There are fifty African states politically independent and members of the Organization of African Unity. Despite their political independence, the African countries were and remain even today "colonial" or "neo-colonial". Therein lies the root cause of the current African economic crisis. This colonial or neo-colonialist formation of the African economy makes for a weak economic system which is both underdeveloped and dependent. The African economy is more rural than urban, agricultural rather than industrial, stagnant and heavily dependent on the industrialized market economies both for funds and for the sale of produce.
For too long African states have lost both the initiative and the capacity to make independent and working decisions that could change their economic status. In the highly distorted world economic order they have very little bargaining power over the prices and sale of their produce which have been continually facing precipitous drops. With ever rising prices for their imports, reduced export earnings and lack of investible funds they are failing to maintain and sustain their weak economies. With a positive and high rate of population growth many African countries in fact face the bleak prospect of zero or even negative economic growth.
The colonial structure of the African economy has failed to harmonize economic growth and development. The production system is not aligned to either the requirements of the African countries or their resource endowments. The development of economic and social infrastructure such as transport and communication, banking and insurance, education, health, etc. are at a rudimentary stage. African states also face an insensitive World Economic Order which derives short-term gains from their crises and failures.
As will be shown in the paper, Africa's economic crises are deeply rooted in the past. In the 1960s, when most African states gained their independence, the underdeveloped economies they inherited were already in the grip of international economic crises caused by deceleration of economic growth and general drop in commodity prices in North America and the OECD countries. African economies located in the fringe of the world economic system tended to receive these minor vibrations as great economic shocks. In the 1970s Africa was hardest hit by the world economic recession triggered by the oil price hikes. The benefits for oil exporting Africa were far from satisfactory due to low production capacity in earlier years and because of output controls by OPEC subsequently. However, the problems were serious for oil-importing African countries. The heavy import bills could not be covered by reduced export earnings which in some cases were associated with a decline in the volume and in all cases with a decline in the relative export prices [40, pp.17-21]. In addition, African countries were receiving very low credit rating in the eyes of international banking and finance [6, pp.13-15].
Economic declines in the 1970s were made more acute by environmental deterioration and imbalances in the ecosystem. During 1974-1975 several countries were hard hit by drought which precipitated a decline in agricultural production and especially in food production. The problems persisted engulfing the entire continent into the food crisis situation by the early 1980s. Africa's economic crises reached the deep trough by 1984 when 24 African countries were declared "food-aid dependent" and a further three were added to the list by the end of that year [20, 21, 22], [9, p. 2].
Although all Africa is affected by the prolonged and deepening economic crises, the degree of affliction varies. North African countries are harmed less harshly by the crises than Eastern or Western African countries. Most affected by all are the Least Developed Countries of Africa. In recognition of their special developmental problems and pressing basic needs the UN General Assembly adopted the resolution 36/194 and endorsed on the 19th of December 1981 the "Substantial New Programme of Action for the Least Developed Countries(LDCs)". Under this programme donor countries were expected to double their aid to the group by 1985. But this did not happen and the failure of the EEC countries (signatories to the Lome Convention) to make the expected export stabilization disbursements under the Agreement helped to keep a bad situation worse [7].
To mitigate this unfavorable economic situation, Africa chose a concerted action and a strategy founded on a careful evaluation of the past and a realistic determination of the future. That was how the Lagos Plan of Action (LPA) came into being [35]. However, the nature of the African economic crisis is such that even the modest economic goals set in the LPA are proving difficult to meet. Indeed, the 21st Ordinary Session of the Heads of State and Government of the OAU found the LPA and the Final Act of Lagos (FAL) still acceptable in its philosophy, objectives and principles but very difficult to implement.
Five years after the adoption of the Lagos Plan of Action and the Final Act of Lagos, very little progress has been achieved in the implementation of the Plan and the Act, although the basic strategy of the self-reliant and self-sustained development remains valid[35, p. 13].
Because of the deepening economic crisis, the 21st Session was devoted to economic considerations and the Assembly of Heads of Government chose to establish a permanent follow-up mechanism, adopted priority programmes and decided to strengthen LPA and FAL with a programme of "accelerated implementation" [36]. This has to be done to face effectively the twin challenges of survival and development (which constitute a summary expression of the crises confronting the Continent).
The crisis is deep and pervasive and Africa acting alone cannot solve it completely. The UN General Assembly convened a special session on this critical economic situation in Africa in May 1986 and adopted a programme of action for economic recovery. This declaration goes beyond expressing sympathy and solidarity with Africa. It contains action programmes and concrete measures that should be taken by the international community over a five-year period to reverse the direction of growth and economic development in Africa [14]. The movement of the non-aligned countries has also debated the issue and taken a stand to fight against the adverse consequences of the current and deepening African economic crisis [36, p.1].
