A View from Africa
- I. Patel
- Published Date:
- December 1992
Africa’s Experience of Development
As humankind enters the last decade before the third millennium, most African countries are still facing the problem of choosing an appropriate strategy for development. After more than thirty years of independence, Africa’s economic performance is still the weakest of all the developing regions of the world, and the constraints of development are being increasingly felt. In light of this situation, and bearing in mind the precarious, not to say, dramatic, circumstances of the people of Africa, there is every reason to express concern about the choice of economic policies implemented in Africa, and above all, about the way in which they have been implemented.
Analysis of Development Strategies
The economic strategies adopted during the first decades of independence in Africa considered industrialization to be the engine of economic growth and the key to the transformation of traditional economies, essentially because of the uncertainty over the outlook for commodity exports and the acknowledged desire to reduce dependency on imported manufactured goods. African policymakers also felt that governments should play a major role in implementing these strategies; consequently, and generally with the full support of creditors, multiyear development plans were devised, involving investments in vast basic industries, concomitantly with the implementation of an arsenal of price control regulations, exchange restrictions, and credit and foreign exchange allocations.
For some observers, the reasons for the weak economic performance of African countries are linked to factors over which they have no control: bad weather, low world commodity prices, and insufficient aid flows. Others, however, blame the policies implemented, especially the inadequate macroeconomic framework and the weakness of the economic incentive structure. Studies of this question have analyzed in depth the reasons for the failure of development strategies in Africa. They especially emphasize the inadequacy of development spending compared with the needs of such productive sectors as agriculture, industry, mining, etc., underscoring the fact that not enough attention has been given to agriculture, in particular to measures to encourage small-scale producers to raise their productivity and to appropriately modernize their operations.
With regard to international trade, which is a powerful stimulus to domestic demand and the dissemination of technical progress, the strategy implemented in most African countries was based on exporting one or a few primary commodities while importing a broad variety of inputs and processed products. This led to a dramatic decline in Africa’s share of world exports, especially commodity exports, and a considerable rise in its volume of imports. Moreover, given the preponderance of primary commodities in African exports, the terms of trade have exhibited a long-term tendency to deteriorate, which, with few exceptions, has almost always become a reality.
Lessons of Investment Policies
With investments, the main problem lies not in the drying up of sources of investment that has been observed for a number of years now, but rather in their low yield, which is itself a result of the drop in African productivity.
What happened in Africa is easy to understand; like all developing regions, the African countries enjoyed a substantial flow of investments while investments were profitable. Very rapidly, however, the particular circumstances of Africa started to reduce their profitability. Even so, the flow of investments to the African continent continued, as long as the favorable world economic situation managed to conceal the falling real performances there. With the onset and the persistence of the world economic crisis, investments were increasingly directed toward the countries and regions that showed satisfactory economic performances. The African countries thus became locked into a recessionary spiral, in which lower general economic performance generated a smaller investment flow that, in turn, accentuated the falling economic growth rate.
Trade and Development Strategy
Where the Problem Lies
Empirical observations in African countries over the period 1971—87 show a relatively weak but positive correlation between exports and general economic performance. It would be a little hasty, however, to draw the conclusion that the link of causality between exports and economic performance is a one-way phenomenon. The availability and allocation of foreign means of payment constitute one of the key elements of this link, to the extent that all the sectors of the African economies, including the export sector, need to import products necessary for their activity. It so happens that the African countries’ ability to import was sharply curtailed after the drop in their export earnings and their subsequent difficulty in gaining access to external sources of capital.
The African countries were therefore dragged into a recessionary spiral in which the decline in their export earnings had a negative effect on the level of investment and consequently on the general performance of the economy, which, in turn, contributed to weakening their export potential. Given the economic crisis the African countries have undergone since the end of the 1970s, opinions vary as to the economic options for reviving growth, and the proponents of an export-oriented strategy contend, in an intricate theoretical debate, with those favoring a domestic-market-orienred strategy.
Initiatives for Solution
Beyond the purely academic approaches that establish the theoretical foundations of the theories proposed, we will be addressing the debate that has arisen among economic policy decision makers.
The Lagos Plan
The Assembly of Heads of State and Government of the Organization of African Unity, meeting in its second Extraordinary Session, held in Lagos in April 1980, adopted a document entitled the “Lagos Plan of Action,” with a view to implementing the Monrovia Strategy for the economic development of Africa. The preamble of this document states, “Faced with this situation (the failure of earlier policies), and determined to undertake measures for the basic restructuring of the economic base of our continent, we resolved to adopt a far-reaching regional approach based primarily on collective self-reliance.” It is thus clear that the Lagos Plan’s approach is one based on a domestic market-oriented strategy, which, however, goes far beyond the limited framework of the national economies of the states concerned. The basis of this approach is an explicit rebuttal of the development models used in Africa during the first two decades after the surge of independence, which tended to be, in many ways, a continuation of the prevailing economic system during the colonial era. In this connection, the Lagos Plan clearly indicates that “… rather than result in an improvement in the economic situation of the continent, successive strategies have made it stagnate and become more susceptible … to the economic and social crises suffered by the industrialized countries."
