A View from Africa

I. Patel
Published Date:
December 1992
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Economic distortions affecting the balance of payments in the late 1970s, particularly the sharp shift in the terms of trade, spurred an increasing number of African countries to undertake both stabilization and structural adjustment programs. Some countries (e.g., Algeria, Botswana, Ethiopia, Lesotho, Libyan Arab Jamahiriya, and Nigeria) designed their own approaches (i.e., homegrown programs), which did not differ significantly from the widespread programs undertaken with the assistance of the International Monetary Fund (IMF) and the World Bank. As a result of the new programs, important and long-lasting changes have been applied. In many of the countries, austere budgetary and monetary policies have been effected with a view to containing balance of payments and inflationary pressures and to promoting economic confidence. A much stronger role for the private sector has been encouraged, and significant efforts have been made to make it adapt to market signals. Policies that recognize private initiatives in production and investment have been pursued, even in some socially oriented countries. The adoption of, and perseverance with, stabilization programs and structural adjustment reforms in the 1980s reflected an expectation on the part of African governments that the IMF and the World Bank would play a catalytic role in facilitating the flow of large financial resources from the two multilateral institutions and other external sources. It was also expected that the adoption of structural adjustment reforms would help African countries eliminate their balance of payments deficits, manage their external debts, and resume growth of their economies.

Notwithstanding the policies and measures applied throughout the decade of the 1980s, Africa’s economic crisis has presented an extraordinary challenge to the development community. As the crisis continues to deepen, the concern of academics and policymakers has heightened and, naturally, some searching questions have been raised. The concern has also led to the search for alternative models for formulating structural adjustment programs. Some of the suggestions have focused on policy instruments and approaches.1 Others have emphasized the need for a human-centered approach to protect particularly the vulnerable groups in society. The IMF and the World Bank staffs have also modified their views on the formulation of structural adjustment programs over the years, paying more attention to structural factors.

As we begin the new decade of the 1990s, it is proper to evaluate the trends of the crisis and the measures applied. It is also useful to assess the successes and failures in order to draw lessons and chart a course for future approaches. While my paper is intended to make only a modest contribution in this direction, it is admitted that no single paper can hope to do full justice to the diversity of Africa’s experiences with structural adjustment strategies and the differing views on how to tackle the problems associated with them. The paper does not pretend to present full answers: its goal is to sift carefully through available information and to set forth an assessment of the lessons learned and the measures and approaches needed to improve Africa’s development prospects in the 1990s.

The paper is organized as follows. The first section relates the need for a larger volume of imports to promote growth and investment in Africa and the necessity, therefore, for stabilization and structural adjustment programs to provide a larger volume of financing on terms that are more appropriate for the African situation. The second section discusses the problem of linking additionality of external assistance to stricter conditionality and unrealistic repayment schedules for outstanding external debts and argues that the current conditionality prescriptions in the absence of substantial debt relief and more adequate external financing can only lead to excessive idle capacity, rising unemployment, forgone output, and deterioration in living standards for African countries.

The third section suggests that for stabilization and structural adjustment programs to be successful and viable in the 1990s, larger flows of external financing are needed. Also needed is a longer time horizon for carrying out important aspects of structural reforms, particularly those aimed at improving the response capacities of African economic systems, such as the strengthening of the performance of the public sector and its savings-generating capacity, providing the private sector with a more efficient regulatory environment, removing obstacles to supply bottlenecks, and introducing an efficient policy framework for overall management of the African economy.

The paper concludes by underscoring the point that African countries have lost a terrible amount of ground and time for growth over the period of stabilization and structural adjustment programs.

African Experience with Stabilization and Structural Adjustment Programs

In a spirited attempt to provide an in-depth evaluation of the impact of structural adjustment programs, the World Bank undertook a study in 1988 of the experience of Africa with stabilization and structural adjustment programs. The study states that “{t}he adjustment lending (AL) countries were on average hurt more by changes in the terms of trade, real interest rates, and external indebtedness than countries that did not receive adjustment loans (NAL countries).”2 The study indicates that the hoped-for switching and growth-augmenting effects of adjustment lending are not apparent in adjustment lending countries in Africa and emphasizes that the forgone gross domestic product (GDP) of countries that have received adjustment loans was more than 1 percentage point greater than that of those that did not receive loans.

