SISAF 444 Africa Studies Seminar

1
SISAF 444 Africa Studies Seminar
Winter 2007

• Economic Policy
• and
• Policy Reform

2
The Postwar World

• Decolonization and The Rise of the Third World
• The spread of economic planning
• Aid for investment
  Import-substitution
  
• Key role of physical capital Infant industries
• Government ownership Trade barriers
• Development plans Strategic sectors
• Mobilization of savings
  Anti-agricultural bias

3
Three Development Paradigms

• Statism (a big government)
• State-led development, industrialization,
  import-substitution
  
• Neo-liberalism (a small government)
• Washington consensus, stabilization,
  liberalization, structural adjustment,
  conditionality
  
• State-building (the right government)
• Relationships between state, market and
  non-state/non-market institutions (e.g. civil
  society),
  
• Emphasis on governance, incentives and wider
  economic/political participation

4
Three Development Paradigms

• Statism (a big government)
• State-led development, industrialization,
  import-substitution
  
• Neo-liberalism (a small government)
• Washington consensus, stabilization,
  liberalization, structural adjustment,
  conditionality
  
• State-building (the right government)
• Relationships between state, market and
  non-state/non-market institutions (e.g. civil
  society),
  
• Emphasis on governance, incentives and wider
  economic/political participation

Development policies after World War II in newly
independent countries and in Latin America
5
Three Development Paradigms

• Statism (a big government)
• State-led development, industrialization,
  import-substitution
  
• Neo-liberalism (a small government)
• Washington consensus, stabilization,
  liberalization, structural adjustment,
  conditionality
  
• State-building (the right government)
• Relationships between state, market and
  non-state/non-market institutions (e.g. civil
  society),
  
• Emphasis on governance, incentives and wider
  economic/political participation

6
Personalities and Policies

• Big Men and Big Ideas

7
Tanzania

• President
• Julius Nyerere,
• mwalimu

8
Tanzania

• African Socialism
• "Ujamaa," then, or "familyhood," describes our
  socialism. It is opposed to capitalism, which
  seeks to build a happy society on the basis of
  the exploitation of man by man and it is equally
  opposed to doctrinaire socialism which seeks to
  build its happy society on a philosophy of
  inevitable conflict between man and man.
• Julius Nyerere

9
Tanzania

• Villagization
• Africanization
• Nationalization

10
Tanzania

• One-partyism
• Development planning
• Parastatals
• Marketing boards

11
Kenya

• President
• Jomo Kenyatta,
• mzee
• taa ya Kenya

12
Kenya

• Land redistribution
• democratic African socialism
• harambee (local self-help)

13
Kenya

• Economy honeycombed with government controls
• less oppressive agricultural policy
• Patronage politics ethnic politics

14
Ghana

• President
• Kwame Nkrumah,
• osagyefo
• (Redeemer)

15
Ghana

• Development planning
• industrialization, electrification
• State-owned industries
• Penalizing cocoa producers

16
Ghana

• Anti-imperialism
• Pan-africanism
• Nkrumahism

17
Côte dIvoire

• President
• Félix Houphouët-Boigny,
• sage of Africa

18
Côte dIvoire

• Marie-Thérèse
• Houphouët-Boigny
• The African Orchid
• No caged bird, but a delicious, capricious
  worldling, the Ivory Coast's sensuous,
  luxury-loving Marie-Thérèse Houphouet-Boigny, 31,
  delights Parisians even more than Jacqueline
  Kennedy or the Empress Farah Thérèse loves
  orchids and sables, pilots a fast Lancia
• (Time Magazine, June 8th, 1962)

19
Côte dIvoire

• Close links with France (CFA)
• Strong French commercial and settler presence
• More liberal economic policies, incl. cocoa
  production and export
  

20
Côte dIvoire

• Patronage politics
• One-party rule (PDCI)
• Over-borrowing, over-spending

21
Basilique de Notre Dame de la Paix
Yamoussoukro, Côte dIvoire
22
Basilique de Notre-Dame de la Paix
Yamoussoukro, Côte dIvoire
23
Guinea

• President
• Ahmed Sékou Touré
• Guide supreme
• de la Révolution
• Great Son of Africa
• The Terror of International
• Imperialism, Colonialism
• and Neo-Colonialism
• Doctor of Revolutionary Sciences

24
Guinea

• De-linking from France
• Socialist cultural revolution
• Eradication of individualism
• Police state, human rights violations

