The Multinational Monitor



Disastrous Decade

Africa's Experience with Structural Adjustment

by Nancy E. Wright

The 1980s were disastrous for sub-Saharan Africa. Per capita income was lower at the end of the decade than at the beginning, and a host of other social indicators--infant mortality rates, per capita calorie intake, number of students enrolled in primary and secondary schools--also suggest that the continent made no progress or slipped in the effort to alleviate social ills. A diverse set of factors produced this tragedy, including shifts in the terms of trade, high interest rates on huge debts to international lending institutions, structural adjustment programs imposed on African nations by the International Monetary Fund (IMF), economic mismanagement, corruption, massive allocation of resources to the military, military destabilization and the legacy of colonialism.

As a new decade begins, a struggle is underway to define what course Africa should follow to escape its predicament. International lending institutions, which play a major role in African economies, and other actors in the field of international development are evaluating the failures of the 1980s and battling to set the agenda for Africa in the 1990s.

Last year, both the World Bank and the United Nations Economic Commission for Africa (ECA) issued major reports on the African economy. The ECA's report, "African Alternative Framework to Structural Adjustment Programs for Socio-Economic Recovery" (AAFSAP), criticizes the structural adjustment programs of the IMF and World Bank and their emphasis on export-led growth, privatization of state entities, limiting domestic demand and an overall reliance on market forces. While accepting some of the prescriptions of structural adjustment, the Alternative Framework calls for a continued role for the state in the guidance of African economies and a heightened focus on meeting human needs.

Five months after the release of the ECA's report, the World Bank issued its most comprehensive report on African development to date. Entitled "Sub-Saharan Africa: From Crisis to Sustainable Growth," the report diverges from some of the Bank's recent policies and clearly constitutes a response to some of the criticisms embodied in the ECA document as well as those made by nongovernmental organizations (NGOs). "The transformation taking place within the World Bank reflects the Bank's uneasiness about structural adjustment," says Doug Hellinger of the Development Group for Alternative Priorities (Development GAP). "The Bank is now trying to find a way out. We will definitely see some evidence of change within the next year, because the Bank is under attack from the public and markets alike."

"From Crisis to Sustainable Growth" recommends government involvement in human resource development, improvements in infrastructure and environmental action plans. The report acknowledges that "there are certain social and economic activities that market forces and private initiative cannot deliver," states Seyoum Haregot, a senior policy analyst at the Center for Study of Responsive Law and former head of the Ethiopian prime minister's office. "Therefore, the World Bank has conceded, the state must intervene to develop human resources in general and specifically to provide education and health services." The Bank's report calls for a "human-centered development strategy," including a doubling of expenditures for human resource development, which would bring such costs to between 8 and 10 percent of sub-Saharan Africa's gross domestic product.

Still committed to structural adjustment

The shift in World Bank thinking is limited, however, and the Bank has not abandoned the central tenets of structural adjustment. Reliance on market forces remains the key element of the World Bank's policy prescriptions. "The new report views structural adjustment as fundamentally important, but within a broader context," explains one World Bank source. "It uses the phrase 'adjustment with a difference.' ... It is an adjustment that is more sensitive to social dimensions." Though it places some importance on regional integration, environmental protection and human resource development, "From Crisis to Sustainable Growth" still calls on African governments to allow market forces to govern both agricultural and industrial production, to involve multinational companies in exploiting Africa's mineral resources and to produce manufactured and agricultural goods for export.

The ongoing promotion of structural adjustment draws attacks from critics like Hellinger, who fault adjustment programs for their effect on the internal distribution of wealth and for increasing developing countries' dependence on external economic forces. "There is no doubt that [structural adjustment] polices have made things worse, by widening economic disparities," Hellinger says. "While larger farmers can benefit because they participate in the export trade, landless rural workers do not have access to the increased producer prices brought about by structural adjustment. Urban dwellers, deprived of subsidies and [hurt by] job cutbacks, also suffer," Hellinger adds. "Adjustment programs are the antithesis of what the World Bank says they are. Rather than ensuring fair wages and promoting economic self-sufficiency, they divert economies to an export focus and bring about diminishing demand."

