Economic Development Efforts in Sub-Saharan Africa:
Implications for Business Prospects
by
Stephen Jay
Silver
The Citadel
Presented at
the Annual Conference of
the Academy of
Business and Administrative Sciences
Budapest,
Hungary
July 12-15, 1998
Table of Contents
Introduction...................................................................................................................
Historical Perspectives.............................................................................................
Economic Factors affecting Market and Investment Potential................
Economic
performance..............................................................................................
Legal
barriers to entry...........................................................................................
Structural
adjustment...........................................................................................
Political Factors affecting Market Potential................................................
Political
Stability.....................................................................................................
Democratization.........................................................................................................
Conclusions.....................................................................................................................
Index of Tables and Figures.....................................................................................
Table
1. Political Data for Sub-Saharan Africa: Independence to Present
Table
2. GDP Data for Sub-Saharan Africa: 1960-90............................................
Table
3. GDP Data for Sub-Saharan Africa: 1965 or Latest Data...................
Table
4. Structural Adjustment Programs in Sub-Saharan Africa............
Figure
1. North Africa GDP Trends: 1960-Present...............................................
Figure
2. Northeastern Africa GDP Trends: 1960-Present................................
Figure
3. East Africa and Zaire GDP Trends: 1960-Present................................
Figure
4. West Africa Franc Zone GDP Trends: 1960-Present...........................
Figure
5. Anglophone West Africa GDP Trends: 1960-Present..........................
Figure
6. Other West Africa GDP Trends: 1960-Present.....................................
Figure
7. Central Africa Franc Zone GDP Trends: 1960-Present.....................
Figure
8. Southern Africa GDP Trends: 1960-Present.........................................
Figure
9. Indian Ocean and Mozambique GDP Trends: 1960-Present.................
Figure
10. Four Patterns of Economic
Development.......................................
Since independence the economic performance of the
sub-Saharan region has varied greatly among the forty-six countries included in
this study. Generally, however, the
trend in real, per capita income has been downward, especially since the 1973
oil crisis.
What does this mean for the future of
international business and investment in the region? Obviously falling real incomes reduce the potential of the
subcontinent as an important market for the products of the rest of the
world. On the other hand, the
accompanying reduction in the size of public sector employment in most of the
region has added many well-educated workers to the unemployed labor force. These workers potentially can be employed by
the rapidly-expanding, and far more productive private sector. This trend from public to private sector
enterprise has made the region far more attractive to foreign direct
investors.
Another factor leading to a greater
attractiveness of foreign investment has been the movement toward greater
transparency of business codes and financial markets. As I will discuss later in the paper, the urgent need to bolster
stagnant economies has forced many of the governments of the to seek IMF and
World Bank assistance, which is conditional on economic reforms among which are
simplification of the legal system and functional financial markets.
In this paper I have compiled country
and regional data and summarized pro-business developments for each country in
the region. I also list data and
business information sources useful to those interested in marketing and
investing in the region.
Many of us have only a limited knowledge
of a region that, for too long, was known as the “Dark Continent”. In fact, Africa as a collection of a great
variety of diverse states and peoples, each with its own cultures, potential,
and challenges. To generalize about the
countries and the economies of Africa would be a mistake when trying to assess
the feasibility of conducting business there.
The history of modern Africa is very modern indeed
by most any standard. Despite being the
cradle of Man, Africa’s colonial legacy eliminated virtually any vestige of
social and political arrangements that existed before the Europeans’ arrival,
leaving only a western political model to be adopted and adapted by
newly-created nation states. Due to the
newness of political freedom, developments there have been very rapid. Names have changed as well as regimes. Governmental changes have been common.
To help “keep score” I have provided Table 1, which
lists the names of the countries and provides historical and political
information about each, including the year of independence, the name of the
capital, its former colonial name, and some of its leaders. As can be seen from the Table, many of the
leaders came to power as the result of military coups.
While we still hear from time to time
about a new military takeover (most recently in Sierra Leone, Burundi, and
Zaire, now the Democratic Republic of the Congo) in fact, these have become
increasingly rare events, as can be seen in the last column of Table 1. The fact that far more often governments are
elected rather than imposed by force, is a welcome trend; however, this veils
the fact that a majority of the “elections” are either fraudulent or
meaningless. In only a handful of
countries are elections truly free, multiparty events.
It is still heartening that politicians
are making an effort to appear democratic rather than continue blatant
authoritarian activity. One important
factor that that has led to this phenomenon is the collapse of the Soviet
Union; no longer can African states play off one super power against the
other. In addition, the United States,
other Western nations, and the international organizations have made it clear
that they expect client states to conduct politics more openly if they are to
receive bilateral and multilateral aid.
