Saturday, November 30, 2013

This is How Structural Adjustment Policies Worked in Africa

Devarajan: This is How Structural Adjustment Policies Worked in Africa — a Rejoinder to Carlos Lopes

Former Chief Economist of the World Bank's Africa division, Shantayanan Devarajan, argues that SAPs may not have worked in the '80s and '90s, but that they have in the past 15 years.

29 NOVEMBER 2013 - 2:40PM

On 7 May, 2013, Think Africa Press published an interview with Shantayanan Devarajan, then Chief Economist of the World Bank's Africa division, entitled World Bank: "Structural Adjustment Programmes Worked in Africa", in which he argued that SAPs were a major reason behind Africa's current economic growth. On 25 November, Carlos Lopes, Executive Secretary of the Economic Commission for Africa, wrote a reply to Devarajan, refuting that SAPs had been successful . Below is Devarajan's rejoinder to Lopes, which was originally published as a comment under Lopes’s article.

I welcome Carlos Lopes’ reply to my interview with Think Africa Press, both as an opportunity to clarify what was — and was not — said; and to engage in an evidence-based discussion about Africa’s structural transformation.

First, what I said was that the reason for Africa’s recent growth was that “African policymakers followed Structural Adjustment Programmes over the last 10-15 years”(emphasis added). This is different from saying that SAPs worked in Africa during the structural adjustment era of the 1980s and 1990s. Unfortunately, the headline “World Bank: ‘Structural Adjustment Programmes Worked in Africa’” was ambiguous. Lopes seems to have used the second meaning, claiming that “SAPs were in fact not successful in achieving their desired objectives of increasing investment efficiency or reinvigorating growth…” I agree with this statement, which I have made in several publications. But the reason they failed, as we document in the book Aid and Reform in Africa, is not that the policies were wrong, but that they were imposed from outside, without enough consideration as to whether there was a domestic political consensus for the reforms.

Starting in the early 2000s, African governments took greater control of their reform programmes, many of which were designed in the countries themselves. The actual policies — controlling fiscal deficits and inflation, allowing markets rather than governments to determine prices, reducing state control of the banking sector — were not that different from those of the structural adjustment era. But this time, they delivered results because they represented a domestic political consensus.

Lopes also seems to disagree that these policies contributed to Africa’s recent economic growth, saying that the growth was “underpinned by a commodity boom and the emergence of development-oriented political regimes…” But Africa has seen commodity booms before, including in the 1970s, but they never translated into such a long period of sustained economic growth. The difference was that in the 2000s, macroeconomic policies were better. When the 1970s commodity boom ended, African economies suffered immensely. But in 2009, when commodity prices fell due to the global economic crisis, most African countries were able to cushion themselves thanks to the prudent economic policies of the previous decade. Here too, I think Lopes agrees because he lists “prudent macroeconomic management” among the list of factors that fuelled Africa’s recent economic growth.

Industrial policy

The rest of Lopes’ reply is about the case for a more active industrial policy in Africa to achieve structural transformation. Although the topic was not discussed in my interview, I am happy to engage on it, especially since I have written about it elsewhere. In our article in Foreign Affairs, Wolfgang Fengler and I make the same point that Lopes does, namely, that despite a decade and a half of relatively rapid economic growth, African countries have not achieved structural transformation.

Lopes seems to think that the reason is the lack of industrial policy to address the many market failures. However, the evidence points in another direction: most of the constraints to Africa’s transformation are government failures, not market failures. For instance, high transport costs along Africa’s roads are mainly due to profits accruing to trucking companies whose monopoly power is guaranteed by regulations (and the fact that, in many countries, the president’s family members own the trucking company).

Similarly, Lopes attributes Africa’s weak human capital to the cutbacks in social spending from the structural adjustment era. But the evidence is that, in public schools in Tanzania, Kenya, Senegal and Uganda, teachers are absent about 20-30% of the time. When present, they spend about a quarter of their time teaching. Doctors, whose absentee rate is even higher, spend an average of 29 minutes a day seeing patients. And money allocated to public health clinics leaks at alarming rates — 99% in Chad. In light of all these government failures, it is not clear that an increase in public spending in education and health will lead to better human development outcomes.

Finally, active industrial policy has already been tried in Africa: this was the import-substitution strategies of the 1960s and 1970s. Everyone — including advocates of industrial policy today like Joe Stiglitz and Justin Lin — agrees that they were a colossal failure, mostly because of political capture. The challenge today is to design policies to minimise the inexorable tendency for politically powerful people to capture them for their own interest. There are no easy answers, but some form of transparency and citizens’ holding government to account — by, for example, information campaigns and the use of mobile-phone technology for two-way communication between government and citizens — will have to be part of the solution.

Think Africa Press welcomes inquiries regarding the republication of its articles. If you would like to republish this or any other article for re-print, syndication or educational purposes, please contact:

World Bank: "Structural Adjustment Programmes Worked in Africa"

Chief Economist of the World Bank's Africa division, Shantayanan Devarajan, speaking to Think Africa Press, credits 'Africa Rising' in part to World Bank and IMF policies.

7 MAY 2013 - 5:29PM

World Bank President Jim Kim is greeted at Abidjan airport by the Ivory Coast's Ministers of Economy and Finance, Industry, and Foreign Affairs. Photo by Photo: Nathan Kone/World Bank.

The World Bank's influence as a political actor across the African continent has been on the wane for the past two decades. It has come in for heavy criticism from some corners of the activist, political and academic communities for the social and distributional effects of the economic policies both it and its sister institution, the IMF, have prescribed.

