Global Policy Forum

Will NEPAD Work in the Presence of


By Modou Touray

Independent(The Gambia)
September 9, 2002

The New Partnership for African Development (NEPAD) is an economic program endorsed and adopted last July by the OAU Summit in Lusaka. The Structural Adjustment Programs (SAPs) are series of economic policies and conditions undertaken by most developing countries since the 1980s under which loan repayments are rescheduled and new loans granted. SAPs has had different names in different countries at different times. In The Gambia, for example, in the 1980s it was called Economic Recovery Program (ERP), in the early 1990s it was Program for Sustained Development (PSD), and so on. Currently it is called the Highly Indebted Poor Countries Initiatives (HIPIC). However, the question is: how has SAPs impacted on Africa both negatively and positively since its inception in the 1980s?

This article will try to assess the impact of SAPs in the developing countries and assess whether NEPAD will succeed in this framework.

The IMF was formed to promote currency stabilization and liberalization of international trade and to give short-term loans designed to help countries with balance of payment problems. The World Bank was formed to offer longer-term loans for development and reconstruction. These two institutions later became the implementers of SAPs.

SAPs came as a result of the debt crisis that hit the developing countries in the 1980s, caused by the economic downturns, which started with the 1970s deteriorating economic situation in Africa and the oil price shocks of 1973/74, 1979 and 1982. "The account begins in 1973 with the OPEC-inspired oil price shocks of that year and 1974. A rise in the price of oil created a balance of payment problem in most non-oil exporting LDCs and pushed some OECD countries further into recession" (Schuuman, 1996, p.126). Fortunately the petrol boom money was recycled into banks in Europe and America. But in 1979-82 soaring oil prices, declining non-oil products and monetarist policies adopted to deal with the recession moved the world economy into the deepest recession since the 1930s. During the oil boom so much loan was given to the developing countries and sooner they started defaulting in repaying. "In order to secure the stability of western and American commercial banks the IMF was called upon to coordinate a series of rescue packages for countries caught in the debt crisis"(Schuuman, 1996). Therefore, SAPs were centred on boosting external accounts to facilitate debt servicing.

Since 1982, as far as IMF and World Bank technocrats and western governments were concerned, the only way to rekindle economic growth to solve the debt problem and bring development in the developing world was to implement among other things the following:

  • Devaluation of local currencies
  • Rolling back of the state, including privatisation of state enterprises
  • Elimination of subsidies
  • Trade liberalization

    In addition, democratisation has now been added to the list. However, what is interesting is that the so-called developing countries do not determine what, when and how the elements of SAPs are to be implemented.

    Here it is important to note that to determine the successes and/or failures of SAPs would depend on its intentions as it could be observed in the words of Susan George:

    "If the goals of official debt managers were to squeeze the debtors dry, transfer enormous resources from North to South and to wage an undeclared war on the poor continents and their people, then their policies have been an unqualified success. If, however their strategies were intended -as these institutions always claim - to promote development beneficial to all members of society to preserve the planet's unique environment and gradually the debt burden itself, their failure is easily demonstrated." However, any policy, which aims at assisting people, must better their condition or be considered a failure.

    Furthermore, certain fundamental questions must come to mind when assessing the impact of SAPs and its compatibility with NEPAD for the development of the African continent. Should development policies be imposed? How effective and appropriate would development policies be if they are determined by others rather than the intended people? Should development strategies be the same for different societies despite their differences? Would Africa be left to strategize its own development as it was accorded to Europe in the case of the European Economic Program with the Marshal Plan?

    The conditionalities of the IMF and World Bank were quantified, precise and non-negotiable in terms of reducing a country's balance of payment deficit. These conditions are tied to the funding of projects. It is the borrower that must comply. For instance, the former president of The Gambia in a presidential address in 1984 indicated that, "among the several economic measures that have been taken in the context of the present fifteen month economic stabilization program, the most prominent has been the 25% devaluation of the Dalasi. This was a measure that we had hesitated adopting for sometime because of its pervasive effects but which we were nonetheless compelled to because of the seriousness of the short term trade debt"(Session Paper no.3, 1984). This is what had and still characterize SAPs despite its different names. Then can NEPAD succeed if they are to rely on the developed world to fund its programs?