In the next two sections I will discuss general
economic and political factors that need to be considered by prospective
investors in deciding whether or not to market or invest directly in this very
dynamic region of the world.
Economic
factors that influence the potential of Africa as a market or investment
include the following:
As one might expect, the economic picture in sub-Saharan
Africa is not rosy; quite the opposite, virtually all the countries have
experienced significant retrograde over the past decade. This observation is consistent with that
of the World Bank a decade
earlier. In the words of the World Bank
report Accelerated Development in Sub-Saharan Africa: An Agenda for Action
Output per person rose more slowly in
sub-Saharan Africa than in any other part of the world, particularly in the
1970s and it rose more slowly in the 1970s than in the 1960s. The tragedy of this slow growth in the
African setting is that incomes are so low and access to basic services so
limited. Now, against a backdrop of
global economic recession, the outlook for all less-developed nations - but
especially for the sub-Saharan region - is grim[1]
As there is no point in trying to sell
sophisticated machinery in a country where average incomes are less than $200,
this economic indicator, regardless of the growth rate of GDP, is an important
measure. At the same time, such a
country might be the perfect market for cheap watches or simple, inexpensive
solar cookers in a desert country.
Growth in per capita GDP is an
important indicator, as it indicates the likely future extent of a market. For example, Cameroon has traditionally been
one of the wealthier countries of Africa.
As late as 1990, real, per capita GDP in that country was estimated at
over $1200. But the growth rate in per capita GDP for the latter half of the
1980’s was negative. In fact, as a
result of mismanagement of the economy and
devaluation of the CFA franc in 1994, per capita GDP in Cameroon was
estimated at just $530 in 1995, less
than that of the average African country.
Table 2 lists real, per capita GDP and
growth rates for African countries for the years 1960-90 as estimated by
Lawrence Summers and Alan Heston. These
estimates are based on purchasing power parity, a measure intended to take into
account the cost of living differences across countries with very different
cultures and market baskets. This approach
is useful in comparing standards of living, but overstates the foreign goods
purchasing power of an economy.
As it is often easier to visualize growth trends by
means of a graphical representation, I have also provided a series of time
series plots for the countries of the region to help trace the development
trends of the region. These were done
for each country and grouped by eight subregions in the continent. The subregional graphs are provided with
this paper.
As can be seen from the Table and the graphs, with
few exceptions, growth rates have declined markedly from those of the 1970-80
period, despite a decline in oil prices and generally improved world growth
rates in the developed world.
Table 3 also shows GDP per capita for 1995, or the latest
year for which data are available for forty-six sub-Saharan countries. These GDP estimates are based on actual
values in local currency converted into dollars using exchange rates. These estimates more accurately reflect the
purchasing power of the country for imports, and therefore, are useful for
determining the size of the market for imported goods and services in each
country.
South Africa is the only country with more than 2
million population having more than $1000 per capita GDP. Nigeria, the most populous country had GDP
of less than $700 per person. Ethiopia,
with nearly 60 million people, had GDP of less than $100 per person. Clearly, based on GDP figures alone,
opportunities for exporting to most of this region are limited at best, with
the exception of southern Africa.
For simplicity, I have classified countries into one
of four categories based on their development pattern: (- , -), (+ , -), (- ,
+), and (+ , +). The signs represent
the changes from the previous decade of the percent growth in per capita GDP
given in Table 3. Thus, a country
classified as (+ , -) had higher growth in the 1970s than in the 1960s, but
lower growth in the 1980s than in the 1970s.
At the bottom of Figure 4 I have listed the countries falling into each
group. Note that no country is a (+ ,
+); 16 countries were classified as (+ , -);
10 were classified as (- , +), although two of these - Ghana and Sierra
Leone - had virtually the same growth rates in the ‘70s and ‘80s; and 18
countries have growth rates that have steadily worsened.
Oddly enough, one factor that improves
export prospects is the maldistribution of
income in most of Africa. Much
of the measured GDP is in the hands of just a few people. The middle class is small and there is
usually a small, but powerful, wealthy class.
These are often of foreign origin or are the ruling elite and their
families. Luxury goods are often found
in the market side-by-side with cheap local goods or goods imported from
neighboring countries. It is not uncommon
to find fashionable boutiques selling expensive Rolex watches, and just outside
the door young hawkers are selling Nigerian watches for two or three dollars
apiece. Market assessment requires one
to examine the size and wealth of the upper class in each country to determine
the depth of the market.
