Written by Drew Weider
Introduction
Beginning in the 1980s, Sub-Saharan Africa (SSA) became a focal point for the implementation of structural adjustment programs (SAPs) mandated by international financial institutions like the International Monetary Fund (IMF) and the World Bank. These policies were designed to stabilize struggling economies and facilitate development. However, they required significant alterations to existing economic structures, and these measures have spurred an ongoing debate about their efficacy and consequences. While proponents argue that the reforms were essential and effective, critics assert that SAPs paid insufficient attention to social aspects of development and caused more harm than good.
Background
Before structural adjustment, there was a period of economic stability and growth following the conclusion of World War II. This ended abruptly in the 1970s when the world economy experienced unexpected turmoil. Specifically, there was a breakdown in the Bretton Woods system of fixed exchange rates and gold convertibility of the United States dollar, two oil price shocks, and stagflation that weakened the economies of many developed countries (United Nations, 2017). Consumer demand largely decreased causing a decline in commodity prices and a deterioration of the terms of trade for many developing countries whose main exports were commodities (Stein & Nissanke, 2009). As a result, many countries in SSA that grew dependent on commodity exports due their colonial past experienced an increase in debt levels. Highly indebted countries in SSA were unable to repay the debt, as debt service payments rose sharply.
Implementation of SAPs
In response to the debt crisis in many developing countries, the most profound economic policy changes since World War II were implemented throughout SSA. These reforms, aimed at stabilization, liberalization, and privatization, were known as the Washington Consensus because they reflected the influence of the U.S. Treasury, IMF, and the World Bank, three institutions based in Washington D.C. (Bevir, 2006). Through SSA, the IMF and the World Bank, in particular, were able to promote the Washington Consensus by providing conditional loans to governments. Attached to these loans were SAPs that the recipient governments must implement to ensure economic growth and eventual repayment.
SAPs were introduced in over 40 countries in SSA in the 1980s and continued to operate throughout the 1990s. During this period, the IMF and World Bank worked together, with the IMF heavily involved in setting the economic development and policy agenda, while the World Bank provided structural adjustment lending. The main protocols in SAPs reflected popular neo-liberal tenets such as anti-inflationary stabilization policies, private sector and free market development, controlling budget deficits, privatizing public sector companies and services, eliminating subsidies, and cutting public support for social services (Heidhues & Obare, 2011). SAPs typically called for devaluation of currency and trade liberalization to improve the country’s balance of payments and control its foreign indebtedness, as well as debt rescheduling and stricter debt management (Stein & Nissanke, 2009). The policy being prescribed was nearly uniform despite the diversity of SSA and countries facing different economic situations.
Economic Impact
Ghana
Proponents of structural adjustment point to Ghana as an example of successful outcomes from SAP implementation. These claims of success are based on economic indicators such as high GDP growth and low inflation rates. When Ghana adopted SAPs in 1983, excluding an oil shock in 1990, Ghana’s GDP grew at a rate of about 5% annually (Massaley, 2010). Additionally, the inflation rate dropped from 75% in 1983 to 20% in 1985 (Graham, 1988). In an effort to make Ghanaian exports more competitive, the Ghanaian Cedi was intentionally devalued. The Cedi fell from 2.75 C= 1 USD in March 1983 to an average of 246 C= 1 USD by September 1990 (Massaley, 2010). Devaluation allowed exporters to be paid considerably more Cedis for exports, such as cocoa, which was thought to extend to producers.
However, this devaluation failed in many regards because it did not promote exports to the anticipated extent. Due to many other countries implementing similar devaluation tactics, Ghanaian products were entering an already flooded market full of cheap commodities (Konadu-Agyemang, 2001). Furthermore, critics argue that growth indicators favored by the IMF and World Bank such as GDP and inflation don’t paint a complete picture of development. Improvements in these statistics don’t necessarily translate into the well-being of citizens. Along with GDP and inflation, important indicators to measure are how goods are distributed, the reduction of poverty, and an improvement in the quality of life, especially for the poorest citizens.