    On the other hand, if SAPs is to be positive enough it should avoid total rigidity and be prepared to change programs with regards to their impacts on the life of the people of debtor countries. What has been the impact of SAPs and what could the African Union and NEPAD learn from it?

    On the devaluation of national currencies the basic assumption of the implementors of SAPs was that the local purchasing power has been over valued as against its international worth. So by devaluing the national currencies investment would be encouraged and the demand for imported goods would also decrease. When this happens export would increase and thereby improve the balance of trade and also increase the much-needed foreign exchange for debt serving. In addition, it was thought that devaluation would increase price of imported goods thereby decrease their demand and in turn decrease expenditure on export. This means less demand on our external accounts and again more foreign exchange for debt servicing. However, the fact of the matter was that devaluation and speculation for further devaluation led to inflation and temporal scarcity of goods and capital flight. In the case of Ghana "devaluation in 1983 reduced the currency to a tenth of its previous value in relation to the US dollar and this was to be further reduced by inflation to as little as a hundredth ", ( Brown, 1995). In The Gambia," the fear that once a person spends his or her foreign money and was left with dalasi, one could wake up one day and find the dalasi devalued, led many business persons to withhold importing until the situation was clear ", (Foroyaa, July, 1992).

    However, contrary to their belief soon after devaluation import volumes increased and exports decreased as the western world begin to need less raw materials especially from Africa and increase the trade deficit further. It was thought that devaluation would benefit the export of primary products from the developing world. However, due to gross over-production, the growing stock of commodities and the economic recession led to sharply falling world prices of primary products, thus a collapse in the earning of the developing world. In effect the objectives of the devaluation was defeated. The debtor countries had "no" option but to obey. Essentially, this illustrates unequal partnership where the western countries propose, dispose and impose on the developing world. Will NEPAD work in this framework?

    Furthermore, "IMF discouraged government intervention in any economy and has used SAPs to reduce or eliminate government spending, particularly on social programs"(OXFAM-Canada, July, 1992). Emphasis was put on privatisation of state enterprises, reduction of the work force and the removal of subsidies, all geared towards securing more foreign currency to service debts. Here one good thing was that government payrolls were thoroughly checked and thousands of "ghost workers" were removed. In Ghana for example more than 10,000 "ghost workers" were removed from the government payroll in 1987. On the other hand, this was accompanied by massive retrenchment of civil servants and the reduction of wages, salaries and allowances. In The Gambia for example, of the 14,224 government employees by December 1985, up to 3,324 were retrenched by July 1986 and a further 700 posts were suppressed. And The Gambia Government called these retrenched workers excess baggage. This was done in the name of efficiency. Unemployment rose and increased the deprivation of the people everywhere these programs were implemented.

    To make matters worse government started to eliminate subsidies for essential goods and services such as farm tools, fertilizers, medicine, education, etc. This worsened the deprivation of the poor and the unemployed. B. Pleskovic and M. Bruno (1995) stated in that regard that, "one of the great tragedies of the 1980s in Africa and Latin America was not only their poor economic performance but also the simultaneous reduction in government expenditure". The reduction in government expenditure resulted to the deterioration of public infrastructure, decrease in the quality of service delivery, and increase in the cost of basic essential services such as health care and education. These coupled with increased tax further reaped the back of the people. In The Gambia for example, in the mid 1980s health service charges rose to 500% from D1.00 to D5.00 and in education school fees increased and the cost of school furniture was bored by the parents without corresponding increase in the quality of services. In Ghana "the spending cuts fell particularly on health and education. Poorer Ghanaians were unable to afford health treatment or school books and further education..." (Brown, 1995,p.77). There was no doubt that the IMF and World Bank mandated cuts in social spending had been undermining human potential for development. Evidence show that government cut backs had tragic consequences in many developing countries. Hundreds of people were killed by police and army units in the Dominican Republic and Venezuela during riots touch off by IMF -mandated jumps in consumer prices. A malaria epidemic in Madagascar in 1989 claimed more than 100,000 lives due to lack of drugs when the government reduced expenditure in health.

    The privatization of public enterprises also had its toll on development. In the privatization scheme sometimes-dead lines were given which made some enterprises to be sold at give away prices thus, at great loss to the state. Furthermore, as these enterprises are put on international tender, eventually most of them fall in foreign hands.