The study further presents some macroeconomic indicators of performance that show that for countries in sub-Saharan Africa that received adjustment loans (1) the investment/GDP ratio fell from 20.6 percent before adjustment lending to 17.1 percent after, a decline of 3.5 percent; (2) the annual growth rate of GDP fell by 0.9 percent after adjustment lending; (3) the budget deficit worsened, falling from 6.5 percent to 7.5 percent; and (4) debt service and private consumption per capita either deteriorated significantly or remained unchanged after adjustment lending. The study asserts that the falling investment shares in GDP suggest that the required reduction in expenditures fell disproportionately and more heavily on investment than on consumption, thereby jeopardizing future growth.

Even more dismal are the results presented for social indicators. The study shows that, between 1980 and 1985, for 33 countries in sub-Saharan Africa that received adjustment loans, the social indicators showed no progress. Although “{l}ife expectancy at birth improved from 46 to 48 years, … the infant mortality rate remained at 126 per thousand, and the daily caloric intake declined from 2,060 to 1,911. In the same period, for a subgroup of 11 low-income sub-Saharan countries, per capita education outlays fell from US$10.80 to US$6.30 and per capita health expenditures from US$3.60 to US$2.80.”3

The adverse impact of stabilization and structural adjustment programs on social conditions of the poor during the 1980s had been confirmed earlier by United Nations Children’s Fund (UNICEF) in a widely publicized study.4 UNICEF’s latest appraisal in State of the World’s Children also estimates that at least half a million young children have died in developing countries (particularly in Africa and Latin America) as a result of economic setbacks precipitated by structural adjustment policies that focus solely on macroeconomic indicators.5 The UNICEF study also emphasizes that the effects of disinvestment in human capital in the 1980s will extend to the next generation, and its result will be reflected in the undereducation of many adults in the next century. In August 1990, the World Bank confirmed this assessment when it reported that real per capita spending in the social sectors decreased in many developing countries, especially those adjusting intensely, and that undernutrition increased in low-income African countries.6

To complement the above studies, this paper analyses the experiences of 17 African countries that have experimented with traditional stabilization and structural adjustment programs. The analysis uses the traditional before-and-after analytical framework to capture the impact of stabilization and structural adjustment programs on selected key variables, including real rates of growth in GDP, domestic savings, investment, inflation, exports and imports, debt-service ratios, and net transfers. These macro-economic aggregates are selected because they can measure the impact of the economic measures currently used for reforms. They are also widely accepted targets and are consistent with the purposes of structural adjustment, which is to permit countries to restore long-term growth.

While the methodology adopted in this paper compares post-adjustment situations with preadjustment situations, it is recognized that different approaches are possible, such as a comparison of the actual performances with targets or of simulations with actuals. It is also recognized that while results may vary, depending on the methodology chosen, using prior-and-post comparison is attractive because it reflects the conditions that countries actually undergo. Besides, it is difficult to obtain complete information on the targets for all countries. It should be noted that the results of this analysis measure short-term impact effects rather than long-term effects. The short-term effects are critical in determining the sustainability of a structural adjustment program.

The 17 countries chosen for the empirical analysis include Côte d’lvoire (1981), Kenya (1981), Tanzania (1981), Zambia (1981), Malawi (1982), Zimbabwe (1982), Ghana (1983), Morocco (1983), Zaïre (1983), Niger (1984), Senegal (1984), Sudan (1984), Madagascar (1985), Tunisia (1985), Burundi (1986), Nigeria (1986), and Uganda (1987).7 The selected countries were determined strictly on the basis of data available. In each case, the analysis is based on data relating to at least three years before the announcement date of the structural adjustment reforms. The announcement date is chosen for two reasons. First, it is the date on which implementation of a program starts. Second, it is the announcement date that changes economic behavior of the country by modifying or conditioning its expectations. The ending date for “after” analysis for all cases is 1988. All the figures are given in real terms.