25
Guinea

• Parastatals
• Statism
• Nationalization
• Ending of all private trade and private economic
  activity
  

26
Senegal

• President
• Leopold Senghor,
• le vieux

27
Senegal

• Pro-French policies (French investment, trading)
• Large number of parastatals, protected by
  tariffs
  
• Patron-client politics

28
Malawi

• President
• Hastings Kamuzu Banda,
• Everything is my business
• Anything I say is law. Literally law
• The Great Lion

29
Malawi

• The entry of 'hippies' and men with long hair
  and flared trousers is forbidden
  
• (1980s Malawi visa requirements)

30

• Addendum
• Crackpots,
• killers,
• kleptocrats

31
Equatorial Guinea

• President
• Francisco Macias Nguema,
• Unique Miracle
• Grand Master of Science,
• Education, and Culture

32
Equatorial Guinea

• Pol Pot of Africa
• "He can decide to kill without anyone calling him
  to account and without going to hell because it
  is God himself, with whom he is in permanent
  contact, and who gives him this strength" (State
  Radio Announcement)

33
Chad

• President
• Francois Tombalbaye
• Chaditude

34
Uganda

• President Idi Amin,
• His Excellency President for Life, Field Marshal
  Al Hadji Doctor Idi Amin, VC, DSO, MC,
  
• Lord of All the Beasts of the Earth and Fishes of
  the Sea
  
• Conqueror of the British Empire in Africa in
  General and Uganda in Particular
  
• King of Scotland

35
Central African Republic

• President
• Jean-Bédel Bokassa,
• by the will of the people,
• Emperor of Central Africa

36
Zaire

• President
• Joseph Mobutu
• The all-powerful warrior who,
• because of his endurance
• and inflexible will to win,
• will go from conquest
• to conquest,
• leaving fire in his wake"

37
Liberia

• President
• Charles Taylor
• He killed my ma,
• he killed my pa,
• but I will vote for him

38
Bates Prosperity and Violence

• Postwar period
• International system shapes the way developing
  countries are ruled
  
• International borders are guaranteed
• Cold War and U.N system weaken the security
  imperative
  

39
Bates Prosperity and Violence

• Postwar period
• International system shapes the way developing
  countries are ruled
  
• Foreign sources of finance (aid)
• Countries did not have to develop their own
  domestic economies
  
• Limited bargaining power for citizens
• Bad governments, predatory states
• Patronage and privilege

40
Bates Prosperity and Violence
Foreign aid weakens the revenue imperative

• Postwar period
• International system shapes the way developing
  countries are ruled
  
• Foreign sources of finance (aid)
• Countries did not have to develop their own
  domestic economies
  
• Limited bargaining power for citizens
• Bad governments, predatory states
• Patronage and privilege

41
Bates Prosperity and Violence

• Highly politicized economies
• Widespread corruption
• Large informal sectors
• Lack of impersonal rule, big man
• Governments provide private goods for supporters,
  not public goods for everyone
  

• Postwar period
• international system shapes the way developing
  countries are ruled
  
• Foreign sources of finance (aid)
• Countries did not have to develop their domestic
  economies
  
• Limited bargaining power for citizens
• Bad governments, predatory states
• Patronage and privilege

42
Bates Prosperity and Violence

• Patron-client relations
• (neo-patrimonialism)
• Governments create rents
• Individuals and groups seek rents
• Co-opting of civil society
• Gatekeeper state
• Importance of ethnicity

• Postwar period
• international system shapes the way developing
  countries are ruled
  
• Foreign sources of finance (aid)
• Countries did not have to develop their domestic
  economies
  
• Limited bargaining power for citizens
• Bad governments, predatory states
• Patronage and privilege

43
Bates Prosperity and Violence

• Postwar period
• international system shapes the way developing
  countries are ruled
  
• Foreign sources of finance (aid)
• Countries did not have to develop their domestic
  economies
  
• Limited bargaining power for citizens
• Bad governments, predatory states
• Patronage and privilege

permanent crisis after the mid-to-late 1970s
44
Three Development Paradigms

• Statism (a big government)
• State-led development, industrialization,
  import-substitution
  
• Neo-liberalism (a small government)
• Washington consensus, stabilization,
  liberalization, structural adjustment,
  conditionality
  
• State-building (the right government)
• Relationships between state, market and
  non-state/non-market institutions (e.g. civil
  society),
  
