Africa and the World Bank: Why it’s Not Too Late
By: Bhaso Ndzendze
4 Aug. 2017
Credit: The World Bank
African countries are in a developmental conundrum; they have seen economic reversals in the wake (and arguably because) of the World Bank and yet African countries, at least for the foreseeable future, need the World Bank – owing to a paucity of alternative lenders in the present. In its assessment of the outcomes of World Bank involvement in Africa’s development, this paper emerges with a mixed picture.
While the institution’s policy prescriptions saw large-scale failure in the form of cumulative debt, GDP declines and impoverishment in many African countries (for example Liberia, Nigeria, the DRC/Zaire and many others), it also succeeded in some (the two success stories often touted are Ghana and Uganda). But it would also be illegitimate to pin the failures purely on the World Bank. Ultimately, there are states – for example the DRC/Zaire, the Central African Republic/Empire of the 1980s, among others – wherein substituting the funder, and even removing the structural adjustments (which were not even wholly applied in some countries) would not have resulted in a less bleak picture. Indeed that they needed to go to the World Bank in the first place is proof enough that the countries in the region were mired in economic problems that preceded involvement with the institution.
Thus this article concludes that the World Bank has hitherto hampered development in Africa; but with the help, in many instances, of African leaders, who fostered unreceptive neopatrimonial environments and mismanaged the loans, at the expense of African citizens. Ultimately, however, it is not too late as there is nothing in this setting which does not lend itself to reversal.
‘Accelerated Growth’, Structural Adjustments, and Lost Decades: The World Bank and African Underdevelopment, 1979-Present
Despite remarkable performance in the 1960s, African economic development slowed down in the 1970s and stagnated in the 1980s, Africa’s so-called lost decade. In turn, the African states’ attempts to reinvigorate economic growth through state-led investments and import substitution industrialisation strategies were unsuccessful. And then, unable to raise funds locally, shunned by commercial banks abroad, African states opted for rescue by the International Monetary Fund and the World Bank. In effect, Western donor institutions took over as Africa’s bankers. Thus Senegal in 1979 became the first African state to obtain a loan from the World Bank predicated on structural adjustment programmes (SAPs). Soon, others followed suit. Despite their desires, and domestic pressures (interestingly, this was not always the case; as in Dar es Salaam there was virtually no opposition to austerity measures because some 90% of the population had been living off the private, informal market), to do otherwise, by 1980 some thirty-six African governments signed up; many were either on the verge of, or beyond, bankruptcy.
These structural adjustments, today so synonymous with the World Bank, included currency devaluation, elimination of subsidies, market liberalisation through removal of tariffs and quotas, decreased government spending, privatisation, low regulation of foreign enterprises and raising of agricultural prices that had been artificially kept down by governments. The idea had been to enact a series of radical economic reforms to shift African states from the state-centred approach (which had once been lauded even by the west) of the 1960s, and to give the markets a bigger role. Echoing the language of Ronald Reagan, then recently elected President of the United States, the appointer of the successive World Bank presidents, government was no longer to be looked to as the solution to economic problems, government was deemed to be the very cause of these problems.
Because of their emphasis on expenditure cuts, public support for infrastructure, education, social services, as well as for research and extension, while not attaining reciprocal agreements from the corresponding western states, these sectors suffered and rural areas, with their high proportion of poor people, were particularly hard hit. Stein argues that SAPs, as promoted by the bank as a result of their neoclassical roots, were basically a-institutional and therefore ill-equipped to promote market and institutional development in Africa. The outcomes of this were immediate and prolonged. For many scholars, the spread of the Ebola virus in West Africa in 2014 was as a result of the neoliberal orthodoxy imposed on Liberia in the 1980s which championed rolling back expenditure on, and privatisation of, health services under direction from the Berg Report, Accelerated Growth, prepared under the auspices of the World Bank. The outcome, in a situation where there was a lack of state capacity with regards to health services (precisely due to the World Bank’s directives) and no will on the part of the private interests to invest in a “clientele” which could not afford the treatment, was the transnational proliferation of what could have been a containable outbreak. Less severely, Tanzania’s medical and educational systems had ceased to function in all but name with school enrolment down from 98% (in 1981) to 76% in 1988.
Further, between 1991 and 1995, Africa’s annual real per capita GDP growth averaged at 0% for all Enhanced Structural Adjustment Facility (the below market price lending facility that funds poor states in exchange for the adoption of World Bank-directed structural adjustments) countries, whereas non-ESAF developing countries experienced, on average, 1.0% annual real per capita GDP growth. Far worse was the fact that between 1991 and 1995, sub-Saharan African countries which had adopted ESAF programs experienced an average annual 0.3% decline in terms of per capita incomes over the period of adjustment. The shrinkage is also attributable to the decline in purchasing due to World Bank-mandated structural adjustments which necessitated austerity and currency devaluation.
And in 1996, the World Bank, in response to demands for action to address the external debt crisis of poor countries, ushered in the Highly Indebted Poor Countries (HIPC) initiative. More than 80% of the countries identified by HIPC as needing debt relief were African. But the debt relief would come, in a familiar way, with conditions attached; in order to qualify for debt relief under HIPC, countries had to participate in structural adjustment programs. The HIPC program has been criticised for providing too little actual debt relief and providing it too slowly while at the same time opening up African markets to Western corporations with whom they could not yet compete due to the infancy of their own markets.
