Both Pretense and Promise: 
The Political Economy of Privatization in Africa

by S. Tjip Walker

 

Contents: Triggering the Downward Spiral Rents Redux: Enfeebling Economic Policy External Shocks Responding to the Downward Spiral The Neoclassical Consensus and Structural Adjustment Under Done or Undone: Structural Adjustment Meets Africa Notes

    For the past 15 years the economies of almost all African countries have been mired in hard times; caught up in a 'downward spiral'⁽¹⁾ of economic distress and stagnation. Beginning in the late 1970s and continuing through the 1980s and early 1990s, African economies have been locked in a cycle. Deteriorating economic conditions beget economic stagnation that, in turn, begets uncertainty, dis-investment, and unemployment that begets deteriorating economic conditions, and so on. Economic indicators give some dimension to the grim reality. Beginning in 1975, overall economic growth in the region essentially ceased. To be sure, some countries have been able to register appreciable growth at some times since then, but for the region as a whole per capita GDP has fallen from approximately $600 in the mid-1970s to less than $520 in 1992 (World Bank 1994: Figure 1.2). As a result, by the mid-1980s, over two-thirds of all Africans had incomes that were lower than they were a decade earlier (World Bank 1994: 17) and one-third had incomes lower than those that prevailed at independence (World Bank 1989b: 18). 

In terms of agriculture, Africa's principal productive sector, growth in production declined from 2.7 percent in the 1960s to 1.8 percent in the 1970s to 0.6 percent in the first half of the 1980s (World Bank 1989b, 1994). With populations growing around 3 percent annually over the same period, the stagnation of food crop productivity has brought with it growing food insecurity, a decline in caloric intake, a doubling of food imports, and a tripling of food aid from the mid-1970s to the late 1980s (World Bank 1989b: Tables 8 and 33). For cash crops, declining production has resulted in lower earnings and declining market share. For example, Africa's share of the world coffee, cocoa, and cotton markets fell 13, 33, and 29 percent respectively between 1970 and 1984 (World Bank 1989b: 19). With the exception of oil, Africa's share of mineral exports also declined over the same period. Since commodities make up over 85 percent of Africa's exports, it is not surprising that the region's share of total world exports fell from 2.4 percent in 1970 to 1.7 percent in 1985. 

Deteriorating conditions in Africa's primary productive sectors has discouraged private investment. The World Bank (1994: 19) puts it bluntly: "It was (and still is) almost impossible to attract foreign private capital--either in investment or loans--and portfolio investment flows have been negligible." At the same time, domestic government investments have also declined. Maintenance has been neglected; infrastructure has deteriorated. In such a gloomy business climate, many firms, both foreign and domestic, have shut down or retrenched. One result is widespread unemployment, estimated to be in excess of 50 percent in several of Africa's large urban areas. 

Other indicators of Africa's economic distress could be cited. Yet no collection of statistics can adequately capture the growing insecurity and quiet desperation; the many small reversals that is the human dimension of economic decay. 

This downward spiral of distress and stagnation in the economic environment is both the proximate cause and the backdrop for Africa's experiments with privatization. It is the proximate cause since the deteriorating economic environment has prompted nearly every African country to seek financial and technical assistance from the major international financial institutions (IFIs) -- the International Monetary Fund and the World Bank. Far more than ever before, the offers of financial assistance from the IFIs were tied to a long list of policy reforms that had to be satisfied for the funds to start, and continue, flowing. Provisions dealing with restructuring and divesting state-owned enterprises (SOEs) figured prominently on the list of required policy reforms. And it is these SOE reforms that have governed privatization in Africa -- both its direction and motive force. The downwardly spiraling economic environment is also the backdrop for the various privatization efforts since economic stagnation has persisted throughout the period that African governments have attempted to introduce the recommended reforms. 

This chapter focuses more on the role that the downward spiral played in ushering in an era of conditioned financial assistance, structural adjustment, and with it, demands that the relationship between African governments and their SOEs be thoroughly restructured. The first section describes how the combination of rent-oriented economic policies and a series of external economic shocks sent African economies into a tail-spin that African governments could neither control nor correct by themselves. The second section describes the assistance African countries received when they turned to the IFIs and their experiences with it. This discussion of the economics and politics of structural adjustment is not intended to be exhaustive. Rather, the intent is provide some sense of the intellectual and political milieu that gave shape and direction to Africa's experiments with privatization. The third section focuses in on the SOE reform component of structural adjustment. I examine the logic and method of SOE reform in some detail because of the significant role it has played in giving privatization in Africa both its particular character and its shortcomings. 

Though this chapter focuses on the role the deteriorating economic environment had in initiating Africa's privatization efforts, the importance of the downward cycle did not diminish once the various privatization programs got under way. Indeed, it is one of the enduring ironies of privatization in Africa that efforts to stimulate private investment and to expand the role of private sector activity were launched when the prevailing business climate was so grim and the short-term forecast was not much brighter. If it were possible, a constant, discordant hum would accompany the discussion and analysis in subsequent chapters as a reminder of both the distressed economic environment and the irony of privatizing under these conditions. Unfortunately, multimedia is not yet feasible. All I can do is draw connections to the stagnant economic environment at appropriate points in the discussion of the various case studies in Part III. 
 