Colonialist and racist exploitation of Africa is still not over in the Southern tip and elsewhere it lasted, in some cases, a hundred years or more and has been uniformly harsh, crude and crippling. Under the slave trade, Africa lost millions of its sons and daughters many of whom perished in the course of travels across the oceans and in difficult places of work in the Americas [37]. The colonial and racist masters exploited the Continent's natural resources without caring for the welfare of the Africans or the enhancement of the development and advancement of "the native". This crude exploitation did not lead to any meaningful transfers of technical knowledge and capital to Africa. At the time of political independence the work-force in most African countries did not even include a handful of university graduates. The economy was dependent on the production of raw materials (mainly agricultural and mining) for the "centre" industries and the production of manufactures or of intermediate goods was either non-existent or at a rudimentary stage of development. Political and institutional nets were also thrown on the colony to deny it contacts of any nature with the surrounding areas and with its interior. Whatever additional mine was opened up, clearing of the jungle made, a farming estate brought into existence or a communication line established were the results not of the considerations of the colony's needs but outcomes of the requirements of the colonizer economy.
Much is written about the colonial economy but no colonial experience compares in its destructiveness, harshness and moral bankruptcy with that experienced in Africa [e.g. 19,28,31,35]. In Latin America some breaks in colonial rule had given rise to a more rapid pace toward industrialization and self-sufficiency in such colonies as Argentina, Brazil, Chile or Mexico [27]. In Africa colonial rule had been continuous and extremely exploitative.
At the root of the current economic crisis lay the underdeveloped inherited colonial economic structure and Africa's failure to effect a clean break from it [1,p.15]. The African economy is now a victim of neo-colonialist machination. It still remains a monoculture economy producing tropical agricultural products (in many cases in foreign owned estates] and some mining activity also often foreign owned or run with foreign participation. The production of intermediate goods, the effective development of import substitution industry or the attainment of a measure of self-sufficiency have remained difficult propositions [33]. Africa has been and still is performing an independent function in the scheme of World Economic Order in the service of the "Centre Development" [32]. The roads, railways, mines and agricultural production have been developed to contribute to the development of the capitalist world. Zambia produces copper it can't use; Nigeria produces oil for export; and the forest export products of Gabon do not serve a stable domestic industry. Although these activities were carried out over a period of several decades no clear and strong linkages to the development of the African economy are yet in evidence.
Thirty years after political independence, production or economic activity outside the foreign trade sector in many African countries is essentially subsistence. This situation has led many to believe that the economic advancement of the retarded (subsistence) sector as well as the overall development of the underdeveloped economy is possible only through the development of the foreign trade sector [30, 37]. Even today there is chorus in support of export-led growth. Economic development outside the foreign trade sector is considered, as it were, a mere spill-over effect from the activities of trade.
In the preamble of the LPA, the Heads of State and Government of the OAU member states have analyzed the colonial origin of the economic crisis which the Continent is facing in the following terms:
Thus, Africa is unable to point to any significant growth rate, or satisfactory index of wellbeing, in the past 20 years ... Thus Africa, despite all efforts made by its leaders, remains the least developed continent. It has 20 of the 31 least developed countries of the World; Africa is susceptible to the disastrous effects of natural and endemic diseases of the cruelest type and is victim of settler exploitation arising from colonialism, racism and Apartheid. Indeed, Africa was directly exploited during the colonial period and for the past two decades; this exploitation has been carried out through neocolonialist external forces which seek to influence the economic policies and directions of African states ... We view, with disquiet, the over-dependence of the economy of our continent on the export of raw materials and minerals. This phenomenon had made African economies highly susceptible to external developments and with detrimental effects on the interests of the continent ... We look back at the political constraints on the development of our continent caused by colonial and racist domination and exploitation ... [35, pp. 5-8].
The 21st Ordinary Session of the Assembly of Heads of State and Government of the OAU has identified the "colonial economic structure", which was inherited upon independence by Africa, as a major obstacle on the way to the realization of the objectives of the LPA.
... In the first place, the colonial economic structures inherited by most African countries have proved difficult to be changed radically for African development as called for in the Plan of Action. These colonial economic legacies have been compounded by a host of other related international factors ... [36, p. 13].
In a text delivered to the UN General Debate, the Secretary General of the ECA has exposed the critical role played by the inherited colonial economic structure in causing the current economic crisis in Africa.
Underlying the current crisis is Africa's underdevelopment and economic backwardness, its failure to achieve a clear break from its colonial dependent economic inheritance with a production structure heavily dominated by export-oriented agriculture and with a small industrial base, fractured and only minimally linked with the region's natural resource base, with mining output being predominantly for export and with the most open and exposed economy in the world. As is well known, external trade constitutes the single major stimulus to spur internal socio-economic progress in spite of the narrowness of export commodities and the dramatic price shifts [1, p. 15].
It would be difficult to convince people that 30 years after independence the colonial economic structure is still a root cause for the current African economic crisis. Without the need to make measured and precise apportioning of blames, the African states themselves have greatly contributed to the crisis by failing to introduce and implement appropriate policy changes and institutional reforms. The recent declaration of the OAU Heads of State and Government notes:
The crisis has been aggravated by the unprecedented, severe and persistent drought and famine and other natural calamities ... These developments, added to some domestic policy shortcomings, have brought most of our countries near to economic collapse [36, p. 3].