To the extent that SAPs failed to promote growth, no improvement in poverty can be expected from growth effects. The impact on poverty and food security arising from the shifting of relative agricultural prices has been mixed, but in general in Nigeria, South Africa, Kenya and Egypt, for example, the winners have been net surplus producers of agricultural products among rural households, particularly those with export crops, while the losers have been net consuming poor households and the urban poor.
What of Africa’s Leaders?
It is not only the conditionality which determine the success of World Bank involvement in Africa, but also the conditions under which these are introduced; national leadership being the key one since the loans are granted to states and not private entities.
One of the few leaders to actually implement structural adjustment was Jerry Rawlings of Ghana in the 1980s and 1990s. Coming into power through a coup in 1982, he embarked on a wholesale reform, accepting market disciplines and a reduced role of the state. He increased cocoa prices, he devalued the Ghanaian cedi, import-licensing systems were abolished, and about 60,000 public sector employees were retrenched, and Ghana’s prized Ashanti Goldfields was privatised. Despite doubling of debt between 1983 to 1988, in that period, cocoa exports increased in just three years from 155,00 to 220,000 by 1986. Equally significant, food per capita rose, and inflation fell from 123% to 40% between 1983 and 1990; increasing the Ghanaians’ buying power. Similarly, Uganda through PRSP policies reduced its GDP-debt ratio from 58.3% in 1999 to 2.1% in 2009.
Even these so-called miracles, in any case 2 out of 54 African states, have been lacklustre and are disappointing on the whole – Ghana’s GDP in 1998 was still 17% less than its 1970 levels, and Uganda’s low debt has been due to donations. And some question whether these results have clearly been linked to SAP-related macroeconomic policies. Yet, it is probable that Ghana’s GDP would be even worse without the role of the World Bank, and in a more corrupt country – such as in post-Nyerere Tanzania cited above where bribery and corruption were rife – the donations and loans received by Uganda to reduce its debt-to-GDP ratio could have been imprudently managed and not made a difference.
The issue of whether the overall disappointing performance of SAPs in Africa is due to incomplete and “half-hearted implementation”, inappropriate policy components of the SAPs, or adverse external factors lies at the heart of the debate. A review of the available studies suggests that in most cases a combination of these three factors was at work – Africa has over 50 states after all. It is certainly true that there was incomplete, half-hearted, and “stop-and-go” implementation, that there were deficiencies in the sequencing of measures, lack of coordination of policies and inappropriate policy design, and that the markets for primary products, Africa’s main export, deteriorated in the 1980s and 1990s but it is clear that the failures were in large part due to World Bank failure in vetting the countries to be granted loans, and inabilities to affect penalties for mismanagement of funds. Qualification for loans, in other words, should have been predicated on more than just a state being a Western ally during the Cold War, or the anti-terror ally today. And here lies the problem, neopatrimonialism, in such places as the former Zaire, CAR, Nigeria, Malawi and numerous others, ensured that the funds were misused, and yet the World Bank failed to recognise this, or when it did, it did not hinder it from continuing to give the loans – which in turn went into “white elephant” projects. Indeed, a shadow review by ActionAid concluded that the Bank does not have an effective plan for ensuring accountability even in the wake of the Operation Policy and Country Services unit.
Where to From Here?
In at least two African countries, the World Bank has been a facilitator of development; and in those countries where there has been debt and negative growth in spite of World Bank presence, it is still possible that matters would be even worse in its absence, as it has been one of few institutions willing and able to make concessional loans. Furthermore, World Bank granting of loans has been found to positively increase attractiveness of receptor states in the short run and causes other funders to be more willing to make investments. SAPs during periods of falling growth or no growth appear to reinforce underlying expectations for the future; they are associated with positive expectations.
And to conclude, it has to be noted that essentially, the failures of the World Bank in the continent have also come about as a result of the World Bank’s own internal structural inconsistencies as well as an unreceptive climate within countries. For example, some scholars have argued that the content of PRSP, its ideological underpinnings, and the global context in which it is situated seem to involve contradictory impulses for national ownership, governance and poverty reduction in Africa. We may go so far as to say that the institution is essentially a paradox; it is a neoliberal institution, and yet is itself state-owned – and therefore prone to serving national interests – and, moreover, despite its profession of market-orientation, it is a lender to governments as opposed to private entities; and thereby buys out of key classical liberal truisms such as competition and room for incentives. Equally pertinent, African countries themselves need to own up the other end of the equation because they are the recipients of the funds. In the wake of the 1990s Asian crisis and recovery through World Bank assistance (especially in the case of South Korea which managed to pay back its loan ahead of schedule), it is clear that the bank can be a partner for recovery and growth provided there is prudent assimilation of these funds. But before these funds can be granted, there ought to be a revisiting of the process so as to ensure the loans do not end up in imprudent hands in the first place. Perhaps then, and only then, the World Bank can continue to facilitate development on the continent. Wedded into this is the responsibility of not only African but World Bank leaders to make the bank more responsive – something which previous presidents such as James Wolfensohn and incumbent Jim Yong Kim began to grasp in their various “listening tours” around prospective recipient states.
Originally published in: Modern Diplomacy