Sub-Saharan AfricaClass 3

Internalist PerspectiveCentral Thesis

• African governments have intervened to shift internal terms of trade against farmers

• this has created significant DISINCENTIVES to agricultural production.

• Result is widespread agricultural stagnation

Why have African governments done this???

• corruption and incompetence• to expand public services and public

sector employment (employer of last resort)

• response to political demands of urban interest groups– weak state argument is signif. here

• commitment to industrialization

Mechanisms of Intervention

• direct price interventions– began with colonial govts and export

crops

• currency overvaluation--biased impacts on city and countryside

• agricultural marketing boards (parastatals) – administer low producer prices– dead weight on sector

Role of Import Substitution

Industrialization

• high capital requirements led to starving of agricultural sector of investment capital

• sectors that have emerged have not generated linkages with agriculture

World Bank Perspective

• States play too strong role in economy– Initially understandable but ...

• Too much public sector production– 10-20% of total formal employment in

many countries

• Civil service sectors are too large• External factors like falling terms of

trade have contributed– but their role is exaggerated

Economic Policy change since early

1980s• 29 countries have made some

commitment to WB/IMF to structural adjustment policy reform

• more than half reduced budget deficits but did NOT increase tax revenues

• many devalued currencies• many reduced non-tariff barriers but

NOT tariff rates

Economic Policy Change (cont.)

• 2/3 reduced tax burden on agriculture but few dissolved state marketing boards

• a few privatized public non-agric. public enterprises/but not large ones of “national” interest

• limited downsizing of civil service– “ghosts” issue– salary issue

Impacts of Economic Policy Change???

Types of studies

•single country case studies

•cross-national research

Zimbabwe case study

Most industrially developed country outside South Africa

other advantages--politically stable, relatively good infrastructure, competent bureaucracy

World Bank predicts a less painful adjustment

Focus is textile, clothing and footwear

industries(labor intensive, low

skill)In response to incentives, exports of textiles and clothing grew at 12% per year during 1980s

Early 1990s--deindustrializationtextiles employment---25,300 (1990) to

12,400 (1995)clothing employment---24,000 (1991)

to 17,000 (mid 1990s)

Why deindustrialization???

Tariff reductions on textiles were designed to give clothing firms access to cheap inputs but hurt domestic textile production

clothing firms were hurt by imports of second hand clothing

footwear industry could not compete with Chinese imports

Cross-national studiesWorld Bank

Step 1. Compare growth rates in pre- and post-adjustment periods for 28 countries that accepted WB adjustment programs

Change in average annual GDP per capita growth, 1981-86 to

1987-91

Step 2. Recognize 3 subgroups on basis of policy reform

ANNUAL GROWTH RATES, PER CAPITA GDP, BY POLICY GROUPINGS

POLICY GROUPING AVERAGE GROWTH DIFF.1981-86 1987-91

LARGE IMPROVEMENT (6) MEAN -0.8 1.1 +2.0 MEDIAN -0.7 1.1 +1.8

SMALL IMPROVEMENT(9) MEAN -1.1 -0.1 +1.0 MEDIAN -0.9 -0.2 +1.5

DETERIORATION(11) MEAN -1.0 -2.6 -1.6 MEDIAN -0.6 -3.2 -2.6

Cross-national studiesMosley and Weeks

GROWTH RATES OF CONSTANT PRICE GDP.

