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Adjustment and Growth
in Sub-Saharan Africa:
The Unfinished Agenda
Evangelos A. Calamitsis
After a prolonged crisis, sub-Saharan African countries have been broadening their reform efforts and enjoying improved economic growth rates. The gains they have made are fragile, however, and to achieve sustained progress they need to strengthen their current reform programs and resolve the serious conflicts threatening the region.
SUB-SAHARAN AFRICA seems to have come full circle to a position of real promise in the four decades since most countries in the region attained independence. At independence, there were great expectations of rapid economic and social progress, paralleling the consolidation of the new nation-states. These expectations were broadly realized in the 1960s, when production grew and real per capita incomes increased appreciably. After this initial period of growth, however, most economies stagnated in the 1970s and went into decline in the 1980s. Although a number of countries undertook far-reaching adjustment and reform programs with considerable success, the region's aggregate economic performance remained disappointingly weak, with falling real incomes per capita and increasing poverty throughout the continent. Now, as we approach the new millennium, renewed signs of economic progress and a broader commitment to reform augur well for the future. But sub-Saharan countries' reform efforts need to be sustained and strengthened, while urgent steps have to be taken to resolve the serious conflicts that threaten the continent—if they are not, Africa's economic prospects will again be dimmed and a great opportunity for durable progress will be lost.
Crisis of 1970s and 1980s
As has been discussed extensively in the literature, both external shocks and domestic factors contributed to sub-Saharan Africa's poor overall economic performance during the last two decades. Indeed, many countries, especially the poorer ones, were hit hard by rising import prices, declining export prices, and severe droughts. Nevertheless, in most cases, the deterioration was due largely to inappropriate economic policies, which led to price distortions (notably overvalued exchange rates), poor investment choices, increasing budgetary deficits, a proliferation of loss-making public enterprises, growing inflationary pressures, and a loss of international competitiveness. There was also a serious deterioration in governance, which was epitomized by a weakening of the legal framework and the judicial system, as well as by corruption in the management of public resources, particularly those involved in the marketing of key crops and minerals. These problems were compounded by rapid population growth, neglect of human resource development, deteriorating infrastructure, and outbursts of ethnic conflict and political instability. In an effort to shore up their countries' shrinking domestic resource bases, many governments undertook extensive external borrowing for consumption and investment, but, given the very low and declining rates of return on public outlays, their external debt burdens often became unsustainable and arrears accumulated.
Economic turnaround of 1990s
Faced with a deepening crisis, more and more countries began, in the late 1980s and early 1990s, to implement comprehensive adjustment and reform programs, often with IMF and World Bank support. Although there were some initial setbacks in their implementation, these programs gradually began to take hold in most countries as they addressed both the existing macroeconomic problems and the structural constraints on growth. As a result, beginning in 1995, there was a major turnaround in the region's overall economic performance.
According to the latest available data, during the four-year period 1995–98, the real GDP of sub-Saharan Africa is estimated to have grown at an average annual rate of more than 4 percent, or some four times the average rate of the preceding four years; hence, real per capita incomes began to rise perceptibly in many countries. If one excludes the region's two largest economies, Nigeria and South Africa, the average annual growth of sub-Saharan Africa's real GDP was nearly 5 percent during this period, and that of the CFA franc countries as a group exceeded 5 percent, reflecting the sharp recovery of their economies following the overdue devaluation of the CFA franc in January 1994, which was supported by complementary financial policies and structural reforms. At the same time, the average rate of inflation in the region fell sharply, from a peak of 47 percent in 1994 to an estimated 10 percent in 1998. Domestic and external financial imbalances were also reduced markedly through 1997, and they would have narrowed further in 1998 had it not been for the adverse impact of the Asian crisis on world prices of a number of primary commodities, especially oil.