• Emphasis on governance, incentives and wider
  economic/political participation

45
Three Development Paradigms

• Statism (a big government)
• State-led development, industrialization,
  import-substitution
  
• Neo-liberalism (a small government)
• Washington consensus, stabilization,
  liberalization, structural adjustment,
  conditionality
  
• State-building (the right government)
• Relationships between state, market and
  non-state/non-market institutions (e.g. civil
  society),
  
• Emphasis on governance, incentives and wider
  economic/political participation

Development policies after World War II in newly
independent countries and in Latin America
46
The Spread of Industrialization
1
47
The Spread of Industrialization
Late 18th/early 19th C.
1
2
Mid-Late 19th C.
48
The Spread of Industrialization
Early-Mid 20th C.
3
4
Mid-Late 19th C.
5
Mid-Late 20th C.
49
The Spread of Industrialization
Early-Mid 20th C.
3
4
5
Mid-Late 20th C.

Late 19th/early 20th C.
export-oriented
protected/subsidized
50
Three Development Paradigms

• Statism (a big government)
• State-led development, industrialization,
  import-substitution, involving
  
• overvalued exchange rates
• large government budgets
• multiple price controls
• controls on banking and interest rates
• trade barriers/controls on exports and imports
  (tariffs, quotas)
  
• financing through aid and loans

51
Ghana and Malaysia

• Both independent in 1957
• reversal of fortune

GDP per capita in 2005 US 2,400
GDP per capita in 2005 US 10,400
52
Ghana and Malaysia

• Both independent in 1957
• reversal of fortune

GDP per capita in 2005 US 2,400
GDP per capita in 2005 US 10,400
53
The Crisis

• Inefficient industrialization policies
• Import substitution in small markets
• Lack of external or internal competition
• Over-taxation of agriculture (marketing boards,
  overvalued exchange rates)
  
• High rates of population growth

54
The Crisis

• Large fiscal imbalances
• Unsustainable indebtedness
• Large trade deficits
• Overvalued currencies
• Inflation
• Shortages of foreign exchange,
• large black market premiums
• Widespread corruption and rent-seeking

55
1980s The Lost Decade

• Economic reform programs
• IMF (stabilization)
• World Bank (structural adjustment)

56
Three Development Paradigms

• Statism (a big government)
• State-led development, industrialization,
  import-substitution
  
• Neo-liberalism (a small government)
• Washington consensus, stabilization,
  liberalization, structural adjustment,
  conditionality
  
• State-building (the right government)
• Relationships between state, market and
  non-state/non-market institutions (e.g. civil
  society),
  
• Emphasis on governance, incentives and wider
  economic/political participation

57
Three Development Paradigms

• Statism (a big government)
• State-led development, industrialization,
  import-substitution
  
• Neo-liberalism (a small government)
• Washington consensus, stabilization,
  liberalization, structural adjustment,
  conditionality
  
• State-building (the right government)
• Relationships between state, market and
  non-state/non-market institutions (e.g. civil
  society),
  
• Emphasis on governance, incentives and wider
  economic/political participation

Development policies after the 1982 debt crisis
and the end of the Cold War
58
The Washington Consensus

• Fiscal discipline, budgetary balance
• A redirection of public expenditure priorities
  toward fields offering both high economic returns
  and the potential to improve income distribution,
  such as primary health care, primary education,
  and infrastructure
• Tax reform (to lower marginal rates and broaden
  the tax base)
  
• Interest rate liberalization and positive real
  interest rates
  
• A competitive exchange rate
• Trade liberalization, reduction of trade
  distortions
  
• Liberalization of inflows of foreign direct
  investment
  
• Privatization
• Deregulation (ending price controls and controls
  on entry/exit)
  
• Secure property rights

Williamson 1990
59
Has economic reform worked?

• Twin aims of structural adjustment
• Manage Africas economic crisis
• Begin fundamental economic reforms

60
Has economic reform worked?

• Puzzle
• The economic crisis in Africa has persisted
  through two decades of economic reform
  (structural adjustment) and conditional lending
  
• Too little adjustment, too little growth, too
  little scrutiny of results
  
• (William Easterly, 2003)
• Ayodele et al. quote on p. 2

61
Has economic reform worked?

• African governments manage reform programs with
  their own interests and the interests of their
  supporters in mind
  
• African governments have protected government
  consumption (sovereignty expenditures)
  

62
Has economic reform worked?

• African governments manage reform programs with
  their own interests and the interests of their
  supporters in mind
  
• African governments have protected government
  consumption (sovereignty expenditures)
  

Partial reform syndrome
63
Has economic reform worked?

