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Africa: Development challenges and the World Bank’s response

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1986
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Edward V. K. Jaycox

Edward V.K. Jaycox, Vice-President, Eastern and Southern Africa Region of the World Bank, spoke on this topic at the Woodrow Wilson International Center for Scholars, The Smithsonian Institution, Washington, DC, in August 1985. Here are excerpts from his lecture:

The tragedy unfolding in Africa has riveted world attention on the region’s plight. Since 1980, some 34 countries have been afflicted by drought. Millions of people have died and many more are threatened by famine and malnutrition. Emergency assistance, though much needed, will not suffice. This tragedy is not of recent origin. Its causes have deep roots and are structural. The drought, though, has revealed the vulnerability of Africa’s ecosystem, its structure of production, and its low level of development. The appropriate response must therefore involve tackling all of these problems in a comprehensive manner.

It must, however, be realized at the outset that sub-Saharan Africa suffers from deformed production structures inherited from the colonial era. Much of the region’s exports consists of a vulnerable and narrow spectrum of primary commodities, while manufactured goods and capital equipment form a small proportion of domestic output. Trade forms a high proportion of gross domestic product and is highly concentrated with respect to trading partners.

Over the past two decades, the fragility of Africa’s economies began to unfold. The economic situation began to deteriorate in the 1970s and continues to do so. Growth of per capita income for all of Africa was marginally positive in the 1970s as income growth barely outpaced population increase. But in the 1980s, domestic production has declined every year while population has continued to grow rapidly. The decline in per capita income has been so steep that it is now below its 1970 level: we now face the prospect that Africa will experience a generation of declining per capita income.

Agriculture, the backbone of African economies and the key to the development of the continent (since it is overwhelmingly rural and agrarian) has been a lagging sector. Agriculture output per capita has been declining steadily over the last two decades and food imports have increased sixfold in the last 20 years….

Unfortunately, the decline in production was not confined to agriculture. Mining output in 1982 was 68 percent of its 1970 level. Much of industrial capacity lies idle because of falling domestic demand, poor investment choices and inadequate foreign exchange for materials and spare parts….

Looking at the basic constraints to development, we find: first, a weak human resource base, lack of technical, managerial, and entrepreneurial skills due to neglect of education during colonial times. Second, political fragility resulting from newness of independence and diverse cultures and languages and a lack of national integration. Third, a heritage of uneven, dualistic development, weak infrastructure, and subsistence agriculture. Fourth, generally unfavorable climate and geographical factors: tropical soil which is fragile and deficient in organic materials, and only one fourth of which is well watered. Fifth, extremely rapid population growth….

These already vulnerable countries have been particularly hard-hit by a series of external shocks in rapid succession: the oil shocks of 1973 and 1979, which increased imported energy costs and devalued commodity exports accordingly; the major recession in industrialized countries which transmitted itself to Africa as a decline in demand for commodity exports and declines in their prices to levels not seen since the Great Depression; worldwide inflation which encouraged countries to finance their development through debt and then disinflation which left them with high debt at high real interest rates. At the same time access to new credit and private equity investment has all but dried up and concessional aid has declined, partly in response to budget stringency in the donor countries and partly as a result of growing dissatisfaction with the results that aid has achieved—so-called “aid fatigue.” Moreover, as recovery began to get underway in industrialized countries, the benefits have eluded most African countries. Demand for their products has not picked up significantly, prices remain low, interest rates remain high and aid continues to stagnate….

…In the face of these external shocks, by and large African governments have failed to adjust their economies, and have therefore been overwhelmed by difficulties and decline. It must be noted that this is not because African leaders don’t care or because they don’t know any better. Political instability and institutional fragility have to a large extent tied their hands and led to overpoliticization of the decision-making process….

The Bank’s response

The Bank has outlined a Joint Program of Action for sub-Saharan Africa. This program calls for a collaborative effort by African governments and the international community, the essence of which is, by now, widely shared.

This Joint Program has as its objective nothing less than getting sub-Saharan Africa back on the growth path. There are three main elements of our approach. First, to implement policy reforms which will provide a framework for sound economic growth. Second, to improve dramatically the quality of public and private investment and expenditure in these countries. And third, to increase as rapidly as possible the domestic capacity to manage national economies through human resources and institutional development. Our strategy necessarily involves a focus on agriculture—because of the central importance of this sector, economically and socially as well as because of the imminent dangers to the fragile environment inherent in the combination of traditional agriculture and increasing population density.

On the policy reform front, we are supporting analytically and financially the implementation of macroeconomic and sector policy frameworks which stress efficiency of investment, greater reliance on market forces, and reductions in bureaucratic controls which have stifled development and had regressive impact on social equity. In this respect, we are working both with the countries and the other donors (including the IMF) to find ways to implement these difficult reform and adjustment programs in the least painful and most efficient ways—keeping the development objectives firmly in mind. Alongside our traditional project loans/credits, we are making so-called structural adjustment and sectoral adjustment loans/credits which provide general or wide-ranging import support to countries implementing important policy reform programs.

