Adjusting to Policy Failure in African Economies 9781501737749

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Food Systems and Agrarian Change Edited by Frederick H. Buttel, Billie R. DeWalt, and Per Pinstrup-Andersen A complete list of titles in the series appears at the end of this book.

ADJUSTING TO POLICY FAILURE IN AFRICAN ECONOMIES EDITED BY

David E. Sahn

Cornell University Press ITHACA AND LONDON

Copyright © 1994 by Cornell University All rights reserved. Except for brief quotations in a review, this book, or parts thereof, must not be reproduced in any form without permission in writing from publisher. For information, address Cornell University Press, Sage House, 512 Ea State Street, Ithaca, New York 14850. First published 1994 by Cornell University Press.

Library of Congress Cataloging-in-Publication Data Adjusting to policy failure in African economies p.

cm. — (Food systems and agrarian change)

Includes bibliographical references and index. ISBN 0-8014-2906-4. — ISBN 0-8014-8136-8 (paper) 1. Structural adjustment (Economic policy)—African, Sub-Saharan— Case studies.

2. Africa, Sub-Saharan—Economic conditions—1960—

Case studies.

I. Sahn, David E.

HC800

.A55257

II. Series.

1994

338.967—dc2o

93-2.9987

Printed in the United States of America

® The

paper in this book meets the minimum requirements of the

American National Standard for Information Sciences-Permanence of Paper for Printed Library Materials, ANSI Z39.48-1984.

Contents

Tables and Figures

vii

Acknowledgments

xi

Contributors 1

Economic Crisis and Policy Reform in Africa: An Introduction David E. Sabn

2

Ghana: Adjustment’s Star Pupil? Harold Alderman

3

Policy Failure and the Limits of Rapid Reform: Lessons from Guinea Jehan Arulpragasam and David E. Sabn

4

5

6

Missed Opportunity for Adjustment in a Rent-Seeking Society: The Case of Zaire wa Bilenga Tsbisbimbi, with tbe collaboration of Peter Glick and Erik Tborbecke Oil Boom and Bust: The Flarsh Realities of Adjustment in Cameroon David Blandford, Deborah Friedman, Sarab Lyncb, Natasba Mukberjee, and David E. Sabn Economic Fallout from a Uranium Boom: Structural Adjustment in Niger Paul Dorosb v

xiii i

23

53

96

131

164

vi 7

Contents Adjustment without Structural Change: The Case of Malawi

196

David E. Sahn and Jehan Arulpragasam 8

Structural Adjustment in a Country at War: The Case of Mozambique

234

Steven Kyle 9

From Forced Modernization to Perestroika: Crisis and Adjustment in Tanzania

260

Alexander H. Sarris and Rogier Van den Brink 10

Structural Adjustment in a Small, Open Economy: The Case of Gambia

302

Cathy Jabara 11

Staggered Reforms and Limited Success: Structural Adjustment in Madagascar 332

Paul Dorosh and Rene Bernier 12

Economic Crisis and Policy Reform in Africa: Lessons Learned and Implications for Policy 366

