2 Obstacles to Continued Reform: An African Perspective

Laura Wallace
Published Date:
May 1997
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Kwesi Botchwey

In recent years, growth rates in sub-Saharan African countries have improved somewhat on the average, but they are still sub-optimal and sluggish in spite of many years of economic adjustment. At the same time, the region’s marginalization continues even in international trade, which, given our increasingly globalized world economy, offers perhaps the most credible path to faster growth. Against this background, adjustment programs provide an overall policy framework for domestic policy reform and external resource transfers. But they must be strengthened in their design, negotiation, and implementation, if the fundamental goals of economic development are to be realized.

The debate on ways of improving these programs has begun in earnest within the World Bank and the IMF and also within the African/donor circles, where there is renewed interest in the matter. Indeed, a number of very useful proposals are already on the table. But even as the debate progresses, adjustment programs continue to be designed and implemented without much change. It is thus important that the debate be better focused and punctuated, so that points of general agreement can be made to inform the continuing adjustment experience. I propose to highlight what I see as major areas of convergence that are emerging in the debate and also to offer some reflections of my own, drawing on Ghana’s experience.

Broad Areas of Consensus

Leaving aside some rather interesting theoretical and “political” issues that are raised in assessments of the results of adjustment programs in Africa, there is general agreement that Africa has seen major improvements in the macroeconomic and trade areas, but less spectacular gains in the real sector (especially in agriculture), the financial sector, and public enterprise reform. There is also general agreement on a number of ways of improving programs.

First, these programs should aim at sustainable long-term and broad-based growth, as opposed to just short-term external viability. This must mean more than the mere adoption of the Policy Framework Paper (PFP) mechanism for country programs. There are both political and economic aspects to the matter. The way forward is for the external agents of reform to provide support for the government’s own long-term policy framework, designed to stimulate accelerated and sustained growth. Such a long-term policy framework requires for its credibility and sustainability a broad national consensus and the government’s leadership and commitment. Government leadership of the process is absolutely vital, and if it is perceived that a government does not have the capacity to develop its own medium- to long-term vision, it must be encouraged or prodded in the informal consultations that precede formal negotiations to “acquire” this capacity; there is abundant African and other expertise on the market. Such a national program in which the objectives, costs, and trade-offs are defined and, where possible, quantified is crucial for national debate and consensus building. The ownership does not lie in the nationality of the authoring of the program as such, although in the normal course of things, the participation by agents of the government in the program’s preparation would be logical. Rather, it lies in the conscious and deliberate choice by the government of the reform path as a way of realizing its long-term objectives—and not as a painful or, worse still, a little-understood expedient for gaining access to international assistance and acceptability.

Second, adjustment programs need to focus more on the structural issues—specifically, to quicken the pace of reform in the financial sector, the private sector environment, and the state-owned enterprise system.

Third, countries would benefit from a stable democratic environment that makes for transparency and accountability in economic management generally, and also facilitates popular participation in decision-making, especially at the grassroots level. There is one other issue to be addressed here.

Governance issues have come to be expressed in ways that do not sufficiently acknowledge their universal character—corruption is certainly not a peculiarly African disease! As a result, the governance debate has tended to focus on sanctions for corruption and malfeasance. The concern, however, should be to liberalize the macroeconomic as well as the legal and administrative apparatus, so as to curtail the incentive and space for rent seeking, and to subject the mobilization and use of public resources and the entire regime of public works and service contracts to the general oversight of democratic institutions—parliamentary finance committees, public accounts committees, Account-Generals’ Offices, and Auditor-Generals’ Offices, endowed with the competence and constitutional mandate to protect the integrity of public expenditure. The idea is not to chase thieves on some ad hoc basis at the behest of donors, but to create democratic institutions that can operate their own surveillance mechanisms and deal with cases of malfeasance in clear and predictable ways. The governance issues, moreover, need to be better articulated, to determine both what lies within the sovereign jurisdiction of the adjusting country, and what are the legitimate areas of mutual interest, as between the Bretton Woods institutions and the adjusting country.

Some Personal Thoughts

To these broad areas of consensus, I should like to add the following.

