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For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

The main findings of a new World Bank study of the region that looks 30 years back and 30 years ahead

Sub-Saharan Africa as a whole has now witnessed almost a decade of falling per capita incomes, increasing hunger, and accelerating ecological degradation. The earlier progress made in social development is being eroded. Overall, Africans are almost as poor today as they were at independence in the 1960s. With almost half a billion people, Africa now has a total GDP equivalent to that of Belgium, which only has 10 million inhabitants. (Throughout this article, Africa is used synonymously with Sub-Saharan Africa, excluding South Africa and Namibia.)

Africa’s deepening crisis is characterized by low-yielding agriculture, uncompetitive industries, mounting debt, and deteriorating institutions. Food production has risen more slowly than population. Although industry grew roughly three times as fast as agriculture in the first decade of independence, the last few years have seen an alarming reversal in many African countries. With export volumes barely growing at all since 1970, Africa’s share in world markets has fallen by almost half.

This article is based on a longer study, Sub-Saharan Africa: From Crisis to Sustainable Growth—a long-term perspective study, co-authored by Pierre Landell-Mills, Ramgopal Agarwala, and Stanley Please, and available from the World Bank Bookshop, Washington, DC 20433 USA. $12.95.

As Africa prepares for the 1990s and beyond, the time is opportune to devise a strategy for the next generation that will reverse Africa’s decline. This longer-term perspective was provided by a recently published report by World Bank staff (see box), which extensively involved African researchers, businessmen, and public officials, as well as representatives of the donor community. It builds on studies undertaken by the United Nations and African agencies.

Lessons of the past

The reasons for Africa’s economic decline are debated widely. Some see mainly external causes; others, internal policy shortcomings. But whatever the view, few would dispute that responsibility for Africa’s economic crisis is shared by donor agencies and foreign advisers as well as African governments. In many countries, public investment programs have been overwhelmingly the aggregation of what individual donors wanted to finance. The result was poorly designed public investments in industry, too little attention to smallholder (peasant) agriculture, too much public sector involvement in areas where the state lacked managerial, technical, and entrepreneurial skills, and too little effort to foster grassroots development. A top-down approach discouraged ordinary people, whose energies most needed to be mobilized in the development effort.

The results of past actions are reflected in the contrast in performance between Africa and South Asia—the most comparable other developing region. In Africa, the population has grown faster, investment is far lower, and the efficiency of capital much less than in South Asia. A central problem is Africa’s very high costs—typically 50-100 percent above those in South Asia—which undermines its competitiveness. Weak public sector management has resulted in loss-making public enterprises, poor investment choices, inefficient and unreliable infrastructure, price distortions (resulting from overvalued exchange rates, administered prices, and subsidized credit), and hence inefficient resource allocation. Added to this, wage costs remain high (particularly in the CFA franc zone) relative to the productivity of competitors, even though average real wages have fallen by about a quarter across Africa since 1980. Intermediate technologies, such as pedal carts and animal draught-power, which can increase productivity and permit rising but less import-intensive levels of consumption, are too little used. Even more fundamental is the deteriorating quality of government, epitomized in many countries by bureaucratic obstruction, weak judicial systems, and arbitrary decisionmaking. All of this adds heavily to the cost of doing business and discourages investors.

Undoubtedly, external factors have contributed to Africa’s woes. When averaged out over the past 30 years, as a whole, Sub- Saharan Africa’s terms of trade losses have not been exceptional, but many countries, especially the poorest, have been hard hit. Moreover, the instability of export earnings and interest rates has been highly disruptive. Yet, it is increasingly evident that poor policies and weak economic management reflected in the low returns to capital have contributed most to Africa’s present crisis. These can be changed.

Sustainable growth with equity

The challenge is for African governments to find ways to reverse the recent trends that, if continued, will lead to the “nightmare scenario” so vividly portrayed by the UN Economic Commission for Africa in its long- term study published in 1983. On current trends, Africa’s population will double every 23 years. If Africa is to avert hunger, and provide its fast growing population with productive jobs and rising incomes, its economies need to grow by at least 4 to 5 percent a year, while at the same time steps are being taken to slow population growth. The primary source of this growth, at least for the next decade, can only be agricultural production. The report proposes a target agricultural growth rate of 4 percent annually, which would permit African countries not only to meet their own food requirements but also to generate the foreign exchange needed for development. If industry were initially to grow by 5 percent annually during the early 1990s, rising progressively to 7 or 8 percent a year, and if all other sectors were to grow at around 4 to 5 percent annually, it should be possible for living standards to improve gradually. The greatest challenge will be to find ways to provide productive employment for a labor force that will expand by about 350 million between 1990 and 2020 (see table).

