Development challenges and flic World Bank's response Edward V. K. Jaycox
Edward V.K. Jaycox, Vice-President, Eastern capita income for all of Africa was marginally generally unfavorable climate and geograph- and Southern Africa Region of the World positive in the 1970s as income growth barely ical factors: tropical soil which is fragile and Bank, spoke on this topk at the Woodrow outpaced population increase. But in the 1980s, deficient in organic materials, and only one Wilson International Center for Scholars, The domestic production has declined every year fourth of which is well watered Fifth, ex- Smithsonian Institution, Washington, DC, in white population has continued to grow rap- tremely rapid population growth.... - August 1985. Here are excerpts from his lecture: idly. The decline in per capita income has . These already vulnerable countries have been so steep that it is now below its 1970 been particularly hard-nit, by a series,of ex- The tragedy unfolding in Africa has riveted level: we now face the prospect that Africa ternal shocks in rapid succession: the oil world attention on the region's plight. Since will experience a generation of declining per shocks of J973 and 1979, wSii increased 1980, some 34 countries have been afflicted capita income. imported energy costs.and devalued com- by drought. Millions of people have died and Agriculture, the backbone of African econ- modity exports accordingly; the major reces- many more are threatened by famine and omies and the key to the development of the sion in industrialized countries which trans- malnutrition. Emergency assistance, though continent (since it is overwhelmingly rural mitted itself to Africa-as a decline in demand much needed, will not suffice. This tragedy and agrarian) has been a lagging sector. for commodity exports and declines in their is not of recent origin. Its causes have deep Agriculture output per capita has been de- prices to levels Hot seen since the Great roots and are structural. The drought, though, clining steadily over the last two decades and Depression; worldwide inflation which en- has revealed the vulnerability of Africa's eco- food imports have increased sixfold in the last couraged countries to finance their develop- system, its structure of production, and its 20 years.... ment through debt and then disinflation which low level of development. The appropriate left them with Mgh debt at high real interest response must therefore involve tackling all Unfortunately, the decline in production rates. At the same titne access to new credit of these problems in a comprehensive manner. was not confined to agriculture. Mining output and private equity investment has all but dried It must, however, be realized at the outset in 1982 was 68 percent of its 1970 level. up and concessional aid has declined, partly that sub-Saharan Africa suffers from deformed Much of industrial capacity lies idle because in response to budget stringency in the donor production structures inherited from the co- of falling domestic demand, poor investment countries and partly as a result of growing lonial era. Much of the region's exports choices and inadequate foreign exchange for dissatisfaction with the results that aid has consists of a vulnerable and narrow spectrum materials and spare parts.... achieved—so-called "aid fatigue." Moreover, of primary commodities, while manufactured Looking at the basic constraints to devel- as recovery began to get underway in indus- goods and capital equipment form a small opment, we find: first, a weak human resource trialized countries, the benefits have eluded proportion of domestic output. Trade forms base, lack of technical, managerial, and en- most African countries. Demand for their a high proportion of gross domestic product trepreneurial skills due to neglect of education products has not picked up significantly, prices and is highly concentrated with respect to during colonial times. Second, political fragility remain low, interest rates remain high and trading partners. resulting from newness of independence and aid continues to stagnate.... Over the past two decades, the fragility of diverse cultures and languages and a lack of ...In the face of these external shocks, by Africa's economies began to unfold. The eco- national integration. Third, a heritage of un- and large African governments have failed to nomic situation began to deteriorate in the even, dualistic development, weak infrastruc- adjust their economies, and have therefore 1970s and continues to do so. Growth of per ture, and subsistence agriculture. Fourth, been overwhelmed by difficulties and decline. Finance & Development I March 1986 21
It must be noted that this is not because vironmental protection and conservation, family ticipate. So far, approximately US$1.3 billion African leaders don't care or because they planning, and institutional development. has been contributed to this Special Facility, don't know any better. Political instability and This third front—to institutionalize the ca- which will be concentrated on supporting institutional fragility have to a large extent pacity to manage the development process, policy reform programs. The Facility is being tied their hands and led to overpoliticization the capacity to implement policy reforms and financed by donations from 21 donor countries of the decision-making process.... sound investment programs, lies at the heart plus an allocation from the profits of the World of the development process and is lagging Bank itself. It became effective July 1 [1985] The Bank's response woefully in sub-Saharan Africa. Here again and [began] disbursing to the first recipients The Bank has outlined a Joint Program of we are working with other donors and the [in August]. We are working on further ex- Action for sub-Saharan Africa. This program UNDP to examine the effectiveness of tech- pansion of the Facility and hope eventually to calls for a collaborative effort by African nical assistance, and our past efforts at insti- see the United States join our ranks. governments and the international commu- tution building, and to develop with each There are a few other aspects of our nity, the essence of which is, by now, widely country strategies for human resource response to the economic situation of Africa, shared. development.... which I'd just like to mention: This Joint Program has as its objective The World Bank has been asked by the • We have also created a Special Project nothing less than getting sub-Saharan Africa donor community to take the lead in laying Preparation Facility which will finance on a back on the growth path. There are three out with each African country robust recovery grant basis project preparation and policy main elements of our approach. First, to and development strategies which can be studies that would form the basis for projects implement policy reforms which will provide supported externally. African governments and programs financed by the Bank or by a framework for sound economic growth. have asked the World Bank to form increasing