I Introduction

Martin Mühleisen, Dhaneshwar Ghura, Roger Nord, Michael Hadjimichael, and E. Ucer
Published Date:
June 1995
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The experience of sub-Saharan African countries with structural adjustment has been extensively reviewed over the past few years, both inside and outside the IMF.1 The renewed interest in developments in African countries has been prompted by the less-than-satisfactory economic performance of Africa as a whole over the past two decades. In addition, it has reflected efforts to assess the adjustment experience and the appropriateness of the adjustment strategy espoused by the IMF and the World Bank and pursued by an increasing number of African countries, as well as an attempt to draw lessons for the policy challenges for the rest of the 1990s. The present study attempts to contribute to this debate by assessing the economic performance during 1986–93 of sub-Saharan African countries as a group and of selected analytical subgroups of countries. To this end, it comprises, first, an assessment of the evolution of the savings, investment, and net financial balances of the government and private sectors for the various country groups; and second, an econometric evaluation of the relative contribution of policy and exogenous factors—such as terms of trade losses—to the growth, savings, and investment performance of sub-Saharan African countries, as well as an evaluation of the impact of foreign assistance.

In broad terms, the existing studies on the African experience have shown that the countries that have successfully implemented structural adjustment programs have significantly reduced their domestic and external imbalances, consistent, on average, with an acceleration in real GDP growth and gains in real per capita incomes. For the most part, however, these gains have been masked by the weak performance of the nonadjusting countries, resulting in a further decline in real per capita income for sub-Saharan Africa as a whole (Table 1). Progress in removing structural and institutional rigidities and strengthening the supply response of the private sector, while broadly positive, has been uneven across countries and has fallen short of initial expectations. Notably, the progress in reforming the public enterprise and financial sectors and the legal and administrative frameworks has been modest, owing in part to the weak management and implementation capacity of the public sector and the severity of the initial distortions. Furthermore, virtually all sub-Saharan African countries continue to be confronted with deep-rooted developmental constraints, such as a low human capital base, rapid population growth, and environmental degradation. Overall, savings and investment balances, particularly of the private sector, remain too low to support a sustainable expansion in output. As can be expected, while several sub-Saharan African countries have already made significant progress, much more remains to be done, as economic adjustment and the attainment of development objectives are permanent challenges for all developing countries.

Table 1.African Countries: Comparison of Economic Performance(Annual percent change, or in percent)
Real GDP2.
Real per capita GDP–0.4–0.6–1.50.6
Sub-Saharan Africa
Real GDP2.
Real per capita GDP–0.2–0.7–1.60.6
Memorandum items:
All developing countries
Real GDP4.
Real per capita GDP2.
Real GDP6.
Real per capita GDP4.
Middle East and Europe
Real GDP3.
Real per capita GDP–
Latin America
Real GDP3.
Real per capita GDP0.
Source: IMF, World Economic Outlook, May 1994.
Source: IMF, World Economic Outlook, May 1994.

A number of key lessons can be drawn from the recent adjustment experience of sub-Saharan African countries. First, the experience of several developing countries with IMF-supported adjustment programs seems to indicate that the strategy supported by the IMF is conducive to improved economic performance.2 This strategy emphasizes (1) the restoration of an appropriate structure of relative prices and economic incentives through reliance on market-based instruments of policy; (2) the attainment and maintenance of macroeconomic stability; and (3) the undertaking of structural, institutional, and administrative reforms so as to enhance the efficiency of resource allocation and establish an environment more conducive to private sector development. Second, attainment of macroeconomic stability is a necessary but not a sufficient condition for strengthening economic performance. To this end, appropriately restrictive macroeconomic policies need to be combined with a broad range of structural and institutional reforms. The sequence of reforms is important, so as to ensure that they are self-reinforcing and that they lower the adjustment costs, particularly for the most vulnerable socioeconomic groups. Third, strong political commitment to reform and domestic ownership of the adjustment programs are essential prerequisites for the success of these programs. Such a commitment is critical for the effective implementation of the economic strategy and the modification of this strategy in light of changing domestic and external conditions. Finally, timely availability of external technical and financial assistance is also crucial for the success of the reform efforts.

