By Awande Buthelezi
A number of voices (mostly located on the right of the political spectrum) give the impression that a simple combination of bad governance, stringent regulation and mismanagement of state-owned entities, is to blame for all of the African continent’s economic woes. Although a number of these factors have contributed to the African continent’s current socioeconomic quagmire, they do not tell the whole story.
In response to the above issues, conservatives champion “economic” freedom, in a narrow liberal sense, as a solution. What they mean by this is austerity, deregulation, labour flexibility, liberalization of trade and capital markets, and the privatisation of all industry.
Those who advocate this view may well have good intentions. Yet such a perspective does not take into account the historical experience that Africa has had with so-called “economic freedom”. Therefore, it is necessary for us to take stock of the factors that have led to Africa’s current and historical condition of underdevelopment. Central to this endeavor is an examination of the history of Structural Adjustment Programs (SAPs).
What explains Africa’s economic woes? World Bank, ECA and Dependency
Historically there have been at least three competing explanations for Africa’s economic woes: The traditional “World Bank view,” “Economic Commission for Africa (ECA) view” and the more radical “Dependency view”.
The traditional World Bank view is outlined in “the Berg Report”, where the Bank argued that the primary cause for the African economic crisis rests squarely on government policy failure. From this point they go on to state that orthodox macroeconomic management presents the best path towards economic recovery across the African continent. These “structural adjustments” are, essentially, the recommendations of the “economic freedom” position outlined above.
In contrast, the United Nations Economic Commission for Africa (ECA) has understood Africa’s problem as being one borne from the deficiencies the continent faces in the provision of basic economic and social infrastructure (specifically physical capital), research capabilities, technological expertise and human resource development. Due to this the ECA argued, that the World Bank view was not only incorrect in their diagnosis but in their proposed treatment. An ECA document, the African Alternative Framework to Structural Adjustment Programs, thus states that “both on theoretical and empirical grounds, the conventional SAPs are inadequate in addressing the real causes of economic, financial and social problems facing African countries that are of a structural nature”.
The central dispute between the World Bank and ECA perspectives are located around “the role of market mechanisms”. Where the World Bank defines market mechanisms as an elementary instrument of resource allocation and income distribution, the ECA challenged this thinking. Despite their differences both agreed on some major issues; more specifically the need for human development, increasing the efficiency of parastatals and healthy debt management.
The “dependency view,” however, offers a more radical critique of structural adjustment, departing from both the World Bank and ECA perspective. It states that the African problem is rooted in its economic dependence on imperial powers. This view, most famously argued for by Walter Rodney and Samir Amin, contends that Africa’s issues are best explained as the result of long-term underdevelopment and short-term vulnerability deriving from this. The only way for African economies to escape this form of “underdevelopment” is to “delink” from the global capitalist economy and ensure that its domestic economic interests are protected. Some dependency theorists maintain that such a “delinking” is a step towards achieving global socialism, something they believe will come not from the advanced countries of the North, as Marx predicted, but from the “peripheral” countries of the Global South.
Structural adjustment in retrospect: The Debt Crisis
Regardless of whether one subscribes to the “ECA”, “Dependency” or the now modified World Bank view, it is becoming increasingly clear that the old call for structural adjustment or “economic freedom” cannot be sustained. This is because we have ample evidence of how these programs devastated African economies after they were implemented. To show this, let us take the Debt Crisis of the 1970’s and its aftermath.
The onset of the 1970s Oil Crisis played a significant role in increasing the price of commodities that the newly independent African countries had specialized in producing. This rise in commodity prices was met with a proportional increase in imports of capital and intermediate goods to develop infrastructure and kick-start broad economic development.
These efforts however, were undermined by the first oil price shock, which African states sought to remedy through external financing, as such shocks were thought (at the time) to only be temporary. But a further decrease in commodity prices and the subsequent increase in global interest rates, began to add greater pressure on these economies. The rise in commodity prices was then met with increased government expenditure in order to keep developmental progress, yet these actions only helped to create a greater dependency on the loans these nations required to carry out their development goals.