David E. Sahn References Index

387 407

Tables and Figures

TABLES

1.1

Basic indicators, 1989

2

1.2

GDP and GDP per capita average annual growth rate

5

1.3

Budget surplus/deficit and terms of trade

8

1.4

External debt, ODA, and cancellation of ODA debt

9

1.5

World Bank financial commitment in support of reform programs 15

1.6

Government expenditure and lending minus repayment

16

2.1

Value added to GDP, by sector, Ghana

24

2.2

Nominal and real exchange rates, Ghana

28

2.3

Deficit finance, Ghana

30

2.4

World cocoa prices

31

2.5

Government revenue, Ghana

32

2.6

Price and wage indices, Ghana

35

2.7

Regressions indicating price trends of food prices, Ghana

46

3.1

GDP, Guinea

54

3.2

Nominal producer price of select crops, Guinea

58

3.3

Crop production estimates, Guinea

59

3.4

Volume of agricultural exports, Guinea

61

3.5

Financial sector, Guinea

64

3.6

Exchange rates, Guinea

68

3.7 3.8

Balance of payments, Guinea Nominal protection coefficients, Guinea

70 75

3.9

Rice production, imports, and availability, Guinea

80

3.10

Official rice retail prices, Guinea

81

3.11

Retail rice prices, Guinea

82

3.12

Regional variation in consumer price of local and imported rice, Guinea

84

vii

viii

Tables and Figures 3.13

Financial operations of the central government, Guinea

89

3.14

Salary structure of the public sector, Guinea

92

4.1

Contribution of agriculture to growth in GDP, Zaire

106

4.2

Production of major food crops, Zaire

106

4.3

Production of industrial and export crops, Zaire

107

4.4

Imports of major food items, Zaire

108

4.5

Dependence on food imports, Zaire

109

4.6

Evolution of exchange rates, Zaire

112

4.7

Basic data, Zaire

116

4.8

Real producer prices of food crops, Zaire

117

4.9

Real producer prices of industrial and export crops, Zaire

120

Salary indices of private and public sectors, Zaire Annual growth of GDP, Cameroon