Notwithstanding the growing consensus on the appropriateness of market-oriented policies, commentators outside the IMF have offered a number of alternative assessments of the economic performance of sub-Saharan African countries during the past few years.3 In an environment of heightened expectations with regard to alleviating poverty and raising living standards, some of these assessments have attributed the continued decline in real per capita incomes for African countries as a group to the policies being pursued by several countries under IMF-supported adjustment programs. They have advocated instead more interventionist policies, despite the accumulated evidence as to their ineffectiveness.4

A more comprehensive and realistic assessment of the sub-Saharan countries’ economic performance would need to recognize that judgments about the appropriateness of policies cannot be based solely on movements in aggregate statistics. Explicit account needs to be taken of the diverging trends in the performance of countries effectively implementing appropriate adjustment programs (the bulk of which have been supported by the use of IMF resources) on the one hand, and, on the other, of nonadjusting countries; in the latter countries, inappropriate domestic economic policies have been a major contributing factor to the observed weaknesses in economic performance.

In addition, account should be taken of the impact of exogenous economic shocks and, just as important, of noneconomic developments within each country. In recent years, African countries have been confronted by an unfavorable external environment. The weakening in economic activity in industrial countries since the mid-1980s has contributed to a sharp decline in the world prices of the agricultural and mineral primary commodities exported by sub-Saharan African countries, thus resulting in a major deterioration in their terms of trade. On a number of occasions, the impact of the decline in the terms of trade has been exacerbated by unfavorable weather. In view of the large share of GDP typically accounted for by agriculture and the high proportion of the population living in rural areas in African countries, unfavorable weather tends to have a pronounced effect on output growth and the plight of the rural population. For example, the severe drought in southern Africa during 1992 substantially reduced agricultural production and exports in all southern African countries.

The economic performance of African countries has also been beset to varying degrees by developments in a host of important and interrelated noneconomic factors, such as ethnic conflicts, political instability, adverse security conditions, or even pro tracted civil wars. Under such conditions, economic activity is severely disrupted, and economic management becomes very difficult. The limited progress made by these countries in resolving ethnic conflicts or disputes, and the resulting political instability, has undermined the social cohesion and hampered the emergence of a national identity. In such a framework, implementation problems arise even for the simplest economic policies. These difficulties have often been compounded by the legacy of repressive regimes in several African countries and the associated lack of effective systems of checks and balances, as well as by bloated and inefficient public administrations, ineffective judicial systems, and complex administrative and institutional frameworks. Weak economic performance, in turn, has exacerbated social and political tensions.

Notwithstanding these difficulties, several sub-Saharan African countries made major progress in improving their economic performance during the second half of the 1980s and the early 1990s. An increasing number of these countries either adopted or intensified the implementation of comprehensive adjustment programs, supported by financial arrangements from the IMF, particularly under the structural adjustment facility (SAF) and the enhanced structural adjustment facility (ESAF), as well as by assistance from the World Bank and other bilateral and multilateral donors. The number of sub-Saharan African countries with IMF-supported programs rose from very few in the early 1980s to 24 by the early 1990s (out of a total of 44 countries), of which 22 were countries with arrangements under the SAF or ESAF.5 In some countries, the economic liberalization efforts coincided with major progress toward political liberalization, entailing the lifting of the ban on the formation of political parties, the adoption of new, more democratic constitutions, and the holding of multiparty parliamentary and presidential elections. At the same time, however, civil wars, security problems, or major political instability in 11 countries (Angola, Burundi, Liberia, Mozambique, Nigeria, Rwanda, Sierra Leone, Somalia, Sudan, Togo, and Zaïre) have resulted in a worsening in their economic conditions at least for a part of the period since 1985.

Scope and Principal Results of This Study

This paper focuses on economic developments in 41 sub-Saharan African countries covered by the IMF’s African Department during the period 1986–93, based on the Economic Trends in Africa data base it maintains;6 its coverage is somewhat narrower than that of the IMF’s World Economic Outlook (WEO), as it excludes Angola and Liberia because of data limitations, and Djibouti, Mauritania, Somalia, and Sudan, which are covered by the Middle Eastern Department.

As highlighted above, sub-Saharan African countries share a number of common structural characteristics, relating mainly to their stage of economic and political development, climatic conditions, and level of human development.7 In many other ways, however, sub-Saharan Africa comprises a rather heterogeneous group of countries, in terms of size, population, level of GDP, institutional arrangements, and economic endowments. Some of these differences are summarized in Tables 24. After South Africa, Nigeria is by far the largest African country, accounting for 21 percent of total population and 24 percent of total GDP in 1992. Together with six other countries (Cameroon, Côte d’Ivoire, Kenya, Ghana, Zimbabwe, and Senegal), Nigeria accounted for 57 percent of sub-Saharan Africa’s total real GDP in 1992.