Things got worse following the second oil price shock. External debt grew to approximately fifteen fold what it had been prior as African states were force to increase their borrowing as commodity prices remained stagnant.
Along this backdrop occurred the implementation of SAPs by institutions such as the International Monetary Fund (IMF) and the World Bank. These were economic policies created to enhance economic growth, increase economic efficiency, resource allocation and resilience to global and domestic market fluctuations. This was all done through a primary focus on achievable sustainable deficit reduction and a reduction in the rate of price inflation.
These programs were to be implemented as pre-conditions to debt relief, the acquisition of new loans and assistance in the efforts of attracting foreign investors. The perspective of Bretton Woods institutions such as the IMF, the World Bank and other supporters of SAPs, was that the financial problems of underdevelopment and inefficiencies that the developing world faced, were created from internal factors. These perceived factors were said to state interference in the functioning of price mechanisms, over inflated public expenditure, corruption, state ownership of manufacturing enterprises, exchange control and investment in social services. In response to this, African states were given the blueprint of “structural adjustment.”
The immediate effects felt through the implementation of these austerity measure were the increase in prices of essential goods, a shrinkage in income and a decrease in employment rates. Much of this had to do with cuts in government spending. In countries such as Zambia, the effects of these austerity measures had far reaching effects with political ramifications. The implementation of “correct prices” and “market efficiency” led to a series of food riots, which resulted in the eventual fall of its presiding government.
In the case of Ghana, the IMF and World Bank prescribed a set of SAPs in February 1983. The adjustments were made in the form of suggestions that sought to: devaluate the local currency; reduce inflation; downsize the public service; significantly cut government expenditure on social services, education and healthcare; financial reforms; privatize public enterprise; promote export lead industries; and a number of other policies deemed as positive in the efforts of enhancing economic growth. Proponents of the SAPs argue that these helped save Ghana’s economy from total collapse. This argument is bolstered by the fact that we saw improvements in Ghana’s GDP between 1984 and 1991, which averaged at 5- 6 percent. In turn, the annual rate of inflation decreased from an average of 123% to 32% from the early 80s to 1991.
But it is important to note the underside of these figures. The implementation of SAPs led to the retrenchment of up to 300 000 public sector workers and the introduction of user fees for health and education; significantly affecting accessibility to health and educational services for the poor. Furthermore, the devaluation of the Ghanaian currency, raised the import costs of medication, machinery, school supplies and other essential items not produced in Ghana. Ghana’s total debt experienced a quadruple from $1, 398 million in 1980 to $5, 874 million in 1995. The country experienced a rise in external debt as a percentage of GDP from 31,6% to 95% during the same period of time.
With the introduction of SAPs, indebted African countries were able to attain GDP growth and achieve a level of macro economic growth which was not possible at the onset of the 1970s Oil Crises. Despites these positive macroeconomic factors, this did little in the way of solving the matter which led to their implementation; the external debt faced by these countries. Rather it only served to make the presentation of these issue more pronounced. The repercussions of these problems on the populace (in dire need of access to services such as healthcare and education) only served to create a greater level of social inequality in a country that not only required growth from a colonial era characterized by underdevelopment, but was now also further impacted by the loss of jobs created from these programs.
It can be said with confidence that SAPs in Africa have failed to meet their stated objectives. These programs failed not only to meet their original objective (to decrease the amounts of debt that African countries owed) but also played a significant role in stifling industry and development within African countries. It is no wonder then that traditionally conservative institutions like the IMF and World Bank have abandoned their previous views and embraced the limitations of the so-called “economic freedom” argument. Indeed, the World Bank eventually discarded their support of Structural Adjustment programs in the 1990’s and called for an abandonment of a one-size-fits-all development approach. The days of structural adjustment and a naïve view of the benevolence of free-markets are now well and truly over.