129 133

5.2

Composition of GDP, Cameroon

134

5.3

Export performance: annual growth, contribution to GDP,

4.10 5.1

5.4

and relative composition, Cameroon

136

Agricultural exports and agricultural share of total exports, Cameroon

137

5.5

Imports: annual growth, percentage of GDP, and composition,

5.6

Cameroon Government revenue, Cameroon

138 141

5.7

Government expenditure, Cameroon

142

5.8

Distribution of planned and actual investments, Cameroon

144

5.9

Contribution to agricultural GDP, Cameroon

148

5.10

Producer prices relative to export prices, Cameroon

151

6.1

Population and per capita GDP of Niger and other West African countries

165

6.2

Structure of GDP, Niger, 1987

166

6.3

Uranium exports, prices, and subsidies, Niger

169

6.4

Export and import of goods and services, Niger, 1987

171

6.5

Real government revenue and expenditure, Niger

174

6.6 6.7

Macroeconomic summary, Niger

175

Balance of payments, Niger

176

6.8

Nominal and real exchange rates, Niger

179

6.9

Food and nonfood prices, Niger

187

6.10

Real government expenditures, by sector, Niger

192

6.11

Share of real government expenditures, by sector, Niger

193

Terms of trade and quantum indices of exports and imports, Malawi

199

7.2

Balance of payments, Malawi

206

7.3

Estate and smallholder production as share of real agricultural GDP, Malawi

209

7.4

Nominal and real producer prices, Malawi

211

7.5

Nominal protection coefficient, selected crops, Malawi

213

7.6

Fertilizer subsidy, Malawi

215

7.1

Tables and Figures

ix

7.7

Price indices of rice, tobacco, and maize relative to fertilizer,

7.8

Malawi Fertilizer use, by holding size, Malawi, 1984/85

218 220

7.9

GDP and rate of growth, by three major sectors, Malawi

224

Number employed, by sector, Malawi

226

8.1

Growth of global social product, Mozambique

237

8.2

Population of Mozambique, 1988

238

8.3

Volume of major exports, Mozambique

238

8.4

Grain supply, Mozambique, 1988

239

8.5

Balance of payments, Mozambique

240

8.6

Land use in 1983, Mozambique

241

8.7

Marketed agricultural production, Mozambique

243

8.8

Producer prices, Mozambique

244

8.9

Real producer prices, Mozambique

245

8.10

Net disbursement of ODA, Mozambique

248

8.11

Income transfer through the NS A, Mozambique

252

8.12

Food pricing, Mozambique, August 1990

254

8.13

Debt ratios and net resource flow, Mozambique

257

9.1

Balance of payments, Tanzania

268

9.2

Official parallel and real exchange rates, Tanzania

273

9.3

Recent macroeconomic developments, Tanzania

277

9.4

Size of the second economy, Tanzania

279

9.5

Summary of central government operations, Tanzania

282

9.6

Composition of revenue and expenditure, Tanzania

284

9.7

Primary and secondary education statistics, Tanzania

285

9.8

Financing of the public deficit, Tanzania

287

9.9

Financing of the current account deficit, Tanzania

288

9.10

Nominal and effective rates of protection, Tanzania, 1986

291

9.11

Import duties for selected commodities, Tanzania

292

9.12

Export and producer prices for arabica and robusta coffee,

7.10

Tanzania 10.1

Real GDP growth and real and nominal exchange rate indices, Gambia

10.2

300 306

Official producer and market prices for agricultural commodities, Gambia

320

10.3

Cost/price structure for decorticated groundnuts, Gambia

321

10.4

Earnings of urban formal workers and agricultural producers, Gambia

322

10.5

Real public expenditure, Gambia

324

10.6

Sectoral share of real public expenditures, Gambia

325

10.7 10.8

Distribution of domestic bank credit, Gambia Fertilizer subsidies, Gambia

327 329

11.1

Macroeconomic summary, Madagascar

338

11.2

Effects of the terms of trade on the balance of trade, Madagascar 340

11.3

Real government expenditures, deficit, and financing, Madagascar 342

x

Tables and Figures 11.4

Monetary data, Madagascar

344

11.5 11.6

Macroeconomic summary, Madagascar Foreign public debt, Madagascar

347 348

11.7

Rice production, availability, and prices, Madagascar

351

11.8

Policy effects on producer prices, Madagascar

354

11.9

Rice subsidy transfer, Madagascar

360

11.10

Real wages and food prices, Madagascar

361

11.11

Real government expenditures, Madagascar

363

FIGURES

1.1

GDP growth rates, sub-Saharan Africa

4

1.2

Government budget surpluses, sub-Saharan Africa

6

1.3

Terms of trade indices, sub-Saharan Africa

2.1

Relative price of food and prevalence of underweight children from clinics, deseasonalized, Ghana

2.2

33

GNP per capita, selected adjusting countries, constant local currency, Ghana

2.3

10

36

Expenditures on health and education as a percentage of GDP, Ghana

48

3.1

Composition of exports, Guinea

62

4.1

Evolution of terms of trade, Zaire

105

4.2

Relative retail prices of staple foods, Kinshasa

119

6.1

Welfare indices: GDP, food production, and cattle, Niger

168

6.2

Real exchange rate indices, Niger

180

6.3

Consumer price indices in the franc zone

186

6.4

Real government budget expenditures and revenues, Niger

188

6.5

Real government expenditures, Niger

190

7.1

GDP by services, industry, and agriculture sectors, Malawi

200

7.2

Fertilizer utilization, Malawi

217

7.3

Real minimum wages, Malawi

228

7.4

Average monthly wages in the private sector, Malawi

229

9.1

Export and food crops, official real prices, Tanzania

297

9.2

Real official and parallel food prices, Tanzania

298

10.1

Variations in CPI and nominal exchange rate, Gambia

316

10.2

CPI by quarter for selected products, Gambia

317

10.3

Fiscal account as a percentage of GDP, Gambia

319

10.4

Trends in real interest rates, Gambia

326

10.5

Fertilizer use, Gambia

330

11.1

Total public debt and net transfers, Madagascar

349

11.2

Rice prices, Madagascar

352

11.3

Indices of output and input use, Madagascar

357

11.4

Real minimum wage and private and public employment,

11.5

Madagascar

358

Public employment, Madagascar

362

Acknowledgments

The work contained in this volume was prepared with funding under a Cooperative Agreement between the Africa Bureau of the U.S. Agency for International Development (AID) and the Cornell Food and Nutrition Poli¬ cy Program (CFNPP). The support of AID is greatly appreciated, especially that of Jerome Wolgin and Leonard Rosenberg. Many of the chapters draw on work found in CFNPP Monographs and Working Papers. Several research support specialists were instrumental in gathering and organizing data and deserve credit for their contribution. These include Rene Bernier (for Madagascar and Niger), Kajal Budhwar (for Niger), Mattias Lundberg (for Gambia), Lemma Merid (for Tanzania), and Elizabeth Stephenson (for Guinea). Furthermore, the cooperation and assistance of the governments and individuals therein of the countries dis¬ cussed in this book are appreciated. D. E. S. Washington, D.C.

