8,----,...---,--....!:.1IIIIII---. . .- -....- . .,---.---,
6
--8
-10- ' - - - - + - - - t - - - t - - - t - - ' - - - - I I - - - - t - - - - + - - - - '
80-81 81-82 82-83 83-84
YEARS
84-85 85-86 86-87
- Strong Adjusting - Total Mrica - North Mrica --- Other Countries - Weak Adjusting
Source: ECA:A1frican AIlemalive Framework to StructurelAdjustment, Addis Ababa, 1989
II
Flg.2:Indicatorsoflhe Suatainabllltv ofAdjuetment for Sub-Saharan countrl..
30 15 20
o 10
..
( • Before. Mter )
-10 -20 -15
InW!lllmentGIl'
The overall annual growth rate of GOPfor Africa as a whole was a relatively low 0.4 per cent during the period. largely influenced by the poor perform-ance of countries with strong adjustment pro-grammes,
Figure 2 also provides additional evidence to compliment the above analysis. The figure sug-gests that sub-saharan African countries imple-menting structural adjustment programmes experienced after adoption of SAPs: GOP growth decline from 2.7 per cent to 1.8 per cent; a decline in the investment/GOP ratio from 20.6 per cent to 17.1 per cent; a rise in the budget deficit from -6.5 per cent to -7.5 per cent of GOP; and. a rise in the debt service/ export earning ratio from 17.5 per cent to 23.4 per cent. The figure also shows that there has been only a minor improvement in the current account/GOP ratio from -9.4 per cent to -6.5 per cent.
It is evidence such as those pre..ented above that has led many concemed organizations and individu-als to conclude that. on the whole. the Fund and Sank supported SAP's have not succeeded in reduc-ing the adverse consequences of the African eco-nomic crisis but have instead succeeded in reproducing the continent's poverty and vulnerabil-ity. Even the Sank and the Fund are now acknow-ledging some of the short-comin.g~ of tarlier adjustment programmes and recognizing the need to modify or even change past policies in the face of a changed external environment. hence the insti-tutions new found interest in •adjustment with growth IRavenhill. 1988).
However while it is now obvious that a continu-ation of previous policy reform measures unchanged or unmodified is no longer tenable given the limited impact of past SAP's in the continent. simply com-paring and contrasting the performance of econo-mies with strong. weak. or non-adjusting programmes only provideS-.a diffuse and ambiguous set of prognosis and experiences. There is. there-fore need for a more careful analysis of what lessons can be learnt from the first generation of SAP's in Africa as a basis for making recommendations for modifications of existing strategies or for alternative strategies inthe future.
In the rest of this section. we review the impact of SAP on the agriculture of selected African coun-tries and then attempt to draw lessons for the adjustment and transformation of agriculture in Af-rica. Malawi has been chosen because its structural adjustment efforts are. considered as strong by the Sank and the Fund. Theexperiences of Zambia and Tanzania are also reviewed. the former beceuse.like several African countries. its economy depends heavily on mineral resources. and the later because it is considered to have pursued a weak structural adjustment programme.
Some African Experiences with SAP
Malawi
Following independence in 1964. the Malawian economy performed relatively well until the late 1970's when the economy started entering into disequilibria in a number of fronts. brought about largely by a series of external shocks. Deteriorating terms of trade. external transport dislocations aris-ing from the closure of the rail routes through the Mozambican ports of Nacala and Beira. drought conditions in 1980. deteriorating institutions and inadequate economic policies all combined to result in sustained depressed growth. increased debt and debt service burden and considerable balance of payments disequilibrium.
The government responded to this situation in 1980-1981 by implementing a broad-based adjust-ment programme designed to restore macro-eco-nomic stability and to remove structural constraints in the economy. The programme involved structural adjustment measures supported by the Sank's Structural Adjustment Loans ISAU and stabilization measures supported by successive stand-by ar-rangements.
In mid-1 982 a second structural adjustment pro-gramme was put into motion which laid more em-phasis on the implementation aspects of the component parts of the first programme with par-ticular attention being placed on agricultural policy.
price incentives and incomes. resource mobilization and management and the improvement of economic institutions. The third adjustment programme which was initiated towards the end of 1985 was essentially a follow up of the first and second programmes and was meant to consolidate the policy reforms and measures initiated under them.
