Neoliberal Policies as a path towards economic recovery in Sub Saharan African Countries ?

Introduction

As a participant of the course ‘Abandoning Development: Africa and the Contemporary Economic International Political-Economic System I am asked to write a final paper about an issue that was dealt with in the course and which is also based on the literature, that was provided.

Since I am a Political Science student, who specialized in International Relations, I deliberately chose the course mentioned above to learn about the global economic-political system and its impact on whole regions. The case of Africa, in particular of Sub Saharan Africa, provides the participant with some understanding of the relationship between the developed and the developing countries, it’s inequalities, dependencies and perspectives, that I came across in other subjects like International relations, International Political Economy, the Political economy of the Middle East, etc. In that sense I feel that this case of an entire unprivileged region, like Sub Sahara Africa, fits into that context which I have already studied.

At the international level, the fate of Sub Saharan African countries is highly relevant not just for its 45 countries hosting 500 million people. The De-humanization of Africa, as Manuel Castells refers to, goes in line with the rise of information/global capitalism by the beginning of seventies in the last century. Consequently many of its states disintegrated, societies collapsed, causing famine, epidemics, civil war, and social/political chaos. If one perceives these deteriorating developments as structurally conditioned then one can easily see the link to the global economic system and imagine the consequences, leading to several scenarios that the global community will have to deal with. But rather than developing these scenarios, this paper deals with the issue, whether recent policies and tools to ameliorate the economic situation of many African countries are suitable and eventually led to improvement in economic and social terms. Since the early eighties neoliberal policies were introduced by US-president Reagan and the UK-Prime minister Margaret Thatcher. Deregulation, privatization and liberalization were applied in domestic issues as well as largely on the world scale via the International Monetary Fund (IMF) and the World Bank These three concepts of liberal policies became the magic words in making economies more efficient and dismantled welfare states and social standards. What do these policies mean for countries that were already lagging behind in the economic race for centuries? Can these concepts be equally applied in less developed countries and are the social costs bearable? Consequently, the title of this paper is called:

- Neoliberal Policies as path towards economic recover in Sub Saharan Africa?

The main research question of this paper will be split in four subordinated sections:

1. The Problem
2. The Neoliberal Approach
3. Structural Adjustment Programms
4. Results

In section one I will illustrate the economic and social difficulties that Sub-Saharan African countries were struggling with. In order to have a more balanced overview I will introduce the perspectives of scholars who either describe the problem from an inward (Jonathan Frimpong-Ansah) or an outward perspective (Manuel Castells). It will serve as a starting point that called upon finding workable solutions to improvement.

As a nowadays-predominant approach, I will introduce what has become to be known since the beginning of the eighties as the neoliberal approach. The former Governor of Ghana’s central bank, Jonathan Frimpong-Ansah, represents this way of problem solving, which will be outlined in section two.

In section three I will elaborate the policies of the Structural Adjustment Programmes (SAP`s) that were orchestrated by the IMF and World Bank. To some extent these policies represent the liberal ideas that are introduced by Frimpong-Ansah and serve as a measure for its viability.

The viability of the neoliberal approach, manifested in the structural adjustment programmes, will be examined in section four, the results, which are based on the findings of the United Nations Population Fund`s report in 1993 about the impact of structural adjustment programmes in Africa.

In my conclusion I can briefly summarize the findings of the previous sections and argue whether the neoliberal policies, theoretically handled by Frimpong-Ansah and practically applied by the SAP`s, are indeed ameliorating the disastrous economic and social situation that many African countries are in. The research question will be therefore answered. I argue beforehand that neoliberal policies are not suitable instruments to serve the interests of the indigenous people of Sub Saharan Africa. To me it seems that these tools just serve the interest of the dominant economic and political players in the world: The USA and its allies.

However, there might be some shortcomings of this paper since Sub Saharan African countries are treated broadly and will therefore lack precision at the national level. Furthermore, the approach introduced by Frimpong Ansah is just one example of neoliberal thinking as is the outcome of the United Nations Population Fund. There will be necessarily some variances with different authors and studies. In that sense the conclusion cannot be entirely representative but gives just an idea of cause and effect.

As sources I will use pieces that were offered in the curse, books that I posses and relate to that issue, information from UN websites and eventually scientific articles.