The data for the analysis were assembled as follows: for Sudan, Niger, and Senegal, 3 years before and 5 years after the structural adjustment loan; for Zaïre, Ghana, Morocco, and Zimbabwe, 3 years before and 6 years after; for Malawi, Tanzania, and Kenya, 3 years before and 7 years after; for Madagascar and Tunisia, 3 years before and 4 years after; for Uganda, 3 years before and 2 years after; for Nigeria and Burundi, 3 years before and 3 years after; and for Zambia and Côte d’lvoire, 3 years before and 8 years after. Table 1 presents a summary of country performance with respect to the eight macroeconomic indicators.

Table 1.Summary of Country Performance with Respect to Key Macroeconomic Indicators

(In percent)(In millions of U.S. dollars)
Côte d’lvoire14.87.628.725.36.95.920.0609
Percent Success64.741.235.358.852.964.725.523.5

The general picture that emerges from Table 1 is that eight countries, namely, Burundi, Ghana, Kenya, Madagascar, Malawi, Morocco, Nigeria, and Zimbabwe, showed improvement from structural adjustment policies; the remaining nine showed deterioration in their performances. Out of the eight macroeconomic indicators, success was achieved in four, namely, rate of inflation, of growth of export, of growth of import, and of savings; the performances of the other four macroeconomic indicators—growth rate, investment rate, debt-service ratio, and net resource transfer—were not encouraging. The summary evidence suggests that the expectations that were assumed to follow from the application of stabilization and structural adjustment have not materialized in most cases. This reflects rigidities in the structures of African economies and also asymmetries in the behavioral responses of governments, donors, producers, and suppliers of loan funds, which call for caution in the nondiscriminate expectations.8

Based on the outcome of the foregoing analysis, it is possible to surmise that the mixed performances of African countries, as indicated from the empirical evidence of the sample countries discussed above, result from the structuralist contentions that (1) austerity measures may adversely affect the supply of imports for export-oriented countries; (2) the long gestation period required for certain agricultural exports may not provide results in the short term; (3) when the supply of exports from adjusting countries is increased during stable global demand, the terms of trade might deteriorate; (4) where the larger part of domestic production is either agricultural export commodities or mining products, the cutback in domestic demand brought about by monetary contraction may not produce a greater share of output available for exports, since only a very small share of exportable commodities is consumed locally; (5) the contraction of money supply (credit restraint), and compression of government expenditures in the presence of curb markets for finance and monopolistic or oligopolistic price-setting behavior, may lead to an increase in price inflation in the short run; (6) with supply and demand both determining prices, a policy package that tries to restrict demand but ends up reducing supply, may well be inflationary; (7) in countries with severe institutional rigidities and less open markets, the potential for supply-side policies is likely to depend on the amount of time allowed for adjustment reforms.9

In recognition of the above limitations, investigations have been made and the search continues for alternative approaches to the analysis of interrelationships in economies that are semi-industrialized, have marked dualism, are beset with the existence of parallel informal markets, in particular a curb market for loan funds, and are significantly dependent on imported intermediate inputs as a factor of production.10

The Search for an Alternative Policy Approach

The case for searching for an alternative approach in the design of stabilization and structural adjustment for African countries can be best explained in the first instance by delineating the plausible effects of the expenditure-changing policies that are applied rigorously, to reduce aggregate demand and eliminate external deficits, and the expenditure-switching policies used to change relative prices of domestic and foreign goods. This traditional approach to stabilization and structural adjustment has been costly for African countries for two reasons. First, while income-dampening policies can be relatively inexpensive for countries with high-income and open economies, for those with low incomes and limited degrees of openness and supply response, the cost of income dampening can be very high. This point has often been neglected in formulating adjustment programs for African countries, where foreign trade sectors are very small indeed. A further point that has also been overlooked is the size of the imbalance in the external account that has to be eliminated by income dampening. When the imbalance is very large (as has often been the case in African countries), the income forgone, as a result of austerity measures, will be large and unbearable.

