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close this bookSustaining the Future: Economic, Social, and Environmental Change in Sub-Saharan Africa (UNU, 1996, 365 pages)
close this folderPart 1: Economy and society: development issues
close this folderPoverty, vulnerability, and rural development
View the document(introductory text...)
View the documentThe nature of poverty
View the documentRural poverty and development in Sub-Saharan Africa
View the documentAspects of economy and society in SS Africa
View the documentVulnerability
View the documentPoverty and economic reform
View the documentConclusion
View the documentReferences

Poverty and economic reform

Economic reform provides a special case of the vulnerability of poor people in developing countries to rapid or sudden change in an economy. It is currently of particular interest in SS Africa in that most SS African countries have been affected by International Monetary Fund (IMF) and World Bank programmes of economic reform, with varying results for their economies and varying effects on the poorest people. All economic development as opposed to growth (i.e. structural change as opposed to increased production, savings, and consumption within an economy) involves investment that will require borrowing or the use of savings. For the most part development makes people poorer in the short to medium term, and also in the long term if it is unsuccessful, as much development in Africa has been. It is in effect a major contributor to poverty in the developing countries, whatever the long-term hopes. All change in the operation and structure of an economy has to be paid for. That payment is the investment that, even when profitable, may nevertheless reduce the standard of living of the poor where restructuring is loaded in favour of the richer members of a given community.

Structural adjustment and stabilization policies are normally the product of International Monetary Fund and World Bank advice, usually worked out in cooperation with a national financial team and linked sometimes to approval and loans from richer nations, sometimes from the G7 ("Group of Seven": Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States). Differences in role between the IMF and the Bank have become blurred as the Bank's funding has become linked to structural adjustment programmes (SAPs) and to financial stabilization, which also appear to overlap (for discussion of the close relationship between the Bank and the IMF see The Economist, 12 October 1991). The roles of the two institutions in what has become in effect a world financial system are extremely powerful. There is a general consensus within the IMF and the Bank on the principles of economic reform, although there are differences amongst individual economists. This consensus may be described as either neoclassical or monetarist (for a useful summary see Hunt 1989: 305-307, 311-315, and 321-322, and in relation to agriculture see FAO 1991a: 81-107) and supports policies aimed mainly at monetary and fiscal stabilization and supplyside measures, usually including agricultural reform, input supply improvement, and market liberalization, mostly in sequenced operations in which the supply-side measures take longer to produce an effect than the monetary and fiscal measures. The latter have usually involved some or even all of the following: restraining demand, reducing current account deficits, devaluing exchange rates, eliminating hyperinflation and controlling inflation, reducing government expenditure, restraining wages, raising interest rates, encouraging savings, and liberalizing international and national trade by removing subsidies and protective tariffs. Some of these measures have been described as "getting the prices right" (Green 1989a: 39) and are based on a belief in the removal of factor distortions in economies and in the attempt to seek equilibrium through the operation of a free market.

What makes the changes of policy associated with the monetarist approach to economic reform of special importance for this paper is the effects on the poor of the introduction of these formidable reform packages, including the short-term nature of many of the measures introduced, involving economic shock and often including the removal or reduction of many of the welfare services and other forms of protection for the poor, thus greatly increasing the stresses put upon them. Of course, one should allow against this the effects on the poor of either not introducing the programmes or taking other courses of action, both of which, unfortunately, are hypothetical or even speculative. Here one can only examine what has happened.

Structural adjustment programmes have been adopted by more than 30 SS African countries, more especially in the 1980s, although African countries were affected by World Bank and IMF policies even in the 1960s, e.g. Zaire, which was one of the first countries to accept such policies. Despite all these programmes, real GDP growth in SS Africa in 1980-1988 averaged only 0.8 per cent per annum, compared with 4.8 per cent in 1965-1980, international debt grew at 12 per cent per annum, and social conditions deteriorated. Obviously world recession problems had to be overcome and African governments cooperated with the Bank and the IMF in various ways and to varying degrees. Nevertheless the results have given cause for debate, criticism, and the expression of doubt (Stein and Nafziger 1991).

The World Bank contrasts its "shock treatment" or reforms implemented in less than two years, usually to resolve a crisis, with what it calls "gradualism" or reforms spread over rather more than two years, but essentially even these are what many social scientists would regard as short to medium term (World Bank 1991a: 117). The model the Bank has in mind was shown in World Development Report 1990 (1990: 105) where a diagram indicated the supposed effects of adjustment in Ecuador, including an increase in the percentage of total population in poverty above the percentage level predicted for "no adjustment" for three years in the rural areas and four years in the urban, while real GDP fell below that expected under "no adjustment" before it eventually rose. The same model included a "no external shock" case, but such a scenario does not appear to have occurred in SS Africa. The World Bank claimed that the real beneficiaries of the SAPs were the rural poor (World Bank 1991a: 106) because even in the "short run" they were protected in relation to the urban poor by depreciation of the real exchange rate, which stimulated exports and increased farm incomes, offsetting in part the effects of a general decline in wages. But how many of the rural poor are engaged in export crop production, which has declined severely in SS Africa, and what is the time-lag on the expected growth of export production? Several years in the case of tree crops. In some countries there is increasing privatization of land and the introduction of herbicides, pesticides, and machinery to reduce labour use, tending to encourage the growth of larger private farms and adding to the numbers of rural landless and urbanward migrants. In some cases the rural areas have been forced to accept people returning to the family farm after being made redundant in the town. It is in any case unsafe to argue on the basis of a rural-urban dichotomy. What, for example, is happening to rural incomes partly dependent on remittances from urban workers?