 

Triggering the Downward Spiral

There is a certain, if partial, truth to each of these views. There is no question that African economies are so small that their impact on global trends is negligible. Many African countries, particularly those in the Sahel, have fragile ecologies and suffered through droughts at several points in the 1970s. It is also true that most African countries are entrenched in political and economic relations with industrialized countries, especially former colonial powers. Still, there is enough variation in economic performance between similarly placed countries both inside and outside the African region to suggest that domestic economic policy does matter in managing and mediating fluctuations in the international economy.⁽⁴⁾ Further, it is also quite clear that the penchant of African countries for overvaluing exchange rates, rapidly expanding government budgets, relying heavily on trade-based taxes, and suppressing incentives for agricultural production made them highly susceptible to disruptions in the international economy. However, contrary to the view held by the Washington consensus, the source of these policies was not some well-developed, though wrong-headed, inward-looking development strategy. Nor, as the neo-dependencistas claim, were these policies dictated from outside by Africa's trading partners or former colonial powers. Rather, African economic policy during the 1970s and early 1980s was largely a by-product of the of rent-seeking regime dynamic described in Chapter 3. 
 

Rents Redux: Enfeebling Economic Policy

Depending on the method used, the currencies of African countries appreciated in value anywhere from 25 to 50 percent in the decade between the early 1970s and early 1980s (Devarajan 1992; Berg and Berlin 1993). As virtually all African governments relied on fixed exchange rates between their currency and that of one or more industrialized countries during that period, overvaluation occurred as African countries failed to devalue the exchange rate in response to changing economic conditions.⁽⁵⁾ A classic political-economic explanation for avoiding devaluation is that overvalued exchange rates keep the prices of imported items low, a situation that works to the advantage of the urban elite who are the principal consumers of imported goods (Bates 1981; van de Walle 1991). While this explanation is consistent with a rent-seeking perspective in that it represents another instance where policies are introduced to provide economic benefits to the ruling elites, a further explanation can be found in the administrative requirements of currency overvaluation. With overvaluation comes the need to control currency flows and frequently the need to allocate scarce hard currency.⁽⁶⁾ Since access to hard currency is crucial for anyone engaged in international trade, those with the discretion over currency allocations have a clear opportunity to extract rents. 

Banking represents another situation where individuals have discretionary decision-making authority over the dispersal of funds; in this case, funds in the form of loans. Being in a position to direct to whom loans are granted carries with it numerous opportunities to extract rents. Incorporating the banking sector into the rents regime is not difficult. Banks are regulated throughout the world. In African countries, national leaders devised banking regulations to ensure that the government was a sizeable, if not the complete, owner of banks.⁽⁷⁾ With a large ownership stake came the ability to name senior bank managers.⁽⁸⁾ The possibility of directing bank business to family, friends, and those owed fealty, irrespective of the merits of the requests, made these senior bank positions important prebends; positions over which ruling elites heatedly contested. To be sure, there are limits to the volume of questionable loans a commercial bank can make before it becomes non-viable. However, through a combination of loose oversight (which, among other things, enables loans to be carried as performing long after they have ceased to be), substantial government deposits, controls on interest earned on deposits, and a volume of performing short-duration commercial lending, it is quite possible to mask the fragile state of the bank for quite some time (Popiel 1994). 

The enfeebling effect that a preoccupation with rents had on banking sectors was repeated throughout African economies. The combination of over-valued exchange rates, high levels of protection, pervasive regulation, rudimentary commercial institutions, and a general suspicion of markets worked against significant investment, whether foreign or domestic. There is no better indication of the hostility of the investment climate than the fact that the share of GDP contributed by manufacturing remained the same throughout the two decades from 1965 to 1987 (see Figure 4.1). Without industry to share the load, the only source of growth--hence the principal target of rent seeking--was the traditionally productive sectors of agriculture and mining. During the 1970s, these sectors came under more and more pressure as underlying regime logic demanded that more and more rents be squeezed out of them. In the agriculture sector, the declining rates of productivity provided a sign of the growing fragility of the sector. However, the seriousness of the situation was masked; this time by robust international commodity prices not only for agricultural exports but for minerals as well. This situation could not last. The combination of the two oil price shocks of the 1970s and the world commodity price crash of the early 1980s dramatically exposed what 20 years of rent seeking had wrought on the economies of Africa. 
 

External Shocks

The inflow of loan funds allowed African countries to weather the two oil crises and simultaneously allowed African governments to avoid confronting the underlying causes of the worsening state of economic affairs. Even so, although the increased flow of external finance brought temporary relief, it also worsened the situation in two important respects. First, inflows from outside sources were not sufficient to fully finance the trade deficits resulting from higher price for imported oil. African countries were also required to draw down reserves, leaving less of a cushion to deal with any future shocks. Second, in accepting external financing to cover balance of payment deficits, African countries also assumed an increasingly heavy debt burden. According to World Bank figures, total public debt owed by African countries increased eight-fold, from $5.4 billion to $41.3 billion, during the 1970s (and to $106 billion by 1987) (World Bank 1989b: Table 22).⁽⁹⁾ Increased debt brought with it increased debt service. Interest payments on public debt registered a ten-fold increase during the 1970s to just under $2 billion a year. For all of Africa, debt service doubled from 1.2 percent of GDP to 2.4 percent. 

