While the relevance of such an analysis is indisputable considering the experience of certain East Asian countries, nevertheless it must be pointed out that export products of the

African countries in the franc area are different from those of East Asian countries. Whereas the latter have managed to rapidly develop the exportation of finished products, the former are still exporters of raw materials. The point is that growth resulting from exports presupposes the replacement of primary export products by manufactured goods. This is a strategy that involves the development of export activities that are competitive on the world market, using the most abundant and least costly production factor (labour).

20 S. DEVARAJAN and L.E. HJNKLE, ojLcjt., p. 27.

86. The success of this strategy in newly industrialized countries of Asia (Korea, Hong-kong, Singapore and Taiwan ) and Brazil can be explained by the following reasons:

outlets were not restricted to the domestic market, and enterprises managed to rapidly take advantage of economies of scale;

export substitution had a favourable impact on employment and the distribution

of revenues;

the substitution had positive effects on the balance of payments and indebtedness.

87. Korea, for instance, initially specialized in the manufacture of products such as garments, simple electronic equipment, baskets, etc, the choice of which was determined by the size of the world market and the.low investments that such manufacturing activities involved. This strategy

was responsible for gradual recovery in the various manufacturing sectors. Thus, with regard

to textiles, garment- making which had initially depended on imported fabrics eventually switched to local ones, because the country started producing and exporting fabrics, and later, weaving machines. Having set up low value added and high labour industries, Korea focused its production towards more capitalistic sectors using such advanced technology as electronics, computers, capital goods, etc. Furthermore, the government played a key role in industrial development through investment and production planning:

nationalization of certain major banks in order to implement planning objectives;

application of competitive exchange policies (devaluations) and export subsidies;

management of foreign investments to minimize their contribution to the overall

investment.

88. Admittedly, between 1970 and 1985, growth in African countries of the franc area depended on the exportation of primary products, however, this was at a time when demand for such goods was relatively high. Today, development of synthetic products and the attendant rise in their supply (considering the ever increasing presence of Latin-American producers) raises the question of whether African countries of the franc area have the capacity to achieve similar results without first changing the products exported and diversifying their trading partners.

Therefore, it is not through a devaluation as some insist21 (which at any rate caught the area's African countries unprepared), that living conditions in these countries will be rapidly improved.

89. The assertion, therefore, that devaluation can be instrumental for rapid and sustainable improvement of the living conditions of African countries in the area is debatable. We have already mentioned the principal impediments; the type of products exported by these countries and the surplus supply of goods on the market. Besides, even if there were no surplus of goods

S. DEVARAJAN and L.E. HINKLE. op, cit.

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to adversely affect prices, African countries of the franc area would still need to increase, on a short-term basis, their supply of export products, which would be difficult to achieve unless these countries resorted to the development of marginal orchards.

1.2 Need for area economies to be more competitive and flexible

90. The world economy is undergoing rapid change. The recent crumbling of the Eastern Bloc has played a role in speeding up the transformation of the world economy. The latter has veered towards a market economy, which involves increasingly fierce competition. It is believed that under these circumstances, rigid economies are condemned to greater marginalization on the world market. Consequently, African countries of the franc area must adapt to the new world economic environment without delay. Ridding themselves of unprofitable public enterprises which influence price control regulations (because such enterprises are subsidized), and abolishing monopolies/oligopolies should help these countries promote production'(through prices that encourage the manufacture of marketable goods). It is through the positive development of production activities that growth can be achieved in the area of private investment. Such an analysis, which totally contradicts the old theory on development is based on what might be called the new theory on development.

1-2.1 Grounds for the analysis advocating greater competitiveness and flexibility

91. Advocacy for greater economic competitiveness and flexibility is based on the new hypothesis on development formulated in the 1980s, according to which understanding of development phenomena is built upon the following three factors:

the development of a nation largely depends on its openness to the outside world;

development is all the more rapid if the incentives offered to transactors are socially compatible;

the overall supply is governed by the allocation of rare resources. However, the allocation can not be optimal except in a competitive market.

92. The last factor fully supports the argument for government withdrawal from economic activity. Market facilities are, therefore, preferable to government intervention. This theory (without altogether disputing the need for the public sector to assume responsibility for certain activities that provide considerable externalities) lays emphasis on three considerations:

(i) * Government intervention (through price, quantity and information controls) greatly interferes with resource allocation, whereas in a market situation, such allocation is determined by transactors' preferences. It must be stated that protectionism and government intervention create a situation characterized by the accumulation of unearned income, that might encourage contractors to use a significant proportion of rare

resources for the acquisition of such income. In these circumstances, some transactors are able to increase their personal wealth to the detriment of net societal wealth;

(ii ) * the government is not a rational agent. It can even be manipulated to serve private interests. Its involvement here is deemed unnecessary and costly, since it can lead to the proliferation of illegal markets whose objective is precisely to evade State control. Although the illegal markets might prove to be beneficial by promoting the flow and acquisition of products and services neglected by the official market, their operational costs are high due to the risk of penalty, to kickbacks, etc.;

(iii) * the State is not a rational agent. It is not a group of altruistic agents seeking to optimize a utility service for the public good, rather, it is a collection of individuals or groups, each pursuing their own interests by concluding deals with private groups. In Africa, for instance, a number of studies22 have dealt with the rise in State bureaucracies since independence, their claims on export receipts at the expense of farmers, and their preference for state consumption to the detriment of investors.

