- Laura Wallace
- Published Date:
- May 1997
For the first time in a decade, the real income of individuals in sub-Saharan Africa is growing, mainly as a result of strong GDP growth, which was estimated at 3.5–4 percent in 1995. This is the highest growth the continent has achieved since 1990, according to a new World Bank report, Global Economic Prospects and the Developing Countries.1 Prospects for higher growth appear much stronger than ever before.
In assessing this remarkable recovery of countries that have been ravaged by civil wars, drought, and weak economic and political systems, there are perhaps two critical factors that could be considered to have influenced this growth: some of the countries benefited from improvements in export commodity prices while others benefited from the strong structural reforms that they have adopted, or a combination of both. Indeed, more than 30 of the 48 African countries have achieved a growth of 3 percent or more and now show strong signs of sustainable long-term development. The opening up of South Africa, which has sustained recovery for two consecutive years, and the peace prevailing in the once war-torn Mozambique and Angola have strengthened growth in the Southern Africa region. Other economies in the region that have remained stable—notably, Botswana, Lesotho, and Zimbabwe—continue to exhibit reasonably high levels of growth.
In the East African region, Kenya, Tanzania, and Uganda are rapidly emerging as showcases of successful transformation through structural adjustment programs. Uganda has achieved a tremendous recovery from years of civil war, with an estimated growth rate of 10 percent in 1995, and Kenya’s GDP rose an estimated 5.2 percent the same year—prospects for a faster growth rate of 6 percent appear more likely than ever before. For the first time, per capita GDP has started rising, after falling to $270 in 1993, which was the worst year in the history of Kenya, with GDP growth at a mere 0.2 percent. By the end of 1996, per capita GDP is projected to rise to $310.
However, Central and Western Africa still show a fair number of economies in serious distress, despite modest growth in countries such as Benin, Central African Republic, Côte d’Ivoire, Ghana, Guinea, and Nigeria. Some of the other countries in the region, such as Cameroon, Congo, and Senegal, have just emerged from a period of negative growth but show promising signs of recovery, though troubled Zaïre still suffers from negative growth.
Structural Adjustment Programs
The success of structural adjustment programs is difficult to measure in isolation, considering the other factors that influence the growth and development of the sub-Saharan African countries. Even so, the reforms have admittedly contributed to growth in countries that have recently shown strong signs of recovery.
In Kenya, for instance, the success of structural reforms is best illustrated by its substantial recovery since 1993. Liberalization of trade and exchange rates, removal of price controls and interest rate guidelines, divestiture of state investment in commercial enterprises, monetary and fiscal policy reforms, and the removal of exchange controls have greatly improved business confidence, with the economy the strongest it has been in over five years. Inflation is down to less than 2 percent (from over 100 percent in June 1993), the money supply is under check, and national savings and domestic investment as a percentage of GDP have been restored to over 20 percent. Foreign exchange availability, which was a critical factor in determining growth before the liberalization started, is no longer depressing business growth. At one point in August 1993, the entire economy had only $80 million of foreign reserves, which was barely enough to cover three weeks of imports. Today, the foreign reserves held by both the central bank and commercial banks is in excess of $1 billion, equivalent to more than five months of import cover, and the exchange rate remains fairly stable. However, high interest rates, on average about 30 percent, have a negative impact on business growth and heavy government borrowing is a major source of concern.
Structural adjustment programs have also encouraged recovery in many other countries. By implementing reforms, these economies have had access to aid that has mainly been used for rehabilitating infrastructure and for balance of payments and economic stabilization programs. In most of the countries, export trade and tourism have improved thanks to a new sense of competitiveness. It is also important to note that economic integration—or increased regional trade where integration is not yet actualized—has played a significant role in the economic transformation of these countries. This is particularly evident in Southern Africa, Western Africa, and, more recently, Eastern Africa.
Conflicts in the Reform Process
Until recently, many of the African leaders, including those who have embraced reforms, were suspicious about the real motives of the donor-supported structural adjustment programs. They had reason to be, particularly when the donor nations tried to push economic reforms at the same time that they demanded political democratization. In many countries, Kenya included, reforms were taken as prescriptions that the donors were imposing to create fertile ground for political reforms. Indeed, the Western world used both economic and political reforms as preconditions for new aid support—creating a serious conflict, because the donor nations were seen to have found allies in opposition parties to use aid to press for political changes.
