CIAO DATE: 9/99

Agenda for Africa’s Economic Renewal

By Benno Ndulu, Nicolas van de Walle and contributors

Overseas Development Council

The following summary, Agenda for Africa’s Economic Renewal, ODC Policy Perspective No. 21, was released in June 1996 (ISBN: 1-56000-900-4, $17.95). To order a copy of this publication follow this link: http://www.odc.org/publications/ppafrica.html

A consensus has emerged in the development policy community during the past decade about the causes of Africa’s economic crisis and the prerequisites of renewed growth there. The challenge now is to develop viable development strategies based on this consensus. It is important to identify the choices, priorities, and tradeoffs facing African governments that are committed to overcoming the current crisis, given the range of endowments and capacities found in the region and the current international environment.

Lessons of Experience

The last two decades of economic crisis and policy experiment have generated a number of important lessons.

• National development strategies should take into account the important differences in resources, economic performance, and sociopolitical characteristics that distinguish the countries of Sub-Saharan Africa. Contrasts in the resource base and in the size of the domestic market have profound implications for the kinds of strategies that will maximize economic growth.

• Countries that have deficient basic governance will not be able to undergo sustained economic growth. At the most worrisome end are half a dozen states that have collapsed amid civil strife. A second category includes countries where the risk of collapse is real and the state machinery is preoccupied with the survival of the regime in power, considerably detracting from sustained development initiatives. A third category, including roughly two-thirds of the countries in the region, can claim a stable civil environment and is today moving toward more open and contested political systems. The challenge here is to pursue economic and political reforms simultaneously.

• Any strategy for the future has to take into account the depth of the economic crisis in most countries of the region and the negative effects of external shocks on the predictability and stability of Africa’s small, open economies with limited access to international commercial finance. This vulnerability implies the need to design consistent packages of reforms to ensure credibility and feasibility. Strategies must distinguish desirable objectives that can be attained in the short term from objectives that cannot be achieved quickly because structural weaknesses first need to be addressed.

• Policymakers can no longer push into the background the need to develop the capacities of African countries to initiate and manage complex change—the essence of sustained development. Stronger institutions are needed at several different albeit overlapping levels. First, there is now a clear acknowledgment of the need for supportive public institutions in a market economy to create a regulatory framework capable of ensuring the efficient operation of the market. Second, the provision of basic public goods, whether in the area of basic public services or in infrastructure, has been undermined by the low capacity within the public sector.

• Local ownership of reform programs is critical to ensure sustainability and effectiveness. Unless governments and a large proportion of the population understand and support the aims of the economic policies chosen, they are unlikely to remain committed to them, particularly when implementation entails substantial political costs. In this context, the large amounts of aid to Africa have not always helped, creating a sense of psychological dependence on outsiders and instilling passivity in the policymaking process.

• Policymakers need to pay greater attention to poverty reduction as an integral part of a growth strategy. Poverty alleviation demands accelerated growth that is at the same time broad-based and labor-intensive. It thus implies an emphasis on the revitalization of agriculture in the strategies developed, because the agriculture sector supports the livelihood of 70 percent of the African population and provides perhaps the most promising opportunities for labor-using, income-generating activities.

National Strategies for Economic Renewal

Lessons learned from almost two decades of experimenting with economic reform and the changing nature of the international environment signal the need to put together new national strategies for poverty-reducing growth in Sub-Saharan Africa. Six major areas are central to the future.

Recent achievements in macroeconomic stabilization pursued by a large number of African economies need to be consolidated. Sustainable macroeconomic stability is a prerequisite of growth because it helps countries to avoid the stop-and-go cycles prompted by the need for painful adjustments to periodic, severe resource gaps. A stable and sustainable macroeconomic environment boosts the confidence of private investors.

The design of the adjustment process needs to minimize the costs associated with policy reform by providing appropriate sequencing and timely access to flexible medium-term financing. Building an internal consensus about sharing the burdens imposed by the adjustment process is probably more important than obtaining financing for ensuring that the adjustment process is sustainable. In this regard fiscal adjustment is probably the most sensitive and the most elusive of the stabilization measures adopted. Sub-Saharan African countries need to raise their effort to collect revenue.

Reductions in the debt burden are also critical not only for sustaining both external and fiscal balance but also for engendering confidence to encourage private sector investment.

A successful development strategy in Africa must include a constructive role for the state in fostering and managing the development process. Rapid economic growth of the kind witnessed in East Asia probably requires the state to take a more proactive role than simply providing basic public goods like stable property rights, basic infrastructure, and law and order. In the immediate run, all African governments should make sure that they are capable of providing these basic public goods. The longer term challenge for African governments is to overcome the weak capacities of current public institutions so that governments can play a more proactive role.