Following the rise of Chinese and other non-traditional sources of capital, the World Bank's dominance as a developmental lender has been called into question. Despite a forced rethink in some policy frameworks and recently being outspent by China, the World Bank continues to be a sizeable economic and norm-creating institution. Think Africa Press recently interviewed Shantayanan Devarajan, the Chief Economist of the World Bank’s Africa division, who defends the World Bank's record, provides his analysis of the economic situation on the continent and plots where things may lead.

Across Africa, there is still a worrying preponderance of poverty and food insecurity. How can this be reconciled with the assertion in Africa’s Pulse (the World Bank’s biannual Africa publication) that “African countries are among the fastest growing countries in the world”?
A taxi driver in Senegal told a colleague of mine, ‘I cannot eat growth’. I think that captures the average African’s view.

African economies are growing mostly because commodity prices are very high, so natural resource prices are high - such as oil and gas - and many of these countries are exporters of natural resources like Ghana, Gabon, Nigeria.

Also, investment is growing in Africa and so you are seeing quite a lot of foreign investment coming in as well as domestic investment. The investment rate, which is usually a predictor of future growth, means you are building capacity and capital stock is rising.

But I think it is fair to say the taxi driver in Senegal has a point because while poverty is declining, it is not declining at a fast enough pace. While the economic growth is a result of commodity prices, the poor are working in agriculture and there is no direct link between the growth in natural resources and agricultural growth.

Agricultural productivity has not been growing very fast across the board and many of these countries that are seeing very high growth rates are actually seeing very little agricultural growth – which has a high concentration of the poor.

Most Africans, the ones in rural areas as well as people in the urban areas, are in the informal sector. And there is a reason for that: they cannot afford to be unemployed.

Most of the unemployed in Africa are people with secondary school degrees, who have finished secondary school or even university. They are the ones who can actually afford to sit around and wait for jobs because their families can support them.

Most Africans are working very hard, full time but in very low productivity jobs - like selling vegetables in the streets, or the guys who clean your windshield and try to sell you stuff while you are stuck in traffic. They are working in order to make a living but the problem is that they are working in very low productivity jobs.

How do you translate this into poverty reduction?

First, increase the productivity of agriculture. There are different ways to do it; there are good ways and bad ways. What governments have traditionally been doing is to say 'lets subsidise farmers' - subsidising fertilisers or seeds.

The trouble is that this helps the large-scale farmers. When you subsidise fertilisers, the larger farmers use a lot more fertilisers than small-scale farmers. We need to come up with different ways of ensuring that farmers can benefit from the mineral wealth - including giving them cash transfers directly that will enable them to buy fertilisers rather than subsidise fertilisers.

Second, and very importantly for the informal sector, is the need to improve the skillsets. One of the reasons people are in the informal sector is because they do not have access to education. Something like 50% of those working in the informal sector have not finished secondary school. Strengthening the education system and teaching those skills that are not part of the traditional curriculum – soft skills, teamwork and work ethic – are crucial so that these people and their children have a chance of moving out of the informal sector into the formal sector.

Lastly, infrastructure is important. Another reason why agricultural productivity is low is because farmers do not have roads on which to take their produce to the market. This often gets neglected in favour of a flashy big motorway in an urban area.

These are the basics; this is an opportunity that may not come around very often. Right now, mineral prices are very high and Africa is the place where there seems to be the most undiscovered minerals. This could be a window into which Africa can translate this opportunity into sustained growth.

Discussions of the drivers of economic growth never mention the Structural Adjustment Programmes that the World Bank and IMF promoted in Africa. Is this a deliberate acknowledgement of the criticisms levelled at them?

There is no question that one of the major reasons for Africa’s growth over the last 10–15 years is because of macro-economic policies have improved. Average inflation is half of what it was in the 1990s. Fiscal deficits are down; current account deficits are down.

The reason is that African policymakers followed Structural Adjustment Programmes over the last 10 – 15 years. It worked, it delivered results. It delivered economic growth and poverty reduction. You can’t dispute that.

Today, non-fragile African countries have the best macro-economic policies in the whole world compared to other low-income countries. This has been a tremendous change.

This is why it is a puzzle or may be, seems like a puzzle: why is it that the structural adjustment programmes of the 80s and 90s are so criticised?

I think that there is a difference and this is the critical point: It is not that the policies were wrong but that there is a big difference with those policies being designed in Washington, London and Paris versus those policies being designed in Abuja, Yaoundé and Nairobi. And I think that is the difference we are seeing. After debt relief, African policymakers decided they had to have a plan. They sat down and worked it out and they came out with the exact same policies as the Structural Adjustment Programmes.

If you look at the programmes of the 2000s and compare them to the SAP, they are exactly the same but there is a big difference if it is home-grown and owned rather than externally imposed and I think that is the big difference.

There’s a lack of reliable statistics for Africa. Where are these figures com from and how problematic is this?

There is a huge problem with statistics in Africa. No question about that. These figures are coming from best estimates we have. We are not trying to project anything other than do some real estimation.

And the other thing we try to make sure we do is not rely on any one estimate. We do not for instance take a whole view of a country just by viewing the GDP. We look at poverty, which is evaluated in a completely different way from GDP. This is done by individual household consumption surveys. This involves actually meeting and asking a household how much they are consuming. And then you triangulate.

These are not statistics based on just one or two estimates. But that said, I think there is a real problem because the capacity is very weak and frankly the political support for statistics is very weak in African countries.

I want to see more and more African policy makers championing statistics. It’s easy to see why there isn’t such political support for this - statistics can make for uncomfortable reading, they might actually expose the failure of governments. But that is precisely why we need it. Statistics aren’t just for economists, they are for the people. They are for citizens to know, so they can decide whether what the government says it is trying to achieve it is actually working.

Think Africa Press welcomes inquiries regarding the republication of its articles. If you would like to republish this or any other article for re-print, syndication or educational purposes, please contact:


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