Fig. 2.2 GNP per capita in Sub-Saharan Africa, 1970-1990 (US$ at current purchaser values) (Source: World Bank, World Tables 1992, pp. 2-3)

SS Africa in the 1980s experienced far worse levels of shock from deteriorating terms of trade and interest rates than did East or South Asia or Latin America, and these were on top of macroeconomic imbalances and severe structural weaknesses (World Bank 1990: 107). Figure 2.2 shows the decline in GNP for SS Africa as a whole since 1980 (for comparison, examples of high [Botswana], medium [Kenya], and low {Chad] GNP trends have been provided). SAPs aimed to reduce imports and raise export earnings, but also generally raised the prices of tradable goods relative to the non-tradables. Pinstrup-Andersen (1989: 94) argued that many of the poor were more occupied with non-tradables than with tradables and were in consequence made worse off. Higher retail prices, where passed on to full-time farmers, have benefited that particular rural group, but those part-time farmers who depend more on the market for their basic goods have gained little. Only the mainly subsistence farmers who could maintain a low level of dependence on markets have managed to escape the effects of sudden changes in market prices and of changes in the demand for agricultural goods, more especially of any rise in the prices of inputs needed for export production or for commercial food production.

Three examples will illustrate these points.

First, in Uganda the implementation of IMF-World Bank policy packages since 1980 has been claimed to have been followed by reduced food remittances from rural to urban areas, reduced cash remittances from urban to rural, a decline in food production, and a decline in the social services. From 1980 to 1984 overall real wages fell, but agricultural producer prices rose 12-15 times, only to be partly offset by a rise in the consumer price index by 10 times, adversely affecting those peasant families depending on the market for a major part of their domestic consumption (Banugire 1989). Uganda began an economic recovery programme in 1987, but this was followed by inflation, which reached 240 per cent per annum at the end of 1988. More devaluation plus higher interest rates and other measures followed, but inflation still persisted. Conditions were made worse by the collapse of the International Coffee Agreement in 1989 (World Bank 1991b: 550-555).

Secondly, Zambia received an IMF programme in 1985, abandoned it in 1987, and returned to the IMF conditions in mid-1989, when consumer prices were decontrolled and the kwacha was devalued. Inflation rose to more than 120 per cent per annum by early 1990 and there was a considerable foreign cash shortage. The agricultural marketing boards were abolished and attempts were made to increase maize production, mainly through subsidies, which contributed significantly to the budget deficit, and unfortunately involving increased marketing costs and serious transport and storage problems. In 1989 maize had to be rationed and maize meal prices rose, followed by riots in Lusaka (FAO 1991a: 50-53). Some progress has been made since in financial reform and in reducing the power of the parastatals, although the toll on living standards has been heavy, including deterioration of all the key indicators of social development (World Bank 1991b: 599-605). Although Zambia has a higher GNP per capita than most SS African countries and a measure of industrial development, it is overdependent on the world metals markets and has shown a marked disparity of income levels (table 2.2).

Thirdly, in the Sudan in the 1970s economic reform measures included a wage freeze, limits on government employment levels, and limits on government expenditure, but seven years later the Sudan had failed to achieve its economic targets and by 1985, after some help from the US government, the Sudan was deep into economic crisis and the government was swept from office. The debt service ratio climbed to 150 per cent of GDP and the country was forced in part to engage in counter-trade. There is evidence that the economic austerity required in the Sudan imposed severe burdens on the poor, and Cheru (1989) asked whether the IMF was "the enemy of the poor. " By the late 1980s the disposable income of the Sudanese peasant was only 30 per cent of what it had been in 1970, and GDP per capita had been markedly reduced. Social services had been cut, wages and salaries frozen, and the purchasing power of the poor had been reduced by devaluation and the removal of price controls. Severe shortages of essential inputs and consumer goods became commonplace. Investment as a proportion of GDP fell together with national and public savings. Budget deficits led to high levels of inflation, jumping by 1989 1990 to 120 per cent. More economic reforms were introduced in 1991, but unfortunately on an ad hoc and inconsistent basis, which has undermined their effectiveness (World Bank 1991b: 507-512). The Sudan has a harsh environment combined with considerable irrigation potential. It has been severely affected also by civil war and pressure from time to time from Ethiopian refugees. In the complex process of combining several strategies against poverty the Sudan suffers from its limitations, and the Sudanese poor are in consequence amongst the more vulnerable.

Despite the limitations discussed, current SAPs and World Bank programmes have claimed an intention to benefit the poor, at least in the longer term, by enhancing the rates of return on the few assets they hold, by increasing their access to the factors of production, by creating employment opportunities, by maintaining their human capital, and by increasing income and consumption transfers (Addison and Demery 1989: 71-89; FAO 1991a: 111-113). The FAO report on The State of Food and Agriculture 1990 (1991a), much of which was focused on structural adjustment and agriculture (pp. 81-152), claimed that SAPs had a negative effect on the chronically poor, while creating a new poor sector with extra burdens on women, very small farmers, and low-income groups (pp. 113-114). Attempts have been and are still being made to reduce the social costs of adjustment, such as the PAMSCAD programme in Ghana (Programme of Actions to Mitigate the Social Costs of Adjustment), but, although "it is true that no social group has lost out massively in Ghana,... it is equally true that those who have lost, even if not massively, are those with relatively poor ability to withstand such losses" - particularly the poor northern farmers, the women food farmers in the south, and the petty retail traders (Toye 1991: 169).