Enhancing state capacity to perform these ambitious tasks has several components: meaningful civil service reform, concentrating the state’s scarce resources on a limited number of functions, and protecting state decision makers from political pressures while ensuring the accountability and transparency of their actions.

The current process of democratization in Africa is an important part of this agenda in that it increases public participation and competition, both of which can pressure the state to open up and improve its performance.

Mobilizing domestic and foreign private capital and know-how is a critical prerequisite of recovery. The state has a critical role to play; but governments need to encourage, stimulate, regulate, and complement the private sector, rather than compete with it or attempt to displace, discourage, and exploit it, as too often happened in the past.

Creating a climate favorable to investment requires establishing a partnership between the government and the private sector on the basis of greater transparency in public administration and strong intermediate organizations, such as chambers of commerce, business councils, and professionals associations, that can engage the state in a regular dialogue. Governments also need to do more to provide an enabling environment that encourages productive investment.

The renewal of growth will need to start in the countryside, and agricultural transformation thus needs to be reinstated onto the development agenda. Although recent measures have focused on incentive structures to elicit increased supply from existing capacity, neither donors nor governments have paid adequate attention to improving agricultural productivity and aggregate production capacity, yet these are fundamental to the sector’s development and to the health of the overall economy. Agricultural yields have more or less stagnated in Africa in contrast to their rapid rise elsewhere.

A fresh look at the transformation of agriculture needs to incorporate strategies for strengthening human capabilities, redefine the roles of the public and private sector in the transformation process, focus on investments in rural infrastructure, and enhance the rural institutions needed to promote longer term investments in the sector, in particular land tenure and credit institutions. To address poverty concerns more directly, transformation ought to explicitly target poverty reduction and equity.

Long-term economic success will depend on building the human capital base to promote modernization of the economy. This requires, first, considering basic education and health not solely as consumption items for improved welfare (needs) but also as investment in productive competence. The key instruments include enhancing efficiency via better technology and cost-effective delivery as well as private sector and community participation in service provision. This is particularly true for postprimary education, where the high private returns generated justify a larger role for private provision.

A policy to build human capital should also aim to develop a broad array of technical, managerial, and scientific skills needed to sustain rapid growth. Technological progress should be seen more broadly to encompass skill formation. A supportive incentive structure should reward the acquisition and building up of such competence. The issues here include the most cost-effective ways of achieving basic human competence involving the private and the public sector.

Appropriate industrialization and trade strategies need to be developed. Efforts should be directed at building an efficient export-oriented industrial sector. To do so, African governments need to go beyond the provision of a stable macroeconomic environment and import liberalization—although these are critically important—to address the problems of weak technological capabilities and to develop export competence. Although cheap labor is likely to be a major source of comparative advantage for most industrializing African economies and should be aggressively pursued, the ability to compete internationally in the new global economy requires a level of productivity and managerial and technical skills that is presently lacking in these countries.

The roles of governments and private actors in the process of industrialization need to be reappraised so as to allow strategic complementarities between the two. Government has a role to play in undertaking limited judicious strategic interventions to address market failures and providing public goods such as infrastructure and basic training necessary to build industrial capabilities.

 

Consolidating Macroeconomic Stabilization and Restoring Growth in Sub-Saharan Africa
by Ibrahim Elbadawi

Consolidating the initial macro-based fiscal stabilization with deeper structural reform in fiscal policy institutions and other supportive structural reforms should clearly be a top priority for Africa. A combination of four policy measures and external initiatives needs to be in place to effect the switch from stabilization to growth in the short run:

• A massive debt reduction for Africa to allow the resumption of growth in the short run, and hence the sustainability of reform;

• The transformation to a more diversified economy by investing in education and human capital, so that domestic production of capital goods will eventually become internationally competitive;

• African democratization that may generate more transparent, participatory, and open governance, strengthening commitment to reforms and fostering credibility; and

• Regional integration to foster national policy credibility and pool risks between otherwise vulnerable small economies; to resolve conflicts and minimize political risk; to exploit complementarities; and to develop regionally based links on a reciprocal and mutually beneficial basis.

 

State Capacity and Effective Governance
by Deborah Brautigam

A government committed to building state capacity might begin by rebuilding professionalism and a sense of mission in the civil service, by establishing clear rules and transparent, merit-based procedures for hiring and promotion, by institutionalizing review procedures that reward good performance, and by raising government salaries to market levels.

Second, governments are more likely to succeed in their reforms if they adopt a realistic strategy of concentrating reforms in a few critical bureaus first, shifting politically important patronage opportunities to less vital agencies.

Third, agencies critical for economic stability and the rule of law will perform better if they can be insulated from patronage pressures and short-term political demands. This is especially important for the central bank and the judiciary.

Fourth, capacity outside the public sector can reinforce capacity within. This is particularly true of the professions of law, accounting, medicine, and engineering, all of which have deeply held professional values as well as technical expertise. Nongovernmental development organizations also often share strong values and expertise and can help create demand for a more capable and effective state, while reinforcing core professional values in both state and society.