The net effect was that most African countries entered the 1980s in a precarious situation. The rent-seeking regime dynamic continued unabated, making it extraordinarily difficult for African leaders to address the underlying frailties of African economies, even if they wanted to do so. Moreover, mounting debt and debt payments, persistent budget deficits, declining agricultural production, and over-valued exchange rates all contributed to an underlying economic instability that was highly sensitive to further shocks. 
 

It was not long before such a shock came. Provoked by the global economic recession of the early 1980s and the accompanying decline in demand for primary products,⁽¹⁰⁾ African countries saw the prices they received for the products they exported drop precipitously during the 1980s, especially during the first five years, as Table 4.1 illustrates. However, even these figures mask some of volatility. For example, during 1986 alone, the price of arabica coffee dropped 46 percent, cocoa prices fell 25 percent, and robusta coffee lost 16 percent (U. S. Agency for International Development 1990: 22-23). 

The World Bank (1994: 26-31) takes great pains to point out that Africa was not alone among developing regions in experiencing declining terms of trade in the 1980s. The Bank also argues that declining export prices can, at best, account for only a third of the ensuing decline in Africa's economic growth. While the World Bank's calculations may be accurate,⁽¹¹⁾ the significance of the decline in export prices in setting off the downward economic spiral should not be underestimated. The ripple effect started with the close association between commodity exports and government revenues. Taxation of exports, either implicit or explicit, represents a significant source of government revenue--up to 50 percent according to World Bank estimates (Anderson 1987: 5). Thus a sharp decline in export receipts rapidly translates into a reduction in government revenue, and unless offset by spending reductions, into a higher budget deficit as well.⁽¹²⁾

Given the extent to which economic policies are an expression of the underlying rent-seeking regime logic, it is not surprising that African governments were unable to respond quickly to falling commodity prices. Any of the measures that could have been taken to reduce government outlays, such as cutting the salaries or numbers of civil servants or curtailing subsidies to losing parastatals, would have quickly confronted the rent-extracting prerogatives of the political elite. Even exchange rate devaluations would have run counter to rent-seeking dynamic. As a result, it was a lot easier for the leaders of African countries to ignore the situation and place their hopes in the recovery of commodity markets. In the meantime, budget deficits grew. For Africa as a whole, budget deficits averaged 4 percent of GDP during the 1970s; in the 1980s they effectively doubled, consistently exceeding 7 percent throughout the decade (Sahn 1994: 6). Moreover, unlike the 1970s, there was to be no offsetting inflow of loans or grants. 

As the situation deteriorated, increasingly cash-strapped governments were compelled to adopt alternative strategies to find the funds to service their debt and pay their bills, especially the wages of the civil service and the armed forces. These measures included liquidating remaining foreign exchange reserves, drawing-down deposits in domestic banks, and delaying payments on bills deemed less important. While payments to farmers or domestic service vendors could be put off, and the problem ignored for a while at least, those to official lenders and international commercial banks could not. Sooner or later, African governments found themselves on the brink of loan default or facing an unmanageable balance of payments situation. Whether they wanted to reschedule their debt or obtain balance of payments financing, the only recourse available to African governments was to seek the assistance of the IMF and the World Bank. 
 

Responding to the Downward Spiral

The Neoclassical Consensus and Structural Adjustment

Underlying the resurgence of the neoclassical orthodoxy with its stress on markets and prices were a number of intellectual currents. One current was the growing disenchantment with the prevailing more-interventionist approaches. In the industrialized countries, this was reflected in the inability of Keynesian approaches to deal adequately, either theoretically or practically, with the persistent 'stagflation' dogging their economies (Killick 1989). For developing countries, it was the disappointing results associated with a whole range of state-led interventions, including national planning, import-substitution, and unbalanced growth (World Bank 1981). Further, an accumulating body of empirical and theoretical work made it increasingly difficult to explain the poor performance of developing countries in terms of dependency or the structure of the world system (Higgott 1983: Chapter 2). A second current was the received interpretation of the spectacular growth of East Asian countries in the 1970s and early 1980s. The conventional view held that East Asian countries had grown rapidly because they had rejected import substitution and other forms of government intervention in the economy in favor of an export orientation coupled with a stable and market-based macroeconomic environment.⁽¹⁵⁾ Together these policies were seen as a stimulus to investment and efficiency that, in turn, generated growth. A third current was the advancement of new theories rooted in neoclassical macro- and microeconomics that seemed to account better for contemporary economic conditions: the failings of economic interventionism and the success of laissez-faire and aggressive participation in world trade. The fourth current, in part an expression of the other three, was the political success of parties in the United States and Western Europe that advocated getting the prices right and shrinking the state, as policies both for themselves and for others. 

Together, these currents were irresistible and propelled neoclassical liberalism to a position of intellectual hegemony. Advocates of neoclassical development strategies not only dominated academic circles, but held increasing sway among the staff of the IFIs as well. There they argued that if deviations from neoclassical orthodoxy are known to be counterproductive, if not damaging to an economy, then why should IFIs, as international lenders, support them? After all, policies that undermine growth also undermine the prospects that loans will be repaid. Indeed, they concluded, the responsible course of action would be to insist that countries seeking assistance adopt a neoclassical development strategy. Thus when African countries turned to the IMF and the World Bank in the early 1980s for assistance in dealing with their distressed economies, they found that the assistance packages came tied with long lists of changes in economic policy that had to be fulfilled as conditions for continued lending. 

