Structural Adjustment Programmes: More Harm Than Good for African Development? – An Analysis of the Much-Maligned World Bank and IMF Program

What are Structural Adjustment Programmes (SAPs)?

SAPs are economic policies for developing countries which were introduced by the World Bank and the IMF in the 1980s in response to a debt crisis in Africa in the 1970s. These programmes mainly consist of conditional loaning. Countries are able to get loans from the IMF or the World Bank if they accept conditions given by these entities, which usually consist of policy reforms intended to boost economic development.

Are World Bank and IMF policy reforms impeding development?

How did they intend to fuel development?

SAPs have recognisable neoliberal features, which are reflected in the tendency of their conditions to favour free-market capitalism.

These conditions were similar for the majority of developing African countries. Listed below are typical conditions for SAP loans along with their wanted effect.

Reduction in government spending – to lower public deficit, including through privatisation of public companies

Large-scale trade liberalisation – to induct countries into the global market, increasing exports and competitiveness of local companies (which in turn increases the incentive to cut costs and increase efficiency), effectively increasing income

Large-scale privatisation of public services and companies– to decrease government expenses while increasing efficiency of services provided by these companies

Deregulation of economic policies (which includes stopping the provision of social subsidies and labour market deregulation) – to reduce public deficit, and increase private competitiveness through lower production costs employment

Replacing import substitution with export production – Export production to increase government’s income and international competitiveness of local companies, and the limiting of import substitution to reduce import prices 

However, in spite of these programmes, a great number of African countries are still struggling to develop at a steady pace. Why is that? And to what extent can it be attributed to the introduction of SAPs?

How have SAPs affected Africa?

Despite the difficulty of exclusively exploring the effect of SAPs on Africa (because of external factors such as conflict and corruption), it is today a widely known fact that SAPs have dScreen Shot 2015-01-15 at 07.07.33one a lot more harm than good to African countries. Put more tactfully, SAPs have largely contributed to the increases in income inequalities (locally and internationally), increases in unemployment, decreases in quality of social services, increases in debt, and collapse of domestic manufacturing. The table below gives a more comprehensive understanding of how SAP policies led to further developmental problems for African countries and their citizens.

Screen Shot 2015-01-15 at 06.39.09

There are plenty of statistics that demonstrate the detrimental impacts of SAPs in Africa. Five years after SAP policies were implemented, several countries experienced severe unemployment, such as Uganda, who lost over half of their civil service (170, 000) and Zaïre, who lost 300, 000 civil workers.

Additionally, currency devaluation in Africa post-SAP undermined the foreign exchange value of exports in several countries. For example Zimbabwe, who’s export foreign exchange value had increased by 9% before the implementation of SAPs, began declining annually by 2.7% after the introduction of SAPs.

The educational sector was particularly hit hard by SAP policies, with African illiteracy rates increasing after showing sharp decreases in previous  years. The cutbacks in government spending on public services coupled with the increase in debt led to the Zambian government spending 35 times more on debt repayment than on primary school education between 1990 and 1993.

Screen Shot 2015-01-15 at 07.08.19Increased high volume loaning by the World Bank and IMF has led African countries into a debt cycle, in which they need further loans to repay debt, making them unable to use much of the loans for development. These countries usually end up having to reimburse much more than they initially borrowed because of the interest rates. A striking example of this is the case of Nigeria. In 1978, Nigeria had borrowed $5 billion. However, by 2000, they had payed back $16 billion but still owed $31 billion.

SAPs have undoubtedly been unproductive and held back African economies. However this still leaves the question; despite similarities with several of today’s prospering economies, why weren’t SAP policies effective in promoting development in Africa?

Why Haven’t SAPs Worked?

There are several theories which may be able to explain SAP failures. Firstly, economists argue that, despite theoretical evidence which suggests that SAP policies should accelerate development, African countries weren’t ready to implement these measures yet. Historically, today’s richest countries built up their economies through protectionism and only really opened up their economies when their domestic market was solid enough to compete internationally. That way, these countries were able to benefit from increased imports, while retaining a strong domestic economy. Additionally, these countries gave a central role to the state in economic activity. In contrast, SAPs are promoting methods for development which are forcing African countries into free-market capitalism (mainly through the removal of protectionist policies and state presence in economics) with domestic economies which aren’t ready for international competition, causing economic decline.

Corruption may also be to blame for the inability of African countries to steadily develop. American economist and professor Joseph Stiglitz said in an interview in 2001 “Rather than object to the sell-off of state industries, national leaders happily flogged their electricity and water companies. ‘You could see their eyes widen at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billions off the sale price of national assets”. Corrupt government officials easily altered their actions when money for them was involved. Corrupt governments have also used international loans to pursue conflict, for arm deals and other interest, which meant that the majority of these loans couldn’t be used towards development. Some argued that these illegal uses of loans were no secret to rich nations, who supported these countries for their own national interests, especially during the Cold War.’

A third possible reason for the ineffectiveness of these loans may be related to the fact the the IMF and World Bank are largely influenced by their largest donors due to their ‘one dollar, one vote’ system, whichScreen Shot 2015-01-15 at 07.09.57 benefits rich countries such as the UK, USA and France. For example, the US controls 17% of the voting power at the IMF. Until November 2010, an 85% majority was required  for a decision, meaning that the U.S had veto power in the IMF. It can be argued that SAP policies opened up African markets to create a cheap source of important raw commodities for rich Western countries, while also allowing them to sell their products to African consumers with little competition from domestic industries. It this controversial argument, SAPs were essentially implemented (under the supervision of the World’s superpowers) to further develop Western countries at the expense of untapped African economies.

Bibliography

  1. Heidhues, F and Obare, G. (2011), Lessons from Structural Adjustment Programmes and their Effects in Africa, Quarterly Journal of International Agriculture, 50 (1), 55-64
  2. Jauch, H. (2012), How The IMF-World Bank and Structural Adjustment Program(SAP) Destroyed Africa, Available: http://newsrescue.com/how-the-imf-world-bank-and-structural-adjustment-programsap-destroyed-africa/#axzz3IhiFrD7R, last accessed 23rd October 2014
  3. Moussa Dembele, D. (2014), The International Monetary Fund and World Bank in Africa: A ‘disastrous’ record, Available: http://www.pambazuka.net/en/category/features/24816, last accessed 2nd November 2014
  4. Shah, A. (2015), Structural Adjustment—a Major Cause of Poverty, Available: http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty, last accessed 2nd November 2014
  5. Trade, foreign policy, diplomacy and heath – Structural Adjustment Programmes (SAPs), Available: http://www.who.int/trade/glossary/story084/en/, last accessed October 18, 2014

Advertisements

5 thoughts on “Structural Adjustment Programmes: More Harm Than Good for African Development? – An Analysis of the Much-Maligned World Bank and IMF Program

  1. Hi Vincent, I really like the drawings that you used in the article and wanted to ask about the rights to use them. I would like to include them on the new website of my organisation that deals with the topic of food security and sovereignty. I will appreciate your reply. Bests, Magda

    Like

    1. Hi Magda,

      This article was a project I did as part of a course in University and unfortunately the pictures I put up aren’t mine, but simply photos I found on
      google images which I thought would fit the article. My apologies.

      Best Regards,

      Vincent

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s