A second argument for searching for an alternative approach to structural adjustment is that in African countries, where there are severe institutional rigidities, the magnitude of an import or export response to a policy change will depend heavily upon the amount of time that is allowed for adjustment. The longer the time horizon, the greater will be the response to price or exchange rate changes. This last observation has important implications for stabilization and adjustment policies, because it implies that the attempt to force the entire adjustment within a short period necessitates larger deflation of the economy than would be called for if a longer period were allowed. The larger deflationary effects usually run the risk of overshooting and thus engendering further instabilities accompanied by additional costs, not only in the form of increased risk and uncertainty but also in the form of misapplication of resources in terms of forgone employment and output.

A more serious argument for alternative stabilization and structural adjustment relates to the absence, so far, of credible adjustment programs that are truly growth oriented, that take adequate account of the needs for health, education, and other essential social services, and that, at the same time, take into account the fact that major changes in the structure of production do take a long time to yield results and require specific investments.

The necessity for designing adjustment programs that contain growth has recently been reflected by the search for alternative approaches to the design of adjustment policy packages. One important line along which this development is taking place is the growth-oriented adjustment program research project that the research staff of both the IMF and the World Bank are currently engaged in; they are trying to develope a stabilization and structural adjustment design that includes aspects both of the IMF focus on external financing dynamics and balance of payments correction and the World Bank’s growth and investment concerns. Although it is still being formulated, the approach holds the promise of wider applicability for the African countries in the 1990s.11

It is worth emphasizing that the growth-oriented approach put together by the IMF and the World Bank augments the traditional model. It first builds in a growth dimension with an incremental capital/output ratio relationship as a focus and then enhances that with supply-side inspired support policies. Although the reformulation can be seen as a step in the right direction, it does not go far enough. It still depicts smooth market-type reaction functions. Such relationships are not typical of African countries.

Another approach, which the African Centre for Monetary Studies has termed the “neo-structuralist synthesis,”12 goes further toward introducing the structural rigidities of developing—and African—countries into the argumentation. It derives policy packages that are distinct in their characteristics from the traditional ones and that evidently address African specificities. The neo-structuralist synthesis approach consists of three main arguments. First, it contends that inflation and balance of payments difficulties are not the results mainly of domestic excess demand but also of specific supply bottlenecks and external shocks. Often, excess capacity exists in the economy, but the missing element is the extra supply of foreign exchange for intermediate inputs in critical sectors. Second, it argues that the composite goods sector model exemplified in the monetary approach to balance of payments does not reflect the sectoral composition of production in African countries, which relies heavily on imported components. At least three goods sectors should be discerned: importables, exportables, and nontraded goods, all of which have significant amounts of imported components, so that their price elasticities of supply may depend on the exchange rate, export subsidies, and other policy variables. The third argument is that the mix between financing and adjustment is as important as incentives and financial liberalization. To smooth out structural rigidities, front-loaded financing is necessary so that when policies take effect with a lag, supply can expand in a timely fashion.

According to this approach, correction for disequilibrium in the balance of payments should he built more on the growth of exports and less on the reduction of imports. It emphasizes that a policy aimed at boosting the contribution of export growth to balance of payments management should consist of “differential devaluation” that would raise the local currency revenue from the export of industrial products or semi-finished goods by setting the incentives received by each sector at a level comparable to the total production costs. The neo-structuralist synthesis also focuses on the sectoral approach. Besides the greater emphasis laid on structural adjustment with longer-term programs and financing, the approach advocates mostly supply-oriented policies that use as main instruments price reform, the raising of institutional efficiency, the upgrading of investment policy to refocus priority on agricultural and food self-sufficiency, and the improvement of foreign-debt management to ensure a sustained inflow of funds over an estimated long-term debt cycle.

Two important developments have resulted from the neo-structuralist synthesis approach. First, the specificities of borrowing countries’ economies are more strongly emphasized, with a prominent role given to the possibilities of rigidities (elasticity-pessimism), the existence of curb markets, and possible perverse effects of devaluation, financial reform, including interest rate liberalization, and inversion of priority on investment. Second, under the thrust of protests from advocates of this new approach, the double imposition of generally sound World Bank policies and often severe demand-management policies on borrowing countries is giving way to a more coordinated approach in which greater recognition is given to nuances underlined by this new orientation. The problem with the approach, in which disequilibrium is the central theme, is that only various disjointed aspects of the dual economy are rigorously modeled, and the task of bringing these rigorous parts into a coherent whole has yet to be addressed. Furthermore, disequilibrium analysis and the dynamics of adjustment through the short run to the longer term make difficult a robust mathematical modeling of the neo-structuralist synthesis approach. Yet, the policy conclusions that derive from the imperfectly formulated model seem more intellectually satisfactory in the tracking of African economies’ adjustment problems.