Another innovation of IFI lending in the early 1980s, especially for the World Bank, was its broadened scope. Up to that point the Bank had provided loans for specific projects or to designated industries or sectors. Beginning in the 1980s, the IFIs began to consider and treat a borrowing country's entire economy. In part this more holistic perspective was simply a product of neoclassical theory which posits an integrated economy where numerous factors affect the state of the macro-economy. With such a perspective, piecemeal reform would be futile; only simultaneous, comprehensive reform would work (Thomas, Chhibber, Dailami, and de Melo 1991). In addition to the theoretical rationale, there was also empirical support for holistic reforms. One source of empirical support again came from the neoclassical reading of the East Asian experience. The neoclassical interpretation was that the region's economic growth rested on a foundation of stable, and relatively undistorted, macroeconomic policy. Further support came from the Bank's own experience with project lending in Africa. All too frequently Bank projects failed to realize their expected results (World Bank 1994). In large measure these persistent shortcomings were attributed to economic constraints outside the purview of the specific project (Cohen, Grindle, and Walker 1985).⁽¹⁶⁾

A third new feature of adjustment loans was the speed with which reform was to be undertaken. Typically, an adjusting country was expected to accomplish a complex reform package within 18 to 24 months. Such a rapid pace of reform rested on the argument that a crisis situation demanded a dramatic response. A brusque policy shock was seen to be economically more effective and politically more palatable that gradualism. 

Operating from this neoclassical mental model, the members of the Washington consensus saw country after country in Africa where macroeconomic conditions were in serious disarray. Though they would likely have used more precise, technical language, the IFI view was that most African countries were simply living above their means.⁽¹⁷⁾ The two-pronged strategy developed by the IFIs as a response is akin to the strategy a credit counselor would develop for a distressed individual who had been living too high on the hog. For an individual, the first step would be an immediate reduction in spending to a level more in line with income, so as to prevent the situation from getting worse. For a country, this step was called stabilization and entailed "reductions in expenditures to bring about an orderly adjustment of domestic demand to the reduced level of external resources available to the country" (Thomas, Chibber, Dailami, and de Melo 1991: 11). Measures designed to control expenditures and lower demand concentrated in five areas. The first was to tackle the tendency of African governments to maintain overvalued exchange rates through quick devaluation. Overvalued exchange rates artificially lower the price of imports and therefore increase demand for them. At the same time overvalued exchange rates raise the price of exports thus lowering the demand for them and undermining the trade balance. The second target were those elements of trade policy, including tariffs, quantitative restrictions, and licencing, that encouraged domestic consumption, especially luxury items, and discouraged exports. A third stabilization priority was tackling the enormous budget deficits, principally by reducing government expenditures and investments. A fourth concern of stabilization was the interest rate. Higher real rates would lower the demand for credit while simultaneously increasing the incentive for saving rather than consuming. A final target of stabilization was restricting monetary policy, particularly control of the money supply. Undisciplined printing of currency is one way for a government to pay off debts, but it also leads to inflation and with it strong incentives to consume rather than save or invest.⁽¹⁸⁾

For an individual, the second prong of the reform strategy would be to make lifestyle changes affecting spending priorities, work patterns, saving, and investments in an effort to increase income, ensure debt repayment, and provide a cushion for future economic reversals. For countries, the analogous process of lifestyle change was called structural adjustment. This longer-term effort aims at realizing "changes in relative prices and institutions designed to make the economy more efficient, more flexible, and better able to use resources and so as to engineer sustainable long-term growth" (Thomas, Chibber, Dailami, and de Melo 1991: 11). In keeping with neoclassical thinking, the objectives of structural adjustment are best met by "getting the prices right." Clearly a greater reliance on prices entails a greater reliance on markets as allocative institutions and, by extension, a reduced role for discretionary, bureaucratic decision-making. These objectives are clearly evident in the core elements of the structural adjustment programs developed for African countries:⁽¹⁹⁾
 

1. Fiscal Policy. To reduce ballooning government deficits, adjustment reforms have included both measures to lower expenditures, principally by reducing the size of the civil service (and thus shrinking the civil service wage bill), and to increase revenues by expanding the tax base and improving tax administration. Reforms have also dealt with rationalizing public investments.

 
2. Trade Policy. Consistent with neoclassical theory, reforms have focused on lowering trade barriers and promoting exports. This entails eradicating quantitative restrictions on imports; lowering tariffs, especially on raw material and semi-finished goods; lowering, if not eliminating, export duties; and generally streamlining import and export procedures. 
3. Industrial and Commercial Policy. In order to promote investment and a greater reliance on markets, adjustment reforms generally include the elimination of domestic price controls on most, if not all, products and the rationalization of investment and commercial codes.
4. Finance Sector Reform. The general aim is to stabilize banking sectors teetering on the verge of a collapse induced by a growing portfolio of non-performing loans and heavy withdrawals by government agencies and individuals. Reforms deal with both restructuring the banking sector through mergers and liquidations as well as liberalizing bank regulation, especially interest rates on both deposits and loans.
5. Public Enterprise Reform. With various subsidies and transfers to SOEs representing a significant portion of government expenditure, introducing reforms that would stop the drain of public resources was an obvious element of stabilization. Restructuring the public enterprise sector included divesting or liquidating perennial money-losers and granting more managerial autonomy to the retained enterprises. (This component will be examined in more detail later in this Chapter).
6. Public Management and Civil Service Reform. As a complement to the overall reduction in the civil service wage bill, reforms also focused on increasing the efficiency and effectiveness of government agencies through such measures as replacing the duty-post system (see Chapter 3) with position descriptions for each authorized post, revising wage scales, and standardizing recruitment and promotion procedures.
7. Agriculture Sector Reform. To reverse the decline in agricultural productivity throughout the region, reforms concentrated on increasing the incentives for production and the reliance on market mechanisms. Consistent with these objectives were removing price controls, eliminating subsidies, reducing or eliminating government regulation of input and product marketing, and divesting government-owned plantations or agro-processing enterprises.