Table 2.Sub-Saharan Africa: Real GDP in 1992
In millions of

U.S. dollars

(In constant

1990 prices)
Share in

Main countries1
Côte d’lvoire9.26.5
Other countries61.343.4
Memorandum items:
Total real GDP in 1992
(In constant 1990 prices)
South Africa96.9
United States5,645.4
Sources: Economic Trends in Africa data base, August 1993; and IMF, International Financial Statistics.

Excluding South Africa.

Sources: Economic Trends in Africa data base, August 1993; and IMF, International Financial Statistics.

Excluding South Africa.

Table 3.Sub-Saharan Africa: Population in 1992

(In millions)
Share in



(In percent)
Countries with more
than 10 million1
Côte d’lvoire13.23.0
Other countries116.726.8
Total population435.3100.0
Memorandum items:
Population in:
South Africa38.9
United States255.0
Sources: Economic Trends in Africa data base, August 1993; and IMF, International Financial Statistics.

Excluding South Africa.

Sources: Economic Trends in Africa data base, August 1993; and IMF, International Financial Statistics.

Excluding South Africa.

Table 4.Sub-Saharan Africa: Per Capita Nominal GDP, 1992
Range of per capita GDP (In U.S. dollars)
Number of countries
Above 2,0005
Less than 2007
Countries with the highest
per capita GDPIn U.S. dollars
South Africa2,954
Countries with the lowest per
capita GDP
Sierra Leone179
Average per capita GDP for
sub-Saharan Africa
Including South Africa547
Excluding South Africa332
Source: Economic Trends in Africa data base, August 1993.
Source: Economic Trends in Africa data base, August 1993.

In addition to sub-Saharan Africa as a whole, this paper considers a number of analytically interesting subgroups of countries, based on criteria related to institutional arrangements and economic performance (Table 5). The first criterion is membership in the CFA franc zone, given the limitation that this membership poses on the use of nominal exchange rate adjustments as an instrument of policy. During the period under review, CFA franc countries had to rely entirely on internal adjustment measures to address the adjustment needs resulting, inter alia, from a major worsening in their external environment. The differentiated economic performance of the CFA franc countries as a group in comparison with the other African countries has had a distinct influence on the performance of sub-Saharan Africa as a whole. The second criterion relates to ex post economic performance. Sub-Saharan countries are divided into two groups, depending on whether they attained on average positive or negative real per capita GDP growth during 1986–92. It would be interesting to identify the main factors that contributed to the differentiated performance of these two groups of countries. Under the third criterion, countries are divided into three distinct groups depending on the need for or the implementation of appropriate adjustment policies. A small group of sub-Saharan African countries has been characterized in recent years by relatively low internal and external imbalances (countries with low macro-economic imbalances); broadly speaking, these countries implemented appropriate policies during 1986–93 and did not need to adopt major adjustment programs with or without support from the IMF. The remaining countries have been classified in two other groups, depending on whether or not they adopted broadly appropriate policies under IMF-supported adjustment programs for at least three years during the period under review (sustained adjusters and countries with protracted macroeconomic imbalances). Admittedly, this criterion may contain some judgmental considerations, particularly as some countries were not able to maintain satisfactory performance throughout the review period.

Table 5.Sub-Saharan Africa: Analytical Country Groups
Burkina Fasoxxxx
Cape Verdexxxx
Central Afr. Rep.xxxx
Côte d’Ivoirexxxx
Equatorial Guineaxxxx
Gambia, Thexxxx
Sao Tome & Principexxxx
Sierra Leonexxxx
South Africax
Note: The abbreviations are as follows: AFR: total sub-Saharan Africa; CFA: CFA franc countries; NCFA: Non-CFA franc countries; PPC: countries with positive average per capita growth during 1986–92; NPC: countries with negative average per capita growth during 1986–92; LMI: countries with low macro imbalances; PIM: countries with protracted imbalances; and SAD: sustained adjusters.
Note: The abbreviations are as follows: AFR: total sub-Saharan Africa; CFA: CFA franc countries; NCFA: Non-CFA franc countries; PPC: countries with positive average per capita growth during 1986–92; NPC: countries with negative average per capita growth during 1986–92; LMI: countries with low macro imbalances; PIM: countries with protracted imbalances; and SAD: sustained adjusters.