Another approach, developed by the United Nations Conference on Trade and Development (UNCTAD), puts African countries’ problems more markedly in the international exchange framework. The UNCTAD approach proposes “unequal exchange” (that is, self-perpetuating unfavorable terms of trade) as the cause of the persistent monetary disequilibrium problems of African countries. In its analysis, UNCTAD derives a policy package for adjustment that carries a strong component of foreign aid, restructuring of the international terms of trade, and discretionary intervention in commodity markets to correct the unfavorable terms of trade effect. Economic integration in Africa and cooperation both subregionally and regionally are other important elements of the policy measures recommended.13

The UNCTAD approach is grounded in the belief that the prevailing market structures in African countries cannot be changed in the course of one, two, or even three medium-term structural adjustments, and since imperfect market structures send the wrong signals of what patterns of production, consumption, investment and saving are required, a policy of price and direct credit control is well inspired. Furthermore, if the repayment of externally contracted loans and the maintenance of the balance of payments equilibrium without resort to measures that impair the free movement of trade and payments goals are to be strived for, the maintenance of a relatively equitable distribution of income is an even greater priority; otherwise not only will it happen that no program of financial discipline will be sustainable, but also that larger economic disruption may ensue. Third, and most important, market imperfections and structural deficiencies require the continued intervention of the public sector in production, in investment, and in control. It is, however, readily conceded that inefficiencies exist in the public and parastatal sector, but that these shortcomings must be addressed by more pronounced training, capacity building, and institutional innovation, research and technology transfer, and development.

A fourth approach, developed by the Economic Commission for Africa (ECA),14 rightly identifies the structural rigidities in Africa and other specificities, but lacks both a time frame for implementation and a rigorous model and restricts itself to a “framework.” The general framework may be its strength, however. It is argued that each country should develop policies that address its own problems and that models cannot be transported from one economy to the other. At the same time, however, the ECA approach itself succumbs to the temptation to treat African countries as homogeneous in some of its recommendations. More important, there seems to be in the ECA framework a wish to refrain from integration into the world economy, which flies in the face of the evidence that more pronounced integration into the world production structures could vastly increase welfare in developing countries. The strength of the ECA’s framework is, however, to be found in some of its recommendations, which suggest that the long-term development issues should be taken into account when formulating stabilization and structural adjustment programs. Issues, such as the need to establish international and domestic enabling environments, including governance and accountability, institutional capacities, and human dimensions, are, to say the least, very important.

Possible New Orientations

Against the background of limited success with conventional stabilization and structural adjustment programs and drawing on several of the ideas suggested in the various alternative approaches, it is possible to outline broadly a consistent set of considerations that need to accompany new stabilization and adjustment programs in African countries.

First, it should be recognized that the challenge for stabilization and adjustment programs in the 1990s is to help African countries restore growth, while promoting the use of efficient policies. It should also be recognized that for these countries higher rates of growth in imports and investment are key elements in resolving their balance of payments and growth problems. It should be accepted that since the onset of traditional adjustment programs, adjustments in trade balance have produced a reduction in import volumes rather than an increase in exports. Lagging exports coupled with the virtual drying up of foreign capital have meant that the burden of adjustment has fallen on imports and growth. The strategy to improve Africa’s balance of payments performance and growth in the 1990s should, therefore, be built more on encouraging greater growth of imports; excess capacity often exists in the economy but the missing element is the supply of foreign exchange for intermediate inputs. Reducing imports can only aggravate this excess capacity problem. The implication is that the international community has a duty to improve the terms of trade of African countries and to encourage the flow of resources to them. The UNCTAD approach discussed earlier is not without great merits in emphasizing this aspect.

