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11 January 2000

The following does not seek to offer an exhaustive analysis of African economies or the global economy. It is simply an attempt to reconcile certain effects of structural adjustment with the exigencies of globalization, on the one hand, and of the search for sustainable growth and a way out of poverty, on the other.

1 - Some 15 years after the launching of the first adjustment programs in Africa, the economic and social balance sheet is unimpressive:

1a - Although some view the forward march of liberalism as the solution to Africa's economic problems, the African economies are already the most open in the world. The ratio of external trade to gross domestic product is higher than that of many European and Asian countries. Openness by itself is a debatable remedy, because up to now it has not improved the position of Africa in global production and commerce.

1b - Similarly, all-out budgetary austerity and privatization have not yet produced the anticipated results of growth and an improvement in the population's standard of living. Certainly, Africa as a whole has had positive per-capita growth over the last few years; but this growth, which has been accompanied by severe inequality in the distribution of wealth, fuels the frustrations of a population long marginalized. Nor has this growth resulted in an easing of the grinding poverty that afflicts the continent. Budgetary austerity imposed over many years has led to unmet social needs that the majority of African countries have great difficulty resolving.

1c - Large-scale privatization of enterprises that were publicly controlled during the 1960s and 1970s has not yet led to the emergence of a private sector that can take the lead in terms of investments and the creation of employment and wealth. In many countries, privatization is accompanied -- as in the Asian countries -- by corruption that has mainly enriched social groups close to those in power, and sometimes the powerful themselves.

1d - The dismantling of customs barriers together with the end of public subsidies to national enterprises was supposed to foster competition between local products and imports, and lower the costs of production. But in the absence of a supply of high-quality goods produced insufficient quantity, this policy led to the closing of some local enterprises -- putting thousands of people out of work -- and to massive importation of cheap goods from abroad.

The African markets that one can visit in urban areas often give the impression of being simply branches of Asian or European supermarkets. A whole socioeconomic stratum lives off the importation of products that are sold at prices that defy all competition. This leaves little room for African industries to develop, or create jobs.

The lowering of tariff barriers when not compensated by other fiscal resources weakens the State's capacities, especially its capacity to respond to social needs.

Without protection, what can African countries do when faced with enterprises producing on a global scale, with very high levels of productivity and very low costs?

What strategies can they use to win national, subregional, and international markets in an environment of growing liberalization?

What resources can governments draw upon to meet social demands and social needs?

2 - One of the justifications for structural adjustment policies was the need to repay the external debt. Today, despite a multitude of debt relief initiatives, the debt continues to be a burden that hobbles the capacity to make public investments and respond to social and environmental needs in Africa.

Each debt relief initiative brings with it new conditions that reduce still further the capacities of governments to act.

How should debt relief be accomplished? Toward which sectors should the freed-up resources be directed? How can the debt be reduced without tightening conditionality and the hold of the international financial institutions over African states?

3 - The recovery of macroeconomic equilibrium, the privatization of publicly controlled enterprises, particularly the banking system, and the reform of investment codes had, among other objectives, the goal of encouraging foreign direct investment in order to fill the gap left by the State's disengagement and the weakness of national savings and national private sectors. The record in this area is highly dubious. Apart from certain countries that have succeeded in attracting investment in diverse sectors (especially South Africa, Tunisia, Mauritius, and to a lesser extent Côte D'Ivoire, Kenya, and Botswana) the countries that are attracting investment are those that have oil or mineral wealth. The majority of African countries remain on the margins of capital flows. A second finding is that there is a clear trend toward sale of national enterprises previously considered part of strategic sectors: for example, electric power companies, drinking water suppliers, and telecommunications enterprises. Some observers wonder whether African countries may indeed have gone too far with privatization of their economies.

Overall, foreign direct investment remains weak, concentrated in a small number of sectors and little diversified, and yielding few transfers of technology.

What is more, the effects on the physical and human environment have at times been disastrous. Examples include forest exploitation in Cameroon and oil exploitation in Nigeria under the military dictatorship. In the last few years it has been possible to demonstrate links in several cases between certain foreign investments and the prolongation of armed conflict in parts of Africa (Angola, Democratic Republic of Congo, Republic of Congo), as well as links with corruption.

Can foreign direct investment have any kind of strengthening effect on the economy if there does not exist at the local level a sufficiently dense network of enterprises with which this investment can connect? Can foreign direct investment establish itself firmly in a situation where purchasing power is weak and the market is small?

4 - While governments concentrate on wooing foreign investors, little notice is taken that African economies depend fundamentally on informal activities, which involve a very large part of the population. Indeed, the informal sector is the principal source of jobs, allowing for a minimum creation of wealth and offering the main opportunities for a very young population to be economically active.

There is discrimination against those involved in the informal economy, even in terms of economic language: the terms investment and investors generally apply only to the so-called modern economy, and of course to foreign investment. While many reforms are undertaken to attract foreign investment and create an economic, judicial, and institutional environment favorable to the private sector, the mass of small producers depend most often on programs to combat poverty.