• African governments play games with donors
• Donors are easily fooled, their threats are not
  credible
  
• Donors dont even care that they are easily
  fooled?
  
• Aid helps to stave off political reform

64
Has economic reform worked?

• Cynics might say that Uganda can hold the world
  to ransom because the World Bank, The IMF and
  other foreign donors cannot afford to let their
  star pupil go under
• (The Economist, quoted in Ayodele et al.)

65
Foreign Aid

• Aid has not worked, even in good policy
  environments
  
• Aid conditionality has not worked
• Aid has not induced or rewarded policy reform
• Aid decreases democracy, worsens government (aid
  curse)

Kanbur 2000, Easterly 2006
66
Why does aid fail so often?

• World Bank
• Donor countries spend 1 billion a year to lift
  raise 284,000 people a year out of extreme
  poverty ( 1 per day, PPP)
  
• 3,500 per year to raise a poor persons
  income above 365 per year

67
Why does aid fail so often?

• World Bank administration
• 81 million (1959/60)
• 1.5 billion (1993/94)
• 657 employees (1959/60)
• 7,106 employees (1993/94)

68
Example Ethiopia wants aid (PRSP)

• Applies for World Banks Poverty Reduction
  Support Credits (PRSC)
  
• Applies for IMF Poverty Reduction and Growth
  Facility (PRGF)
  
• Completes Poverty Reduction Strategy Paper (PRSP)
  in consultation with NGOs, civil society, other
  donors and creditors (at least two years to
  complete)
• Prepares PRSP in accordance with 14-point
  Comprehensive Development Framework (CDF) of the
  World Bank
  
• World Bank assesses PRSC and prepares Country
  Assistance Strategy (CAS),
  
• World Bank sends pre-appraisal mission to
  Ethiopia, reports
  
• World Bank sends appraisal mission to Ethiopia,
  reports
  
• World Bank Board negotiates approval in
  accordance with guidelines
  
• To avoid new loan going to service old loan,
  Ethiopia applies to Enhanced Heavily Indebted
  Poor Countries Initiative (HIPC)
  
• Creditors and government complete a Debt
  Sustainability Analysis (DSA)
  
• HIPC, PRSC, PRGF require numerous reform
  conditions
  
• Participation of the poor
• Monitoring of poverty-reducing expenditures
  through annual Public Expenditure Reviews (PERs)
  
• Preparation of fiscal deficit and revenue
  mobilization targets
  
• Implementation of Financial Information
  Management System (FIMS) in line with 12
  International Standards and Codes required by IMF
  and World Bank
• Implementation in accordance with the WTOs
  Integrated Framework for Trade-Related Technical
  Assistance to Least Developed Countries
  
• Prioritization of needs in a Multi-Year
  Medium-Term Expenditure Framework (MTEF), using
  guidance from the Poverty Reduction Strategy
  Paper Sourcebook (1,000 pages)
• Government asked to monitor progress in terms of
  of Millennium Development Goals (MDGs), including
  hunger, poverty, maternal and infant mortality,
  primary education, clean water contraceptive use,
  AIDS, gender equality, environment and quality of
  governance
• Other institutions request opportunity to comment
  on PRSP UNDP, WFP, ADB. UNCTAD, FAO, WTO, WHO,
  ILO, UNICEF, UNHCR, Development Assistance Group
  with representatives of national aid agencies
  from

69
Example Ethiopia wants aid

• An Ethiopian farmer has around 74 cents a day in
  PPP-adjusted US dollars
  
• At the end of ten years her income will have
  increased by a grand total of eight cents a day,
  to 82 cents a day, if
  
• the application and approval and implementation
  of the aid package goes smoothly
  
• the money goes where it is supposed to go

70
Easterly, Utopian Nightmare

• Utopian
• Possessing or regarded as having impossibly or
  extravagantly ideal conditions in respect of
  politics, customs, social organization, etc.

Oxford English Dictionary, 2nd ed.
71
Easterly, Utopian Nightmare

• Key challenges in aid delivery
• (or any other large top-down project)
• Incentives
• Information (Feedback)
• Accountability

72
Has economic reform worked?

• Is economic reform possible without political
  reform?
  
• An economic crisis is not automatically a
  political crisis
  
• Can good economics be good politics?