Second, it should be appreciated that weak investment, which has reflected the domestic counterpart of the adjustment in the external current account, has harmed both the public and private sectors of the African countries. Private investment has been affected because import compression has tended to reduce anticipated rates of return. Moreover, private investment has also been “crowded out” by the increased pressure of public sector demand on domestic savings to finance external debt-service payments. Public investment has also fallen, primarily because of the political sensitivity to reductions in some social sector spending and also because of the massive increase in payments on government debt induced by the depreciation of the domestic exchange rates and the increase in the domestic interest rates.

A third consideration to bear in mind is that the prolonged period of import compression and retrenchment of investment is no longer sustainable; the rate of expansion of import volume will have to increase, or the rate of economic growth will continue to decline and have serious repercussions for Africa’s short- and medium-term stability. Stabilization and structural adjustment programs to be formulated in the 1990s should rely on non-import-compressing policy measures, which require significant expansion in net flow of resources from the international community and a marked reduction of the external debt of the African countries. While the international community has taken initiatives to deal with the burden of official bilateral debt, there is need for new approaches to provide real relief for multilateral debt and commercial debts, which also burden African economies. Moreover, despite the recent initiatives on debt, the flow of resources in real terms continues to remain below the requirement levels for African countries. It is important that the World Bank, the IMF, and the international community accept that the economic problems of African countries are exceptionally and uniquely difficult and require special treatment.

The new orientations of stabilization and structural adjustment programs as suggested above should draw on the past experiences of the IMF, the World Bank, and the international community in financing growth and development in African countries. Prior to the 1980s, it was generally recognized that Africa’s economy was basically weak and dependent on a narrow range of commodity exports whose prices fluctuated erratically. It was also generally accepted that Africa’s physical infrastructure was grossly inadequate and required substantial external financing to develop its potential. In the period up to 1978, the multilateral aid institutions and the donor countries had provided Africa with development assistance on a substantial scale enabling the countries to achieve a level of public investment in infrastructure that would, otherwise, have been impossible to undertake. The World Bank played an especially crucial role in promoting economic growth (which was occurring in the great majority of the African countries) and concentrating on lending for individual projects in agriculture, industry, health, education, and infrastructure in rural and urban areas.

In that earlier period, the IMF’s approach was also to some extent praiseworthy, although there was criticism of the short-term frame of the programs it supported and the economic policy instruments emphasized. Consistent with its Articles of Agreement, which refer to maintenance of high levels of employment, income, and economic development as “the primary objectives of economic policy,” the IMF recognized that the balance of payments deficits of African countries were basically externally induced and better handled through larger interventions by international agencies and the surplus countries. The IMF’s attitude then was essentially geared toward assisting African countries, especially the low-income ones, to overcome their balance of payments difficulties, while maintaining a reasonable rate of economic growth. Up to the late 1970s, the IMF established special facilities (the Trust Fund, the Subsidy Account) for low-income countries and maintained a low-conditionality, compensatory financing facility to finance shortfalls in overall export earnings. In addition, SDRs were regularly allocated, and part of the gold of the IMF was sold to support low-income members. The European Community (EC) moved along a similar track establishing its commodity-specific Stabex window, which enabled African countries to finance shortfalls in commodity export earnings.

Fourth, the necessity to introduce new orientations in stabilization and structural adjustment programs for African countries is also supported by a finding of the World Bank in its 1987 Annual Report, which applauds the depth of the reforms in many African countries and the persistence of policymakers in implementing these reforms. The Bank even calls this a “major achievement.” While the Report admits that adjustment has taken longer than was envisaged originally, it says:

In the absence of needed resources on appropriate terms, these countries, [many of which are highly indebted,] will find it difficult to maintain, let alone expand, education and health services, nutritional programs, and improved water facilities … shelter for the poor {p. 15}. The overall picture on capital flows remains disappointing: Strong financial support for adjusting countries from the Bank and the Fund has not been accompanied by any significant new financing from commercial banks. Multiyear rescheduling agreements have not evolved as anticipated into a financial underpinning for medium-term adjustment programs {p. 17}.