A recent review of the application of both types of programmes in Malawi IMapondo. 1989) con-cludes that the Government of Malawi's effort to stabilize its economy has not met with much suc-cess. On the whole. the terms of trade fell more than programmed and export volumes also declined.
Other indications that the government's efforts at stabilization have not been very successful include the continued sharp increasesin the current account deficit. worsening foreign exchange reserve posi-tion. declining government revenues in the face of rising government expenditures. and increased in-flation.
The conclusion is that the application of the stabilization measures in Malawi did very little to remove the shocks (transportation difficulties. un-favourable terms of trade. and external debt pr0b-lems) that they were intended to remove. In other words. the programme could not successfully ad-dress the source of the imbalances. hence the persistence of the symptoms. Under such circum-stancesthecontinued belt-tightening only resulted
in serious social costa to the more disadvantaged groups in the country.
The structural adjustment measures in the agri-cultural sector were also not very effective. While in the beginning the price incentives granted to scale farmers were influential in rllising small-holder output and in signalling to them the mix of crops preferred by the Government, the overall impact was limited because agricultural productivity was not increasing fast enough. The programme to remove subsidies on smallholder fertilizer also, over time, limited the effectiveness of the agricultural policy reform measures since the increased prices of the products were not sufficiently high to offset the increased costs of the fertilizers. The pro-grammes also failed to achieve the objective of diversifying export crops production. The main reason for this was the lack of productivity gains in the growing of alternative crops, especially maize (Mapondo, 1989).
The overall conclusion is that the programmes have not worke" lery well and, in most cases, have had serious adverse effects on the most vulnerable groups in the country. The pricing measures failed to achieve their intended objectives and may have even contributed to increased food insecurity for the households with small land holdings or those with low incomes. What's worse, some of the reform measures such as the price decontrol programmes, have also adverSl!ly affected the well being of the rural population because the private sector has tended to capitalize on the measures by increasing prices at will IMapondo, 1989).
Tanzania
Tanzania's economic crisfs started in earnest in the earty 1970's brought about by rapid expansion in net domestic credit to the State Trading Corpo-ration in the framework of a liberal extemal trading policy. The crisis was worsen by drought and the first oil shock of 1973. Additional adverse factors such as the war with Idi Amin in 1978, the second oil shock of 1979, the drought of 1979/80 and severe decline in the terms of trade which started in 1!!78, all contributed to the deepening of the crisis. The net result was severe economic disloca-tions resulting in excessive pressure on government budget, binding foreign exchange constraint, high inflation rates and declines in output in almost all the sectors of the economy.
The Government responded to these adverse conditions by initiating a number of measures, start-ing from 1979. These measures included: the Financial Programme of 1979 which was supported by a first credit tranch purchase from the Fund and loan from the Trust Fund; the Fund's Standy Agree-ment of 1980 which had to be abandoned after the first quarter following failure to meet credit ceilings;
the National Economic Survival Programme of 1981 which focussed on crisis management of the exter-nal sector imbalance; and the Structural Adjustment Programme covering the period 1982/83 to
1984/85 which was an independent effort to ad-dress the key imbalances related to the economic crisis.
The Structural Adjustment Programme of 1982/83 to 1984/85 was a locally designed pro-gramme whose main macro-economic objective was to eliminate imbalances in tlie economy by implementing policies that would increase output rather than decrease incomes and without abandon-ing the provision of basic needs or reducabandon-ing the level of equality in income distribution as set by govern-ment. The programme included most of the inllre-dients of orthodox Fund supported SAP's except that it did not depend on the use of the price system to correct for resource misallocation in the econ-omy. Consequently, the Fund and the Bank felt that it did not go far enough and refused to supportit.
Thus denied anticipated external resources, the programme could not be effectively implemented.
Following negotiations in early 1986, the Gov-ernment in close cooperation with the Bank em-barked on the most recent and far reaching effort to stem the crisis. The result was an Economic Recovery Programme IERP) which represented an intensification and continuation of the policy meas-ures of the previous SAP.