Whatever their theoretical pedigree, the imperatives for rapid stabilization and comprehensive structural adjustment quickly collided with organizational and political realities at a number of levels. To begin with, a clear distinction between stabilization and structural adjustment proved hard to sustain. As the respective lists of reform measures indicate, there is a considerable overlap between the two, especially in areas dealing with government spending, public investment, and trade policy. As a consequence, the IFIs soon melded the two-pronged strategy into the single emphasis on "adjustment lending" (Thomas, Chibber, Dailami, and de Melo 1991). However, doing so tended to subordinate the IMF's role. The Bank had more money and more staff to throw at the problem and thus became the dominant force. The IMF instead contented itself with its critical gatekeeper role in multilateral financial negotiations. Without a Stand-By Agreement in place, neither commercial nor official lenders are willing to enter into negotiations with debtor countries on restructuring the terms of their loans. 

In assuming primary responsibility for adjustment lending, the Bank also took on the enormous operational complexities of designing, negotiating, and implementing a comprehensive reform package. With less than 10 percent of its staff resident in borrowing countries, the brunt of the work fell on operational staff at the Washington headquarters. Within geographical divisions, the operational staff were organized in matrix fashion.⁽²⁰⁾ Some staff, generally economists, were assigned to teams focused on all Bank operations in a particular country. These country teams were supported by specialized technical offices dealing with agriculture, industry, public sector management, and infrastructure on a regional or subregional level. 

These organizational arrangements affected the design and implementation of structural adjustment loans in significant ways.⁽²¹⁾ With limited field staff, the bulk of the preliminary discussions and data collection, negotiations, and monitoring had to be conducted during periodic, short-term visits by teams from headquarters. Further, the breadth of structural reforms required the country team to call on the resources of the regional or subregional technical offices. However, unlike the country desk, which could concentrate essentially full-time on structural reforms, staff of the technical offices had to divide their attentions among numerous countries and projects. This had several effects. On the one hand, involvement of the same technical staff in all the structural adjustment loans in a (sub)region ensured a common approach. However, being spread so thin meant that technical staff was involved only intermittently and greatly complicated the logistics of assembling teams to participate in required missions. 

Given the difficulties of assembling a team, often comprising a dozen or more headquarters staff and consultants, and the general press of schedules, efficient use of time during missions was essential. One practical ramification was that once in-country, team members concentrated almost exclusively on the sector or area for which they were responsible. As a result, the various components of a SAL were generally designed and negotiated as discrete elements. Similarly, once the entire structural adjustment program was approved, individual components were also monitored discretely by the responsible technical officer. 

The responsibility for integrating the various components and ensuring internal consistency fell on the leader of the country team. However maintaining integrity is indeed a tall order when a representative SAL consists of 180 discrete reform actions designed to achieve 65 objectives in 11 sectors over 18 months.⁽²²⁾ The team leader was also responsible for determining which of the negotiated reform actions were to be elevated to the status of 'tranche release conditions'. This group of 10 to 20 key reforms was attached as conditions to particular tranches of the loan funds and had to be fulfilled in order for the funds to be disbursed.⁽²³⁾ For the remainder of the reform actions, the borrowing country simply needed to demonstrate 'continued satisfactory progress' to stay in the Bank's good graces. 

Even though the various components of a SAL were designed and negotiated separately, there was still an overall adherence to the IFI's general approach to adjustment lending. Reflecting the general neoclassical conviction in the power of markets, the Bank staff designing SAL components tended to focus on a limited number of key reforms that were felt to provide an adequate catalyst to induce further reform and market development. Reflecting the belief that the reforms made good sense, that they were generally self-implementing, and that they would meet with favor from the borrowing-country government, SAL components consisted almost exclusively of specific actions to be taken and rarely dealt with issues associated with implementation. In so doing, Bank staff assumed that, in the main, the borrowing-country governments knew how to introduce particular reforms and would do so with alacrity once they agreed to them. 
 

Under Done or Undone: Structural Adjustment Meets Africa

Moving from the national to the sectoral level, the situation remains muddy. The World Bank's (1994) latest review concluded that in some areas, such as currency devaluation, monetary policy, international trade, and agriculture, reform has been easier to achieve. In other areas, such as reform of the financial sector or SOEs, reform has been retarded. Yet the situation is far from uniform. For example, in foreign trade, several countries, including Ghana, Nigeria, Côte d'Ivoire, and Senegal have begun retreating on tariff reform (World Bank 1994: 67). At the same time, Togo in the late 1980s and Kenya in the last year have been notably successful in divesting SOEs (Shirley 1989). 