Contributors

formerly a senior research associate with the Cornell Food and Nutrition Policy Program, is an economist with the World Bank in Washington, D.C. Jehan Arulpragasam is a research support specialist with the Cornell Food and Nutrition Policy Program. Rene Bernier is a research support specialist with the Cornell Food and Nutrition Policy Program. David Blandford, formerly affiliated with the Cornell Food and Nutri¬ tion Policy Program and a professor in the Department of Agricultural Economics at Cornell University, is with the Organization for Economic Cooperation and Development (OECD) in Paris. Paul Dorosh is a senior research associate with the Cornell Food and Nutrition Policy Program. Deborah Friedman is a consultant to the Cornell Food and Nutrition Policy Program. Peter Glick is a research associate with the Cornell Food and Nutrition Policy Program. Cathy Jabara, formerly a senior research associate with the Cornell Food and Nutrition Policy Program, is an economist with the U.S. Internation¬ al Trade Commission. Steven Kyle is an assistant professor in the Department of Agricultural Economics at Cornell University and is affiliated with the Cornell Food and Nutrition Policy Program. Sarah Lynch, formerly a graduate assistant in the Department of Agri¬ cultural Economics, Cornell University, is currently a consultant. Harold Alderman,

xw

Contributors

Natasha Mukherjee

is a consultant to the Cornell Food and Nutrition

Policy Program. E. Sahn is the director of the Cornell Food and Nutrition Policy Program and an associate professor of development economics at Cor¬ nell University. Alexander H. Sarris is a senior research associate with the Cornell Food and Nutrition Policy Program and a professor of economics at the Uni¬ versity of Athens. David

is H. Edward Babcock Professor of Economics and Food Economics at Cornell University and is affiliated with the Cornell Food and Nutrition Policy Program. wa Bilenga Tshishimbi is a research support specialist with the Cornell Food and Nutrition Policy Program. Rogier Van den Brink, formerly a research associate with the Cornell Food and Nutrition Policy Program, is an economist with the World Bank in Washington, D.C. Erik Thorbecke

Adjusting to Policy Failure in African Economies

o*

I

Economic Crisis and Policy Reform in Africa: An Introduction David E. Sahn

Africa in the 1990s remains in crisis. There is some evidence of recovery from a decade or more of economic turmoil and stagnation. Nonetheless, most countries in sub-Saharan Africa are still suffering the harsh conse¬ quences of ill-advised policies and an inhospitable external environment that caused havoc with their economies, especially during the late 1970s and the first half of the 1980s. Although few countries have avoided the ravages of economic decline, there is considerable variability in past and present economic performance and in future prospects of countries in subSaharan Africa. It is also the case that the great majority of countries in the region have been forced by hardships to examine the fundamentals of policy formation that have significantly contributed to their economic problems. Reform to rectify errors of the past and weaknesses in institu¬ tional structures has become the key operational concept of economic (and related social) policy during the latter half of the 1980s and the early 1990s. It is our purpose in this book to examine the early efforts at economic reform that took place in sub-Saharan Africa in the years after countries found themselves facing unsustainable deficits in the internal and external accounts. It was these balance-of-payments and budget deficits, rather than the tragic human dimensions of Africa’s economic crisis, that provided the compelling impetus for reform. Efforts at reform were most often taken under the sponsorship of, and with financing provided by, the International Monetary Fund (IMF), World Bank, and bilateral donors. Such leveraging of reform programs with for¬ eign financing has become the hallmark of policymaking throughout sub1