This admission of domestic policy shortcomings is important in that Africa needs to accept a degree of responsibility if solutions to the current and evolving crisis are to be found. Indeed, the OAU Assembly of Heads of State and Government expressed the view that, if most of the measures recommended in the LPA had been implemented, "the ravaging effects of the current world recession and drought on African economies would have certainly been minimized" [36, p. 12]. This failure to implement the policy recommendations and reform measures of the LPA is thus construed as a cause for the ongoing economic crisis in Africa. The LPA, it is to be recalled, has recommended specific policies and measures to be adopted by member states, individually or in groups, with respect to improving the overall and sectoral performance of their economies [35]. In the FAL, the measures to be adopted during the decade of the 1980s in regard to African Economic Community are summarized in the following words:
We commit ourselves:
1. During the Decade of the 1980s to:
(a) strengthen the existing regional economic communities and establish other economic grouping in the other regions of Africa, so as to cover the whole continent (Central Africa, Eastern Africa, Southern Africa, Northern Africa);
(b) strengthen effectively, sectoral integration at the continental level, and particularly in the fields of agriculture, food, transport and communication, industry, and energy;
(c) promote coordination and harmonization among the existing and future economic groupings for a gradual establishment of an African common market[35, p. 128]
As regards what measures the individual member countries and the regional groupings should take in order to improve the continent's economic record, these have been outlined in the relevant sections of the LPA. However, there appear to be difficulties in formulating and implementing these measures both at the individual country and international levels with the result that the economic crisis that the continent faces already bad is made even worse.
While some progress is made toward the creation of the regional organizations suggested in the FAL, and in spite of some successes obtained in laying the financial foundations for the Multinational Programming and Operational Centers (MULPOCs), there are still policy failings which have helped accentuate (or even cause) the economic crisis. The assessment by the 21st Assembly of OAU Heads of States is that:
... Most of these organizations remain inoperational owing to the fact that, on the one hand, there is inadequacy of financial resources, and on the other, member states have not respected the commitments they have freely made themselves [36, p.12].
The failings in regard to introducing reformative measures is particularly noticeable at the level of Africa's Least Developed Countries (to which about half of the nations of Africa belong). The Substantial New Programme of Action (SNPA) endorsed by the UN General Assembly at its 36th Meeting, and introduced to help Africa's LDCs, has two elements in it. On the one hand, it outlines specific measures and action programmes that should be undertaken by the LDCs themselves. On the other hand, it also specifies actions and programmes that should be undertaken by the international community [5, 32]. While some attempts have been made to achieve results on both counts, by 1985 results from the effort were clearly far from satisfactory. There were the African LDCs that failed to implement the national measures envisaged in the SNPA and designed to accelerate their economic and social development. It is also to be noted that African regional institutions for economic cooperation did not take full account of the special developmental needs of the LDCs in their activities [36, p.19]. At the level of the international community, the assistance from the World Bank over the longer term has remained below expectations and the African debt question (rescheduling and cancellation) remains unresolved in the spirit of the SNPA. As explained earlier, payments under STABEX by the EEC signatories of the Lome Convention have not been up to the level indicated in the agreements [7, p. 1].
In the final analysis, it is what the individual countries do for national, regional or continental objectives that matter. There are two aspects of reform to consider. Institutional changes and administrative reforms (including changes in the laws, organizations, etc.) that directly affect property rights, production, distribution of income and the management of the economy constitute one such aspect. There are also, what we may call, economic policy measures including monetary, fiscal and price policies which affect the workings of an economy -- dubbed "stabilization policy" in a World Bank report [13], [43, pp. 40-41]. African countries have failed to develop and implement a working system that integrates these two aspects of reform and demonstrates the nature of the complementarity that should exist between them [43, p. 126].
Part of the difficulty is political in nature. Very few African countries have a claim to political stability lasting a decade or more. Internal troubles and border wars place impossible claims over the resources of many countries. The world-wide "refugee problem" is increasingly becoming "an African Problem". In the Southern Part of the Continent the destabilization programme of the Apartheid Regime of South Africa continued to drain the economic resources of the Frontline States.
Political instability is invariably coexistent with economic instability. With each rapid turnover of governments, destabilizing institutional and economic policy measures are produced. Sometimes these reform measures are replaced by others before they are implemented fully or before their impacts are felt in the economy. Some other times serious flaws in economic management arise from failures to coordinate institutional and economic policy measures; and as a result the necessary flexibilities to provide timely treatment to economic malaise are lost. An example of this is provided by the failure of many Sub-Sahara African countries to adjust total spending (and especially public spending) after the price boom of the 1970s. Their economic troubles were accentuated by their continued maintenance of exchange rates and spending at boom levels even after commodity prices have tumbled [44, p. 4]. The 1984 UN World Economic Survey notes:
One of the reasons for the low rates of economic growth in the energy importing Sub-Saharan African countries since the mid-1970s is that several countries in the region delayed adjustment to the disturbances of the first half of the decade. Overvaluation of the currency became common and as a consequence, the volume of exports lagged considerably [39, pp. 16-17].