Many of the countries of the region
have a tradition of protectionism.
During much of the post-independence period, the nations followed
socialist, or even communist, economic regimes. Many other nations had preferential trade relations, usually with
the former colonial master state. This
is particularly true of the former French colonies.
It is generally true that almost all of the
countries in the region today have opened their markets at least legally, if
not de facto. Events in the European
Union have necessitated equal treatment to member states of the Union. On the other hand, there are still many
non-tariff, non-legal barriers to be encountered.
One of these is corruption in the customs
services. Low wages in the public
sector and non-payment of public servants are common occurrences, and it is
frequently necessary to “grease the palms” of someone before goods are expedited. In addition, one often encounters a certain
amount of resistance by consumers who are more accustomed to the products of
the former colonial power. People in
francophone countries just like things French.
They have a long tradition of buying these products and feel it their
“patriotic” duty to buy them, just as many citizens of the United States like
“American” goods and will resist buying superior Japanese or European products.
These monetary and non-monetary barriers reduce the
potential market still further. For
example, a 50 percent tariff rate, or a bribe of that magnitude, effectively
reduces the real purchasing power of the local income to two-third of that
estimated in Table 3. In addition,
consumer resistance means the price must be reduced below that of the
competing, preferred product, in order to sell it.
These factors must be analyzed before attempting to
enter such markets. As a general rule,
however, the African market is very limited, and there is very little
opportunity, at this time, to sell in that market except, as noted earlier, to
a small, wealthy class for which price is no object.
In my opinion one of the most positive
influences on the markets of Africa has been the increasing influence of the international
organizations, and particularly the IMF and the World Bank, to persuade African
countries to liberalize their economies.
The
World Bank report cited above noted the need to refocus development efforts
away from centralized planning toward greater reliance on the private sector
and market forces. The Accelerated
Development report calls for the liberalization of markets in the
sub-Saharan states. This
"structural adjustment" of the sub-Saharan economies was expected to
unleash natural market forces to direct scarce resources to their highest use
value.
Future development funds from the major multilateral donors,
the World Bank and the IMF, were made conditional on the governments'
commitment to pursuing the structural adjustment. This process is often referred to as
"conditionality".
Furthermore, many of the bilateral donors have come to rely on
monitoring by the multilateral donors in conditioning their funds as well. Thus, World Bank/IMF consultative teams
examining adhesion to structural adjustment principles have enormous power over
recipient governments.
As a consequence of this clout, national leaders have often
blamed these organizations for draconian measures called for in structural
adjustment plans. To sweeten the
medicine, the multilateral donors provide additional funds, called structural
adjustment loans, or SALs, to soften the shock during the adjustment
period. Originally, it was anticipated
that the majority of the states would require a rather brief period of adjustment,
around five years or less, to make the adjustments.
Unfortunately, experience has shown that, for various
reasons, this period is far too short for most countries. For several reasons - flagging commitment by
governments, changes in the ruling elite, persistent structural imbalances,
external events, etc. - states have required far longer to make the necessary
changes called for by conditionality.
This has led to increased impatience on the part of multilateral and
bilateral donors, who expected quicker transformation.
Before discussing further the history of structural
adjustment, a summary of the measures included in the structural adjustment
process is in order. A structural
adjustment program consists of one or more of the following:
1. Internal
and external balance. National budget
deficits to be eliminated by increased revenues, usually via more efficient
tariff collection, and a reduction in national expenditures. The latter usually means laying off many
public officials and reducing their salaries.
Balance of payments to be achieved via a realistic, market-determined
exchange rate; this has often resulted in devaluation of the host
currency. Foreign exchange rationing to
be eliminated.
2. Where a
problem, inflation to be brought under control via monetary restraint. This has been a severe problem in those
countries having national currencies; it has been much less of a problem in the
franc zone.
3. Privatization
of parastatals, where appropriate, to reduce losses on unprofitable state
enterprises or to promote greater efficiency in profitable ones.
4. Elimination
of unnecessary government regulations to reduce corruption and expand
production.
5. Promotion
of financial intermediaries to make greater capital available for domestic
investment. A market-determined
interest rate to lead to efficient rationing of scarce national savings.
These are the major elements of structural adjustment. As can be seen, they call for a general
liberalization of the economy of the country.
Obviously, such a program is very ambitious and requires some time to
achieve.
In anticipation of the evils of the structural adjustment
process, the countries of Africa drafted their own development strategy, known
as the Lagos Plan of Action. Adopted in
April 1980 by the Organization for African Unity, the Lagos Plan called for
greater collective self-reliance.