93. During the 1950s and 1960s, we were made to believe (and even accept) that no development was feasible without State intervention. These three factors, products of the"

excessive State involvement model",23 contrast sharply with the old development theory (1950s and 1960s), one of whose assertions is that the mobilization and allocation of production factors can not be effected spontaneously by the market. The implication is that government intervention is called for.

22 See. for example: - C. COQUERY VIDROVITCH: Afrique Noire! permanences et ruptures; Payot, Paris, 1985,

G. GRELLET: Les structures ecnnomioues de 1'Afiioue Noire: PUF. Paris, 1982, R. SANDBROOK: The state and economic stagnation in Tropical Africa; World Development, vol. 14, No. 3, 1986,

P. GILL; A year in the death of Africa politics, bureaucracy and the famine:

London, 1986,

E. TERRAY (ed.): L'Etai Contemporain en Afrique: 1'Harmatan, Paris, 1987.

B According to G. GRELLET in: "Pourquoi les pays en voie de deveioppement ont-ils des rythmes de croissance aussi diffe'rents? Un survoi critique de quelques orthodoxies contemporaines." Revue Tiers Monde. Vol. XXXIII, No. 129, January-March 1992, p. 49.

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1-2.2 Contradiction of the old approach hy the new one

94. The approach used in the 1950s and 1960s maintains that development is dependent on the government's more or less active involvement. Three reasons are given for this:

Firstly, there is the possibility of the market sagging, in the absence of an entrepreneurial class or because certain activities generate considerable externalities. Furthermore, should markets narrow or returns to scale increase, monopolies may emerge.

Secondly, the State alone might be in a position to undertake reform measures, the application of which is a prerequisite for economic development. The measures in question are primarily institutional (improvement of the judicial system) or economic (educational system, communication network) ones that can only be implemented by the government. On the whole, efforts should be made to guard against domination by what G. Myrdal24 refers to as a pliable government, that is one that is corruptible and unable to enforce social order.

Thirdly, the market might not allocate rare resources to sectors that most effectively respond to development needs. In point of fact, if productive activities are confronted with the problem of inadequate outlets and high risks, and speculative (indeed illegal) activities show higher capital profitability, the consequent may be a systematic tendency towards speculative or illegal activities.

Inversely, the market may abandon socially beneficial activities, which are by extension socially profitable, for being financially unprofitable.

95. For proponents of the old approach, the market's shortcomings described above justify government intervention in economic activities. Concerning African countries of the franc area,the question is whether, between the 1950s and 1980 efforts to eliminate these shortcomings were successful enough to warrant a change of heart about the government's role in economic activities.

96. Although the argument for greater competitiveness and flexibility is totally relevant in the case of competitive economies, the situation in African countries of the franc area is different (at least for the moment). Here, competitiveness (be it at price or quality level) remains a pipe dream. Under these circumstances, total liberalization (with the attendant greater competitiveness) leads to accelerated capital turnover and increasingly premature dating of equipment. Consequently, the lifespan of the technical equipment is shortened. The cost of

G. MYRDAL: Asian drama; Clinton, Massachusetts, 1968.

replacing the equipment becomes high, thereby raising the consumption of fixed capital assets.

The end result might then turn out to be the opposite of the desired effect, in other words, flagging net investment, lack of impact on employment, and ultimately economic stagnation.

1.3 Decline of poverty

97. It is a fact that from 1986, real revenues declined by an average of 7 % per annum in the African countries of the franc area.23 It is also acknowledged that revenue variation affects the population's standard of living. Thus, for example, it is believed that in Cote d'lvoire the

decline in average income came hand- in- hand with intensified poverty.26 Rising poverty in

African countries of the franc area assumes the general poverty pattern of the entire Sub-Saharan

Africaaxegion whose populations are among the world's poorest. Between 1985 and 1992, the number of poor people in this region rose by 1.5%, and for 1994, more than 210 million people

were estimated to be surviving on less than one United States dollar per day.27 Still using Cote d'lvoire as an example, the proportion of the population surviving on less than one dollar a day was 20.17% in 1990" while in Senegal, this proportion was 56.19%.w In Cote d'lvoire, where the rate of poverty for 1992 was estimated at 60%, this rate showed the following pattern.

98. In large cities, poverty is rising considerably owing to lack of employment opportunities, revenue decline and the resultant price increases. Own- account employment has become the cure-all. However, own- account employment is often associated with unstable working conditions, low remuneration, and occasionally with illegal activities.

23 S. DEVARAJAN and L.E. HINKLE,

26 S. DEVARAJAN and L.E. HINKLE,

27 Report on poverty in Sub-Saharan Africa; Findings No. 33-035, April 1995, P.8.

21 CHEN, DATT and RAVALLION: "Is poverty increasing in the developing world?"

Department of General Policy Research, Division of Poverty and Human Resources, World Bank, Washington, 1994.

29 Idem.

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GENERAL DEVELOPMENT OF THE POVERTY RATE

Dans le document Exchange policy of African countries in the Franc zone area : recent developments and future outlook (Page 28-34)