The Lagos Plan of Action thus proposes a progressive reduction in the economic dependence of the continent on the industrial nations and the expansion of regional economic cooperation. But the question we may then ask is the following: What form should this reduction of dependence take? As the most striking aspect of this situation is the dependence of African economies on one or a few primary commodities, the main buyers of which happen to be the developed countries, does this mean that these exports have to be halted?
The World Bank Plan
Just a few months after the appearance of the Lagos Plan, the World Bank published a report entitled “Accelerated Development in Sub-Saharan Africa.” The aim of this report was also to define a strategy for the 1980s in Africa. In the preamble, the President of the World Bank states, “The report accepts the long-term objectives of African development as expressed by the Heads of State of the Organization of African Unity in the Lagos Plan of Action.” The report falls within the range of neoclassical analysis. Without neglecting the impact of the postcolonial situation and the weight of external factors, it covers factors that are inherent in the problems of the continent and, as a result, the solutions it proposes are appropriate.
Although the Lagos Plan has not been broadly implemented, the World Bank report, because of the Bank’s significant financial resources, has, on the contrary, had a considerable impact on African economies during the period under review. The World Bank report may, in fact, be considered as the basic document for the structural adjustment policies implemented in Africa and one can, without risk of error, assert that the 1980s have proved to be the years of structural adjustment for African countries.
At the end of the 1980s, it is possible to offer, with hindsight, a Tentative assessment of structural adjustment in Africa. While it is generally agreed that structural adjustment has achieved little, there is considerable disagreement as to what the reasons were. For some, the reasons lie in errors in the design or external constraints; others emphasize the way programs were misapplied. So should structural adjustment and its corollaries, liberalization and economic openness, be rejected? Certainly not!
Lessons of Foreign Experience
Because the conditions under which the development of the industrial nations of Western Europe and North America took place were somewhat special, it is very unlikely that any developing country will be able to make use of similar conditions for its industrialization. It would, therefore, be interesting to examine the experience of developing countries or countries that have attained industrialization more recently. In this respect, the experience of a number of countries that, thanks to their remarkable performance and, above all, to the rapidity of the process by which they have moved up through the ranks of the underdeveloped to those of the industrial nations, is pertinent in more ways than one.
About a dozen economies in Europe, America, and Asia are usually known by the generic name of newly industrializing economies. They are those of Brazil, Greece, Hong Kong, Mexico, Portugal, Singapore, South Korea, Spain, Taiwan Province of China, and Yugoslavia. The newly industrializing economies of Asia are the ones in this group that have shown the most remarkable economic performances. Since 1960, they have had sustained gross domestic product (GDP) growth, made the demographic transition, and have become industrialized at an outstanding rate. At the same time, the growth of their exports has been coupled with a sharp redistribution of the structure of exports in favor of manufactures. Today, these four Asian economies, the largest of which supports a population of about 42 million on a territory no greater than 99,000 square kilométers accounts for over 50 percent of manufactured exports from developing countries.
What is the explanation for the exceptional success of the economic policies implemented by these four? The reasons given are linked to both external and domestic factors, and it is their simultaneous appearance and combination that explain why the four have performed so well.
Like all other economies at the lift-off stage, the Asian four had to face the problem of investment. In the lift-off initial phase, they had to call on domestic saving, encouraged by government incentives, especially those involving high nominal interest rates. However, it was foreign aid, the availability of an abundant supply of manpower, low wages, and, last, foreign investment that enabled them to start up and then to consolidate their industrialization process. Significantly, American aid provided a total financial input of between 5 percent and 10 percent of GDP.
The success of industrial policy in Korea, Singapore, and Taiwan Province of China can to a large extent be attributed to government policy in directing investment and in defining the stages and priorities in the process of industrialization. The initial phase in the development strategy implemented by the Asian four aimed at satisfying domestic demand by diversification and the creation of an integrated heavy industry. This strategy, labeled as one of import substitution, was followed by what was called an export promotion policy, which was started as soon as the two following conditions were met: the rationalization of industrial enterprises with highly labor-intensive innovations and the modernization of agriculture that sharply increased productivity.
The performance of these economies underscores the fact that the promotion of exports produced more satisfactory results than those obtained during the import substitution phase and at a lower cost. There are three main reasons for this: (1) With the export promotion strategy, the costs are borne by the general government budget; whereas with import substitution, it is the entrepreneur and the consumer who pay. (2) Faced with international competition, export enterprises have to innovate and offer products at international prices and of international quality. (3)With a mainly inward-looking strategy, the economy is liable to severe inflationary pressure, the usual sign of which is an overvalued exchange rate.
It can be seen from this analysis that the Asian four—outstanding examples of economies that are highly integrated into the international market—are in the vanguard of those that have achieved industrialization and development in the second half of the twentieth century. Is this sufficient, however, to allow us to conclude that an outward-looking policy would have the greatest development potential?