Unfortunately, the plan was lacking in detail about how the objectives
outlined in the plan should be achieved.[2]
Despite its
critics, serious adherence to a structural adjustment program, or SAP, can lead
to very positive developments, as occurred in Egypt and is occurring in Ghana
today. Table 4 lists sub-Saharan
African countries with
SAPs in place or completed.
Political Factors affecting Market Potential
In addition to the economic viability of a country,
potential investors need to assess its political stability. There are two main considerations
here: safety of the investment, and its
efficiency.
A stable political system may be the result of a strongman
military regime that can guarantee that the investment will not be expropriated
via a socialist takeover, but such regimes are often corrupt, leading to a
frittering away of profits through a system of bribes and payoffs. Merely examining investment codes will do
nothing to assure a potential investors that they will not in fact be
constantly harassed by “sons-in-law” of the President or general or some
customs official looking for handouts.
The best way to find out about the true climate for
investment is to contact your embassy.
Normally there is someone assigned to advise prospective investors of
the current situation. While I was in
Yaounde I often had discussions with the economic officer at the US embassy. His assessment of the environment there, in
part due to information I provided, led him to conclude that no American should
consider investing in Cameroon; it pained him to have to advise people to stay
away, and it was the first occasion in his career that he had to do so. Increasingly, this has been the assessment
of economic officers in African countries as regimes become more and more
corrupt.
Ironically, these developments are closely linked to the
economic environment and to liberalization of many of the economies. As governments are forced to streamline and
privatize, more and more functionaries are left unemployed or, worse,
unpaid. Often the sole means of support
for the latter group is to engage in rent-seeking behavior, using their
official status to extort payments from clients.
Personally, it was very frustrating to have to transport
someone to my house to have him connect my telephone wire to the house and then
also to have to pay him to perform the work so that I could have service. But without that I would never have been
hooked up. The same was true of water
and electricity. But the parastatals
responsible for providing these services are no longer funded sufficiently to
pay their own employees and their collection systems are antiquated and often
six months or more behind schedule.
Two recurring themes in the United
States’ relationship with developing countries have been democracy and human
rights. While a democratic regime may
trample on individual freedoms and an authoritarian regime may be very
respectful of human rights, generally the level of respect for human rights is
highly correlated to the level of democracy in a country.
In the President’s recent visits to
Africa and China, he stressed the importance of democratization and the respect
for human rights, and was very complementary of the improvements in this area in much of Africa. He spoke about a tripling in the number of
regime changes the last few years that have been decided by election. We saw from Table 1 that there has been
increased electoral activity. Today in
only a handful of nations have the most recent changes in government been
accomplished via the gun.
Unfortunately, many of these elections
are not what we in the West consider to be elections. Still, there has been great improvement over the past when coups
d’etat were common occurrences. I have not attempted in this study to list
the truly fair elections as opposed to window dressing; often opposition
candidates will cry foul even in relatively fraud-free elections, while in
other cases the opposition is effectively silenced in obvious rigged
elections.
Far too often, however, incumbents have
unfair access to a controlled mass media apparatus that is denied their
opponents. Far too often parties are
permitted to field candidates at the last minute or an individual that the
incumbent fears will win is declared ineligible. One tactic that I particularly like is to allow a candidate to
run, then have the electoral commission declare that candidate ineligible
because he has not resided in the country for some period preceding the
election; of course, the opponent was in exile following the preceding election
that was stolen by the incumbent.
Another problem with relying on the
level of democratization as a measure of business potential in a country is
that, for developing countries, there is really no correlation between
democracy and economic performance.
China and many of the other NICs in Asia were not highly democratized
during their years of maximum growth rates, nor has a country such as India
done well economically even with a high degree of democracy. What is true, however, is that democracy
invariably has followed economic development.
For this reason I would recommend that this particular dimension not be
given great consideration in deciding whether or not to invest in a country;
rather political stability and economic performance should be given the most
weight.
This paper has been an initial attempt
at developing a methodology for assessing the potential for investment and
marketing in developing economies. I
used sub-Saharan Africa, a particularly poor region of the world and one with
which I am most familiar, as a sample.
From the data gathered it does not
appear, from almost any dimension examined, that there is, at this time, great
potential in this region. While some
gains have been made in recent years in some of the countries of the region,
one can expect some backsliding in many of these countries. The attempts at democratization, economic
reform efforts, and rural and urban infrastructure have been so woeful to date,
that the bare necessities for successful investment are not yet in place.