Evidence in the ECA's report indicates that the aggregate impact of structural adjustment programs has been negative. The report reveals that countries pursuing strong structural adjustment programs had significantly lower rates of growth in the 1980s than ones which did not, though it notes that exogenous factors make direct correlations problematic. Additionally, the ECA report provides evidence that structural adjustment fails to correct even the problems it is designed to address. Sub-Saharan African countries which implemented structural adjustment programs experienced: "GDP growth decline from 2.7 percent to 1.8 percent; a decline in the investment/GDP ratio from 20.6 percent to 17.1 percent; a rise in the budget deficit from -6.5 percent of GDP to -7.5 percent of GDP; and a rise in the debt service/export earning ratio from 17.5 percent to 23.4 percent."

The World Bank, however, stands by the record of structural adjustment. Pierre Landell-Mills, principal co-author of "From Crisis to Sustainable Growth," claims that "structural adjustment has worked where it has been undertaken on a sustained basis. Guinea and Ghana are now growing at a rate of 5 to 6 percent per year, and Madagascar has grown from -2 to 2 percent per year."

The Bank's report cites Ghana as an important example of the benefits of structural adjustment policies. In 1983, Ghana negotiated two Stand-By agreements with the IMF. Four years later, a Structural Adjustment Facility and an Extended Fund Facility were introduced along with a $115 million structural adjustment credit from the World Bank. Ghana undertook two Economic Recovery Programs, from 1984-1986 and again from 1987-1989. The goal of the first recovery program was to reduce inflation and fiscal and external deficits by reducing demand. The second recovery program subsequently sought to reverse declining agricultural production, restore Ghana's economic credibility in the eyes of western creditors, increase foreign exchange earnings, reform prices and reestablish production incentives for cocoa, as well as to improve living standards and continue to control inflation. The ultimate goal of both measures was to maintain 5 percent yearly economic growth, achieve balance-of-payments equilibrium and improve public sector management. During this time, significant agricultural reform did take place, and by 1988 cocoa production had increased by 20 percent.

At the same time, however, the world price of cocoa fell, and the prices of imports escalated. As a result, many Ghanaians have not experienced the improved conditions which adjustment was supposed to bring. Discussing Ghana recently, Flight Lieutenant Jerry John Rawlings, Chairman of the governing People's National Defense Council, stated, "I should be the first to admit that the Economic Recovery Program has not provided all the answers to our national problems. In spite of all the international acclaim it has received, the effects of its gains remain to be felt in most households and pockets.... Many families continue to experience severe constraints on their household budgets." Eboe Hutchful, a Ghanaian national and a professor of political science at the University of Toronto, confirms that the results in Ghana have not been altogether commensurate with the economic recovery efforts. "Many local populations do think things have improved somewhat," he acknowledged, "but not as dramatically as one would have hoped.... There is significant concern over the disparities in resource distribution."

Even the limited success Ghana has achieved is tainted by its continuing heavy dependence on foreign development assistance. With a population of just over 14 million, Ghana receives more than $500 million per year in aid. The International Development Association, the World Bank's soft loan arm, has contributed more to Ghana than to any other country except China and India. Yet, in addition to persistent poverty and a stagnated domestic industrial sector, Ghana's debt service ratio exceeds 70 percent, one of the highest in Africa.

World Bank critics claim that such facts disprove the Bank's claim that Ghana is a structural adjustment success story. "The World Bank has bent the rules in the case of Ghana, including allowing Ghana to postpone its debt payments, to be able to exhibit a successful model," argues Fantu Cheru, professor of development studies at American University in Washington, D.C.

