GLOBALIZATION, SAPs AND AFRICA

OUTLINE

1. Globalisation: A Historical Note
2. Globalisation: Current Trends
3. Structural Adjustment Programs
4. Reasons for Africa’s growth

Globalisation: A Historical Note

•Undoubtedly, the globalisation phenomenon in Sub-Saharan Africa has strong historical underpinnings. Colonial conquests of Africa in the late 19th  and early 20th centuries represent the first major wave of globalisation. Internationalisation of capital was the linchpin of globalisation during those periods, which resulted not only in the domination but also balkanization of Africa by the imperial powers of Europe.

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•European interests were the driving force. Karl Marx notes how the colonies provided a market for the budding manufactures, and a vast increase in accumulation which was guaranteed by the mother country's monopoly of the market ... Today, industrial supremacy brings with it commercial supremacy. In the period of manufacture, it is the reverse: commercial supremacy produces industrial predominance.

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•Under the cloak of a civilising mission, territories were acquired by European powers spearheaded by Britain. Contrary to this imperial mission, Africa's underdevelopment has been attributed, among others, to several centuries of Western domination during which economies and societies were structured (and continue to be structured) through several mechanisms, in ways which continually reproduce poverty, inequality and political and economic crisis.

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•The earlier phases of globalisation that in effect were characterised by imperial domination of underdeveloped areas represent epochs in African development. They were periods of domination and exploitation that effectively consigned Africa to produce primary raw materials for industries in Europe; while Africa served, by and large, as markets for European manufactured goods.

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•Consequently, the existing mode of indigenous intra-African trade was curtailed or suppressed and Africa's trade was redirected toward Europe. With few exceptions, transport networks were not designed to link the colonies with one another but rather to facilitate the exploitation and export of raw materials to Europe.

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•The immediate post-war era represents yet another phase of globalisation in Africa. Whereas giant multinational corporations effectively took over the role of European states in the exploitation of the developing world, internationally financial institutions like the Bretton Woods institutions emerged to regulate international economic relations.

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•They enforced rules for commercial and financial relations among developed industrial as well as developing countries. African states, then politically and economically weak and subordinate during the period, were not represented at the Bretton Woods conference; but the system for regulating international finance and development applied to them as well.

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•This is because although some of the former colonies had achieved some form of industrialisation based on the processing of local raw materials "productivity levels outside the primary-export 'enclaves' grew slowly and the state remained weak in most countries". And since Sub-Saharan Africa had been structurally linked with the industrialised countries for centuries through "formal and informal imperial relations, these states had little choice but to acquiesce in the international economic system established for them".

•Is Africa well integrated into the global economy? Nicholas van de Walle (1999) for example, points to Africa's longstanding integration into the world trading system.

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•In 1854, for instance, West Africa exported some 37,631 tons of palm oil to Great Britain. By the close of the century this figure had reached 50,000 tons. Again, in 1854, trade in groundnut

   between France and Senegal had reached 5,500         tons. Europe exported assorted merchandise to Africa in return. This trend has continued till now. Therefore, the assumption that Africa "is not rapidly becoming more integrated into the world economy today", is clearly untenable.

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Globalisation: Current Trends

•In contrast to the earlier phases of globalisation, the current globalisation is an elusive and complex phenomenon, whose distinguishing features include the extensiveness and intensiveness of the interconnectedness of different peoples and societies. Globalisation is neither obstructed nor constrained by territorial or jurisdictional frontiers of nation states. Although it manifests itself in different forms through the centuries, the current trend differs from earlier phases in several ways.

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•On account of the sheer magnitude of current economic development in the industrial world, the rapidity of technological innovations, and the speed of dissemination and adaptation of new ideas in almost any other sector or country, earlier phases of globalisation were not as obtrusive or pervasive.

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•Globalisation, has several facets and is propelled by numerous forces which concurrently shape current economic, political, technological, financial, and socio-cultural interactions on a global scale. The current trend is being driven across the developing world through the generalised implementation of the neoliberal economic paradigm.

