- Laura Wallace
- Published Date:
- May 1997
Getting the Private Sector to Respond
David Cole opened the discussion by noting that Jacob Mwanza’s paper about the difficulties that Zambia had encountered over the years made him wonder about the problem of supply response in some African countries—the lack of any palpable improvement two or three years after the restructuring—particularly in the productive, as opposed to the social, sectors.
By contrast, both South Korea in the mid-1960s and Indonesia in the late 1960s had enjoyed fairly rapid supply responses. In South Korea, there had been a rapid response in the industrial sector to the expanding export markets for manufactured goods, with increases in employment and reabsorption of underemployed urban labor. After a slow start, exports grew 40–50 percent a year in 1965–67. In Indonesia, the agricultural sector had been the first to respond, with rice production rising from 9 million tons to 15 million tons over a five-year period, thanks to increased supplies of fertilizer, better transportation, and price stabilization. For both countries, the structural adjustment programs were accepted and had built real political strength for the governments implementing them because of their pervasive effects—in the urban industrial area in South Korea and in the rural agricultural area in Indonesia.
Cole said these cases raised several questions regarding the supply response in Africa. Were the kind of infrastructure and other elements that would support such a rapid supply response much less readily available in Africa?
Luc Oyoubi of Gabon responded that, at least in the case of Gabon, the desired supply response had not been forthcoming either when prices and trade were liberalized in 1989 or when the CFA franc was devalued in 1994, and exports, other than traditional exports, had not risen. Perhaps the problem was that not enough thought had been put into examining the situation before liberalizing the economy. It was as if a nurse had come to heal a wound that had not been properly cleaned, making recovery extremely difficult, if not impossible.
Chérif Bichara of Chad underscored that his country’s experience with structural adjustment programs since 1987 demonstrated the importance of communicating with all segments of the population. In 1995, for the first time, the government met with all parties, including the private sector, parliamentarians, and trade unions, in the hope of avoiding any difficulties after the program had been approved. It also took steps to protect the health and education budgets in real terms and create jobs in the urban and suburban areas to reduce unemployment—helped by the initiative of the private sector. In the end, the only people who suffered slightly from structural adjustment were civil servants, whose wages were blocked. All in all, he felt the verdict so far, particularly when it came to health and education, was positive.
Aliou Seck of Senegal seconded the key roles of communication and transparency but questioned the necessity of democracy—defined by him to mean the minority having to abide by the majority. After all, certain Southeast Asian countries had shown that economic progress could be made under military regimes. What was important was that reforms be well explained to the populations, meaning that countries needed to improve their communications policies, and in that regard, African governments would welcome external assistance.
Jack Boorman, who was chairing the session, questioned Seck’s interpretation of democracy, suggesting that most people interpret democracy as a system in which the basic rights of minorities are protected. It was not simply a matter of the majority ruling. He also asked how aid agencies and other outsiders could help in fostering the kind of internal dialogue and communication needed to garner support for programs that everybody seemed to agree were necessary.
Seck responded that he was not referring to financial assistance but rather ideas on better ways to communicate. For example, the World Bank had helped with the formation of advisory committees and the like that enabled the government to achieve a consensus on policies and elicit input from the private sector.
Joseph Tsika of Congo argued that it was a bit unfair to compare Africa’s situation with that of Southeast Asia, given that enormous sums of financial assistance and investment had been centered on Southeast Asia, making it possible for that region to accelerate reform, whereas money was no longer flowing to Africa. Donors were telling Africa to become more transparent—which it was doing—and to accelerate reforms, yet the rate at which those reforms could be introduced was being slowed down because of halts in disbursements from donors. Africa was in the midst of a mutation. There had been abuses. But many countries were democratizing their regimes and now needed to handle claims from the military, students, and workers, without any money. What was the solution? Tsika suggested the solution must come from the donors.
Boorman responded by questioning Tsika’s proposition that the source of difficulty could be traced to problems with external resource flows. There had been—as recent Development Assistance Committee (DAC) figures showed—a slowdown in aid disbursements around the world. But that was surely not the case in a number of African countries where aid levels had been sustained at fairly high levels.
Said Mondoha of the Comoros said his country’s experiences with trying to put together stabilization and structural adjustment programs suggested that the problem lay in failing to take certain political realities into account. Sometimes the government simply could not, or would not, commit to adopting certain measures—such as when the World Bank insisted on the privatization of 1 single company out of 15 while the government felt that it could not commit itself to privatizing that particular company. He also seconded the proposals put forward by Edouard Luboya in the previous day’s discussion that the private sector be better taken account of in negotiations. After all, the private sector was a driving force.