The source of conflict was primarily founded in the fear by incumbent leaders of losing both political and economic power. By adopting reforms, the leaders realized the danger of losing the powerful control that they maintained on economic and political systems. They could no longer, for instance, use officially controlled foreign exchange allocations to gain political support or use state enterprises to reward their political supporters. Reforms meant that these leaders would no longer have unlimited economic resources at their disposal to buy votes from the electorate and influence economic and political policy.
In addition, the structuring of adjustment programs caused resistance among leaders, who felt that the programs were prescribed by outsiders unfamiliar with the intricate domestic conditions. There was, for instance, concern that reforms were aggravating poverty and unemployment by increasing the cost of basic goods and services, reducing the workforce in the public sector, and exposing local enterprises to foreign competition. But the World Bank and the IMF have tried to show that the pains of reforms are short term, because sustained recovery will provide tremendous opportunities for increasing incomes and reducing poverty and unemployment.
In recent years, donors have recognized the need to mobilize popular support for reforms by involving governments and other interested parties in the design and discussion of structural reforms. In Kenya, for instance, the new Policy Framework Paper for 1996-98, designed by the government, in consultation with the IMF and World Bank staffs, has been widely publicized and discussed—this was the first time that there has been a public dialogue on the policy document. Through dialogue on both economic and political issues, governments and donors have learned to accommodate each other and work together. Hence, the greater acceptance of structural adjustment programs in Africa.
There is another important factor that appears to be influencing the pace of reforms in Africa. The donor nations seem to have changed their hostile stance against the governments in power, primarily because the donors have failed to develop a useful partnership with the opposition parties. The disappointing performance of the main opposition parties—Kenya is a good example of this—have forced the donors to shift their alliances. In any case, they have realized that by using hard prescriptions like withholding aid to countries that have not embraced reforms, they are simply intensifying the sufferings of the masses and encouraging the leaders to continue applying corrupt practices for survival. What the donors have come to appreciate is that their actions do not really hit their targets.
Furthermore, they do not want to be accused of engaging in personalized fights with particular leaders under the guise of pushing for reforms. This conflict has been seen in the way the donors have treated Kenya and Uganda, for example. Even after undertaking numerous economic reforms and allowing political opposition, Kenya’s balance of payments aid—which was suspended in November 1991—was not fully restored until February 1996. However, Uganda continued to receive substantial donor support, despite publicly resisting political opposition. The same argument could be applied when considering the rather cozy relationship between the Western world and some countries with poor human rights records, notably China.
It is also important to note that, by easing their demands for aid disbursement, donors have put themselves in a difficult position with opposition parties and human rights groups in countries where economic and political concerns persist. This is perhaps aptly illustrated in Kenya, where political activists argue that the conditions for resumption of aid have still not been fulfilled, considering the official indifference to corruption, human rights abuses, and registration of new political parties. The conflict arises from the thin line between what has been achieved and what should, ideally, be the trigger point for aid. The donors and the government presumably look at the pace and progress of the reform process, while the government critics argue on the grounds of the promises that have yet to be fulfilled.
Agenda for Sustainable Development in Africa
While the success of structural adjustment programs in influencing Africa’s political transformation is acknowledged, the future growth of African countries will depend on the benefits of more open market economies, economic integration, and greater opportunities in export trade and tourism. Structural reforms have to be deepened but the donors should use aid less as a condition for influencing structural reforms.
Africa no doubt needs massive aid injections, which is now likely with the $25 billion special initiative launched recently by the United Nations. Many countries will continue to rely on donor support to develop their vital infrastructure (roads, energy, water supply, health, and educational facilities) but will require less subventions to maintain their bloated public sector bureaucracies. However, there should be a sustained effort to reduce the continent’s dependency on aid and instead increase private capital flows, which have declined considerably. Sustainable economic transformation will only be achieved if the leaders and governments in power see the benefits of reforms in terms of removing the structural weaknesses that depress their economies—rather than implementing reforms simply to draw more foreign aid from the Western world. By adopting growth-oriented policies, Africa—as the former World Bank Vice President for Africa, Edward Kim Jaycox, stated during his visit to Kenya—has the capacity to produce the next generation of economic tigers.