The Problem

In the last two decades of the twentieth century, Sub-Saharan Africa declined drastically in its position concerning trade, investment, production, and consumption while other areas in the world saw a dynamic economic boost. The combined export earning of 45 countries fell from 50 billion in 1980 to 36 billion in 1990. In the same decennia imports sunk half of its volume. In 1950 African exports accounted for over 3 percent of world exports and sunk to 1.1 percent until 1990. Additionally African exports remained mainly agricultural, increasingly concentrating on crops like coffee and cocoa. At the same token, the ratio of manufactured goods shrunk from 7.8 percent in 1965 to 5.9percent in 1985. Eventually food production was not even sufficiently enough to serve the domestic markets. Besides, the African industry seemed to run into crisis when new technologies and export oriented industry made their entrance on a global scale. Under these circumstances African economies became increasingly dependent on international aid and foreign borrowing surmounting to 30 percent of all aid funding in the world in 1990. Furthermore there has been an enormous influx of foreign loans from the beginning of the eighties on to prevent the economies from collapsing resulting in a state of the most indebted area in the world. As a percentage of GDP, the external debt has risen from 30.6 percent in 1980 up to 78.7 percent in 1994. Instead of aspiring to obtain the money back, international institutions and government creditors employed this debts to impose their will upon this shaken economies by exchanging their subservience against condonement of the debt. Also concerning Foreign Direct Investment the development is disencouraging. Despite its growth to developing countries the share of FDI to Sub-Saharan Africa accounted for just one percent of current estimates (Castells, 2000: pp.83-90).

The reasons for this overall economic decline are presented in a study fewer than 150 foreign business executives in Eastern Africa, done by Paul Collier:

- Unreliable institutional environment
- Lack of production and communications infrastructure as well as human capital
- Erroneous economic policies.

Additionally, African business can hardly compete in the international realm, but the existing linkages have had its impact. Subsistence agriculture and domestic food production went into crisis after having specialized to serve the global market. Generally speaking it is just partly incorporated into the global economy while African firms and labor remain delinked from it (Castells, 2000: pp.91-92).

Apart from poor export performance; scientific literature also lists unfavorable barter terms of trade, overproduction of primary commodities, adverse climate factors, break up of some regional economic integration arrangements such as East African Currency Board and the West-African Currency board.

Turning to internal factors, that caused Sub-Saharan African impoverishment the World Bank refers to inappropriate public policies on trade and development, including insufficient producer incentives, inappropriate prices, inadequate producer organization and services, fragmentation of peasant production and marketing, lack of modernization of production, low productivity, poor producer infrastructure, protection of inefficient enterprises (state sector in particular), overvalued exchange rates, excessive producer taxation, excessive reliance on administrative control regarding the allocation of scarce resources as well as expansive fiscal and monetary policies ( World Bank 1987 ).

Frimpong-Ansah attaches the African decline to a number of internal factors:

The rare usage of exchange rate policies is due to wrong intellectual perceptions. It was widely believed that exchange rate devaluations were a cause of inflation. Governments also were afraid that they would be overthrown due to such devaluations. The benefits of devaluations have been steadily neglected. Consequently the effects of overvaluation have been the destruction of export enterprises by eroding producer incentives because adequate producer prices were not guaranteed (Frimpong-Ansah, pp.51).

Another feature of failed public policies is the issue of trade policy. Official policies were often dictatorial in style and inefficient. Trade policies did not reduce the use of foreign exchange on imports or efficiently allocate what was spent. Parallel markets evolved, which gave way to smuggling activities and the downsizing of the ‘legal’ markets as well as the states` authority. Furthermore the inefficient management in most countries, ranging from corruption in the allocation of scarce goods that was utilized to maintain political control (Frimpong-Ansah, pp.52).

Price controls on consumables have had adverse effects on production. Where producers remained law abiding, the lower prices led to lower revenues vis a vis costs and to lower profits. This had discouraging effects on production or made production less quality oriented. Domestic products became increasingly uncompetitive which in turn encouraged foreign good exchange on parallel markets. There is also the devastating effect on the production of tradables of producer price controls in a number of countries, leading to significant loss of production (Frimpong-Ansah, pp.53).

Finally there is the failure of state centricity: States either acquired an interest in the main commercial and industrial enterprises or created larger enterprises and provided support for their expansion at the expense of private enterprises. Thirdly, the most comprehensive approach was the nationalization (ownership and management) of all major enterprises in banking, commerce and industry. As a result, these models lead to less efficient production by virtue of lacking profit motivation, to the employment of less efficient persons, reduced competition, and waste of resources. Due to antiquated management and production techniques these economies could not keep pace with the competitive international environment and therefore lost export markets (Frimpong-Ansah, pp.53-54).

[...]