Nigeria
In 1986, Nigeria implemented SAPs after suffering an economic crisis due to falling oil prices. Between 1986 and 1992, GDP increased by an average of 5.4% per year. Productivity also increased which was demonstrated by a 9% growth in output by the end of adjustment in 1992. Total investment went from 7.37% of GDP in 1986 up to 12.4% of GDP in 1990 (World Bank, 1994). Proponents of SAPs cite the “reversal of negative economic growth trend of the early 1980s, substantial increase in price of agricultural exports, improvement in external payments arrangements, and international credit worthiness” as other positive effects of SAPs (Danladi & Naankiel, 2016).
However, increasing the price of agricultural exports through methods such as the removal of subsidies and import bans on certain items led to negative impacts on Nigeria’s agricultural and manufacturing sectors. The measures led to price hikes for local produce and increased output but reduced profitability for farmers due to subsidy withdrawal and the higher cost of imported inputs. The devaluation of Nigerian Naira heavily affected its manufacturing sector, which largely relies on imported machines. Unemployment also worsened because many workers lost their jobs due to the downsizing of the public sector, and the private sector growth was generally not enough to absorb the excess labor.
Controversy
Proponents of SAPs argue that structural adjustment helps countries achieve economic independence by fostering conditions conducive to innovation, investment, and expansion. The use of conditional loans is therefore justified because unconditional loans would encourage recipient countries to borrow without addressing the underlying issues that led to their financial problems. This would theoretically lead to more borrowing in the future, creating a cycle of reliance. Advocates for SAPs also argue that some of the failures of SAPs fall on the governments of these countries, citing they have institutional weaknesses and are riddled with corruption. Blame should not be on the policies themselves, but on the governments that failed to implement them properly. Despite some unfavorable outcomes, many indicators point to the success of these reforms and these steps being necessary to steer SSA toward development.
However, structural adjustment programs have faced intense criticism for a lack of effectiveness and widening social inequalities from forcing austerity measures on already impoverished countries. Opponents contend that the impact of structural adjustments is disproportionately felt by women, children, and other vulnerable populations, especially in terms of public health (Crisp & Kelly, 1999). They also depict conditional loans as an instrument of neocolonialism because wealthy countries that fund the IMF and World Bank offer loans to developing countries in return for reforms that expose these countries to multinational corporation investments. While foreign investment is beneficial in many cases, there are countless instances of human rights violations and resource exploitation. Going forward, other struggling countries will have to weigh the effects of these policies when considering how to help their economies.
Works Cited
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Danladi, A. & Naankiel, A. (2016). Structural Adjustment Programme in Nigeria and its Implications on Socio-Economic Development. 1980-1995. 6.
Graham, Y. (1988). Ghana: the IMF’s African success story? Race & Class, 29(3), 41-52. https://doi.org/10.1177/030639688802900303
Heidhues, F. & Obare, G. (2011). Lessons from Structural Adjustment Programmes and their Effects in Africa. Quarterly Journal of International Agriculture, 50(1).
Konadu-Agyemang, K. (2001). IMF and World Bank Sponsored Structural Adjustment Programs in Africa: Ghana’s Experience, 1983-1999 (1st ed.). Routledge. https://doi.org/10.4324/9781315210414
Massaley, M. (2010). Structural Adjustment in Sub-Saharan Africa. Pennsylvania State University. https://honors.libraries.psu.edu/files/final_submissions/692
United Nations (2017). Reflecting on seventy years of development policy analysis. UN Dept. of Economic and Social Affairs.
Stein, H., & Nissanke, M. (1999). Structural Adjustment and the African Crisis: A Theoretical Appraisal. Eastern Economic Journal. 25(4), 399–420. http://www.jstor.org/stable/40325948
World Bank, (2013) Nigeria – Structural adjustment program: policies, implementation, and impact. World Bank Group. http://documents.worldbank.org/curated/en/959091468775569769/Nigeria-Structural-adjustment-program-policies-implementation-and-impact