This paper contributes to the discussion on the factors that have accounted for the generally poor economic performance of sub-Saharan Africa. It provides a detailed assessment of economic performance of sub-Saharan African countries as a group during 1986–93, and of selected, analytically interesting subgroups of countries. The analysis focuses on the evolution of sectoral savings, investment, and net financial balances and is supported by an econometric investigation of the impact of macroeconomic policies, exogenous factors, and structural reforms on growth, savings, and investment performance, as well as by an assessment of the impact of foreign assistance. The paper thus extends to sub-Saharan Africa the econometric analysis of the impact of macroeconomic stability on economic performance already undertaken by several researchers for developing countries generally and for those in Asia and Latin America in particular.

Changes over time in aggregate and sectoral savings and investment balances reflect the impact of macroeconomic policies, as well as the private sector response to the changing policy environment and progress made in alleviating structural and institutional rigidities. In addition, the evolution of sectoral net financial balances allows an evaluation of the contribution of the government and private sectors to the changes in the external current account position. The paper’s analysis indicates that the unsatisfactory overall economic performance of sub-Saharan African countries during 1986–93 was due to inappropriate policies pursued by a number of countries. The countries that have cushioned the impact of the large cumulative losses in their terms of trade, by improving their external competitiveness and implementing broadly based structural reforms, have done better than others. These countries achieved higher rates of government savings and private investment, as well as positive per capita real GDP growth and lower inflation, during this period. Countries with positive per capita real growth were characterized by positive government savings, increases in government investment, and strong increases in private savings and investment. In contrast, countries with negative per capita real growth were characterized by declines in savings and investment by both the government and the private sector.

These findings are supported by the results of the econometric investigation undertaken in this paper. The sub-Saharan African countries that experienced a relatively more stable macroeconomic environment achieved higher rates of growth, domestic savings, and private investment. In addition, progress toward implementing structural and institutional reforms, by providing the necessary environment for private sector development, led to better economic performance. Macroeconomic stability is found to contribute to sustainable growth through its beneficial effects on the efficiency of private investment. Other important factors that are adjudged to influence economic performance include human capital development, the level of government investment, the level of foreign assistance, the state of financial intermediation, and exogenous shocks.

A policy implication of the findings of this paper is that progress toward macroeconomic stability and the removal of structural rigidities would have sizable and immediately realizable regional payoffs in terms of accelerated growth in real per capita incomes.

These studies include Husain and Faruqee (1994), IMF (1993a and 1993b), Maastricht (1990), Nsouli (1993), Patel (1992), Schadler and others (1993), and World Bank (1989a, 1991, 1993, and 1994). The adjustment experiences of Ghana and The Gambia were also reviewed by Kapur and others (1991) and Had-jimichael, Rumbaugh, and Verreydt (1992), respectively.

The emerging consensus on the appropriateness of market-oriented policies for developing countries is also gaining increased acceptance in the development economics literature. In his review of the recently issued Handbook of Development Economics (Chenery and Srinivasan (1989)), Fishlow (1991, p. 1,728) notes that “now there is widespread acceptance of a microanalytic maximizing framework and modern macroeconomic and trade models even by those of more radical bent. The remaining important differences come down to whether this common theory justifies interventionist policies in the setting of developing countries. More often than not the advantage in recent years both in academic debate and policy has been with the minimalists. They call for market forces rather than industrial policy, openness rather than import substitution, and macroeconomic rules rather than discretion.”

For a brief review of some alternative approaches, see Kil-lick (1993), and United Nations (1989).

For empirical evidence supporting the adverse effects of interventionist policies, see Agarwala (1983); Alam (1991); Cottani, Cavallo, and Khan (1990); Dollar (1992); Edwards (1988 and 1992); and Ghura and Grennes (1993). A recent study by the World Bank (World Bank (1993)) indicates that selected intervention policies have successfully been implemented by certain of the high performance Southeast Asian economies but notes that the special circumstances that enabled the policies to succeed are unlikely to be easily reproduced elsewhere.

For a comprehensive review of the experience with structural adjustment of 19 countries that had entered ESAF arrangements as of mid-1992 (most of which are sub-Saharan African countries), see Schadler and others (1993).

This data base comprises a subset of economic variables included in the IMF’s World Economic Outlook, which are updated twice a year. The data for 1986–92 are actual, while the data for 1993 are estimates.

With the exception of Botswana, Gabon, Mauritius, Seychelles, and South Africa, which are included by the United Nations Development Program in the group of countries with medium human. development, all other sub-Saharan African countries are included in the group with low human development (United Nations Development Program (1993)).

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