V Conclusions and Policy Implications
- Martin Mühleisen, Dhaneshwar Ghura, Roger Nord, Michael Hadjimichael, and E. Ucer
- Published Date:
- June 1995
The analysis of this paper has demonstrated that the poor economic performance of sub-Saharan African countries as a group since the mid-1980s has stemmed primarily from differences in the policies pursued by individual countries or country groups, particularly in the context of a deteriorating external environment. The country groups that have cushioned the impact of the large cumulative terms of trade losses by improving their external competitiveness and implementing broadly based structural adjustment measures have done better than others. The adjusting countries have made progress toward attaining macroeconomic stability and alleviating the structural and institutional impediments to private sector development. They have thereby managed to raise government investment and stimulate the expansion in private savings and investment and to achieve positive growth in real per capita GDP. In contrast, the countries that were slower to adjust experienced declines in savings and investment, by both the public and private sectors, and recorded sizable losses in their real per capita incomes.
The empirical results with actual data during 1986–92 have indicated that macroeconomic stability and structural reforms help to boost growth, savings, and investment. The evidence suggests that inappropriate macroeconomic policies were the second largest contributing factor to the poor growth performance of sub-Saharan African countries as a group during 1986–92, after the impact of rapid population growth rates and unfavorable weather. The adverse effects of the terms of trade losses on growth were less significant and appear for the non-CFA franc countries to have been more than offset by real exchange rate adjustments. Macroeconomic policies influence economic growth directly, through their impact on productivity gains, and indirectly, through their impact on capital accumulation. Progress toward macroeconomic stability and increasing government investment play a major role in stimulating private investment and savings. Stable macro-economic conditions are also necessary for enhancing the benefits from foreign assistance in an environment of heightened competition for limited donor resources. In addition, the empirical findings indicate the positive contribution to growth of improvements in human capital (both directly and indirectly through its impact on population growth) and progress toward political liberalization.
In the aftermath of declines in real per capita incomes registered during the past two decades, a principal objective of sub-Saharan African countries during the rest of the 1990s and beyond is to accelerate on a lasting basis their output growth while also attaining external viability. This would require more the adoption and effective implementation of appropriate structural adjustment policies than a change in the thrust of these policies. The key ingredient of such a growth-oriented adjustment strategy is the encouragement of a substantially stronger expansion in private savings and investment than hitherto, through intensified efforts to restore and maintain stable macroeconomic conditions and accelerated structural reforms. A challenge facing many countries in sub-Saharan Africa is to combine the achievement of sustained gains in real per capita incomes with stepped-up efforts toward political liberalization. The latter process would be expected to complement private sector development, as it would entail increased transparency in economic decisions, improvements in the institutional framework, and promotion of better governance.
It should be recognized, however, that the adjustment process is likely to be a protracted one, given the existing imbalances and the deep-rooted developmental constraints that confront sub-Saharan African countries. The challenge of attaining and maintaining stable macroeconomic conditions and of removing structural rigidities is a permanent one, but the payoffs in terms of gains in growth in per capita incomes are sizable and immediately realizable.