On the matter of quality of investment and other expenditure we are working not only on our own portfolio of investments, but on the total expenditure programs in these countries…. This means emphasis in most cases on rehabilitation and maintenance, in infrastructure, services and enterprises to increase output and capacity utilization quickly at least cost. We need these quick returns, but we cannot ignore the very high but slower returns to education, training, research, environmental protection and conservation, family planning, and institutional development.

This third front—to institutionalize the capacity to manage the development process, the capacity to implement policy reforms and sound investment programs, lies at the heart of the development process and is lagging woefully in sub-Saharan Africa. Here again we are working with other donors and the UNDP to examine the effectiveness of technical assistance, and our past efforts at institution building, and to develop with each country strategies for human resource development….

The World Bank has been asked by the donor community to take the lead in laying out with each African country robust recovery and development strategies which can be supported externally. African governments have asked the World Bank to form increasing numbers of Consultative Groups—groups of donors and financial supporters, to promote more, better coordinated, and more effective external assistance. After all, most of the new investment in Africa over the past two decades has taken place with the participation of the donor community….

Now let me turn to the question of the financial resources available to help Africa back to the growth path. Even though in the past Africa has received the highest per capita allocations of external assistance on concessional terms, we have seen these flows stagnate and decline in recent years. Secondly, the burden of debt and debt service has generated a very substantial reflow of capital to the developed world. We now estimate that on a net basis the capital flows to Africa in the period 1985–89 will be less than one half the net flows to Africa during the period 1980–84. We do not foresee any dramatic improvement in terms of trade or export possibilities that can offset this reduction in net capital flows. If Africa is to return to the growth path, if Africa is to successfully survive the traumas of necessary structural adjustment, the net flows of capital to Africa will have to be substantially increased—through increased gross flows and/or some forms of debt relief—at least for those African countries willing and able to take painful measures to adjust their domestic economies.

While the World Bank Group has a very positive net flow of resources to sub-Saharan Africa, we are forced to do less than what we could and should do because of the shortage of IDA resources. The last replenishment of IDA—of which Africa now receives more than 35 percent—was only $9 billion over a three-year period, compared to the $16 billion we felt was required. In order to help compensate for this shortfall in IDA we have organized a Special Facility for Sub-Saharan Africa, in which donors were invited to participate. So far, approximately US$1.3 billion has been contributed to this Special Facility, which will be concentrated on supporting policy reform programs. The Facility is being financed by donations from 21 donor countries plus an allocation from the profits of the World Bank itself. It became effective July 1 [1985] and [began] disbursing to the first recipients [in August]. We are working on further expansion of the Facility and hope eventually to see the United States join our ranks.

There are a few other aspects of our response to the economic situation of Africa, which I’d just like to mention:

• We have also created a Special Project Preparation Facility which will finance on a grant basis project preparation and policy studies that would form the basis for projects and programs financed by the Bank or by other donors;

• We have established a budget to finance African agriculture research of a regional nature on a grant basis;

• We have increased the number of field missions in sub-Saharan Africa and strengthened each of the existing field offices with the addition of professional economists and agricultural staff;

• We have generally redirected staff and budget resources internally in the Bank toward sub-Saharan Africa operations….

But while we need to do more, we also need to do things differently. We need to look at Africa’s problems comprehensively. We need to utilize existing aid more efficiently and we need to be willing to try new approaches. Furthermore, to put the African countries on the growth path, it is important that African governments, bilateral donors, and multilateral agencies recognize: the overriding importance of the development of indigenous managerial, executive, research, and innovative capability; creation of an honest, dedicated, and loyal body of managers and entrepreneurs; development of appropriate technology, appropriate prices, and adequate control over public enterprises; the need for the economies to be flexible and to shift resources from one activity to another; and the need for a conducive political environment for economic activities. We need to avoid proposing prescriptive policy packages which are not politically feasible. We must take into account real political fears and carry out detailed analyses of implementation problems to avoid undesirable income distribution and power distribution effects. We must propose step by step implementation sequences with buttressing and buffering measures to make them less painful or dangerous.

There are no magic solutions, no panaceas. But the World Bank is prepared to make every effort to respond to the development challenge which Africa presents.

THE EFFECTS OF FUND-SUPPORTED ADJUSTMENT PROGRAMS

Adjustment is frequently necessary but seldom painless. Any program of adjustment, in essence, involves an attempt to establish a better balance between the availability and use of resources, between supply and demand, between income and expenditure. The impact of Fund-supported programs has been a subject of debate for almost as long as the Fund has been involved in assisting its members with their balance of payments difficulties. The debate has intensified in recent years in light of the particularly severe balance of payments difficulties that member countries have faced, requiring commensurate adjustment efforts. Finance & Development has carried several articles in past issues dealing with different aspects of Fund-supported programs. In this issue we publish a set of three articles based on recent staff studies that analyzed, in considerable depth, three particular facets of this question, namely the global effects of programs, the impact of programs on economic growth, and the consequences of programs for income distribution. The original studies are being published by the Fund in its Occasional Paper series. The Managing Director of the Fund, Jacques de Larosiere, has frequently had occasion to address the question of adjustment and growth in his public statements. A selection of his remarks is also included in this section.

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