It should also be noted that African countries lack the effective control over their economies. In the typical situation most manufacturing plants, a sizable portion of commercial agricultural estates and mining concerns would be owned or are managed by foreigners. These are often established under intimidating arrangement and concessions. In some cases foreigners also control significant but varying shares of trade, commerce and banking, and, they do not always act in ways favoring the effective development of the host (African) economies.
Thus it would appear that the economic targets set in the regional and sub-regional organizations are not attained, in part because of the failures in the development and implementation of institutional and economic policy measures at the national level. These shortcomings constitute a cause and explain, to a degree, the nature of the current and continuing economic crisis in Africa.
Another disturbing aspect of Africa's economic crisis is the continuing decline of the rate of economic growth. There has been a deceleration in the rate of growth of domestic production since the 1960s. During the period 1965-1973 the average annual growth rate of GDP was about 3.9 percent and dropped to the 2.7 percent level during the 1973-1980 period. There was a further drop to below the one percent mark during the 1980-1985 period when many African countries in fact experienced negative GDP growth rate (see Table 1). It is to be noted, further, at points in time when such measurements are taken, Africa had the lowest growth rates of all the major regions of the world. Africa's average annual rate of growth of GDP is far below the average for the developing group of countries. In comparison with the situation prevailing in other regions, the periodic drop in the GDP growth rate is also most dramatic in the African case.
Table 1: Growth of Output, Per Capita Production and Rate of Inflation
|
Average Annual Rate of Growth (percent) |
Average Annual Rate of Inflation (percent) | |||||||||||
GDP |
GDP Per Capita |
|||||||||||
1965-1973 |
1973-1980 |
1980-1985 |
Projection |
1965-1973 |
1973-1980 |
1980-1985 |
Projection |
1965- 1973 |
1973- 1985 | |||
High |
Low |
|
High |
Low |
||||||||
Industrial Countries |
4.7 |
2.8 |
2.2 |
4.3 |
2.5 |
3.7 |
2.1 |
1.7 |
3.8 |
2.0 |
||
Developing Countries |
6.6 |
5.4 |
3.3 |
5.9 |
4.0 |
4.0 |
3.2 |
1.3 |
3.9 |
2.0 |
||
Low income countries |
3.0 |
2.7 |
5.2 |
4.4 |
2.5 |
1.6 |
5.9 | |||||
Asia |
5.9 |
5.0 |
7.8 |
6.4 |
4.4 |
3.2 |
3.0 |
5.9 |
4.8 |
2.8 |
||
Africa |
3.9 |
2.7 |
0.9 |
4.0 |
3.2 |
1.2 |
-0.1 |
-2.0 |
0.8 |
0.0 |
3.9 |
11.5 |
Source: World Bank, World Development Report 1986. (pp. 44, 45 and 180)
Africa's poor economic performance is the more disturbing when account is taken of the fact that the base from which changes are calculated is already too low. Furthermore, with very high rates of population increase, the per capita GDP growth rates have in fact been negative for some time. During 1973-1980 the Regional GDP per capita declined by an average of 0.1 percent per annum and during the 1980-1985 period the rate of decline reached a new low of 2 percent per annum.
According to the World Bank projection under a "high and low growth scenarios", Africa will continue to experience unfavorable economic growth during the 1985-1995 period. The projection under the "high scenario" gives Africa the lowest regional GDP growth rate of 4 percent per annum, while the "low scenario" estimate is 3.2 percent per annum (see Table 1). Under both scenarios there will be no or only marginal growth in GDP per capita for the African Region.
It is also evident from Table 1 that during the past two decades or so, the highest rate of inflation (an average of 20.1 percent per annum) is recorded for the Sub-Saharan African group of countries. In part, the condition is tied to low productivity level. In another sense it shows the demand pressures at work and the associated economic difficulties that the people (especially those with fixed incomes) face.
The rather poor performance of the African economies is also in evidence since during the past two decades or so there have not been any major GDP structural changes. During the period 1965-1985 the agricultural GDP share for the low-income economies dropped by 6 percentage points (from 42 percent to 36 percent) and all the gains were made by industry as the share of services remained constant. For Sub-Saharan African countries as a group, on the other hand, the corresponding shares dropped by only 4 points (from 43 percent to 39 percent) with the gains distributed evenly between services and industry [44, pp. 184-185]. As 1990 approached, the GDP share of agriculture for Sub-Saharan African group of countries remained the highest of all regions of the world. While most regions show a rapid increase in the relative GDP shares of services, for Sub-Saharan Africa the corresponding share remained constant over the 1965-1990 period [46, pp. 182-183].
The drought caused food shortage still persists in many parts of the African Region. The crisis which started in the late 1960s cascaded into a new and dangerous level in 1984 when some 36 countries were affected variously by it and when over a million people perished as a result of the ensuing famine [10, pp. 5-6].