First, with the renewed and, I might add, welcome interest in the structural issues, there is an urgent need to formulate structural targets and conditionality in language and terms that are clear and lend themselves to the least subjective interpretation. In the past, there has been a tendency to use vague and sometimes even self-defeating terms (such as when prospective buyers of state-owned enterprises know in advance that the country must sell a given number of enterprises by a given date). Additionally, the public sector reform agenda, including civil service and state enterprise reform, must be driven by country-specific market and efficiency considerations—as opposed to a predisposition to particular forms of ownership and generalized norms for downsizing. Equally important, the short- (and longer-) run financial costs of such reform must be explicitly acknowledged in the macroeconomic and financial program that the country commits itself to implement.

Second, countries need to be able to rely on the adequate, predictable, and timely external resource flows from both bilateral and multilateral sources. The shock that can be caused by shortfalls in external flows meant for budgetary or balance of payments support can be every bit as destabilizing as a severe drought or massive terms-of-trade loss. Ghana’s experience, especially since 1992, amply demonstrates this. In 1992 these shortfalls amounted to 1.8 percent of GDP; in 1993, 1.6 percent; in 1994, as much as 3.6 percent; and in 1995, 1 percent. What is worse, the fiscal shocks caused by these shortfalls can severely disrupt the fiscal situation for several years (especially when they are financed through bank borrowing), because of their impact on the stock of domestic debt as well as the cost of servicing it.

Third, there is an urgent need to resolve what I call the “tail-chasing” syndrome in policy-based lending: external flows are withheld because some structural conditionality has been breached; the withholding of funds leads to a deterioration in the fiscal and, therefore, the overall macroeconomic situation; and this in turn leads to a further withholding of committed program loans and grants since the stability of the macroeconomic environment is a general condition for disbursement of such loans and grants.

Fourth, while Bank/Fund coordination has improved tremendously in recent years, a great deal more needs to be done to improve coordination within the Bank, especially between “policy” and “sector” departments. Furthermore, as every practitioner knows, the agenda for the reform and improvement of donor coordination is still unfinished. A great deal more needs to be done to achieve improved policy cohesion and relieve pressure on local administrative capacity.

Finally, I would like to make a proposal, at this stage provisionally in the hope that if the idea is at least acceptable in principle, the ball can be caught in flight and worked over by a special task force to bring it closer to negotiation and implementation. (1) Net aid flows to the African region are now said to be positive and favorable compared to flows to other regions. But even then, the situation is not quite so favorable when the flows are netted off against terms-of-trade losses. (2) By all accounts, and by every prognosis, the prospects of a real increase in aid over the medium to long term are not good. (3) The flow of foreign direct investment to sub-Saharan Africa is still a trickle compared to other regions. While the situation is reversible, experience suggests that this is going to take time, and depends in part on the perceptions of investors and the advantages of size and geography—not just on the will and commitment of the African countries. (4) In order, therefore, not to throttle the African development effort or condemn it to slow growth—growth constrained by the “realities” of external resource flows and the “most realistic” assumptions on the prospects of further growth of domestic revenues (5 percent of real GDP growth is fast becoming the limit of “realism”)—I call for a Special Program for Clearing the Pipeline of Committed Resources for Africa. I have in mind here more than the Bank’s usual portfolio reviews.

My point is that at a time of resource stringency in Africa, and in order to accelerate growth rates in the region, there is a lot to be said for freeing resources already committed, for use in funding new priority investments carefully negotiated between the partners. The idea calls for some innovation and creativity in channeling these resources. Accordingly, the well-known bureaucratic and administrative shackles that bedevil the use of these resources must be avoided. New areas of priority investment in infrastructure, human resource development, and export promotion and diversification—especially for low value-added manufacturers—can be boosted this way over the next five years, thereby improving the supply response to adjustment measures. The program thus calls for a consolidation and quick reprogramming of pipeline resources that by all accounts are large and whose slow disbursement is often cited as evidence of Africa’s weak absorptive capacity. Side by side with the freeing of already committed resources, the issues of trade access and private investment promotion must be central to the new orientation of the Bank, especially in the coming years.

I realize, of course, that this proposal will need to be worked through to make it implementable. Not all committed resources are in disbursement arrears, and there are rules about moving resources from projects to program applications. But my point is that, given the critical and yet potentially hopeful situation that Africa faces today, a great deal can be achieved by rationalizing resources already committed to the region.

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