other donors; Second, to improve dramatically the quality numbers of Consultative Groups—groups of • We have established a budget to finance of public and private investment and expend- donors and financial supporters, to promote African agriculture research of a regional iture in these countries. And third, to increase more, better coordinated, and more effective nature on a grant basis; as rapidly as possible the domestic capacity external assistance. After all, most of the • We have increased the number of field to manage national economies through human new investment in Africa over the past two missions in sub-Saharan Africa and strength- resources and institutional development. Our decades has taken place with the participation ened each of the existing field offices with strategy necessarily involves a focus on ag- of the donor community.... the addition of professional economists and riculture—because of the central importance Now let me turn to the question of the agricultural staff; of this sector, economically and socially as financial resources available to help Africa • We have generally redirected staff and well as because of the imminent dangers to back to the growth path. Even though in the budget resources internally in the Bank to- the fragile environment inherent in the com- past Africa has received the highest per capita ward sub-Saharan Africa operations.... bination of traditional agriculture and increas- allocations of external assistance on conces- But while we need to do more, we also ing population density. sional terms, we have seen these flows need to do things differently. We need to On the policy reform front, we are sup- stagnate and decline in recent years. Sec- look at Africa's problems comprehensively. porting analytically and financially the imple- ondly, the burden of debt and debt service We need to utilize existing aid more efficiently mentation of macroeconomic and sector policy has generated a very substantial reflow of and we need to be willing to try new ap- frameworks which stress efficiency of in- capital to the developed world. We now proaches. Furthermore, to put the African vestment, greater reliance on market forces, estimate that on a net basis the capital flows countries on the growth path, it is important and reductions in bureaucratic controls which to Africa in the period 1985-89 will be less that African governments, bilateral donors, have stifled development and had regressive than one half the net flows to Africa during and multilateral agencies recognize: the ov- impact on social equity. In this respect, we the period 1980-84. We do not foresee any erriding importance of the development of are working both with the countries and the dramatic improvement in terms of trade or indigenous managerial, executive, research, other donors (including the IMF) to find ways export possibilities that can offset this reduc- and innovative capability; creation of an hon- to implement these difficult reform and ad- tion in net capital flows. If Africa is to return est, dedicated, and loyal body of managers justment programs in the least painful and to the growth path, if Africa is to successfully and entrepreneurs; development of appro- most efficient ways—keeping the develop- survive the traumas of necessary structural priate technology, appropriate prices, and ment objectives firmly in mind. Alongside our adjustment, the net flows of capital to Africa adequate control over public enterprises; the traditional project loans/credits, we are mak- will have to be substantially increased—through need for the economies to be flexible and to ing so-called structural adjustment and sec- increased gross flows and/or some forms of shift resources from one activity to another; toral adjustment loans/credits which provide debt relief—at least for those African coun- and the need for a conducive political envi- general or wide-ranging import support to tries willing and able to take painful measures ronment for economic activities. We need to countries implementing important policy re- to adjust their domestic economies. avoid proposing prescriptive policy packages form programs. While the World Bank Group has a very which are not politically feasible. We must On the matter of quality of investment and positive net flow of resources to sub-Saharan take into account real political fears and carry other expenditure we are working not only Africa, we are forced to do less than what out detailed analyses of implementation prob- on our own portfolio of investments, but on we could and should do because of the short- lems to avoid undesirable income distribution the total expenditure programs in these coun- age of IDA resources. The last replenishment and power distribution effects. We must pro- tries.... This means emphasis in most cases of IDA—of which Africa now receives more pose step by step implementation sequences on rehabilitation and maintenance, in infra- than 35 percent—was only $9 billion over a with buttressing and buffering measures to structure, services and enterprises to in- three-year period, compared to the $16 billion make them less painful or dangerous. crease output and capacity utilization quickly we felt was required. In order to help com- There are no magic solutions, no panaceas. at least cost. We need these quick returns, pensate for this shortfall in IDA we have But the World Bank is prepared to make but we cannot ignore the very high but slower organized a Special Facility for Sub-Saharan every effort to respond to the development returns to education, training, research, en- Africa, in which donors were invited to par- challenge which Africa presents. ED
THE EFFECTS OF FUND-SUPPORTED ADJUSTMENT PROGRAMS Adjustment is frequently necessary but seldom painless. Any program of adjustment, in essence, involves an attempt to establish a better balance between the availability and use of resources, between supply and demand, between income and expenditure. The impact of Fund-supported programs has been a subject of debate for almost as long as the Fund has been involved in assisting its members with their balance of payments difficulties. The debate has intensified in recent years in light of the particularly severe balance of payments difficulties that member countries have faced, requiring commensurate adjustment efforts. Finance & Development has carried several articles in past issues dealing with different aspects of Fund- supported programs. In this issue we publish a set of three articles based on recent staff studies that analyzed, in considerable depth, three particular facets of this question, namely the global effects of programs, the impact of programs on economic growth, and the consequences of programs for income distribution. The original studies are being published by the Fund in its Occasional Paper series. The Managing Director of the Fund, Jacques de Larosiere, has frequently had occasion to address the question of adjustment and growth in his public statements. A selection of his remarks is also included in this section.