The decidedly mixed results of structural adjustment has prompted considerable scrutiny--as an overall development strategy and as it has been applied in specific countries. Although these analyses have accumulated in a rather large literature, it is possible to identify three modal explanations of structural adjustment's limited success. Each of these explanations identifies a different source of adjustment's principal shortcomings. It should be noted that these explanations are not mutually exclusive, so individual analyses often draw on multiple explanations. 

The first perspective faults the economic theories underlying adjustment programs. From this perspective, structural adjustment programs could not work as advertized because they were based on flawed theories. What improvements have been realized were due to other factors. Some critics charge that the IFIs have mis-identified the problem and are thus treating the wrong illness (Wheeler 1984; Helleiner 1986a). Other theoretic critiques range from attacks on the underlying neoclassical theories of trade and comparative advantage (Killick 1989; Stein 1992) to criticism for relying on agriculture rather than industrialization as the engine of growth (Stein 1992) to reproach for the lack of attention paid to issues of income distribution and the effects of adjustment on the poor (Stewart 1985; Cornia, Jolly, and Stewart 1987). 

Given the bitterness of the pill they have been told to swallow, it is not surprising that some of the most vociferous critics of structural adjustment's theoretical assumptions have been African government officials. Besides echoing the criticisms already noted, African officials frequently add two others. One is the venerable argument of African exceptionalism. That is, that Africa (or Africa's situation in the world economy) is inherently different and therefore development models based on experience in other regions are inappropriate or, at very least, must be suitably adapted (Adedeji 1985; Shaw 1985). This argument is frequently tied to an argument for the necessity of retaining an activist state (Organization of African Unity 1981). The other criticism attacks structural adjustment as being essentially a negative model of development; focusing principally on managing aggregate demand and almost silent on promoting a supply response.⁽²⁴⁾ They add that the few positive initiatives that have been proposed often suffer from the fallacy of composition. One example deals with the frequently made recommendation to adjusting countries to broaden agricultural exports into such "non-traditional" products as tropical flowers or vegetables and fruit (green beans, tomatoes, and strawberries) for the off-season European market. The fallacy is that while expanding non-traditional agricultural exports may be quite profitable for one or two countries, if all the countries urged to adopt this strategy enter the market it will become over-saturated and bring on reduced profits for all and losses for some. Besides the economic problems associated with a preoccupation with demand management, African officials also stress that the absence of positive measures makes structural adjustment hard to sell politically (Nelson 1986; Ravenhill 1988; Mills 1989). 

The remaining two perspectives on adjustment's lackluster performance accept the soundness of both the theory underlying structural adjustment and the policy objectives that emerge in applying that theory to the African context. Instead, these two perspectives focus on shortcomings in the way adjustment programs were designed and implemented. Where the two perspectives differ is over where responsibility for those shortcomings properly lies. One perspective holds that the IFIs' adjustment programs were so broad and complex as to be almost un-implementable while the other charges the borrowing countries with a lack of commitment and an unwillingness to pursue the full range of needed reforms. 

Those focusing on the IFIs as the source of the problem raise a number of related concerns about the structure of adjustment programs and the way the World Bank implemented them. Some focus on the complexity of these programs (to achieve the comprehensive reforms) and the speed with which they were to be implemented (to achieve the desired 'shock'). Others point to the proliferation of conditionality, not only by the IFIs but by other multi- and bi-lateral donors hopping on the tied-aid bandwagon (Berg 1986; Helleiner 1986b). All of these critics stress the unreasonable administrative burden adjustment programs placed on those individuals and agencies charged with carrying them out, especially on the government offices and officials of African countries. They note that African countries lack just the sort of expertise in market-oriented economics and finance, policy analysis, and economic policy-making that adjustment programs required (Bienen and Waterbury 1989; Berg 1986). One consequence is that the Bank's assumption that government officials, on their own, had the skills and the wherewithal to carry out the numerous reform actions proved erroneous. IFI staff spent far more time than anticipated facilitating the design and introduction of specific reforms through training programs and technical assistance (Interview 30, November 1992). 

Another line of criticism focused on the World Bank's reliance on a 'catalytic' approach to implementation. These critics argue that the promulgation of reforms through laws or decrees is one thing; translating such rule changes into changes in the behavior of individuals is quite another (Oakerson 1994a, b). Particularly when reforms are fundamental, these critics maintain that implementation will have to be consciously facilitated to ensure that the new rules are made effective through vigilant application and enforcement (Oakerson and Walker 1997). By contrast, presuming, as the Bank did, that prescribing new rules is a sufficient catalyst to bring about new behavior will, according to this view, produce exactly the partial reforms and disappointing results that have obtained. 

The third perspective on adjustment's lackluster performance holds the governments of African countries chiefly responsible. This is clearly the World Bank's official view.⁽²⁵⁾ The main argument of the World Bank's (1994) major review, Adjustment in Africa, is that adjustment works because those countries that reformed the most also grew the most. At the same time, the Bank notes that (World Bank 1994: 1) "no country has gone the full distance". It is this incompleteness in reform programs to which the Bank attributes adjustment's modest results. Hence, responsibility for obtaining better results lies with African government who must demonstrate the commitment and find the political will to carry through with the entire reform program (Heaver and Israel 1986; World Bank 1993, 1994). 