Even in South Africa, the only sizable
country with high per capita, GDP political stability is by no means
guaranteed. Next year Nelson Mandela
will step down for a younger, hand-picked successor. There a great likelihood of violence as Buthelezi and the Zulu
Nation attempt to gain greater power in the government. The uncertainties have made many White South
Africans seek a safer haven outside South Africa. This disinvestment will create opportunities for investors
willing to take a chance on South Africa; but it is a high-risk
opportunity. If violence does break out
there, or if the lost investment is not replaced by new investors, South Africa
will likely devolve in much the same way as has occurred in Kenya or, more
recently, in Zimbabwe.
In future I will expand the work
started here in two directions. First
I will apply similar techniques to other regions, Eastern Europe, South Asia
and the Middle East, and Latin America.
Secondly, I will examine economic trends across developing countries to
trace the relationship between external economic and internal political events
and internal economic development. I
will define a “profile of devolution” whereby internal events, such as military
coups, deaths of a popular leader, tribal and civil unrest, disputes and
warfare with neighboring states, etc., as well as external “shocks” like the
oil crisis of the late 1970s, cause internal, economic decline. This in turn feeds back via political unrest
to exacerbate the decline, which, in turn, worsens the political environment.
Profiles for all the countries in the
region will be examine against a timeline of events to identify the
disturbances that have had greatest impact on economic development in each
country. The fact is, there are an
infinite number of things that can go wrong and lead a nation down the path to
economic disaster; there is only one way, or a limited number of ways, of doing
things right. Economic development is
more an accident than the norm, and apparently successful development efforts may
go for naught if great care is not taken.
Recent events in Asia, as well as the Great Depression, testify to just
how fragile successful development really is.
Hopefully,
examining recent economic events in the least developed nations of the world,
can yield insight into the development process and help us in developing
policies and development strategies to maintain a more constant growth path for
those countries in greatest need.
Table 1. Political Data for Sub-Saharan Africa: Independence to Present
Table 2. GDP Data for Sub-Saharan Africa: 1960-90
Table 3. GDP Data for Sub-Saharan Africa: 1965 or Latest Data
Table 4. Structural Adjustment Programs in Sub-Saharan Africa
Table 5. List of Sources of Information About Sub-Saharan Africa
Figure 1. North Africa GDP Trends: 1960-Present
Figure 2. Northeastern Africa GDP Trends: 1960-Present
Figure 3. East Africa and Zaire GDP Trends: 1960-Present
Figure 4. West Africa Franc Zone GDP Trends: 1960-Present
Figure 5. Anglophone West Africa GDP Trends: 1960-Present
Figure 6. Other West Africa GDP Trends: 1960-Present
Figure 7. Central Africa Franc Zone GDP Trends: 1960-Present
Figure 8. Southern Africa GDP Trends: 1960-Present
Figure 9. Indian Ocean and Mozambique GDP Trends: 1960-Present
Country Program
Angola 1991 - Announce economic reforms - devaluation, tax reduction, minimum wage, freer prices. Due primarily to 500% inflation measures fail.
1996 - Nova Vida reform to reduce inflation. IMF announces 3-year, $75 million ESAF. National commercial bank to be sold.
Benin 1991 - 1993-95 ESAF approved by IMF, debt rescheduled. Modified as result of 1994 CFA devaluation. New Kerekou regime to work with IMF in restructuring economy. New ESAF agreed on.
Cemeroon 1989/90 - Economic restructure program introduced, loans from France, World Bank, ADB; liquidation of parastatals, reduce civil service and regulations. Political instability, corruption in civil service and increasing external debt impeded implementation of reforms.
1994 - CFA devaluation increased local value of petroleum and other exports caused brief spurt in real GDP growth; future economic success, however, requires further economic restructuring.
Cape Verde none
CAR 1982 - Stand-by IMF loan, austerity plan implemented, broken 1983.
1983 - IMF loan suspended, later resumed when plan re-implemented.
1987 - Structural adjustment: liberalize, liquidate parastatals, reduce civil service, etc. Progress made
1990 - 2nd SAF agreed to; political instability and 1994 CFA devaluation resulted in failure to maintain repayment schedule.
1996 - France supplemented salary payments; IMF talks suspended.
Chad none
Comoros 1996 - France conditions future budget assistance on accommodation with World Bank and IMF.
1997 - 6-month IMF austerity and surveillance program implemented.
D.R. Congo none
Rep. Congo 1989 - Economic liberalization plan implemented via revised tax structure.
Table 4
(Cont’d)
Country Program
1994 - CFA devaluation, implementation of restructuring and liberalization: privatization, reduction of civil service.