2

David E. Sabn

Saharan Africa. These programs, often referred to as stabilization and structural adjustment programs, have become controversial. The contro¬ versy reflects the divergence of views as to whether the policy prescriptions basic to most economic reform and recovery programs are appropriate and effective as well as equitable. To provide insight into the divergent opinions regarding the genesis of Africa’s economic crisis, and the growing controversy concerning the ap¬ propriateness of the subsequent response, in this book we explore the external and domestic factors that precipitated Africa’s crisis as well as the nature and consequence of the process of economic reform. Chapters 2 through 11 describe the experiences of ten diverse countries: Cameroon, Gambia, Ghana, Guinea, Madagascar, Malawi, Mozambique, Niger, Tan¬ zania, and Zaire. These countries vary markedly in the general structure and characteristics of their economies, the stock of physical and human capital resources, and their experience and success in undertaking reforms. Some basic statistics on the ten countries are highlighted in Table 1.1. The differences are considerable, in terms of the range of population size, from Gambia, one of the smallest countries in Africa, to Zaire, one of the largest; in terms of GNP per capita, ranging from one of the wealthiest countries in the region, Cameroon, to the poorest country in the region and world, Mozambique; in terms of population density, ranging from land-scarce Malawi to its land-abundant neighbor, Tanzania; in terms of the structure of merchandise exports, heavily concentrated in minerals in Zaire and Guinea but primarily agricultural Gambia and Malawi; in terms of agriculture’s share of GDP, which ranges from over 60 percent in Mozambique and Tanzania to less than half that in Guinea and Zaire; and Table 1.1. Basic indicators, 1989

Population (millions) Cameroon Gambia Ghana Guinea Madagascar Malawi Mozambique Niger Tanzania Zaire

11.6 0.8 14.4 5.6 11.3

8.2 15.3 7.4 23.8 34.5

GNP per capita

(US$)

Population density (per sq. mi.)

1,000 240 390 430 230 180 80 290 130 260

Sources: World Bank 199Id; UNDP 1991.

24.4 77.2 60.3

22.8 19.3 69.4 19.1 5.8 25.2 14.7

Structure of merchandise exports (%) Fuels and minerals

Other primary commodities

Agriculture % of GDP

48

49

27

—

—

—

29 83

63

6 0 9

85 94 43

—

—

49 30 31 35 64 36

4 85

84

66

6

30

6

Adult literacy (%) 48.0 20.3 52.8 16.8 76.9 41.7 27.6 21.5 52.0 65.9

Introduction

3

in terms of social indicators, such as adult literacy, which ranges from a low of 17 percent in Guinea to a high of 77 percent in Madagascar. In recounting the factors that contributed to economic decline and the accomplishments and setbacks of these countries in undertaking reforms, we focus on the institutional and endogenous policy-making process that determines economic performance. Particular attention is given to agricul¬ ture because of its sizable contribution to value added and exports and its importance in employment generation. In these chapters we explore the role of the state in African economies and how its shortcomings contributed to economic decline. Prominent among these shortcomings are the failure of the state to foster economic growth, especially in agriculture, as a consequence of its direct involvement in production and allocation of goods and services, and neglect of essential roles such as infrastructure development, agricultural research, and other “crowding-in” investments whereby government spending complements, and thus encourages, investments by private sector agents. The recounting of this shared experience of failure among the ten countries is comple¬ mented by an analysis of the obstacles to implementing economic reforms and of the reasons the response is not always in keeping with expectation. The difficulty of transforming the agricultural economy as well as other productive sectors through quick fixes such as state disengagement and getting prices right is emphasized.

Dimensions of Africa’s Crisis To set the context for the discussion of the determinants of economic decline and the magnitude of the economic crisis in the sub-Saharan Afri¬ can countries to be discussed, it is useful to examine a few key economic aggregates. Figure 1.1 presents data on GDP and GDP per capita in Africa from 1976 to 1990. Growth rates were generally in decline from 1976 to 1983 and then followed an oscillating pattern in 1985-1990 that did not indicate any sustained improvement in performance. Over the entire peri¬ od, the growth rate for middle-income countries in sub-Saharan Africa was approximately 50 percent higher than the growth rate recorded for lowincome countries. When the exceedingly rapid rate of population increase is taken into account, the average growth rate of GDP per capita was in fact negative over the entire period for all sub-Saharan Africa. Among the countries included as case studies in this book, significant differences in the pattern and pace of aggregate growth are evident (Table 1.2). For most of the countries (the obvious exception being oil-exporting Cameroon), the early 1980s showed the worst growth performance. The

Sources; World Bank [undated data diskettes] Africa Tables; World Bank 1991e. Note: The figure was derived from an unweighted average of annual growth rates of thirty-nine countries.

Figure 1.1. GDP growth rates, sub-Saharan Africa

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