Sub-Saharan Africa Class 3

Internalist Perspective Central Thesis African governments have intervened to shift internal terms of trade against farmers this has created significant DISINCENTIVES to agricultural production. Result is widespread agricultural stagnation

Why have African governments done this??? corruption and incompetence to expand public services and public sector employment (employer of last resort) response to political demands of urban interest groups –weak state argument is signif. here commitment to industrialization

Mechanisms of Intervention direct price interventions –began with colonial govts and export crops currency overvaluation-- biased impacts on city and countryside agricultural marketing boards (parastatals) –administer low producer prices –dead weight on sector

Role of Import Substitution Industrialization high capital requirements led to starving of agricultural sector of investment capital sectors that have emerged have not generated linkages with agriculture

World Bank Perspective States play too strong role in economy –Initially understandable but... Too much public sector production –10-20% of total formal employment in many countries Civil service sectors are too large External factors like falling terms of trade have contributed –but their role is exaggerated

Economic Policy change since early 1980s 29 countries have made some commitment to WB/IMF to structural adjustment policy reform more than half reduced budget deficits but did NOT increase tax revenues many devalued currencies many reduced non-tariff barriers but NOT tariff rates

Economic Policy Change (cont.) 2/3 reduced tax burden on agriculture but few dissolved state marketing boards a few privatized public non-agric. public enterprises/but not large ones of “national” interest limited downsizing of civil service –“ghosts” issue –salary issue

Impacts of Economic Policy Change??? Types of studies single country case studies cross-national research

Zimbabwe case study q Most industrially developed country outside South Africa q other advantages--politically stable, relatively good infrastructure, competent bureaucracy q World Bank predicts a less painful adjustment

Focus is textile, clothing and footwear industries (labor intensive, low skill) q In response to incentives, exports of textiles and clothing grew at 12% per year during 1980s q Early 1990s--deindustrialization q textiles employment---25,300 (1990) to 12,400 (1995) q clothing employment---24,000 (1991) to 17,000 (mid 1990s)

Why deindustrialization??? q Tariff reductions on textiles were designed to give clothing firms access to cheap inputs but hurt domestic textile production q clothing firms were hurt by imports of second hand clothing q footwear industry could not compete with Chinese imports

Cross-national studies World Bank q Step 1. Compare growth rates in pre- and post-adjustment periods for 28 countries that accepted WB adjustment programs

Change in average annual GDP per capita growth, to

Step 2. Recognize 3 subgroups on basis of policy reform ANNUAL GROWTH RATES, PER CAPITA GDP, BY POLICY GROUPINGS

Cross-national studies Mosley and Weeks

Growth rates by adjustment status

Growth by type of program implemented

------GROWTH IN EXPORTS Relationships to particular policies and political environment

The social costs of structural adjustment q Good source: Sahn, Dorosh and Younger, Does adjustment hurt the poor? World Development 24(4): q Question: Have the major components of structural adjustment worsened income distribution and adversely affected the poor (bottom 30%)?

Question 1. Who are the bottom 30%? How and where are they embedded in the economy? q Predominantly rural. Main income source is agriculture. Mainly not as waged workers. Heavily engaged in subsistence agriculture. q So the primary impacts will be on their role as producers, not consumers.

Methodology q Focus on 10 African countries implementing structural adjustment programs q Try to analyze effects of various policy changes at the household level. q Try to do more than simply compare conditions before and after.

1. Impacts of currency devaluation and opening of economy to global economy. q Impacts depend on previous access to foreign exchange and imported goods at favorable prices. q Losers are those who lost RENTS (excess profits) due to restrictions on trade and exchange rates. q Rural poor gained marginally from greater competitiveness of products abroad

2. Impacts of fiscal policy changes q Conventional wisdom: Cuts in gov’t expends. have disproportionate impacts on the poor. q Their procedure involves examining: q What is the level of cutbacks? q who actually benefits from those services?

Level of cutbacks

Nature of the spending on health q Vast majority of public expends. go to hospitals or administration, not to primary and preventative medicine. q Who uses hospitals and clinics?

Percent of rural population using health facilities in past month by household expend. group Conclusion: Public hospital care is not well targeted to the poor.

q On average, half of the education budget goes to primary schools q But per pupil expenditures are much higher for secondary and university students Nature of spending on education

Percent of eligible persons attending public school by level, by per capita expenditure quintile

3. Impacts of changes in food marketing systems Reductions in interference are likely on net to benefit the rural poor Why??? Rarely beneficiaries of subsidized food prices Bore the costs of such schemes in their role as producers

Conclusion Biggest losers will be urban elites who had access to official markets and prices. Poor rarely participate in official markets for food, inputs, foreign exchange and credit. Secondary losers. Retrenched public sector employees Urban poor who had access to subsidized food