Edouard Luboya of Zaïre picked up on the discussion of democracy, observing that, for the private sector, democracy meant a situation in which all parties could freely express themselves—not one where one party was subordinated to another party. Moreover, the government would have to consult with all parties, allowing room for disagreements, and not present the private sector with final decisions, such as on taxes, that would adversely affect those who planned to make needed investments.
As evidence of the private sector’s ability to play a key role, he noted that when the government decided to privatize two companies—one handling harbors and ports, and another handling road and river transport—the private sector mobilized so quickly that it was prepared to invest more than what was offered by foreign companies. The same thing happened when it came to privatizing Air Zaïre. A foreign enterprise offered $1 million, whereas local businessmen offered $3 million. Luboya said these examples showed that if the World Bank and IMF would stress the high quality and expertise of the private sector in discussions with the government, the private sector could settle down to solving 50-60 percent of the country’s economic problems. There was no time to waste.
Boorman asked Luboya if staff of the World Bank and IMF contacted the National Association of Enterprises or other private sector organizations when they visited Zaïre on missions. Or did the government, after discussions with the institutions, reach out to seek the views of the private sector in any way?
Luboya answered that his presence at the seminar was proof that there was a relationship between his organization and the IMF and the World Bank, at least in recent months. That was why, as in Senegal, there was now a commission—involving the private sector—that dealt with structural reforms.
Ben Ibe of Nigeria raised the question of ownership of adjustment programs, saying that even though such ownership was advocated by the World Bank and the IMF, Nigeria had been trying unsuccessfully since 1994 to get the institutions to accept its three-year medium-term policy adjustment program. It was as if whenever Nigeria wanted to score a goal, the goalpost was moved. And yet without such a program, Nigeria could not hold a dialogue with the Paris Club to reduce its enormous debt. Ibe said he knew Nigeria was not democratic in the way that donors would like it to be, and that it still had a military government in place. But within the system, there was a democracy, and it worked for Nigeria—at least for now, no one was being killed, and the country was stable. Granted, inflation was very high, but the authorities were doing their best to bring it down.
George Anthony Chigora of Zimbabwe noted that the IMF’s macroeconomic policy advice had been quite useful, but he also agreed with the sense of shifting goalposts. On many occasions, Zimbabwe felt it had met the expected targets, or at least 90 percent of them, and yet disbursements had not taken place. Some other new issue seemed to suddenly surface. This holdup of a disbursement was not measured or taken into account, yet it negatively affected the economy. In sum, the IMF needed to be more considerate of young economies needing assistance, because the lack of disbursements tended to stifle operations.
Boorman commented at this point that he found both Ibe’s and Chigora’s comments troubling, as they seemed to imply that there was less than complete understanding between the country and the IMF as to what was expected. The IMF prided itself to a certain extent on transparency, and if they were suggesting that that was not the case, the IMF had to ensure that the situation was corrected.
Peter Warutere of Kenya also expressed frustration with donor conditionality and lack of transparency. In 1993–94, after donors suspended balance of payments aid, the U.S. government withheld $28 million, half of that tied to economic conditions, specifically the maize market, and the other half tied to political conditions. In 1994, Kenya liberalized the maize market, prompting the World Bank and the British to proceed with disbursements tied to that particular economic reform, yet the United States continued to withhold its aid and had yet to disburse.
With parastatal reform, other types of problems arose, such as when there was an agreed program of divestiture or privatization of state investments, but buyers could not be attracted—even after the enterprises had been advertised three or four times. Of course, there were a few that had been sold to the highest bidders, sometimes at less than half the valuation price. However, this had created other problems, with the government being accused of corruption.
Jean-Claude Brou of Côte d’Ivoire observed that the problem was not with the concept of conditionality—everyone agreed that donors should set conditions to ensure that resources made available to support adjustment programs were used in the best possible way, enabling countries to return to external viability. Rather, the real problem was one of pace and approach in implementing the programs. Each donor, whether bilateral or multilateral, gave countries a list of 10–20 conditions to be fulfilled, and some of these, such as structural ones, might be very difficult to implement. In certain cases, objectively, the country had not fulfilled the conditions. But from the start, everyone involved had known that the conditions would require very complex structural measures and adaptations, and perhaps in the end it was not possible, at least not in that time frame. And then without the disbursement, the country did not move forward and obtain external viability, which was the final objective.
Basant Kapur of Singapore closed the session by suggesting that it might be preferable to adopt a more gradual and selective approach to adjustment—first implementing the more narrow economic reforms, such as in trade and finance, and only later implementing the so-called social reforms, such as removing subsidies—to mitigate the impact on disadvantaged groups. There was also a need for reinforcing measures, such as establishing a social safety net to help those who lose their jobs because of privatization. With measures such as retraining programs in place, adjustment programs would stand a much better chance of garnering public support. The seminar participants had discussed the need for dialogue, but dialogue had to be a two-way process, with the legitimate concerns of low-income groups taken into account in the design of programs.