    Ultimately, the economies of these countries are now controlled by western multinational corporations. In The Gambia for instance, the GPMB, which had savings up to, D100 million in 1978 had to be sold for only D20 million in 1993. Consequently, Alimenta who bought GPMB had monopoly of the buying of groundnuts, the major cash of the country.

    When the military came on to power they realized the fault. However the process of rectifying the whole situation had cost them over $11 million and a collapse in the marketing of groundnuts. This has greatly affected the economy of the country. The interesting thing however, is that monies got from the sale of these enterprises most often go to service debts. All these need to change if Africa is to forge ahead.

    Above all Africa is a region with a culture of a sense of community and not individualism as is the case of most IMF and World Bank prescribed policies. This means that for NEPAD to succeed its programs must be thought, formulated and guided by the African people and it must be programs that are not to please any outsider but for the interest of the African people in general. Furthermore, when these enterprises are sold the new owners adopt a policy of indiscriminate retrenchment without proper compensations.

    People who have worked their entire active life are just dumped one day without alternative source of livelihood or even access to pensions in the name of privatisation. This is why the Arusha Declaration of more than 200 experts indicated that SAPs should change and have human considerations of its policies. Again the African Alternative Framework proposed that there should be a change in " the doctrinaire privatisation, which has restricted growth and undermined social welfare". Furthermore, as illustrated by M.B. Brown African governments by accepting IMF and World Bank conditionalities have two common failures: "the first was the failure to nourish a pluralist society in which alternative policies could be discuss and criticisms raised against misconceived enterprises before they collapsed. The second was the failure to create a technocratic civil service capable of challenging governments and designing economic policies".

    Trade liberalization means the excessive dependence on market forces to set " prices right ". This means that the state does not have to impose quotas, tariffs, price controls, weight and measures, protection of local industries or even subsidizing for certain essential commodities even for equity reasons. With this African industries have no chance of survival, as they are open to competition with the more powerful western corporations. In pursuing trade liberalization policies industrial countries and the world's financing institutions have been encouraging greater competition among primary producers with the aim of distorting prices to their advantage while the demand for these products remained inelastic for a long time. Consequently, as indicated by the UNDP Human Development Report of 1998, the terms of trade of the least developed countries have declined by 50% over the last 25 years. The report also indicated that agricultural subsidies and other trade barriers have made developing countries to loose $60 billion per year.

    After decades of Structural Adjustment Programs in the developing world what is the development situation of its member countries? For Africa its debt has increased from $80 billion in 1983 to over $300 billion in the late 1990s. For the entire developing world it was about $1,341 billion at the end of the 1990s. In Sub-Saharan Africa debt service over exports have increased from 16% in 1980 to 34% in 1991, and outstanding debt over GNP has increased from 21% in 1980 to 88% in 1991. It is also indicated by Rahnemaetal that the net financial transfer from the developing world to the developed world between 1982 and 1987 is over $400 billion.

    In conclusion, lets ask this question: can NEPAD succeed in the midst of such conditionalities and inequality? The answer is of course in the negative. While the development problems of Africa are not solely attributed to SAPs there is no doubt that it has worsened it. By relying on the world's financial institutions would NEPAD not fall in the web of SAPs? For NEPAD to be sure to be saved from the web of western nations it is better to rely on our resources. This must start with individual nations first then extended to NEPAD. Recently some African leaders criticized NEPAD for relying on handouts, however, are these leaders not doing the same thing at their country level? Such criticisms would not help Africa. Each African nation should preach what it practices. We must move away from mere rhetoric to praxis. Infact it must be noted that the West and their financing institutions never had the intentions to help Africa. According to OXFAM-Canada, "until the 1970s, most Third World countries avoided dealing with the IMF because they recognized the threat to their sovereignty implicit in the conditions attached to any IMF financing". But most African governments cannot avoid the IMF or other Western financing institutions because they live beyond their means at the expense of their citizens. As we enter the 21st Century we are faced by four dangers: budget deficit, trade deficit, indebtedness and unemployment. How NEPAD would deal with these dangers and make Africa free from being remote controlled by Structural Adjustment Programs is key to its success.

    More Information on Poverty and Development in Africa
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    FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.