1996 - ESAF approved; jeopardized by political unrest in 1997.
Cote d’Ivoire 1991 - IMF/WB structural reform program implemented: fiscal austerity, market liberalization, reduce current account deficit by 50% by 1995. Targets not achieved by 1993 when govt. changed.
1994 - CFA devaluation led to marked economic recovery.
Djibouti 1995 - Announced it would not apply for IMF assistance; public salaries reduced.
1996 - Agreement with IMF concluded for $6.7 m. stand-by credit: reform civil service, restructure public enterprises. IMF not satisfied with implementation of program.
1997 - IMF agrees to extend 2nd stand-by credit of $6.4 m. plus $2.8 m. credits. IDA granted $6.5 m. for TA.
E. Guinea 1988 - IMF SAF of $11.2 m., suspended after $9.2 m. due to failure to reduce budget deficit.
1990 - Measures adopted to liberalize import prices, stimulate private investment, raise tariffs on public utilities. By 1994 budget still seriously in deficit.
1994-96 IMF agreed to $12.9 m. ESAF: to diversify economy, reform public sector, restructure financial sector. By 1997 budget deficits still too large.
Eritrea 1994 - Economic reforms approved: investment, land tenure, fiscal policy, trade.
1997 - World Bank approved $6.3 m. credit for feasibility studies.
Ethiopia 1991 - The ERRP, a program of economic restructure introduced with help of WB, IMF, ADB, et al. 1992 and 1993 birr devalued, 1993 foreign exchange auction implemented; removed capital charge on subsidies to public enterprises; partial reform of taxation; elimination of all export taxes, except for coffee. Balance of trade has improved since 1991.
Gabon Little adherence to IMF conditions in past.
1995-98 - EFF payments denied due to lack of public financial transparency. EFF includes: improved rate of return on petroleum resources; reform tax revenue system; reduction in public spending; privatization.
Table 4 (Cont’d)
Country Program
Gambia 1985 - ERP implemented: devaluation, 20% reduction of public service employment, privatization, liberalization of economy.
1990 - PSD continued ERP; Gambia Utilities Corp. privatized in 1993.
Ghana 1983 - ERP I introduced to stabilize economy. 1987-90 ERP II for structural adjustment and development.
1995 - 3-year, $258 m. SAF made for 1995-97:exchange rate and trade policy reforms including devaluation and FX auction, ending import quotas, uniform customs tariff; simplify and rationalize tax system; improve tax administration; reduce import price subsidies; VAT introduced (17.5%), later withdrawn, to be reintroduced in 1998 (no specific rate); limit budget expenditures; privatization of 52 state enterprises by 1993 and planned privatization of Ghana Airways and Post and Tel. Corp. By most accounts the ERP has been quite successful.
Guinea Since Conte took over, economic reform has been implemented in agreement with IMF: privatization; liberalize foreign trade; abolition of price controls; monetary and banking reforms; reduce civil service. Reform efforts have been quite successful.
Guinea-B. 1987-89 - SAP introduced in agreement with IMF/WB: remove price and marketing controls; reform public sector.
1991 - Plan to privatize public enterprises announced. IMF unsatisfied with progress and did not renew SAF. To date little progress made.
Kenya Not met conditions of several SAFs.
Lesotho 1989 - IMF approved SAF to help raise GDP growth rate, lower debt-service ratio, reduce inflation. Policies to increase credit to private sector; encourage private investment, especially in export good and import substitutes; increase agricultural productivity. Not met
1991 - ESAF for 1991-94 program. Targets exceeded.
1995 - Privatization program unveiled; to cover five years.
Liberia Never met conditions of any loans or facilities.
Madagascar 1986-91 - Investment code introduced; rice controls abolished; exports encouraged; devaluated currency. Other positive economic measures taken.
1991 - $1 b. public investment program financed by WB, IMF, et al: liberalize trade and finance; encourage foreign and domestic investment; privatize public enterprises; increase producer prices.
Table 4 (Cont’d)
Country Program
Madagascar 1995 - Discussions with IMF/WB for new facility. None yet approved although several more measures taken: reduced inflation; new petroleum tax; restrict Central bank loans to private enterprises.
Malawi 1981, 1986 - IMF/WB economic reform programs. Canceled in 1986.
1988 - Agreed to 14-mo. stand-by facility, debt rescheduling; 4-year ESAF.
1992 - Two devaluations. Economy suffered from external shocks.
1994 - Heavy borrowing for elections, devaluation, drought. $40 m.WB supplement (drought recovery) approved. Unsuccessful SAP supported by 8-mo. IMF stand by.