A World Bank study using data from 41 developing countries over the period 1963—85 yields the following conclusions: After classifying the countries in four categories according to their trade orientation, it found that the links between trade strategy and economic performance are not absolutely clear. This uncertainty is related to the question of the direction of the causality link: Does an open policy lead to better economic performance or does excellent economic performance favor greater openness to the outside? The figures show that the economic performance of outward-looking strategies has, on the whole, proved better than that of inward-looking strategies, in almost every respect.
To overcome the economic difficulties the African countries are facing and to pave the way for lasting sustained growth in Africa, the solutions being considered should restore the conditions for running the economic infrastructure more efficiently; progressively expand the scope of subregional relations so as to optimize the distribution of factors; and progressively merge into the international market channels. To do this, policies will have to focus mainly on pursuing reforms in the African economies; promoting intra-African trade and subregional integration; and continuing efforts to preserve acquired positions and to conquer new positions in the international market.
Pursuit of Reforms in the African Economies
The results of economic reforms in Africa over the past decade have been very moderate. For the coming years, these reforms should, above all, try to improve the effectiveness of development policies. With this in mind, the most important element to be urged is political will. The need and the will to implement reforms should be felt by and emanate from Africans themselves. Consequently, they should play the main role in designing and implementing them.
Once defined and felt by all economic agents, the need for reform should lead to concrete, practical, and easily valuable measures. Such measures should be directed, inter alia, at putting in place an administration inspired by the need to undertake reforms and to back up economic agents; rehabilitating the macroeconomic framework; removing all domestic trade barriers; directing the economic incentive infrastructure at reducing the remaining distortions in the African economies; and placing special emphasis on making the best use of human resources and improving the physical infrastructure, so as to provide private sector producers with the necessary conditions for success.
In implementing these reforms, the African countries should, as far as they can, avoid being lured into the tempting expedient of reducing the education and health budgets. The fact is, most growth theories put the development of human resources among the priorities in any viable and lasting development process.
Promotion of Intra-African Trade and Subregional Integration
In the area of intra-African economic cooperation, neither the will nor the initiatives are lacking, for there are more than 200 regional cooperation organizations, of which more than three fourths are intergovernmental. A glance at the current situation, however, reveals how far below their potential they are performing. The fact is that the ratio of intraregional trade to the whole has not grown for at least twenty years and accounts for only 5 percent of the trading of African countries. A study by the International Trade Center has estimated that potential intra-African trade is on the order of ten times its present size.
The inescapable reality is that most African countries are sparsely populated and possess limited economic resources. As a result, their development options, taken individually, are particularly fragile. Balanced development and, especially, any strategy based on significant structural changes, will require both access to larger markets for agricultural and industrial products and international policy coordination for a whole range of areas of activity.
The Lagos Plan of Action is the most ambitious and complex initiative for economic integration ever undertaken in Africa. Its approach consists of dividing sub-Saharan Africa into three subregional groupings (Western Africa, Central Africa, and Eastern and Southern Africa), which would each pass through three stages: free trade, customs union, and economic community. Three sets of obstacles will have to be removed for integration to be attained in this manner: the reduction of transport costs; the liberalization of trade; and the resolution of problems related to money and finance.
Another approach is to forget about integration through trade and adopt a new approach emphasizing the promotion of regional means of production. This approach would focus on regional investment in heavy industries and transport and communications. Whatever ways are chosen for the march toward economic integration in Africa in the coming years, they will have to be allowed for in any reform programs designed and implemented jointly with the international financing agencies.
Preservation of Acquired Positions and Conquest of New Positions in the International Market
The strategy to be implemented to preserve acquired positions and conquer new positions in the international market depends to a large extent on the success of reforms and of economic integration. To preserve such acquired positions, support will have to be given to commodity price stabilization agreements, such as the commodity fund put in place by the United Nations Committee on Trade and Development (UNCTAD), in order to consolidate and initiate sufficient financial assistance to facilitate commodity price stabilization through the implementation of such international agreements. Other financing mechanisms, such as the IMF’s compensatory and contingency financing facility and Stabex will also have to be promoted. These mechanisms should only be considered, however, as temporary and complementary to the other measures taken to adapt to international market conditions.
The export revenue stabilization process is all the more important for the African countries in that it is virtually a prerequisite for the overall success of the recovery strategies in Africa, to the extent that commodity exports will, for some time into the future, constitute the most important source of foreign exchange for the region.
Last, as for the conquest of new shares of the export market, the main prior condition to be met is a quality product at a competitive price. This objective will not be met without greater efficiency in the economies of the African countries and maximum coordination of action by the public and private sectors.
Once the internal conditions have been met, the strategy to be implemented should concentrate on three main points: (1) targeting the promising market openings in which the countries concerned possess unquestionable comparative advantages; (2) focusing efforts on occupying these openings by developing the necessary skills and, subsequently, conquering ever growing markets; and (3) once these openings are occupied, seeking to dominate the whole economic branch through a policy of expanding both up and down it.