According to estimates at the end of 1984, about 30 million people -- roughly one fifth of the total population of the 20 Sub-Saharan countries were severally affected by the famine; of these about 10 million have had to abandon their communities in search of food and water. About half of the migrants were in over-crowded temporary shelters in early 1985. Many children have already died of hunger-related causes in 1984 and a large segment of the population in the affected countries face permanent physical and mental damage from chronic malnutrition [40, p. 18].
Thus Africa has to face the disastrous consequences of the food crisis. The crisis does not end with famine and the accompanying loss of life. Its adverse effects on labour productivity and the health status of the population linger on and continue to weaken the economy over the longer term.
During the period 1970-1980 the FAO index numbers of food production for the African Region increased by an average annual rate of 2 percent. This growth rate was lower than the corresponding world average (of 2.4 percent) and the average for the developing group of countries (of 3.2 percent) for the same period [22, p. 18]. However, during the period 1980-1987 the FAO food production index numbers for Africa increased at the rate of 2.6 percent per annum against the world rate of 2.4 percent and the average for the developing group of countries of 3.3 percent per annum [24, p.8]. Since population growth rates for the African Region were higher than in other regions during these periods, the per capita food production growth rates for Africa would be expected to be lower than the above rates. In fact, in many African countries food production per capita declined during the latter part of the 1980s.
The worsening food supply situation is also indicated by the growing rate of food imports and food aid during the past two decades. While Africa accounted for 20.6 percent of the global food (cereal) aid in 1974/75, this share was 46.5 percent in 1985/86 and 47.1 percent in 1987/88 [25, 26]. The trend of increasing food imports into Africa is also indicated by the FAO import index series. During the period 1977-1987, the value indices of food importation for the African Region had an average annual growth rate of only 1.68 percent per annum , against the corresponding rates for the developing group of countries and the world of 3.23 and 2.15 percent respectively [24, Annex 10].
The food crisis in Africa is a symptom of the failure of agriculture. The transient nature of the food crisis can be resolved by an improvement in climatic conditions and external food assistance. Its chronic nature, on the other hand, can be overcome only by the radical transformation of agriculture and its steering along a stable and permanent development path. It is the failure of agriculture in this respect that is the root cause of the current crisis.
The agricultural crisis in Africa is so serious that the 21st Assembly of OAU Heads of State and Government had to institute a "Special Programme" to "rehabilitate" African Agriculture [36, pp. 23-36]. The African economy is essentially agrarian and rural with agriculture as the major earner of foreign exchange in trade and contributing the bulk of production. The majority of African labour force is also engaged in agriculture albeit subsistence agriculture. The poor performance of the sector, therefore, is reflected in the poverty of the people and the weakness of the overall economy. What is observed in the past couple of decades is a gradual decaying of Africa's agriculture with deforestation, soil erosion and unfavorable climate leading to permanent loss of agricultural resources in some cases (especially on the fringes of the Sahara and Kalahari deserts).
Part of the problem is created as a result of the failure to introduce appropriate land reform measures by African governments. Land ownership patterns and land management practice have a bearing on land productivity. The introduction of land reform measures in Africa takes several forms. Sweeping reforms were introduced in Ethiopia, Mozambique, Angola and Tanzania, but results have been far from satisfactory partly because of improper policy mix. In some other cases reforms are introduced several times and often in a contradictory fashion (e.g. Egypt) with negative results. In most cases, though, suitable land reforms have not been attempted [35, pp. 11-18], [36, p. 30].
Among other causes of agricultural inefficiency may be mentioned the failure to adapt improved technology and lack of agricultural innovations. The arable land per capita has been continuously declining, the rate of increase in fertilizer application has been unsatisfactory and the pace of expanding irrigated agriculture has been slow [20, p.11], [21, p. 27], [22, p. 20]. It is also a fact that many African governments have followed erratic and otherwise unsatisfactory macroeconomic policies and these constitute additional causes for the African agricultural crisis.
Paradoxically, many countries which have been stressing the importance of agricultural development have established a complex set of policies that is strongly biased against agriculture. Thus, some developing countries impose taxes on agricultural exports while lamenting the adverse impact of declining commodity prices on the farm sector. Some pay their producers half the world price for grains (or even less), and then spend scarce foreign exchange to import food. Many have raised producer prices at various stages, but have followed macroeconomic and exchange rate policies that have left real producer prices unchanged or lower than before. Many have set up complex systems of producer taxation, and then have set up equally complex and frequently ineffective systems of subsidies for inputs to offset that taxation. Many subsidize consumers to help the poor, but end up reducing the incomes of farmers who are much poorer than many of the urban consumers who actually benefit from the subsidies. Most developing countries pronounce self sufficiency as an important objective, but follow policies that tax farmers, subsidize consumers, and increase dependence upon imported food [44, p. 61].
It thus appears that exchange rates, prices, subsidies and related monetary and fiscal policies as well as administrative reforms are necessary and need to be produced in their "correct mix" in order to change the prevailing situation in African agriculture [44, chs. 4, 5]. Africa, of course, presents a wide range of situations and as a result the extent of relevance of some of the problems and solutions vary considerably between the countries of the region. But there is also the commonality of economic backwardness and agricultural underdevelopment among all the Sub-Saharan African countries. In these countries structural constraints together with improper domestic policy mix have constrained agricultural development.