1995 - ESAF approved conditional on ERP: economic liberalization and privatization. 26 parastatals to be privatized; eliminate agric. Monopolies; 20,000 civil servants sacked. Some success.
Mali 1994 - Devaluation of the CFA franc.
Mauritania 1984 - One year SAP with IMF: more care in choosing public investment projects.
1989 - ESAF: to foster private enterprise; restructure and rehabilitate banking sector.
1993 - ESAF of $63 m.; debt restructure loan.
Mauritius 1981 - $15 m. SAL from WB to finance 3-year economic reform program. $30m. stand-by credit from IMF - suspended in 1982.
1983 - $49.8m. IMF credit, $48m. WB loan. Later IMF disputed second half of credit; WB followed suit.
1988 - Relaxed exchange controls
1993 - 3-year development program to modernize and diversify economy.
Mozambique 1987 - ERP supported by IMF: increase economic efficiency and reduce internal and external deficits by liberalizing economy; reduced expenditures, increase income taxes, reduced govt. wage costs and subsidies, controlled credit growth, increased minimum wage, increased basic commodity prices. Also regular devaluations of the metical.
1990 - SDR 85.4m. ESAF approved by IMF: increase role of private sector. By 1995 1000 state enterprises had been privatized.
1994 - Additional SDR 29.4 m. approved.
1997 - IMF approved $35m. loan.
Table 4
(Cont’d)
Country Program
Namibia None
Niger 1983 - ESAF IMF stand-by credits, austerity budget, debt reschedule.
1994 - CFA devaluation. No ERP to speak of.
Nigeria 1986 - SAP implemented: austerity and monetary control; expand oil exports; import substitution; achieve food self-sufficiency; increase role of private sector; ban import licenses; reduce import duties.
1987 - FX auction introduced. (1991 returned control to Central Bank).
1988 - 110 public enterprises to be privatized; by 1992 90 sold.
1994 - SAP abandoned.
Reunion 1992 - Established an Export Free Zone (EFZ).
1994 - Reduced public sector employment.
Rwanda 1990 - SAP announced with IMF: 40% devaluation; liberal import licensing; increase import taxes; increase sales tax; new credit and interest rate policies. $170 m. support raised.
1994 - War.
Sao Tome 1985 to present - SAPs to restructure economy which had been Marxist: privatize state owned shops and industries; devaluation; abolish price controls except for basic food items; wages increased; reduce state subsidies; etc.
1991 - Priority on fiscal and economic austerity; banking system reorganized. 1992 - SAF resumed.
1994 - WB threatened to suspend SA credits due to implementation delays; failed to qualify for ESAF by IMF.
1995 - New austerity measures announced: fuel prices raised, 300 civil servants sacked; privatization to be expedited; limit wage increases of public sector to 30%; interest rate increased from 35% to 50%.
1997 - WB/IMF issue ultimatum to balance the macro economy; curb inflation and devalue currency.
Senegal 1995 - Govt. announced plans to end artificial protection of many sectors; eliminate subsidies on some food commodities; privatization of agricultural marketing, industry and public utilities; 18 state-owned enterprises offered for sale in 1997.
Seychelles 1995 - Economic Development Act: Govt. proposed program of privatization; encourages foreign investment; full repatriation of .taxed profits.
Table 4 (Cont’d)
Country Program
Sierra Leone 1986 - ERP implemented: floating exchange rate; elimination of Govt. rice and petroleum subsidies; liberalization of trade; increase producer prices. 1988 IMF withdrew support.
1989 - SAP program approved by IMF: increase mining revenues; reorganize loss-making public enterprises. Implementation postponed due to failure to reduce expenditures and control debt arrears.
1992 - Despite internal unrest and war, Govt. agreed to implement final stage of ERP: restrain money supply; develop FX market; imporve management of natural resources.
1994 - Privatization of 19 parastatals begun.
Somalia None
South Africa None
Sudan 1979, 80, 81, 83 - Various agreements with IMF, all suspended.
1987 - ERP accepted by IMF: devaluation; liberalization of FX controls and trade policy; budget restraint and revenue generating measures. Price increases of essential commodities revoked
1989 - New measures: review of state concerns and banking institutions, and effects of subsidies, measures to increase taxes, spending cuts, and possible introduction of user fees for health and education.
1992 - ERP announced: float pound; increase import and export duties; cut spending; cut subsidies. Popular pressure diminished Govt.’s ability to carry out reforms.