To meet these targets, Africa would have to not only dramatically raise the levels of domestic saving and investment but also greatly improve productivity—by as much as 1 to 2 percent annually for labor, and about 3 percent for land. This will require both:

  • an enabling environment of infrastructure services and incentives to foster efficient production and private initiative; and

  • enhanced capacities of people and institutions from the village to the upper echelons of government and industry.

Over the long term, development will be uncertain unless the growth strategy is both sustainable and equitable—sustainable, because sound environmental policies are adopted that would protect the productive capacity of Africa’s natural resources; and equitable, because of measures taken to reduce poverty, and improve access by the poor to health, education, water, and food security. At the core of this strategy are people. People are seen as both the ends and the means of economic development. Everything else—production, fiscal policy, exchange rate management, and so on—merely contributes to achieving the fundamental objective of improving human welfare.

The long-term strategy outlined in the Bank’s report envisages a move away from earlier practices, by releasing the energies of ordinary people to help them take charge of their lives. The design of programs would be more bottom-up, less top-down. Agricultural extension services would respond to farmers, not command them. Foreign investors would be welcomed as partners, not discouraged. Profits would be seen as the mark of an efficient business. The state would no longer be an entrepreneur, but a promoter of private production and entrepreneurship. And the informal sector would be valued as a seedbed for entrepreneurs, not viewed as a hotbed of racketeers.

Enabling environment

Farmers and firms will be efficient only if the incentives they face encourage them to be. The enabling environment that promotes production and efficiency has two equally critical parts: sound economic incentives and adequate physical infrastructure.

Experience worldwide convincingly demonstrates that the countries with the highest growth rates have provided effective economic incentives. They have kept their exchange rates competitive; avoided excessive and discriminatory protection of their manufacturing industry and underpricing of agricultural products; maintained positive real interest rates and real wages in line with productivity; priced utilities to recover costs; and avoided high and accelerating inflation by following disciplined fiscal and monetary policies. Structural adjustment programs in Africa have reflected these themes, but as yet the policies have been only partially implemented. In particular, it is important that exchange rate policy is seen not so much as a stabilization measure, but as a major instrument for transforming production structures.

Establishing an efficient infrastructure is also crucial. Poorly maintained roads, inefficient ports, unreliable utilities, and the like greatly increase the cost of doing business. Priority should be given to infrastructure rehabilitation; new facilities can only be justified if they meet a proven demand. It is proposed that infrastructure spending (recurrent and capital) should double to around 6 percent of GDP. At the same time, costs could be reduced by using small local contractors, and revenues increased by raising charges, especially for utilities. The determined reform of their management could yield major improvements quickly, and there is ample evidence that business and consumers willingly pay the full cost of reliable services.

Indicative projections of employment in Sub-Saharan Africa

(In millions)

article image
Sources: ILO, Africa Employment Report, 1988, and World Bank estimates.

Building capacity

Weak, overexpanded public sectors have held up Africa’s development. The need is not just for less government, but for better government that concentrates its efforts less on direct intervention and more on enabling others to be productive. Institution building is a long-term endeavor that requires a clear vision and a specific agenda. Measures are needed at every level of government to improve the performance of public administrations and parastatal enterprises. Strengthening the policy analysis and economic management capabilities of governments is especially important. For their part, public enterprises are only likely to be efficient if given clear mandates, managerial autonomy, and monitorable performance indicators. And local governments could play a greater role if allowed more managerial autonomy and regular, independent sources of revenue. Indeed, in rural areas, local services, such as water supplies, are generally best run at the communal level.

Chart 1.
Chart 1.

Sub-Saharan Africa: recent economic trends

(Index, 1980=100)

Citation: Finance & Development 26, 004; 10.5089/9781451951752.022.A010

Source: FAO and World Bank.