A recent case study of the application of SAP in Tanz,nia (Lyakura, 1989), .suggests that the impact . of the ERP on the Tanzanian economy has been mixed. Gross Domestic Product (GOP) increased, in real terms, by 3.6 per cent in 1986 and by 3.9 per cent in 1987 brought about mainly by increases in the directly productive sectors especially agricul-ture (4.4 per cent), manufacagricul-ture (7.5 per cent) and energy, and water (7.5 per cent). The recovery of the country's agricultural sector was due to good weather conditions, timely and increased availability of agricultural inputs, better price incentives and the availability of incentive goods arising from the trade liberalization measures taken.
There were however a number of problem areas.
The conditions of agricultural infrastructures and . facilities were not significantly improved by the programme. The marketing system remained largely as inefficient as it was in the past. For example. the marketing system was incapable of coping with larger than expected increases in agri-cultural output especially food and cotton produc-tion. Difficulties in processing, transportation, and marketing all combined to lead to a build up of stocks lit the cooperatives and Marketing Boards.
The consequent sharp decline in the price of cotton did not help matters much.
The ERP does not appear to have made any impact on the country's Balance of Payments posi-tion. The overall balance of payments deficit in domestic currency, increaseil by over 80 per cent between 1985 and 1986 and more than doubled between 1986·and 1987. The sharp deterioration in the Balance of Payments position was largely due to the sharp fall in export commodity prices
partieu-,.,,"-'
---larly in 1987 when export prices for cotton and coffee fell by 20 per cent and 40 per cent respec-tively as well as to increases in the prices of crucial imports, particularly oil and fertilizers. The deterio-rating Balanceof Payments position did not do much to help the country's burden-some external debt problem which also deteriorated sharply.
One of the crucial constraint that faced the implementation of the ERP in Tanzania was the non-availability of sufficient external funds to sup-port the objectives of the programme. Of the total of about US$354 million earmarked for the pro-gramme by the Fund, the Bank, and Joint Financing Arrangements, only US$169 million was disbursed by June, 1988 principally because of non-fulfillment of the performance criteria and other disbursement delays. These dislocations in the projected and anticipated inflow of foreign resources affected the performance of the ERP particularly in the areas of physical and social infrastructure and in the mainte-nance of social services, especially health and edu-cation (lyakura, 1989).
Zambia
The Zambian economy has historically been founded on one export commodity-copper. From independence up until 1975, Zambia had one ohhe most prosperous economies in sub-Saharan Africa.
However when world copper prices began to crum-ble in 1975, the rest of the Zambian economy also slumped resulting in dramatic increases in budget deficits, balance of payments deficits, and debt commitments.
The Government responded to the situation by negotiating a standby arrangement with the 1MF in 1978 for SDR 200 million. The arrangement called for the implementation of most of the Funds' usual conditionalities including a 10 per cent devaluation of the Kwacha, limiting deficit financing, reducing payments errears and instituting wage freezes.
When the situation did not improve, another Fund supported programme was put into motion in 1981 which attempted to intensify some of the measures adopted in 1978. This included complete decontrol of prices and a devaluation of the Kwacha by 40 per cent. These measures again failed to address the main disequilibria in the economy. Instead, the Balance of Payments position worsened and the foreign debt servicing increased to 47.6 per cent of export earnings. To remedy this situation the gov-ernment, in 1982, embarked on a series of measures to restructure and transform the economy from one based primarily on administrative controls to one that would rely·more on free market forces and the price mechanism. These measures, which involved reforms in the exchange rate system, the interest rate regime, price'decontrol, the tariff system, and production for export were seen as a comprehensive package deal needed to over-haul the whole eco-nomic system in the country.