 

Enhancing Human Capacities in Africa
by Simon Appleton and John Mackinnon

Significant improvements in education and health are achievable with commitments of resources that are not prohibitive for most African countries. The required interventions need to be selective, such as investments in public health campaigns targeted at villages rather than in national hospitals.

The recommendation that public finance in both health and education needs to move from tertiary to primary facilities has been made widely. Political-economy reasons have prevented the adoption of this recommendation until now, but this situation may be changing.

Public provision of health care and education could be improved in a variety of ways. The current mix of inputs may be suboptimal. For example, teaching materials are likely to be better investments in learning than smaller classes. More generally, there should be payoffs in the form of incentives, decentralization, and competition traditionally associated with the private sector. Various reforms could achieve those payoffs. Given the size of the public sector in most countries, it is possible to carry out pilot tests of some of these reforms at relatively little cost or risk. Such efforts to improve the quality of social service provision would naturally strengthen the case for expanded public funding.

 

Agricultural Transformation: The Key to Broad-Based Growth and Poverty Alleviation in Africa
by Christopher L. Delgado

Agricultural transformation in Africa requires a well-coordinated and sequenced strategy. First, such a strategy would include research and extension to cut the unit costs of producing items for which a local market exists. Freeing up the movement of goods and services in Africa is the second highest priority, followed by promoting production of higher value products on smallholder farms.

Despite the concentration of exports at the national level, African agriculture is extremely diverse across zones, within villages, and even on individual farms. At the farm level in Africa, crop and livestock diversification is largely a matter of risk management. It is hard to see how agricultural transformation will occur in countries subject to the unpredictable climate shifts facing most of Africa unless some form of public agency shares with farmers the risks of food security.

The key to fostering rural employment in Africa is to promote widespread and sustained increases in income for large numbers of rural people from sources that are not dependent on local demand. Higher smallholder production of tradable crops and livestock as a result of lower unit costs of production and distribution is the best bet for having this widespread impact. Once the engine of growth is in place, then policy must facilitate the supply response of the products, especially food items, that rural people wish to buy when their incomes rise. This will help to ensure that higher rural demand is translated into higher production, rather than higher prices for wages and goods.

Finally, only participatory local institutions will be capable of mobilizing the local knowledge and the immense resources required to promote agricultural transformation. Only African political processes can arrive at the right form of local government for a dynamic countryside. Donors can prioritize the flow of resources to countries that have demonstrated real commitment to bringing farm people into the political class. Donors and governments must strengthen the national capacity to conceptualize national problems.

 

Trade and Industrial Policy in Africa
by Sanjaya Lall and Frances Stewart

To address the objectives of developing efficient industrialization and building up indigenous capabilities, reform and stabilization policies must emphasize five areas.

First, different policies must be put in place to encourage African ownership of industry, through joint ventures between the public sector and private sector firms and between foreign and local firms. Second, structured markets are needed to avoid a common bias against the small-scale sector. Measures can be promoted to ensure that adequate resources are allocated to small firms, and that technology and credit institutions are designed to serve them. Third, a more gradual and nuanced strategy of liberalization is needed. This would include a slower, more realistic pace that would give enterprises the time to adjust and improved capabilities that would ensure the government’s ability to mount pervasive interventions in support of industrialization. Fourth, regional integration should be promoted through efforts in finance, trade, and infrastructure. Fifth, supply-side measures should be pursued, including development of skills, support and extension of technology, improvement of infrastructure, and provision of financial support for industrial restructuring and upgrading.

 

The Politics of Economic Renewal in Africa
by E. Gyimah-Boadi and Nicolas van de Walle

Several factors have been identified as prerequisites to the emergence of states capable of bringing about rapid economic growth in Africa. First, democratization and the empowerment of civil society have been identified as necessary to bring about rapid development, although many of the key institutions of democratic politics are too weak for multiparty elections to change economic governance dramatically. Second, a change in the social coalitions that dominate African politics has been identified as a necessary precondition for the adoption and sustaining of pro-growth policies. These nascent coalitions will become dominant only if and when economic reform becomes viewed as legitimate and thus sustainable and only if it is organized and led by an effective political force.

Third, a broader and more sophisticated debate about economic policy is needed by African elites to engage in “policy learning,” a process through which perceptions of available options and choices are altered. Fourth, effective political leadership is needed to overcome these obstacles. Even the most committed leadership will not make much of a difference unless commitment is backed up with organizational and mobilizational capacity. That is the purpose of political parties, which can mobilize popular support for governmental policies.

Building the developmental state in Africa will take much more time than has typically been allowed for in public policy debates about economic reform in Africa. Creating capable institutions both inside and outside the state will require years of effort.