Ultimately, better governance requires political participation and orderly political change. Better governance also means empowering women and the poor, and the fostering of grassroots and nongovernmental organizations, such as farmers’ associations, cooperatives, women’s groups, and so on. Corruption can be tackled by strengthening accountability, by encouraging public debate, and by nurturing a free press.

Investing in people

Human development lies at the core of the strategy proposed by the Bank. It is unthinkable that another generation should go by without everyone enjoying food security and access to basic health and education. But access is of little value unless the quality of these services are much improved. The report proposes that total spending on human resource development should be doubled to 8–10 percent of GDP and, to help meet the cost, fees be collected from those who can afford to pay for services, while at the same time protecting the poor and encouraging beneficiaries to participate in the design, delivery, and management of services.

While absolute numbers are not yet worrisome in themselves—since there are still vast underpopulated regions—the high average rate of population growth in Africa (well over 3 percent) means that food production and the provision of social services must sprint just to maintain current living standards (see Chart 2). A choice has to be made between raising the welfare of a more slowly rising population and allowing the population to double almost every two decades (as at present) with increasing poverty. The report sees family planning as the cornerstone for improving the health and nutrition of women and children and lowering infant mortality. The experience of Botswana and Zimbabwe shows that, where family planning services are made widely available and are backed by mass media campaigns and community-based education programs, fertility rates are falling.

Chart 2.
Chart 2.

Projected food gap: alternative scenarios

(In millions of tons, maize equivalent)

Citation: Finance & Development 26, 004; 10.5089/9781451951752.022.A010

Source: World Bank.Case 1:2 percent annual growth rate in agricultural production, constant fertility rate.Case 2:4 percent annual growth rate in agricultural production, constant fertility rate.Case 3: 4 percent annual growth rate in agricultural production, declining fertility rate.

Major strides toward better health care are possible, even within the budgetary constraints facing African countries. Mass immunization campaigns are cheap and effective against several major childhood killers. A reliable supply of cheap drugs is feasible through better procurement procedures and regular delivery to clinics and health posts. Clean water supplies, a prerequisite for better health, can also be made affordable and efficient by involving the local communities.

Raising production

The target of 4 percent per annum growth rate for African agriculture is ambitious, but not impossible. Rwanda, for example, has achieved such a growth rate over more than two decades. Some countries can do better, while some have less potential. Success will depend most of all on strengthening agricultural research and disseminating improved technologies through tightly managed national extension services, based on a training and visit system that reaches both men and women. It will also depend on allowing the private sector to play its full role in the supply of inputs and the marketing of the output. The report recognizes that the overseas markets on which African agriculture depends will remain highly competitive. Long-term price trends cannot be expected to improve. African countries will, therefore, be challenged to diversify their production and seek out speciality markets in off-season fruits, flowers, and vegetables, for instance.

In the past, Africa has depended heavily on state-led industrialization, which has proved to be highly inefficient. It is the private sector—local and foreign—that holds the key to future industrial growth, within a stable economic and political environment. A critical element is a well-functioning judicial system, which would be relied upon to protect property and enforce contracts.

Sustained industrial growth will depend in part on a broad-based expansion of domestic demand for local manufactures. The key will be to take advantage of demand and supply linkages between agriculture and industry, aiming for complementary growth in both, by strengthening the urban-rural networks. However, a prerequisite for any future strategy to transform African industry from infancy to maturity is a well-articulated plan to build indigenous capability—to enable nationals to acquire the necessary entrepreneurial, managerial, and technical skills. During the recent years of economic crisis, small firms in the informal sector demonstrated their vitality, providing as much as one fifth of GDP in many countries. Governments can help foster the growth of these enterprises.

Closer regional ties

African leaders from the earliest days have recognized the imperative need for closer ties among their countries. Most African countries are too small to achieve economies of scale or specialization. Progress toward regional economic integration has been disappointing: official intra-regional trade has hardly grown in 20 years. But the large and growing unofficial trade is strong evidence of the potential benefit of greater economic integration. And there are many instances where regional cooperation is fundamental for accelerating Africa’s long-term development. For example, the only realistic way for Africa to obtain top quality centers of excellence for research, higher education, and technical training is to develop them on a regional or sub-regional basis, preferably building on existing institutions. Improving food security depends on increased trade among African countries, while livestock, disease and pest control, natural resource management, and energy production, all equally call for a regional approach.