Thus, for the first time in a generation, there are now increasing signs of economic progress in sub-Saharan Africa. Indications are that sound fiscal and monetary policies, pursued with determination, have substantially reduced the underlying macroeconomic imbalances. Moreover, important structural reforms—including the removal of domestic price controls, the establishment of market-determined interest rates, the liberalization of exchange and trade systems, the restructuring or privatization of public enterprises, financial sector reforms, and reforms of investment codes and labor legislation—have contributed to eliminating distortions and improving overall economic efficiency. Many countries have also carried out substantial reforms of their agricultural marketing systems, allowing higher prices to be paid to farmers and thereby strengthening production incentives. More and more countries are also giving increasing attention to achieving high-quality growth, with their reform efforts focused on reducing poverty, by placing higher priority on public spending on health care, education, and other basic social services. Meanwhile, the implementation of these economic policies has been accompanied by political liberalization and a movement toward participatory forms of government that foster policy consensus between the state and civil society. The progress made could therefore well endure, because it is underpinned by an improved domestic policy environment rather than by fortuitous external developments.
Nonetheless, the region has a long way to go to make up for the ground it lost over the past two decades and to integrate itself fully into the world economy. In particular, economic growth rates are still not high enough to enable sub-Saharan countries to catch up with other developing countries, to create the employment opportunities required to absorb the rapidly growing labor force, and to make a real dent in the pervasive poverty. There is thus a need to raise average real GDP growth rates to 7–8 percent a year on a sustained basis; although relatively high, such rates are within reach, as demonstrated by the recent growth performances of C�te d'Ivoire, Ethiopia, Mozambique, and Uganda. This would entail increasing the share of investment in GDP from the current 17–18 percent to more than 25 percent (similar to that achieved during the periods of sustained high growth in Asia and Latin America), as well as improving productivity. At the same time, since official development assistance is clearly on the decline, African countries will have to achieve substantially higher rates of domestic saving and attract private capital inflows—particularly foreign direct investment—in order to accelerate their growth and development.
Agenda for sustainable growth
In view of the current situation in the region, what policies are needed to achieve more dynamic and sustainable growth in the years ahead? Evidently, each sub-Saharan African country will have to develop a strategy that best suits its specific circumstances. On the basis of experience and research on the key issues, however, there has been an emerging consensus that Africa's policy and reform agenda needs to focus on the following elements.
Role of development partners
The success of this strategy in achieving higher growth and poverty reduction will depend largely on sub-Saharan Africa's ownership of the reform process and the sustained implementation of sound policies. Reform efforts will, however, also need the support of sub-Saharan countries' bilateral partners and international financial institutions.
Africa's bilateral partners, particularly the major industrial countries, can contribute to Africa's success by pursuing policies that promote world economic growth and financial stability; opening their markets to products in which African countries have, or can develop, a comparative advantage, and phasing out distortionary protective practices; increasing their assistance to countries committed to strong reform programs; cooperating actively in the fight against corruption; and ensuring that international and regional organizations have the necessary resources to carry out their mandates.
The international financial institutions—the IMF and the World Bank—will also have to continue to support Africa's adjustment and reform efforts by providing policy advice, as well as financial and technical assistance. In all these areas, they will have important roles to play. The IMF's future role and contributions in sub-Saharan Africa are likely to be advanced by
Sub-Saharan Africa has achieved a major turnaround in overall economic performance in recent years, based largely on improved macroeconomic policies and structural reforms. The situation is still fragile, however, and sub-Saharan Africa faces many risks of renewed crisis, notably the risks posed by serious conflicts in several parts of the region. Therefore, an immediate challenge is to promote peace and security, both through conflict prevention and a prompt resolution of disputes; this would help create an overall environment within which sound economic and financial policies can have the best prospects for success. To achieve higher growth and a durable reduction in poverty, most countries will need to implement with determination a reform agenda focused on fostering private sector development, ensuring good governance, consolidating macroeconomic stability, and accelerating structural and institutional reforms. These objectives should be within sub-Saharan Africa's reach, and if they are vigorously pursued on the basis of a broad national consensus, they should pave the way for increased confidence and progress in the region in the new millennium.