While there is a limit to the development of agriculture, agriculture-led development is the basis of most African strategies of industrialization [42]. For agriculture to play such a pivotal role, it is not sufficient that some policy gaps are filled or that some structural reform measures are introduced. It is also necessary that the design, development and implementation of an integrated and holistic framework with its package programmes and with all parts falling in place obtains in practice. Such a task is left to African governments with expected minimal supportive roles from regional organizations and the international community. So far this goal has remained illusive and the future calls for a more vigorous attempt to reach it.
Thus the development of energy resources, of manpower, transportation and communication, etc. need to be conceived and integrated in a framework of national plans. It is not to suggest that the proposed lines of intervention by national governments, regional organizations and the international community in these spheres are mistaken. But rather it is to drive home the fact that a push in manpower development may result in brain-drain unless such a scheme covers the demand side of the human resource development plan. Unbalanced development of transportation and communication network may result in high maintenance costs or simply go to waste unless its use is also integrated in the development plan.
In this respect there are the specific aspects of the development of African industry (especially manufacturing industry) that define and explain the African economic crisis. The adoption of import substitution strategy in the past two decades or so has resulted in the establishment of consumer goods producing plants that are heavily import dependent and have weak linkages with the other productive sectors of the national economy. Also, partly due to structural difficulties, industrial development in Africa has stalled for some time. For example, African industrial production should have reached 1.4 percent of the world's total by 1990, according to the LPA [35, p. 22]. But actual production levels were only 0.9 percent of the world's industrial production in 1990 [46]. The GDP share of manufacturing, which was 6.4 percent in 1970 increased only slightly to 8.9 percent level in 1984 and is estimated at 11 percent by 1990 [8, 46]. However, the relative importance of industries remained more or less the same. The bulk of manufacturing output still consists of food, beverages and textiles.
Inadequate investment finance and poor industrial policy are the important factors accounting for the poor performance of the sector. The small domestic market and failure to develop a viable export-oriented industry have also reduced the tempo of industrialization considerably. According to a recent ECA survey:
In the past few years an increasing number of manufacturing enterprises in the (African) region are operating with excess capacity. The smallness of the domestic market, lack of spare parts and materials and dwindling financial reserves, lack of skilled labour and managerial difficulties are all reported causes of idle capacity" [8, p. 68].
The current fluctuations in international trade, a trend toward protectionism and general inadequacy of international liquidity (especially among developing countries) have all affected Africa's export-led industrialization strategy [39]. In 1980 Africa's share of the world's exports was only 2.5 percent and of the imports 2.3 percent. In 1984 its share of the world's exports and imports were down to 1.6 and 1.9 percent respectively [40, pp.36-38]. In 1989 there was a further drop in the relative shares with the export shares down to 1.1 percent and imports 1.0 percent of the respective world totals [46, pp. 230-231]. Furthermore, Africa's export trade (by volume) fell at the rates of 0.2 and 1.8 percent per annum during the periods 1973-1980 and 1980-1987 respectively. During the same periods the corresponding export volume growth for the low-income group of countries was estimated at 3.5 and 4.2 percent per annum [46, p. 187]. Africa's distance from the low-income group's average continued to widen for the period up to 1990 [44, p. 26], [46, pp.230-231]. Thus, Africa's share in the world trade is small and growing at rates below the average for the developing group of countries.
The balance of payments situation also continued to be unfavorable for Africa. The African overall unfavorable trade balance was US$ 6.8 billion in 1982 and was estimated at 7.1 billion in 1986. The current account balance is even more depressing at US$ 24.5 billion in 1982 and US$ 21.5 billion in 1986 (estimate) due to negative values in the services and private transfer accounts [44].
The terms of trade too have been unfavorable to Africa's export commodities. The terms of trade for the low- and middle-income group of countries during the period 1980-1987 were estimated at (-) 3.7 as against (-) 5.7 for Sub-Saharan Africa [46, p. 199]. Export volume increases to the desired extent was also not possible due to recurring unfavorable climatic and related production constraints. Even if it were possible to expand supply (exports) Africa's earnings would not have increased because of offsetting price inelasticities of demand for Africa's products [28, p. 171].
The combined effects of unfavorable balance of payments, deterioration in the terms of trade, declines in the rate of growth of exports and their price as well as income inelasticity of demand abroad for Africa's exports, have depressed the foreign exchange earning levels and stifled economic development. Many African countries have attempted to introduce adjustments by reducing the rate of imports [8, 11, 16].
The situation of Africa's least developed countries is even more critical.
According to the latest estimate, the balance of trade deficit of Africa's LDCs decreased from US$ 5.6 billion in 1982 to US$ 2.84 billion in 1985. Over the same period the share of these countries in developing countries' trade was a mere 1.3 percent, while accounting for only 10 percent of total Africa's external trade. The current account deficit increased from US $3.5 billion in 1983 to US$ 3.96 billion in 1984 and US$ 4.99 billion in 1985. The overall balance of payments deteriorated further in 1985 with an estimated deficit of US$ 1.47 billion, signifying very serious problems [14, p.54].