This is a devastating judgment with regard to possibilities for conventional structural adjustment. The Bank admits that, because of this, resistance to further reforms is hardening and adds that the ability of a country to persist with adjustment will depend on its ability to achieve tangible results in terms of economic growth.

Fifth, it should be recognized that the compelling argument for a new orientation in stabilization and structural adjustment derives from the fact that the need to resolve the debt crisis and achieve long-term sustainable growth and development was one of the reasons why African countries, one after the other, undertook structural adjustment programs. During the 1980s, however, a solution to the debt problem and growth have proved more elusive. Compared with other regions, Africa’s rate of economic growth, averaging 1.9 percent in the 1980s, is the lowest and its burden of external debt the most severe. Although repeated reschedulings have been given to many African countries on a continuous basis for a long time, their debts have intensified and arrears have accumulated. Thus, viewed against the background of the experiences of African countries with a variety of remedial measures since 1987, the debt crisis has become not only unmanageable but also intractable.

In outlining the nature of possible alternative adjustment programs in the 1990s, one should, therefore, be guided by the shortcomings of the conventional approach outlined earlier in this paper, in particular the need to account for supply rigidities and to place emphasis on development targets rather than extreme reliance on quantitative targets. The new structural adjustment programs will need to concentrate more on monitoring the fulfillment of well-conceived, clearly defined development programs in the 1990s, with import constraint being seen as the single most important factor limiting both domestic and export growth in African economies. Accordingly, programs should provide for adequate external assistance as far as possible, before major policy changes. The argument for this is that unless consumer and intermediate goods are available, increased prices and other incentives will achieve little by way of stimulating exports or production in general and will tend, simply, to be inflationary. Yet, there are time lags of several months between the receipt of foreign exchange assistance and the local availability of intermediate products. It will be much easier for an economy to absorb the strains of policy adjustments if programs are front-loaded in terms of finance.

The new stabilization and structural adjustment programs must also incorporate explicitly specified percentage rates of growth. Such a real economy approach to adjustment implies greater emphasis on financing, in contrast to too heavy reliance on the control of aggregate demand. Adjustment with growth would permit equilibrium to be restored at a higher overall level of economic activity and it would minimize the conflicts between the policy objectives of stabilization, growth, and social welfare.

Finally, in the new approaches to stabilization and structural adjustment, sustained efforts need to be devoted to exploring avenues for increased resource mobilization and plugging the several leaks that do exist. Specifically, a generous handling of the debt problem, including substantial cancellation of debts, will be necessary if Africa is to sustain its ability to continue perseverance with stabilization and structural adjustment policies. In the absence of substantial debt relief and more adequate financing, it is difficult to see how countries in Africa can overcome adjustment fatigue, already rampant, and, at the same time, underpin the political support necessary for structural adjustment programs to succeed. Finally, the scope for market forces to correct distortions and to generate the incentives to mobilize domestic resources should neither be considered as unlimited, as orthodox enthusiasts would depict it, nor as negligible, as pure neo-structuralists argue it is. Public or para-public enterprises should be recognized as often being inefficient, wasteful, and aggravating distortions. A more important dose of market-based incentives in the context of new programs would send the correct signals to producers, consumers, investors, and savers alike and would help mobilize domestic financial, entrepreneurial, and labor resources.

The new orientations and approaches suggested above for the 1990s call for the adoption of alternative perceptions, attitudes, and more dialogue if African countries are to have better prospects for the future. Of course, the commodity issue is also important and must be addressed within this new orientation. The fact is that the fortunes of African countries, since they are basically primary commodity producers, depend critically on the fluctuations in the export prices. There is the need, therefore, for improvement in the international environment to ensure that African countries receive remunerative prices for their commodity exports.


This paper has presented an evaluation of the experiences of African countries with stabilization and structural adjustment reform measures using the traditional before-and-after analytical framework. The evidence from the sample countries used in the study indicates that the expectations that are assumed to follow from the application of traditional stabilization and structural adjustment programs have not materialized in more than 50 percent of the cases examined. While 8 countries, out of a sample survey of the 17 countries studied, recorded some significant improvement from prestructural adjustment performances, the remaining 9 in the sample survey have shown appreciable deterioration in poststructural adjustment performances. Furthermore, out of the eight macroeconomic indicators chosen for the analysis significant success was achieved only in four, namely the reduction in the rate of inflation, the increase in the rate of domestic savings, and improvement in the rate of growth of exports and imports. The other four macroeconomic indicators, namely, the growth rate, investment rate, debt-service ratio, and net resource transfers recorded a deterioration of performance in the poststructural adjustment period.