The Bank's analysis stops with exhortations for greater commitment. Other analysts take the next step and attempt to identify what it is about African polities that makes it difficult for them to commit to the full menu of structural changes. These analyses of the "politics of structural adjustment" proliferated in the late 1980s and early 1990s argue that structural adjustment poses a serious political problem of African leaders.⁽²⁶⁾ Reform upsets the status quo; structural adjustment shakes things up and produces winners and losers. Indeed, as Jeffery Herbst (1990b) aptly puts it, the structural adjustment of economies brings about "the structural adjustment of politics". 

From this common emphasis on the political problems associated with adjustment, these analyses diverge in two directions. One stance presumes that the national leader(s) is(are) truly reform minded (see, for example, the various contributions to Nelson 1989). The political problem then becomes one of mobilizing and maintaining reformist coalitions among-- depending on the country--the ruling elite, political parties, or such social groups such as bureaucrats and workers. Differential results in structural adjustment are then attributed to the ways that different reforms and different regime configurations interact and the effect these interactions have on the ability of national leaders to sustain reform-minded coalitions. The other, more pessimistic, stance assumes no reform intentions on the part of the African leaders. Rather, national leaders are seen to use structural adjustment programs as a pretense. They either use the reforms as a way to undermine the positions of rivals⁽²⁷⁾ or are only interested in the benefits of structural adjustment programs (inflow of funds, debt rescheduling) and will do what they can to avoid the pain of reform and the accompanying threats to regime stability.⁽²⁸⁾

Assuming that a rent-seeking dynamic underlies African regimes leads to similarly pessimistic conclusions about the likelihood of meaningful economic reform or realizing the promises of structural adjustment. After all, there is nearly a one-to-one correspondence between the seven principal elements of structural reforms listed in the previous subsection and the policy by-products of endemic rent-seeking described in the last chapter and earlier in this one. Bloated public budgets, extensive trade regulation, proliferating numbers of SOEs, overvalued exchange rates, tightly controlled agricultural sectors are both products of rent seeking and targets of adjustment. At every turn where the rent-seeking logic leads to increasing the scope of government and the discretion of bureaucrats, structural adjustment demands shrinking the role of government, reducing bureaucratic discretion and instead relying more market signals. In other words, structural adjustment represents a concerted attack on the inner workings of rent-seeking regimes. 

Faced with such a fundamental threat to regime coherence, leaders of rent-seeking regimes would be expected to shun structural adjustment if they could or manage its effects carefully if they could not. In the latter case, rent-oriented African leaders would be expected to adopt strategies that would turn adjustment to their advantage either by using reform selectively to undercut political rivals or by turning reforms into another opportunity for extracting rents. If neither of these opportunities were available, the best strategy for the leadership of rent-seeking regimes would be to grab for the benefits of adjustment while simultaneously devising strategies to delay and dissipate as many of the reforms as possible. Delay, dissipation, and attrition would be preferable to outright defiance, since the latter course would lead to the suspension of IFI programs and the benefits associated with them. 

Much of the experience with structural adjustment over the past decade has indeed been consistent with these grim predictions. Leaders across the continent have worked hard at dissembling, deflecting, and subverting the very adjustment programs to which they have signed their names. As a consequence, Stand-By Agreements have been suspended, on occasions within weeks of going into force, because conditions were not met (Berg 1995). Similarly, SAL tranche releases rarely occur on time, also because African governments have not fulfilled what they promised. If structural adjustment had been an abject failure, the story could end here. Rent-seeking politics would have triumphed again. But there is no disputing that some reform has taken place. And this fact invites a closer examination of the reform process, so as to better understand the mixture of forces that can be mobilized to overcome not only the rent-seeking dynamic, but the many other deficiencies in economic policy reform, both in theory and in implementation, noted in this section. For this closer examination, I turn to privatization. 
 

Notes

1. The term is Sandbrook's (1986).

2. This view has been most forcefully articulated by the United Nations Economic Commission for Africa (ECA). The perceived hostility of the international economic environment was one of the motive forces behind the strategy of "internally-located" development and self-reliance contained in ECA's alternative to structural adjustment: The Lagos Plan for Action (Organization of African Unity 1981).

3. The term is John Williamson's (1990).

4. Several recent econometric studies have demonstrated that economic policy choices affect growth. These studies are summarized by the World Bank (1994: Box 1.1).

5. During the early 1980s overvaluation was more of a problem for countries outside the French-supported CFA franc currency zone (FZ). In the late 1980s and early 1990s, the problem shifted to the FZ countries (Boughton 1991; Berg and Berlin 1993).

6. World Bank (1994: Table A.7) analysis indicates that every non-FZ country had some form of administrative system for the allocation of foreign currency prior to initiating policy reforms. The CFA franc was always freely convertible into French francs.

7. Popiel (1994: 44) reports that at independence all banks operating in Africa were private. By the end of the 1970s, less than 10 percent were completely private. African governments had assumed controlling ownership in over half the banks operating at the time and minority interest in the remaining 40 percent. 

8. African governments often demanded the right to name bank directors if even in instances where they lacked majority ownership. Ejangué (1994: 5) recounts the story surrounding the Banque Unie du Cameroun (BUC), a privately-owned bank established in Cameroon in 1975. When the bank's owner and principal shareholder refused to honor the presidential decree nominating a civil servant to serve as general manager, he found numerous obstacles thrown up to curtail the bank's operations. BUC soon went out of business.