1995 - AMF threatened expulsion for non-payment of arrears; 1996 new agreement concluded.
Swaziland 1995, 96 - Reform public enterprises and tax code; increase sales and luxury tax and reduce corporate tax.
Tanzania 1982 - SAP developed with WB: stimulate agriculture; reduce spending; relax price controls.
1986 - $45 m. in stand-by credit: devaluation; raise producer prices; freeze minimum wage; reduce budget deficit; remove price controls..
1990 - Economic and Social Action Plan (ESAP).
1991 - 3-yr ESAF; $100m. per year. 1994 donors suspended payments due to widespread tax evasion.
1996 - New tax unit operational; IMF credit restored. Financial sector revived with 8 private commercial banks.
Togo 1989 - ERP adopted with IMF.
Table 4
(Cont’d)
Country Program
Togo 1994 - Devaluation of CFA franc, comprehensive adjustment paln
adopted. Increase in growth of 13%.
Uganda 1981-83 - IMF approves $424 m. in stand-by facilities.
1987 - ERP proposed by Govt.: new shilling; devaluation.
1995 - Uganda Commercial Bank to be privatized; privatize or close 14 other commercial banks; 85% of parastatals to be privatized.
Zambia 1987 - Zambia declared ineligible for credit facilities for non-payment of loans.
1992 - 3-yr SAP with IMF/WB: decentralize social services; reorganize civil service; privatization; devaluation; reduce inflation (limited success); liberalize FX trading. Program had some success, but much left to be done.
Zimbabwe 1991 - ESAP introduced to increase private consumption.
Table 4 (Cont’d)
The Terminology of Structural Adjustment
In Table 4 above several terms were used to describe the types of programs and credits for the various countries. Below is a guide to what each of these is.
An ERP is an economic reform program or package, usually decided upon by the country on its own. Often, however, these become SAPs, or structural adjustment programs, usually drafted with the assistance of IMF/World Bank visitation teams that determine the exact measures needed to improve the functioning of the economy.
If approved by the IMF/WB team, these organizations will proceed with a recommendation for either or both a SAF and a SAL. SAFs, or structural adjustment facilities, are IMF credits to assist the country with short-run balance of payments deficits that result from the SAP. SALs are World Bank structural adjustment loans which help directly with the restructuring effort. An ESAF or extended SAF, is merely an extension of the previous SAF needed because the restructuring is taking longer than anticipated or for the next phase of the restructure.
The IMF is the International Monetary Fund, created at Bretton Woods after World War II for the purpose of assisting member nations facing short term balance of payments deficits. Each member state pays dues and receives credits, or concessionary loans, when needed. Often the mere existence of the stand-by credit is sufficient to diminish the pressure on a country’s currency.
The World Bank is actually a group of organizations that
make concessionary loans to countries in various stages of their development
efforts. The oldest of these, the IBRD
or International Bank for Reconstruction and Development, was also born at
Bretton Woods and was originally intended to assist in the reconstruction of
Europe after the Second World War. The International
Development Agency, or IDA, makes loans to the poorest nations at very
concessionary rates. It is, in effect,
the bank of last resort for many countries in Africa, and many of its loans are
never repaid.
Table 5. Partial List
of Sources of Information About Sub-Saharan Africa
The internet
The Central Intelligence Agency, The World Fact Book,
at http://www.odci.gov/cia/publications/factbook/.
The State Department publishes periodic business information
reports on countries around the world at http://www.state.gov/www/about_state/business/index.html#country/.
A site that has links to news sources, data sources, country
pages, etc. is the Norwegian Council for Africa at http://www.africaindex.africainfo.no/.
A major source of African data can be found at
http://www.sas.upenn.edu/African_Studies/Country_Specific/.
For information about languages (and translating the
Wycliffe Bible), the Summer Institute of Languages can be found at http://www.sil.org/.
For interesting articles about structural adjustment efforts
and other financing information, look at the World Bank at http://www.worldbank.org/html/extdr/country.htm/.
Trade information, by country, can be obtained at (in this case Angola)
http://www.cgtd.com/global/africa/angola.htm/.
An online, interactive source of information can be had at
http://www.cgtd.com/global/african/business-africa.htm/.
Other sources used:
One of the best source of historical, political, and economic information on Africa is Europa Publications Ltd. Annual series Africa South of the Sahara. Europa also has regional series for all regions of the world.
Stephen Silver, Recent Economic Development Efforts in Sub-Saharan Africa, unpublished manuscript presented at the Eighth World Congress of Social Economics, 1996.
Stephen Silver, Profiles of Devolution in Africa, in
progress.