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•Neo-liberalism lays emphasis on deregulation, fiscal balances, open markets, withdrawal of the state as an economic agent, and the reenactment of labour and investment laws to induce the movement of international capital around the world

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•These have given globalisation a distinctive economic character with the following features or underlying causes, among others:

–the interpenetration of national markets for assorted goods, such as, industrial products and labour across national boundaries. This was made possible by themobility of capital; the technological revolution that has led to several inventions and discoveries in the scientific fields that are quickly disseminated across borders, replacing Fordism whereby capital intensive assembly line replaced dependence on

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    -unskilled labour, and mass production of goods that need outlets in the global market became a distinctive feature of industrial activities;

   -emergence and strengthening of private and public economic institutions embracing multinational or transnational enterprises and strategic business alliances;and 

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     - the phenomenal growth in financial markets whose global turnover is estimatedto have risen from $188 billion in 1986 to $1.2 trillion in 1995 with a corresponding tenfold increase in cross border transactions in bonds and equities between members of the most developed states (the then Group of Seven).

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•Admittedly, African leaders have contributed one way or the other to Africa‘s predicament because of dictatorial tendencies, crass cronyism, poorly executed national economic programmes, and other weaknesses. But could these be the primary cause of the continent's development crisis?

•Africa has always been a weak partner in international interactions for reasons that date back to the time of colonialism. And, the present dispensation under a supposedly new global ideology cannot be so different from conditions, issues, driving forces, and dynamics of interactions on the global stage. The question therefore is whose interest is being served under the current globalisation?

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•At the corporate level high-tech companies like Microsoft, IBM, AT&T and many others are at the forefront in highlighting the virtues of globalisation. The argument that these companies have the bulk of their operations in other developed countries oversimplifies the point, because the tentacles of American, European and Japanese corporations stretches across the globe.

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•Sub-Saharan Africa has become a victim because of its inability to negotiate beneficial terms for the operations of these transnationals. At the same time the impetus for domestic initiative and innovation has been seriously compromised.

      In most cases, the corporate interests of transnational have the backing of their home governments. In the United States, for instance, government officials construct current globalisation policies as an indivisible part of a grand "proactive” government strategy aimed at restoring America's relative economic position on

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•To be precise, economic nationalism has been the driving force.  Globalisation in this sense, is the pursuit of America's national interests against the predations of foreign actors.It is economic nationalism.

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•Much more telling on developing nations is the extent to which national autonomy or sovereignty is compromised for the sake of ensuring integration of national economies in accordance with the globalisation creed. As a result, globalisation undermines national sovereignty by lessening the degree of policy discretion available to government anxious to maintain sustainable policies, what Mkandawire(1999:119-136) calls "choiceless democracies".

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•Furthermore, international capital mobility undermines governmental ability to pursue independent monetary and fiscal policy. The ability of the state to efficiently provide redistributive public goods has come under severe direct and indirect attack.

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•Corporatist bargaining and employment policies with regard to labour market policy have come under intense pressure on account of international demands for wage restraint and flexible working practices. Globalisation has indeed "undercut the policy capacity of the nation state".

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Africa's Responses: Integration or Balkanization?

•Economic integration appears to be the remaining option of promise. It must be noted, however, that economic integration is not a new phenomenon in Sub-Saharan Africa. The continent appears to have spawned integrative groups more than any other region in the world. The need to revamp Africa's economic integration projects in order to enhance overall development in the 21 st century has become more compelling on account of two main factors. The first is the nature of globalisation, and the spartan zeal with which it is being defended by its proponents.

•The second is the strengthening of integration blocs by the 'apostles' of free trade-the OECD countries and the United States.

 

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•African leaders - the political and economic elite, intellectuals and technocrats should eschew Afro-pessimism. This is an attitude that has been instilled in educated Africans through various instruments of indoctrination since colonial times. The current condition of the continent obliges its leaders to reconceptualize African problems, re-theorise and operationalize the solutions; re-construct state power within the parameters of an African economic community; and reformulate strategies to resist or contain the negative aspects of globalisation.