9. Parfitt and Riley (1989: 16) note that other approaches produce debt figures higher than those reported by the World Bank. For example, where the Bank reported total debt at $84 billion in 1984, Third World Affairs listed it at $125 billion, while the OAU calculated a still higher figure of $158 billion.

10. Helleiner (1986b) argues that the reliance on monetarist macroeconomic policies in the industrialized countries was the proximate cause of the fall in world commodity prices. Where Keynesians would have stimulated demand to combat recession, the monetarists retrenched, provoking a drop in aggregate demand.

11. David Wheeler's (1984) econometric analysis comes to exactly the opposite conclusion.

12. One of the criticisms made of the fiscal policies of African countries is their heavy reliance on trade-related taxes. While there is no question that such taxes are administratively less taxing to collect than income, consumption, or land taxes, the revenue they generate is much more volatile.

13. Calculating a definitive number is not as straightforward as it seems. Excluding the island micro-countries, 36 out of 40 African countries have agreed to conditioned adjustment assistance at some point between 1980 and 1994 (Hood 1989; World Bank 1993, 1994). The four exceptions were Angola and Liberia, which were engulfed in civil war most of the period, and Botswana and Namibia, which did not needed it. However, if one adopts a more rigid standard--countries obtaining a structural adjustment loan (as opposed to one or more sectoral adjustment loans)--then the number drops to 24. If one adds the further requirement of successful completion of a SAL, the number declines even further.

14. The terminology "macro prices" and the clarion call to "get price right" seems to have originated with agricultural economists Peter Timmer, Walter Falcon, and Scott Pearson (1983). However, both the terminology and the call quickly became synonymous with the Washington consensus. See, for example, Killick (1989) and Lipumba (1994).

15. The World Bank has been one of the most staunch advocates of the conventional view, see, for example, World Bank (1987, 1991). Others adopting the conventional view include Haggard (1990) and Winrock International (1991). The conventional view has come under increasing attack since the late 1980s as understating the role of East Asian governments played in managing their economies; Wade (1990) provides an extended analysis of Taiwan and South Korea. The critiques have been sufficiently telling that the World Bank (1993) modified its stance in its extended examination of the East Asian Miracle now admitting some contribution from judicious government intervention along with stable macroeconomic policies and an export orientation. However, even this admission does not go far enough for some like Alice Amsden (1994).

16. Similar conclusions were being drawn by observers of development projects supported by other donors; see, for example Morss and Gow (1985). The persistence of implementation problems associated with inhospitable external environments contributed significantly to the development community's growing disenchantment with "projects" during the early 1980s (Rondinelli 1987).

17. For a contemporary view, see the analysis prepared by the World Bank (1981).

18. Unrestrained printing of currency, or in technical language seignorage, was less of a problem in countries that participated in supra-national monetary unions, such as the FZ. In any event, seignorage was generally less of a problem in Africa than it was in countries elsewhere in the world also undergoing structural adjustment (World Bank 1994).

19. These "core elements" come from Thomas, Chibber, Dailami, and de Melo (1991). Webb and Shariff (1992) provide statistical evidence that these areas were the most frequent components of adjustment loans.

20. The World Bank undergoes periodic reorganization. For the most part these reorganizations affect the degree of centralization of various technical support offices. The organizational arrangements described here were those in place in the late 1980s. Since then technical support has become more centralized and technical support offices were eliminated at the subregional level and relocated to the regional and agency levels.

21. Unless otherwise attributed, the analysis contained in the remainder of this subsection is based on information obtained in interviews with World Bank staff, in Washington and in the field, in May 1989, July 1990, October and November 1992, and May 1993.

22. The SAL in question is Cameroon's SAL I, authorized in 1989 (World Bank 1989a).

23. Descriptions of the "mechanics" of adjustment loans can be found in Webb and Shariff (1992) and Hinman (1994).

24. The African frustration with this aspect of structural adjustment is reported by Mills (1989). Non-African analysts have also developed the same critique. See, for example, Helleiner (1986b); Nelson (1986); and Ravenhill (1988).

25. Although the World Bank continues to stress the central importance of distorted economic policy for exacerbating Africa's downward spiral and good (neoclassical) economic policy as the necessary cure, there is no question that the Bank has reflected on the adjustment experience and had altered it operations in response. Among the more noticeable changes has been the reduced emphasis on economy-wide SALs in favor of heavily-conditioned sectoral loans (SECALs), more regular inclusion of technical assistance finance in loans, and a greater sensitivity to the politics of reform (see, for example, World Bank 1995b). For a comprehensive examination of the IFI's lending policies, see Reginald Green (1993).

26. In addition to the works specifically cited, good overviews of this literature can be found in three compendium volumes, one edited by Stephan Haggard and Robert Kaufman (1992) ,one editied by Thomas Callaghy and John Ravenhill (1993), and the third edited by Jennifer Widener (1994).

27. In his dissertation, Daniel Green (1992) argues that a major explanation of Jerry Rawlings' support for structural adjustment was that the reforms undermined the power bases of his rivals and provided an opportunity to strengthen his support in the rural areas. Catherine Boone (1994) makes a similar argument for reform in Côte d'Ivoire and Senegal.

28. Nicolas van de Walle (1993) labels this phenomenon "the politics of non-reform". See also Herbst (1990b).