Like the rest of Africa, the LDCs face export difficulties and instabilities arising from their limited range of exportables, supply difficulties and even protectionism abroad. It is true that some compensatory schemes against shortfalls in export earnings were put in place including the IMF Compensatory Financing Facility (CFF), the EEC's STABEX (to stabilize export earnings from agricultural exports) and the special EEC financing facility for mining products. However, while the desirability of such schemes is a valid proposition, and while some relief is also obtained in practice, the full implementation of agreements is delayed and the impending crises are not averted [7, p. 1], [12, p. 1] and [14, p. 56].
Africa too has taken specific steps, within the framework of the LPA and the FAL, to improve the contribution of trade to Africa's economic development. Thus, since the first half of 1980, the Southern Africa Development Coordinating Conference (SADCC), the Preferential Trade Area (PTA) for Eastern and Southern African countries, the Economic Community of West African States (ECOWAS), etc. have come into being to enable African states to develop their economies through mutually beneficial regional trade and cooperation [36, p. 12]. To improve the performance of such regional systems and enable them to meet their objectives, MULPOCs are being established, as are sub-regional clearing and payment arrangements [36, p. 12], [15]. But in all these endeavors only the beginnings are being attempted and the attainment of measurable goals is both a slow and uncertain process.
... most of these organizations remain inoperational owing to the fact that, on the one hand, there is inadequacy of financial resources, and on the other, member states have not respected the commitments they have freely made themselves [36, p. 12].
Much hope and trust is placed on the restructuring of the international trading arrangements to remedy the situation. Africa favored Economic Cooperation Among Developing Countries (ECDC) and has taken specific steps to strengthen intra-African trade. As regards the ECDC, Africa does not consider it a substitute for North-South Economic Relations, and the gains made by Africa from any delinking tendency from the North is far from obvious so far [4, p.2]. With respect to intra-African trade, the hope lies in the future. As most of the regional institutions, organizations and arrangements created for the purpose start functioning, the African trade crisis may find some solutions, albeit partial ones [12, p. 5]. What is achieved in intra-African trade so far is far from satisfactory. Intra-African trade as a ratio of total African exports to the world was about 6 percent in 1970 (when there were no trade supporting regional institutions), 3.1 percent in 1980 and 4.01 percent in 1985 [12, p.6]. Clearly more effort is needed to restructure intra-African trade in Africa's favor than obtains at present.
The economic crisis which Africa is facing is in part financial and associated with the "debt trap". This crisis has three elements: the debt crisis, slowdown in capital inflows to Africa and financial resource leakages from Africa.
In comparison with Brazil, Mexico and Argentina, Africa's financial debt to the world is relatively small. But that is so only in looking at the debt share on a world scale. In terms of Africa's production capacity and capital accumulation, the debt it owes to the world is too high and increasing. In 1978 Sub-Saharan African total long- and short-term liabilities amounted to US$ 38.5 billion. By 1984 this was increased to the US $ 80 billion mark. This level of indebtedness is high since it amounts to 30 percent and 50 percent of the region's GNP respectively in 1978 and 1984 [44, p.152]. The rise in the level of indebtedness is also borne by the fact that in 1970 only 14 percent of the reporting countries had a debt to GNP ratio of 50 percent and above, and in 1980 they made up 38 percent of the reporting countries. In 1989 about 70 percent of the reporting countries had a debt to GNP ratio in excess of 50 percent [43, Annex Table 16], [46, pp.250-251]. The gravity of the debt burden, of course, varies among the countries in the region. Chad, Uganda, Burkina Faso, Lesotho, Rwanda and Mauritius had debt ratios of less than 50 percent in 1989. On the other hand, during the same year, Somalia, Tanzania, Sierra Leone, Madagascar, Nigeria, Mali, Zambia, Mauritania, Egypt, Cote d'Ivoire, the Congo and Gabon had debt to GNP ratios of more than 100 percent. Examination of each country situation reveals that countries which were indebted in 1970 remained indebted, and only more so, in 1989 [44, p.212], [46, pp.250-251].
Debt service payments too are very high and rising over the years. Total debt service was US$ 6.4 billion for the Sub-Saharan African region in 1983, $ 7.9 billion in 1984 and "projected scheduled payments" were about $ 12.5 billion. In the years payments are made it is noted that scheduled payments exceed, by wide margins, actual payments, indicating difficulties being faced by African countries to meet their payment obligations [44, p. 52]. For the Sub-Saharan African region as a whole, the debt service ratio (i.e. the ratio of total debt service to exports in the visible account of the balance of payments) was 10.9 percent in 1980 and 22.1 percent in 1989 [46, p. 251]. The rise of such ratios for the African member countries of the International Development Association (IDA) was even higher [44, p.52]. Here again, while the debt service ratios vary among countries, in all cases observed, there is a tendency for these ratios to increase with time.
Part of the complications arise from the introduction of more stringent terms for public borrowing. The heavy debt burden and the excessively high debt service payments, which have been rising through time, have forced African countries to seek debt relief through multilateral negotiations and reduce the tempo of economic activity. As is already observed, many countries have in fact stopped "growing" as a result.