It is a great pleasure for me to be a discussant of the papers by Governor Mwanza from the Bank of Zambia, and Michael Foster from the Overseas Development Administration in London. Since both authors have extensive experience in policymaking, and my background is research oriented, I would like to concentrate my remarks on recent studies on the social impact of adjustment programs. In fact, I am now part of a research group at a Japanese university on the social impact of the structural adjustment, after having worked as a World Bank economist for five years.
My research and field experiences are limited to Latin America and Asian countries, but when I was reading Governor Mwanza’s paper on the Zambian economy, I felt as if I were reading an economic report on Bolivia. Both countries are landlocked, and their economic difficulties began when the price of the copper started to decline in the 1970s. So I hope my experiences with Latin American countries can provide some useful suggestions for African policymakers.
To date, a lot of studies have been done on the impact of adjustment programs on social sectors, but some researchers are critical of the findings because the data used for the research have come largely from the IMF’s government finance statistics, which covers only central government accounts—not the needed micro-level data. For this reason, I would like to first discuss a 1995 World Bank study that examined the impact of adjustment programs on the health sector, drawing on government spending data at both the national and local levels.1
The study looked at 20 countries grouped according to the types of structural adjustment programs: intensive adjustment lending countries and nonintensive adjustment lending countries. Intensive adjustment lending countries were those that received at least two structural adjustment loans or three sectoral adjustment operations, all effective by June 1990 and with the first operation effective by June 1986. These countries are Bolivia, Brazil, Chile, Costa Rica, Kenya, Republic of Korea, Mauritius, Mexico, Philippines, Tunisia, Turkey, and Uruguay. Nonintensive adjustment lending countries were those that had not received adjustment loans by June 1990. These countries are Burkina Faso, Dominican Republic, Egypt, El Salvador, Guatemala, Liberia, Malaysia, and Papua New Guinea.
What is the major finding of the World Bank study? The study found that in both groups, public spending on health as a share of GDP followed a cyclical pattern, declining between 1980 and 1985/86 but rising by 1990. However, the decline was sharper and the recovery was less pronounced and slower in the nonintensive group. A similar pattern was observed in terms of per capita public spending on health.
This finding is contrary to the conventional wisdom that the donor-supported adjustment loan has detrimental effects on health through a reduction in public spending. However, some researchers will also be critical of this study because the sample size was small and the data were outdated. Moreover, because of the lack of data disaggregation, we cannot analyze the effects of adjustment lending on the distribution of spending within the health sector.
What have other studies found? In general, government statistics have shown that social spending did not decrease during the adjustment period, but there were some signs of a misallocation of the social spending. Such expenditures should be targeted at the priority programs that would benefit the poor most—for example, primary education or basic health, and essential drugs and supplies rather than salary supplements within the health program. Thus, further research on this subject is needed since future adjustment programs may need to justify health outlays.
Another result of recent research is that people are willing to pay for the good quality of medical and education services. Indeed, many studies now recommend the introduction of user fees in social sectors—not at the primary level (e.g., primary health care centers), but at the tertiary level (e.g., university hospitals). The revenue raised at the tertiary level could be used for providing primary education and primary health care. Zambia has already started charging user fees and seems to be moving in this direction, but I do not have information on the distribution of spending within the health sector and the education sector. I would like to hear from Governor Mwanza on this point.
In conclusion, I would like to summarize the main findings of the recent research on the impact of adjustment programs as follows:
- The data do not show a major cut in the expenditure share of health and education, but show some expenditure misallocation within a given social sector.
- Trends in public spending alone do not provide a complete picture since most studies have failed to include user fees charged by some institutions and many social services provided by the private sector.
- It is misleading to infer the level and quality of the delivery of social services only from the aggregate spending data.
In closing, I would like to briefly comment on the quality of government statistics. At this stage, the major concerns about adjustment programs in Africa center on the continued low levels of domestic saving ratios and investment—especially private investment—as well as the increased dependence on foreign aid.
But it is possible that official statistics of the international financial institutions, such as the World Bank and the IMF, and African governments underestimate the levels of economic activities, since the data exclude the informal sector. During the described adjustment period, it is likely that economic activities in the informal sector were also stimulated and hence the actual growth and investment may have been greatly underestimated. This measurement error may also be responsible for the pessimism about saving, investment, employment, and growth in African countries.