The violent social upheaval that occurred in the copperbeltofthe country in December 1986
follow-ing a 100 per cent increase in the priceof·mealie·
meal provides graphic trestemony of the people's reaction to the austerity measures contained in the reform programme. A review ofthe impact of the programme (Sashamani, 1988) reveals that the worst impact of its poliey reform measures was on poverty and income distribution. Uttle surprise, therefore, when in May 1987, the country's presi-dent announced Zambia's break with the pro-gramme. The following excerpt from his address on the reason for the country's break with the IMF provides agoodindication of the country's percep-tionofthe impact of the programme on its economy:
·The International Monetary Fund conditionality has meant that the restructuring programme, which was and still is imperative in order to lead the economy to recovery, could only be sustail'llld through recourse to massive external debt even if temporary relief could be obtained from time to time by wayof rescheduling agreements with creditors.
ReschedUling is itselfat a cost. Besides, it merely postpones and increases the debt. Nevertheless, the Party and its Goverrvnent decided to go ahead with the measures in the hope that the country's economic performance would improve and the dras-tic fall in the people's standard of living would be arrested.
We have observed, with growing alarm, a situ-ation where escalating unemployment is becoming a permanent feature of our economy. Galloping inflation has set in which has pushed the pricea of basic essential commodities beyond the reachofour people, especially the low income groups who are in the majority. Casesof malnutrition are on the increase every day.
There has been a sharp rise in the mortality rate, especially among the infant population, because hospitals cannot afford to import the essential drugs and other requisites necessary to support life. We are witnessing a situation where our social fabric is slowly disintegrating, thereby lowing seeds of un-rest and undermining the peace end unity of the nation. This situation cannot and will not be al-lowed to continue. It is patently clear that far from improving our condition, we are not succeeding, hence the need for a fresh look.· (Sheshamani, 1988).
It should, however, be pointed out that although the break with the Fund led to the reversalofmany of the measures undertaken under the country's Fund supported austerity programme, the reform measures contained in the Economic Recovery Pro-gramme that replaced it retained a number of fea-tures of the older programme.
The most recent efforts by the G.overnment to tighten the belt further in conformity with condition-alities proposed by the Fund and the Bank led to social unrest and an attempted coup d' Etat in June 1990.
Lassons fromtheAppllclltion of SAP in Africe One thing that is very clear is that the existence of macro-economic 'imbalance in the economy is a necessary condition for the promotion of agricul-tural growth and development. Whenever macro-economic disequilibria occurs in an economy, it makes logical economic sense to embark on eco-nomic adjustment processes to restore the economy to equilibrium. In this regard appropriate macro-economic policies are needed to restore the econ-omy to a sustained and sustainable state of macro-economic equilibrium. However, for the structural adjustment process tobebeneficial to any African economy, stabilization and adjustment proc-esses must be designed in a generalized framework of structural economic transformation. This is be-cause the Structural characteristics identifiable with the pattern of production, consumptio and ex-change of the Afric. " economy constitute the most fundamental causes of its underdevelopment and retrogression (ECA, 1989). Every African econ-omy, therefore, needs tobe transformed rather than simply stabilized and adjusted if the on-going crisis is to be alleviated. The most crucial macro-eco-nomic and human questions here of direct relevance to the agricultural sector include (Green 1989):
How can the trend rate of food production be raised
? How can dependable, rising levels of inputs into domestic manufacturing be achieved? How can earned input capacity (the counterpart and basic purpose of exports) be sustained? How can in-creases in net farm household incomes be best obtained? How can malnutrition be reduced? How can these goals be attained in a sustainable way which neither pauperizes the rest of society, thereby rending the social fabric and sowing the seeds of its own destruction, nor destroys the ecological context of its own survival?
A number of lessons can be learnt from past experiences in the implementation of SAP's in Africa that would be useful in ensuring that the questions raised above are successfully addressed in future efforts aimed at establishing and maintaining macro-economic equilibra and stability in African econo-mies.
The key macro-economic policy areas in orthodox SAP's for achieving the objectives of agricultural development in African countries have traditionally included: exchange rate policies, pricing policies, credit policies, fiscal policies, and institutional poli-cies. Some useful lessons concerning the imple-mentation of these policies are discussed briefly in the rest of this section.
Exchange rate poliC¥
One of the most important instruments of Fund and Bank supported SAP's is the real exchange rate.
One of the most important instruments of Fund and Bank supported SAP's is the real exchange rate.