ALL SSA COUNTRIES (44) 1980-85 1985-91

WEIGHTED AVERAGE 0.7 3.5WITHOUT NIGERIA 2.3 2.2SIMPLE AVERAGE 2.5 2.8STD. DEVIATION 3.1 2.4

Growth rates by adjustment status

STRONG ADJUSTERS 1980-85 1985-91

WEIGHTED AVERAGE -0.1 3.9WITHOUT NIGERIA 1.7 2.1SIMPLE AVERAGE 2.0 2.9STD. DEVIATION 2.9 2.1

WEAK ADJUSTERSWEIGHTED AVERAGE 1.7 2.5SIMPLE AVERAGE 2.0 2.0

NON ADJUSTERSWEIGHTED AVERAGE 3.9 2.3SIMPLE AVERAGE 3.5 3.4

Growth by type of program implemented

TYPE OF ADJUST. REAL GDP INVESTMENT EXPORTS1980-90 1980-90 1980-90

NO ADJUSTMENT PROGRAM 3.2 0.3 -1.2

TYPE OF ADJUSTMENT PROGRAMCOMPREHENSIVE 3.7 1.4 1.9TRADE LIBERALIZATIONONLY*** 3.4 3.2 9.6FOCUS ON AGRIC. MARKETS 2.5 -0.5 1.0FOCUS ON PUBLIC ENTERP. REFORM 2.0 -0.8 0.3OVERALL AVERAGE 2.8 0.2 1.9***ONLY 1 COUNTRY

REAL GDP INVEST. EXPORT1980-90 1980-90 1980-90

REAL EXCHANGE RATEDECLINING 1980-90 3.4 0.9 2.4INCREASING 1980-90 2.2 0.3 0.8PUBLIC INVESTMENTINCREASING 1980-90 4.0 3.2 4.6DECLINING 1980-90 1.8 -0.6 -0.2POLICY STABILITYLOW INSTABILITY 1980-90 4.3 2.1 6.3HIGH INSTABILITY 1980-90 1.8 -0.9 -1.8

------GROWTH IN-------EXPORTS

Relationships to particular policies and political environment

The social costs of structural adjustment

Good source: Sahn, Dorosh and Younger, 1996. Does adjustment hurt the poor? World Development 24(4): 719-747.

Question: Have the major components of structural adjustment worsened income distribution and adversely affected the poor (bottom 30%)?

Question 1. Who are the bottom 30%? How and where are they embedded in the economy?Predominantly rural. Main income

source is agriculture. Mainly not as waged workers. Heavily engaged in subsistence agriculture.

So the primary impacts will be on their role as producers, not consumers.

Methodology

Focus on 10 African countries implementing structural adjustment programs

Try to analyze effects of various policy changes at the household level.

Try to do more than simply compare conditions before and after.

1. Impacts of currency devaluation and opening of economy to global economy.Impacts depend on previous access to foreign exchange and imported goods at favorable prices.

Losers are those who lost RENTS (excess profits) due to restrictions on trade and exchange rates.

Rural poor gained marginally from greater competitiveness of products abroad

2. Impacts of fiscal policy changes

Conventional wisdom: Cuts in gov’t expends. have disproportionate impacts on the poor.

Their procedure involves examining:What is the level of cutbacks?who actually benefits from those

services?

Level of cutbacks

Nature of the spending on health

Vast majority of public expends. go to hospitals or administration, not to primary and preventative medicine.

Who uses hospitals and clinics?

Percent of rural population using health facilities in past month by household expend. group

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5Cote d’IvoirePublic hospital 2.6 2.9 4.3 4.9 8.7Other public 6.6 7.3 7.8 9.4 7.5Private 0.2 1.1 0.8 1.0 1.1GhanaPublic hospital 1.9 3.9 3.8 5.9 6.4Other public 2.6 3.6 5.4 6.6 4.0Private 3.7 5.1 5.8 7.2 9.4

Conclusion: Public hospital care is not well targeted to the poor.

On average, half of the education budget goes to primary schools

But per pupil expenditures are much higher for secondary and university students

Nature of spending on education

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5Cote d’IvoirePrimary 36 44 49 46 42Secondary 15 14 17 18 17Postsecondary 0 1 1 2 3GhanaPrimary 51 53 54 54 42Middle 29 34 32 35 34Secondary 8 9 12 11 14Postsecondary 1 2 2 2 3

Percent of eligible persons attending public school by level, by per capita expenditure quintile

3. Impacts of changes in food marketing systems

•Reductions in interference are likely on net to benefit the rural poor

•Why???

•Rarely beneficiaries of subsidized food prices

•Bore the costs of such schemes in their role as producers

Conclusion

•Biggest losers will be urban elites who had access to official markets and prices. Poor rarely participate in official markets for food, inputs, foreign exchange and credit.

•Secondary losers.

•Retrenched public sector employees

•Urban poor who had access to subsidized food