al., "Senegal" p. 169. Back.
Note 38: E. Gyimah-Boadi, "State Enterprises Divestiture: Recent Ghanaian Experiences" in Rothchild ed., Ghana: The Political Economy of Recovery, p. 204. Back.
Note 39: Helena Ribe and Soniya Carvalho, World Bank Treatment of the Social Impact of Adjustment Programs (Washington, D.C.: World Bank Working Paper WPS 521, October 1990), p. 3. Back.
Note 40: Data from Africa's Commodity Problems; and Per Pinstrup-Andersen, "The Impact of Macroeconomic Adjustment " in Commander ed., Structural Adjustment and Agriculture pp. 90-104. Back.
Note 41: Ribe and Carvalho, World Bank Treatment of the Social Impact of Adjustment Programs, p. 7. Back.
Note 42: World Bank, World Development Report 1990 . Back.
Note 43: Kraus, "The Political Economy of Stabilization and Structural Adjustment in Ghana," p. 133. Back.
Note 44: Structural adjustment loans must be repaid earlier than IDA project lending; these loans have thus contributed to an increase in debt service ratios. Back.
Note 45: Data from Matthew Martin, chapter 4 in this volume, and Martin, "Negotiating Adjustment and External Finance: Ghana and the International Community, 1982-1989," in Rothchild ed., Ghana: The Political Economy of Recovery, p. 253. Back.
Note 46: Kraus, "The Political Economy of Stabilization and Structural Adjustment in Ghana;" and Martin, "Negotiating Adjustment and External Finance." Back.
Note 47: World Bank, Report on Adjustment Lending II, pp. 11 and 22. Back.
Note 48: Jeffrey Sachs, "The Debt Overhang of Developing Countries" in G. Calvo, et al.,eds., Debt, Stabilization and Development: Essays in Memory of Carlos Diaz-Alejandro (Oxford: Basil Blackwell, 1989). Back.
Note 49: IMF, World Economic Outlook May 1990 (Washington, D.C.: IMF, 1990), p. 195. Back.
Note 50: World Bank, Annual Report 1989, p. 112. Back.
Note 51: Joshua Greene, The External Debt Problem of Sub-Saharan Africa (Washington, D.C.: International Monetary Fund Working Paper 89/23, 1989), p. 9. Back.
Note 52: Data from Sub-Saharan Africa: From Crisis to Sustainable Growth Table 20, p. 235; and Africa's Commodity Problems, Table 10, p. 129. Back.
Note 53: Asli Demirguc-Kunt and Refik Erzan, The Role of Officially Supported Export Credits in Sub-Saharan Africa's External Financing (Washington, D.C.: World Bank Working Paper WPS603, February 1991), p. 12. Back.
Note 54: More than $2.1 billion in arrears to the Fund is owed by five African countries-Liberia ($308m), Sierra Leone ($103m), Sudan ($889m) and Zambia ($801m). International Monetary Fund, Annual Report, 1990 (Washington, D.C.: IMF, 1990), p. 57. Back.
Note 55: In April 1991, seven African countries-Benin, Burkina Faso, Equatorial Guinea, Lesotho, Mali, Rwanda, and São Tomé and Príncipe had SAF arrangements with the Fund with loans totaling SDR137 million. A further eleven countries-Gambia, Ghana, Kenya, Madagascar, Malawi, Mauritania, Mozambique, Niger, Senegal, Togo, and Uganda-had ESAF arrangements totaling SDR1.3 billion. IMF Survey (June 10, 1991), p. 188. Back.
Note 56: Greene, The External Debt Problem, p. 3. Back.
Note 57: World Bank, Annual Report 1989, p. 106. Back.
Note 58: Data from Financial Times (London) May 29, 1990, p. 19. Back.
Note 59: Joan M. Nelson, ed., Fragile Coalitions: The Politics of Economic Adjustment (New Brunswick, N.J.: Transaction Books, 1989). Back.
Note 60: Naomi Chazan, "The Political Transformation of Ghana Under the PNDC" in Rothchild, ed., Ghana: The Political Economy of Recovery, p. 30. Back.
Note 61: Henry Bienen, "The Politics of Trade Liberalization in Africa," passim. Back.
Note 62: Stephan Haggard and Robert R. Kaufman, "Economic Adjustment in New Democracies" in Nelson ed., Fragile Coalitions, pp. 57-77. Back.
Note 63: Samuel P. Huntington, Political Order in Changing Societies (New Haven: Yale University Press, 1969). Back.
Note 64: Ravi Gulhati, Malawi: Promising Reforms, Bad Luck (Washington, D.C.: World Bank, EDI Development Policy Case Series, Analytical Case Studies, No. 3, 1989). Back.
Note 65: Thomas M. Callaghy, "The Political Economy of African Debt: The Case of Zaire" in Ravenhill ed., Africa in Economic Crisis, pp. 307-346. Back.
Note 66: Report on Adjustment Lending II, p. 2. Back.
Note 67: Thomas M. Callaghy, "Lost Between State and Market: The Politics of Economic Adjustment in Ghana, Zambia, and Nigeria," in Joan M. Nelson, ed., Economic Crisis and Policy Choice (Princeton: Princeton University Press, 1990), pp. 257-319. Back.
Note 68: See the comments reported in Cadman Atta Mills, Structural Adjustment in Sub-Saharan Africa: Report on a Series of Five Senior Policy Seminars Held in Africa 1987-88, (Washington, D.C.: World Bank, EDI Policy Seminar Report No. 18, 1989). Back.
Note 69: Ravi Gulhati, "Response" in Kjell J. Havnevik ed., The IMF and the World Bank in Africa (Uppsala: Scandinavian Institute of African Studies, 1987), p. 91. Back.
Note 70: Peter Drucker, "The Changed World Economy," Foreign Affairs, 64 no. 4 (Spring 1986): 786-791. Back.
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