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•The continent‘s leaders must ensure that future programmes take cognisance of the socio-political,cultural, environmental and economic needs of Africa's people. In this way, Africawill realize its renaissance in a wave of industrialization and prosperity for its people, and not be dominated and exploited by the forces whose underlying objective for global transactions is the maximisation of profit.

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•Structural Adjustment Programs

•The structural adjustment programs were meant for:

1. Reduction of public expenditure: The aim is to reduce, if not eliminate public borrowing and budget deficits via spending cuts.

2. Increase in domestic savings: To be achieved via tax and other incentives.

3. Reduction of the state's economic role: The object is to reduce the state's role to the barest minimum and to ensure that the state enterprises remaining are profit-orientated and less protected and subsidised.

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4. Liberalisation of the economy: The above measures fall within this heading. However, more specific liberalisation measures include: devaluation; the abolition of exchange controls; and the removal of import, price and distribution controls.

5. Promotion of exports: This is the flagship of all SAPs and is meant to address the chronic shortage of foreign exchange.

6. Promotion of foreign private investment: Via extensive concessions to foreign investors.

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The real effects of structural adjustment

•The SAPs, adopted by many African countries in the 1980s and 1990s, were meant to help address mounting internal and external economic imbalances arising from a confluence of factors such as: the 1974 global oil crisis; the subsequent global debt crisis  which provoked financial distress in Africa; a decline in export earnings due to falling commodity prices; and rising interest rates in OECD countries, particularly the US, which increased the debt burden of poorer countries.

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•The main theoretical premise of SAPs was that government interventions were inefficient because they distorted market signals. Long-term development planning was therefore abandoned and industrial policies became neglected in most African countries.

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•In their place, governments focussed on macroeconomic stability and institutional reforms to protect property rights and ensure contract enforcement. These policies, however, lacked coherent strategies to address inherent market failures and externalities, and these actions ended up constraining investment, growth and economic diversification.

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•According to the World Bank, during the 1987-1991 period, 29 sub-Saharan African countries were implementing SAPs with mixed results. And it had become clear after 15 years that SAPs in Africa had neither accelerated growth nor reduced poverty, while there was a notable lack of ownership or resistance to conditionality from recipient governments. “Adjustment programmes were often unresponsive to country conditions and changes in external circumstances,” wrote the World Bank, which led to a lack of shared vision between the Bank and recipient governments as to the aim of the programs.

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•In 2011, the Economic Commission for Africa (ECA) noted that in the SAPs era, Africa recorded the lowest growth rates in its post-independence history. According to recent World Bank data, the continent’s average annual growth rate declined from 4.7% in 1961-1970 to 2.7% in 1980-2000 before rising to 4.6% in 2001-2012.

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•The negative impact of SAPs was particularly visible in the manufacturing sector whose share of aggregate output continued to decline from its peak level in the 1970s throughout the 1980s and 1990s and beyond. This reflects the failure of liberalised markets to attract much needed investment for African countries to diversify their economies and compete especially with emerging economies.

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•In East Asia, for example, government interventions to address market failures saw the share of manufacturing in GDP hovering over 31% in the last three decades, during which labour-intensive industries induced high and sustained growth and helped lift hundreds of millions of citizens out of poverty.

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•In the 2013 edition of the Economic Report on Africa, the ECA and the African Union Commission further highlighted the failings of the SAPs, finding that the policies "did not raise productivity, boost manufacturing export performance or enhance value addition.” In fact, the report argues that SAPs hurt technological capability and skills, arguing that "Today, the weak African industrial structure still has to move out of the shadow of those interventions – a task made more onerous by the new international context."

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•Under SAPs, effects on income and welfare were also magnified by an increased debt burden, deteriorating terms of trade, declining flows of private capital, and accelerating capital flight. While Asia was investing, African governments were slashing expenditure on basic infrastructure and social services at the behest of SAPs, according to whose theory these steps were thought necessary to reposition African economies. Problems of unemployment and poverty across the continent were accentuated, with skewed redistributional effects in favour of the rich.