As the credit worthiness of African countries suffered resulting from heavy debts and debt financing, the flow of investment capital also receded sharply [39, p. 46]. The aid component of capital flows has helped Africa but not to the extent of making up for Africa's foreign investment needs. Net Official Development Assistance (ODA) disbursements to developing countries declined as did the aid from OECD's Development Assistance Committee (DAC), so that the ratio of ODA to GNP which was 0.37 percent in 1980 was down to 0.33 percent in 1989 [46, p. 240]. Net disbursements of concessional assistance from African members of OPEC , which amounted to US$ 492 million in 1970, was down to US$ 216 million in 1980 and to US$ 123 million in 1989 [46, p. 241].
Net capital flows (including investment capital) have continued to decline from their relatively high level of US$ 74.6 billion in 1981. In a number of cases negative net flows were in fact recorded recently. In 1989 for example, Tunisia, Botswana and Algeria were among the African countries that experienced negative aggregate net transfers [46, p. 248-249]. Earlier and according to a UN report,
In the developing countries, the combination of reduced net inflows of foreign capital and high interest rates on external debt was sufficient in 1984 to bring about an unprecedented overall or reverse transfer of resources [40, p. 57].
For a sample of 88 capital importing developing countries, net transfers were US$ 1.4 billion in 1981, - $0.8 billion in 1982, - $1.9 billion in 1983 and - $3.5 billion in 1984 [40, p. 58].
These combinations of financial circumstances have adversely affected the growth of foreign investment (both private and public) in Africa. Other than constraining production, social and political repercussions are in evidence today and characterize the current economic crisis. The decline in foreign investment in the developing countries in general and in Africa in particular has been most marked in recent years [see, for example, 8, 17].
The financial constraint which Africa is facing is in part due to resource leakages occurring in ways other than those already discussed and arising from economic interactions with the outside world. Several factors determine the magnitude of such resource leakages. Among these may be mentioned the degree of state control of international trade, the high rate of foreign participation in trade and industry, and the low degree of processing of Africa's exports. With regard to the last point, it can be shown, for example, that manufactured imports (due to the high degree of processing) are associated with a wide range of price quotations. The ease of faking the trade figures (e.g. overinvoicing of imports and underinvoicing of exports) has also increased the amount of financial resources taken out of African countries. Furthermore, the relative efficiency (or inefficiency) of the participant institutions and individuals in trade also determine the magnitude of the financial leakages. Because of poor organization of trade, loose control over foreign investments, corruption on the part of traders and government officials and the manufactured nature of Africa's imports, the resources leaked out of the continent are judged to be considerable.
It is not only the visible accounts that show the transfer of such extra-financial resources outside Africa. The invisible trade accounts too are associated with trade practices that disguise a substantial sum of financial resources squeezed out of Africa through fraudulent means.
For 1978/79 the volume of financial resources leaked out from the African visible trade was estimated at 2.3 - 3.7 percent per annum of total exports by value and 7.2 - 9.8 percent per annum of the value of imports. In 1989, Sub-Saharan African exports and imports were valued at US$ 30,884 million and US$ 31,805 million, respectively [46, pp. 230-231]. If the same leakage rates of 1978/79 are assumed to hold true in 1989, the financial leakages from Sub-Saharan Africa would total US$ 3.0 - 4.3 billion. This is a considerable sum of money by any standards, and the estimate would be greatly increased if account is taken of leakages through the invisible trade including investment capital movements. Africa's openness and vulnerability to such resource leakages aggravates the financial crisis and places additional constraint on the continent's capacity to implement an economic recovery plan.
In this short paper, attempt has been made to show the nature and major determinants of the African economic crisis. This crisis, it may be added, is continuing and deepening. It manifests itself in many ways and in all aspects of economic activity. In the spheres of production, there is a crisis of declining economic productivity, the collapse of agriculture, and the food crisis, aggravated by persistent droughts and imbalances in the ecosystem. There are also indications of grave malfunctions and unsatisfactory performance of the non-agricultural sectors.
The African economic crisis is not only a "production crisis" but also a financial one. Investment financial flows to Africa are receding and net foreign exchange earnings from raw material exports are depressed partly due to deteriorating terms of trade of Africa's exports and partly because of rising import costs. The international trade practice exhibits in the export and import trade, and the visible and invisible accounts, large financial leakages out of the region. Many African countries also face heavy burdens of debt and debt servicing.
The colonial past and neo-colonialist exploitation of Africa provide important explanations for the ongoing economic crisis. But, there are also political, institutional and policy constraints operating both at the country and regional levels and affecting adversely the performance of African economies.
The way out seems to obtain basically in what the African countries can and should do for themselves. It was shown that failure to implement regional agreements provided under the auspices of the OAU and the ECA have contributed to the worsening economic situation. Therefore, it is also evident that the exploitation of regional arrangements and agreements for development can be a potent weapon in the fight against the continuing saga of the African economic crisis.
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