The battle over the interpretation of the success of structural adjustment programs in Africa has tremendous significance for the African people. The World Bank wants not only to continue to rely on structural adjustment programs, but also to extend the use of the market as a resource allocator. "From Crisis to Sustainable Growth" promotes user charges as a means to cover the costs of providing basic social services, including "universal primary education, primary health care and water supply." The report denigrates African governments, which, "encouraged by donors, ... insist on providing water free."

The ECA report criticizes the World Bank's exaltation of market forces, condemning "the substitution of the profitability criterion for the social welfare criterion in vital areas such as water supply in a continent where the majority of the population has no access to potable water."

The ECA alternative

As well as diverging from the World Bank's focus on market forces, the Alternative Framework proposed by the ECA focuses on self-sufficiency, especially in food production, rather than Africa's role in the international market. Instead of constraining demand merely to achieve financial balances, it advocates the strengthening and diversification of Africa's productive capacity. The Alternative Framework also calls for greater and more efficient domestic resource mobilization, improvement in human resources capacity, strengthening Africa's scientific and technological base and vertical and horizontal diversification, both to meet the needs of all sectors of the population and to lessen single-commodity export dependence.

Other policy objectives recommended in the ECA report include establishing a more pragmatic balance between the public and private sectors, achieving broader bases of decision-making, correcting the imbalance between military and social expenditures, and improving the pattern of income distribution among different sectors.

Grassroots development?

Despite their competing perspectives, the ECA and the World Bank reports both fail to focus attention on the issue of grassroots participation in economic development. Though the ECA places a greater emphasis on the importance of local involvement, it does not go nearly far enough. This is not surprising given the absence of grassroots participation in the preparation of the ECA report. "The Alternative Framework came out of an exercise by governments; that is, the process came from the top. While this is not necessarily bad, it does suggest that the process did not include local participation," says Gayle Smith of Development GAP.

The ECA's failure to include local input in its research is mirrored by a similar weakness in its proposals, according to Smith. "The report calls for consultation at the local level, but does not propose mechanisms for doing this," she says. "Even if the mechanisms are put into place, how can governments be held accountable to those mechanisms?"

In any case, the ECA position will have far less impact on developing countries than that of the World Bank. "Ultimately, [the entity] that controls the purse is the one that influences policy," says Haregot. "The World Bank, not the ECA, provides funds, and therefore it influences disproportionately the policies of developing countries."

In the area of grassroots involvement, critics have little hope that the World Bank will change. "The so-called 'shift' in World Bank policy is actually rhetorical," says Cheru. "The World Bank's mission is not promoting grassroots development, but facilitating global economic integration. Therefore, the Bank is not set up to do bottom-up development." Cheru says that the massive structural changes which would be necessary for the Bank to support grassroots development effectively are extremely unlikely. "An effective bottom-up method would mean restructuring the entire lending approach of the Bank--turning it completely upside down."

Yet it is exactly this "bottom-up" approach of democratic, grassroots development which non-governmental organizations believe is fundamental to achieving sustainable growth that benefits all levels of society. "A truly progressive approach must have two elements," claims Hellinger, "first, a participatory approach, and second, a fundamental change in the local economic structure." Countries must allow and encourage the development of "civic organizations, such as producer cooperatives, farmer associations and urban dweller organizations which both perform economic functions and provide feedback and input to policymakers," says Haregot. "Moreover," he adds, "there can be no economic democracy without political democracy. African countries must provide basic democratic rights, not only the right to vote, but the right to speak freely, the right to organize political parties and so on."

The relatively minor shifts in World Bank policy may translate into some benefits for the African people, but as long as the Bank remains committed to the framework of structural adjustment, Africa's future will remain bleak. "Structural adjustment works under an international economic system of which Africa is not a part," explains Eugenie Aw, a Senegalese journalist and the Africa Coordinator for Development Education with Interaction. Sustainable development will require a wholly different approach. "To have a real adjustment," Aw says, "one must have the agreement of the people." The World Bank has never been responsive to this factor.

Nancy E. Wright is a former research associate for the United Nations and a former consultant for the United Nations.

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