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•And the experiences in Africa of SAPs’ economic reforms highlighted the serious consequences of declining state involvement in public service provision. Inadequate access to public services was coupled with a reduction in quality as a result of privatisation and deregulation policies. Meanwhile state retrenchment, most notably in health and education, stimulated a two-tiered system whereby those who could afford it often paid, while public services provided by the state suffered.

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•Even in countries such as Ghana and Senegal, regarded by the World Bank as success stories in terms of growth, there was little enduring poverty alleviation. And it was observed that growth in some of these countries, such as Uganda and Ghana, relied mostly on notional anti-SAPs policies in the form of increased government spending. In 1990, the World Bank itself acknowledged that, with a few exceptions, the evidence supported the conclusion that poverty in Africa was severe and getting worse.

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•As many country examples in Africa demonstrate, the implementation of SAPs compromised government capability to design and put into action long-term development strategies. Some prominent World Bank chief economists, such as Nobel Prize winner Joseph Stiglitz, or Justin Lin, correctly argued that Africa needs to move in the direction of transformation and demonstrated the need for a stronger state role.

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Reasons for Africa’s growth

•Since the turn of the 21st century, a number of African countries have experienced economic growth. This has been fuelled by a range of factors including their endowment with commodities at a time of surging prices, improved political environments, prudent macroeconomic management, rising domestic consumption, investment, strong public funding on infrastructure, and increasing economic ties with emerging economies such as China, India and Brazil.

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•Revenue streams from commodity exports and rising investment, as well as additional aid flows from Africa’s emerging and traditional partners, have helped build roads, hospitals, railroads, and other infrastructure, reducing the continent’s dependence on conditional financing. Thanks to more focussed strategies as well as improved economic governance, inspired by more development-oriented governments, Africa has emerged from the past few decades with renewed optimism and international headlines these days often proclaim ‘Africa Rising’.

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•However in this range of factors, there is little evidence to suggest that Africa’s current growth can be explained by SAPs, and to reinforce and buttress economic performance over the coming years, it is important for the continent to move in the direction of a more comprehensive transformation agenda than the one suggested by structural adjustment.

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•Changes in development thinking over the last two decades have essentially occurred in response to a wide range of concerns over the serious impact of structural adjustment. The shift to poverty reduction strategies and the emergence of quasi-planning frameworks such as the World Bank’s Comprehensive Development Framework (CDF) in 1999, the Millennium Development Goal (MDG) framework, and the Poverty Reduction Strategy Paper (PRSP) approach, reflects a move away from SAPs towards a more strengthened role for the state, and a clear human development focus.

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•In 2000, the current President of the World Bank, Jim Yong Kim, co-edited the book Dying for Growth in which he questioned the truth that “as long as you focus on the macroeconomic fundamentals everything else would fall into place.” Justin Lin, borrowing the term often used by the late Ethiopian Prime Minister Meles Zenawi of the “facilitating state”, stressed that developing countries cannot ignore harmful market failures in the fear of government failure.

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SAPs left behind, bright future ahead?

•The failure of SAPs to achieve growth and poverty reduction has led to a continued search on the continent for an alternative strategy to address Africa’s developmental challenges. This search has also been fuelled by the success of emerging economies in fostering industrialisation. The recent global economic crisis has lent more support to the current thinking in Africa about the dangers of unregulated markets and has evoked renewed interest in the active role and nature of the state in development.

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•To keep the continent on the rise, ECA is arguing for governments to be actively involved in developing their industrial base and transforming their economies, rather than just adopting a narrow focus on macroeconomic fundamentals.

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•The recent experiences of Ethiopia, Rwanda, Nigeria and Morocco, among others, show how well-designed and effectively-implemented state interventions to address market failures can help invigorate growth and diversification. Indeed, if Africa could leverage its primary commodities to industrialise through value addition and succeed in linking the commodity sector to the rest of the economy, the 21st century could very well be Africa's.

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