The question, then, is how to strengthen enterprises within the informal economy so that they can increase their productivity, improve the lot of the population that depends on them, supply higher-quality products, and participate fully in the economy. But can such a strategy -- which implies State action favoring the informal economy together with tariff protections -- be implemented by governments that have lost their capacity to act, in the context of an open economy?

We must ask whether an anti-poverty strategy has any meaning or chance of success if it does not allow the majority of economically active Africans to obtain financing, master new technologies, and gain access to new markets, and to benefit from a more equitable institutional environment.

5 - As we saw in Seattle recently, multilateral negotiations within the World Trade Organization hold high stakes for the future of African economies. The marginalization of the continent during the recent millennial round of talks reflects Africa's real place in the world economic system. Only the failure of these negotiations has allowed an escape, at least temporarily, from rules that can only be prejudicial to the continent.

These new norms of global commerce are intruding into every domain of human activity. They are bringing about changes in systems of production and trade of goods and services, and increasingly, in world governance. The wealthy countries and transnational corporations profit most from these changes. The corporations, in their quest for immense size, mergers, and control of the planetary market, have deployed all their know-how to influence the multilateral negotiations in their own interests: toward open markets, equal access for foreign investors, and privatization of life forms.

The new rules of global commerce, extended to investment, to the environment, to different ways of life, impose adjustments on governments and economies and require new investments in research, infrastructure, and training that only the industrial countries are in a position to undertake.

In light of this situation, what choices does Africa have other than to submit to the international institutions, on the one hand, or to pursue policies that in no way ensure integration into world trade, much less a sustained improvement in living conditions, on the other?

It is difficult to imagine, for Africa, an integration into the world economy that would be based on specialization in primary commodities, on scarcely diversified economies, and on devastated social sectors. Rather, the foundation must be massive investment in education and training and in economic and social infrastructure, together with the construction of stable and democratic institutions. Without these, no vision of sustainable development stands a chance.

Today, given the weakness of savings, the culture of prevarication among existing institutions, and the urgent need to ameliorate poverty, this long-term strategy appears difficult to put into practice.

Can Africa unlock the financial surpluses necessary to build the physical, human, and institutional foundation it needs to diversify its production and become integrated into the world economy?

It is evident that in the decades between 1970 and 1990, the countries that advanced were those whose position in the East-West conflict allowed them to benefit from massive inflows of U.S. capital and technology and from easy access to U.S. markets. Without these supports, the "miracles" produced by Korea, Taiwan, Hong Kong, Singapore, and even Japan would certainly have been much less likely. But Africa is no longer a battleground of East and West. It must, therefore, demand from the multilateral trading system as much access as possible for its products to the markets of the wealthy countries. It must seek to attenuate the effects of new rules of commerce on this trade. And finally, it must rethink its comparative geopolitical advantages in order to benefit from complementarity of resources under advantageous conditions that are necessary for its development.

It is in this long-term perspective, taking into account the geopolitical context and the possibilities of new alliances, that we must consider the challenges of development financing, sustainable growth, the struggle against poverty, and integration into the global economy.

7 - The Lomé Convention, currently being renegotiated, involves more than 40 African countries. It is the only remaining vehicle for cooperation in a world increasingly governed by the rules of the WTO. This Convention appears to be the last one that is based on non-reciprocity and eligible for waivers under the WTO. The next few years will see the signing of free trade agreements in line with WTO rules between African countries or subregions and the European Union, together with an end to the principle of non-reciprocity.

Shouldn't Africa be able to take advantage of the Lomé Convention to finance its infrastructure needs, and to organize subregional integration? Shouldn't the Convention be able to help African economies moderate the foreseeable impacts of forced integration with the global economy?

8 - Subregional integration, currently stalled in several parts of Africa, appears to be an essential stage in the long-term response to the challenges facing the continent. It offers the possibility of complementarity in infrastructure and training, as well as larger markets. But for Africa to profit from subregional integration, steps must be taken to develop a diversified production that can substitute for imports; this is indeed a major prerequisite for success. Only the creation of wealth on the continent will allow Africa to overcome underemployment and poverty.

Subregional integration, however, is often still on the drawing board. In the southern African region, South Africa has not yet managed to build stable relations with its neighbors in the Southern Africa Development Community (SADC) group. Many potential conflicts persist. These relate not only to immigration and to divergent positions on armed conflicts, but also to the role of South Africa itself as an economic power in the subregion. These tensions were illustrated by the protests of the SADC countries following South Africa's signing of a separate accord with the European Union.

Similarly, in West Africa, despite the fact that the West African Economic and Monetary Union (UEMOA) is a zone of monetary and trade integration, uncertainties persist as to relations with the Economic Community of West African States (ECOWAS). There is also tension over the role of Nigeria, especially its military and economic role. Recent decisions to create a unitary currency for West Africa pose problems not yet entirely clear that may jeopardize the stated commitment to integration.

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