A first step toward greater economic integration would be to harmonize macro- economic policies, particularly monetary policy, which indeed has begun to occur through the country structural adjustment programs, and which can be part of a phased program of trade liberalization favoring African products over those from abroad. A top-down dirigiste approach, with governments deciding which enterprises will go where, will not work. Experience suggests that a pragmatic and incremental approach, involving two or more countries to proceed along these lines, is more likely to succeed.

Funding the long-term strategy

For output to grow at the target of 4–5 percent a year, Sub-Saharan Africa will need to raise investment from the present low 15 percent of GDP to around 25 percent. This also assumes that the rate of return on capital can be raised significantly through increased efficiency. The Bank’s report assumes that, in contrast to the past, the bulk of investment in the productive sectors would come from private investors, while public development expenditure would give priority to human resource development and infrastructure, and agricultural services.

A concurrent effort will also be needed to raise the domestic savings rate from its current low level of 12 percent to at least 18 percent by the year 2000. In particular, this means achieving higher public revenues and better control of public expenditures. As far as possible, to reduce the disincentive to production, taxes on producers should be replaced by taxes on consumers. Substantial savings could also come from lower subsidies to the parastatals and from reducing military expenditures. Africa’s traditions of sharing and community-based development provide an avenue for mobilizing private savings.

Even if African countries succeed in raising domestic savings by 50 percent, as proposed, the need for external aid will grow. Specifically, gross official development assistance would need to expand during the 1990s at about 4 percent per year in real terms (slightly below the rate achieved during the 1980s). This assumes that sufficient concessional debt relief will be obtained to hold debt-service payments to their present levels. And to be consistent with the proposed long-term strategy, aid should be increasingly focused on: physical infrastructure, human resource development, agriculture, and environmental protection, including recurrent outlays for operation and maintenance.

Rising levels of aid in the 1990s could be justified only if it were used effectively and if there is a plan for aid eventually to decline. Moreover, there must be a credible commitment to ensure that aid funds do not go, even indirectly, to finance military spending, luxury consumption, or capital flight. Aid should become far more selective as between countries, strongly supporting sound and sustained reform programs.

Reflecting the priority accorded to capacity building, technical assistance will remain a crucial component of donor support. Currently, technical assistance is often uncoordinated, ad hoc, poorly managed, and rarely fitted into a comprehensive strategy for capacity building or institutional development. A radical reappraisal is needed country-by-country. Greater use should be made of African and other Third World consultants, and much more attention given to transfer of skills and capacity building.

A strategic agenda for the 1990s

Given the enormous diversity within Africa, each country has to develop the long-term strategy that suits its particular circumstances. Debate about the best approach will continue among Africans, and between African countries and their external partners. But the aim is to seek the common ground where joint action can proceed. Six main elements of a strategic agenda for the 1990s can be suggested:

  • continued evolution of adjustment programs aimed at transforming production structures and taking fuller account of the social impact of reforms;

  • adoption of a people-centered strategy with a doubling of expenditures on human resource development and a special emphasis given to capacity building;

  • fostering an enabling policy environment that encourages private investment and the informal sector, as well as providing efficient infrastructure services;

  • strengthening agricultural research and extension services, expanding family planning services, and adopting environmental action plans;

  • pursuing vigorously regional integration and cooperation; and

  • expanding the special program of external assistance to Africa through the 1990s.

None of these will go far unless governance in Africa improves by making the leaders more accountable to their peoples and transactions more transparent. Funds should be seen to be properly administered, audit reports made public, and procurement procedures overhauled. Only then will lasting progress be achieved.

The challenge facing Africa is dramatic. The cost of failure would be appalling. Much depends on building a stronger relationship between African governments and their foreign partners. The Bank’s report argues that new and closer forms of collaboration are needed to ensure that policy is kept under continuous review. To facilitate this dialogue, a global coalition for Africa is proposed that would build on the UN Programme of Action for African Recovery and Development, where African leaders and their key partners could agree on general strategies that would provide guidance for specific action programs at country and regional levels. Such a coalition would be a concrete demonstration of a shared new resolve to work together pragmatically to build a better future for Africa.

Finance & Development, December 1989
Author: International Monetary Fund. External Relations Dept.