A new approach, adequately espoused in the paper, suggests the urgent need to design credible adjustment programs in the 1990s that are truly growth-oriented, and also to take adequate account of the needs for health, education, and other social services, while being conscious of the fact that major changes in the structures and production fabric of the African economy will take time to yield results and require substantial investment. The new “adjustment-with-growth” strategy, which is being advocated for the 1990s, should draw on the past experience of the international community in financing development in Africa. Up to the mid-1970s the multilateral institutions and the donor community had accepted that the African economy was basically very weak and its infrastructure grossly inadequate, requiring substantial resources to develop. Recognition and adoption of this earlier approach would mark an important and positive turning point in relations between the IMF, the World Bank, and African countries.

Such as the popularized African Alternative to Structural Adjustment Programs: A Framework for Transformation and Recovery, by the Economic Commission for Africa (ECA) (Addis Ababa, 1989).

World Bank, Adjustment landing: An Evaluation of Ten Years of Experience, Policy and Research Series, No, 1 (Washington: The World Bank, 1988), page 20.

Ibid., page 29, Box 2.2.

C.A. Cornia, Richard Jolly, and Francis Stewart, eds.. Adjustment with a Human Face: Protecting the Vulnerable and Promoting Growth (New York: Oxford University Press, 1987).

UNICEF, State of the World’s Children (New York: United Nations, 1989).

See Nanak Kakwani, Elene Makonnen, and Jacques van der Gaag, “Structural Adjustment and Living Conditions in Developing Countries,” Working Paper No. 467 (Washington: The World Bank, Population and Human Resources Department, 1990).

The date in parentheses is the year that the structural adjustment began.

It is readily conceded that there are qualitative variables that are not captured in the figures, but their omission reinforces rather than undermines the case made in the paper that the evidence for success of adjustment programs is at best mixed. The imponderables—the social and human costs of adjustments mainly, but also possibly other factors—that do not show up in the figures are negative effects. The positive effects, Such as improvement in growth performance, easing of inflation, among others, are well captured.

The argument of the paper is not that the removal of structural rigidities should be the focus of policy in all countries, irrespective of their specific situations. Clearly, the problem is country-specific. In many countries, the substitution ol production, say from cash-crop export production into manufacturing or other value-added activities, is limited because of rigidities. External shocks are no doubt important, but where structural rigidities exist, substitution in production is harder. In countries where substitution possibilities are more significant, traditional measures may be very effective. In other countries, different approaches are more appropriate.

By alternative, parallel is meant, not opposite, with locus on different aspects. Thus, demand-reduction through monetary contraction may adversely affect investment father than consumption. Alternative sequencing of policies and financing could leave investment intact or even stimulate it, while consumption demand is met by supply-expanding policies. Other variations and permutations are possible and therefore more can be done to further attune adjustment programs to Africa’s specific needs and peculiarities. Foremost among them is the financing and performance criteria monitoring sequence on which the paper lays due stress.

See for instance, Mohsin Khan and Peter J. Montiel, “Growth-Oriented Adjustment Programs: A Conceptual Framework,” IMF Working Paper, No. 88/64 (unpublished, Washington: International Monetary Fund, 1988) and Ernesto Hernandez-Cata, “Issues in the Design of Growth Exercises,” IMF Working Paper, No. 88/65 (unpublished, Washington: International Monetary- Fund, 1988).

While a concrete model for this approach has not been proposed, the main outline recurs in the writings of authors such as Tony Killick, R.H. Green, A, Floxley, and Edmar Bacha.

UNCTAD. Revitalizing Development, Growth and International Trade: Assessment and Policy Options (New York: United Nations, 1987).

ECA, African Alternative to Structural Adjustment Programmes: A Framework for Transformation and Recovery (Addis Ababa, 1989).

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