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Neo-liberalism and the Economic and Political Future of Africa

Nji Renatus Che - 12/19/2005

The core of Neo-Liberalism, which is ploy by western capitalist to have continuous grip on the African economic scene, is championed by International Financial Institutions (IFLs)-The World Bank and the International Monetary Fund (IMF). Western creditor nations hold that the crises caused by Neo-Liberalism can only be understood within the context of the issue of state versus markets. In a nutshell, neo-liberals argue that, the fundamental factor responsible for the economic crisis in Africa is the excessive state regulation of the economies of African countries, which among other things distorts the process of economic development and leads to inefficiency in the allocation of resources. They maintain that the problem can only be overcome through the peripheralisation of the state and the ascendancy of market forces in Africa’s political economy. In this light the neo- liberal countries have decided to impose their neo-liberal ideas on African countries.

International Financial Institutions have become the main instrument for the implementation of the neo-liberal agenda. These neo-liberal prescriptions are embodied in the Stabilization and Structural Adjustment Programs (SAPs) of these Institutions. The economic crisis in Africa, the debt burden has put African countries in a miserable position and this has created the opportunity for the Western capitalist nations and the IFLs to collaborate in imposing their neo-liberal policies on African countries. For instance, both the IMF and the World Bank require African countries to agree to the implementation of the stabilization and adjustment programs before they can get the much needed loans from these institutions or have their debts rescheduled . Similarly, western creditor nations have made reaching agreements with the IFLs over the implementation of the stabilization and adjustment programs the requirement for rescheduling the debts of African countries. In the face of this helplessness, many African countries have been forced to implement these programs. Neo-Liberalism has produced a significant impact on African economic and political scene.

One of these could be seen in the policy of Devaluation initiated by the World Bank, the International Monetary Fund and other International Financial Institutions. Devaluation has negatively affected the industrial sector in Africa. The import substitution strategy of industrialization which modernization promoted is highly import dependent in terms of machines, raw materials, and other inputs. Since all industrial inputs are imported from advanced capitalist countries, devaluation resulted to the in massive increase in the prices of these inputs, increases that are far beyond what many of the indigenous industries could afford. The outcome of these high prices for inputs is that, the prices of the products of even the few industries that manage to remain in production are so high that they are more expensive than the imported alternatives. Giving this situation, most of the small scale and medium scale industries have gone out production while the few industries that have managed to remain in production are producing at a very reduced capacity.

This situation was clearly demonstrated by the report of the Manufacturers Association of Nigeria (MAN) on the performance of Nigeria’s industrial sector in the first six months of 1989. The report, which was the outcome of a survey of 200 manufacturing companies, showed that local sourcing of raw material declined from an average of 51% in 1988 to 46% in the first six months of 1989. The reasons for this decline includes increases in both the cost of local raw materials due to pressure from exports and the cost of importing machines and spare parts due to the massive devaluation of the Nigerian currency. Similarly, in the same period the cost of both imported and local raw materials rose by an average of 111% and 98% respectively . This contributed to the rising cost of production and ex-factory prices of goods, and therefore a considerable fall in the demand far local manufactured goods.

All over Africa, the ravaging effects of Neo-Liberalism as embodied in SAPs have become very apparent. Devaluation of national currencies has also led to massive inflation, sharp reduction in public expenditures, retrenchment, cut in wages, unprecedented level of unemployment and the removal of subsidies from the social sector among other inhuman measures. This hass resulted to widespread poverty and misery. All these have not done any good to the depreciating situation that African economies have been facing over years.

Moreover the main argument brought forward by the neo-liberalists for devaluation was that, it would discourage imports while encouraging exports and therefore help in reallocating resources to farmers. But giving the inelastic nature of demand for agricultural products, this dream has not been fulfilled. On the other hand, the frustrating effects of devaluation on the wage of farmers have made them flood the world market with their products thereby further lowering the prices of their produce and increasing their woes. In fact this situation has put African farmers in an uncomfortable position as far as trade is concern.

In the face of the phenomenal decrease in the purchasing power of African currencies, the reduction in wages and the retrenchment of government workers advocated by Structural Adjustment Programs (SAPs), most urban dwellers can no longer afford to purchase agricultural products. Berry and Widner have clearly shown that this serious decline in the income of farmers presented them with limited options, they could not rely on subsistence farming because in the face of increase fees of social services they needed much more money to pay for them nor were off farm employment an option given by general economic decline. The resultant frustration has forced many farmers to either resort to the exit option and by abandoning farmers and migrating to the urban centers, thereby worsening the already acute employment situation in these areas or in the case of some powerful farmers, they take this as an opportunity to increase political activism . It is thus ironical that a policy, which was supposedly aimed at increasing the income of farmers, has ended up further impoverishing them.

Another significant impact of Neo-Liberalism on the African economies is the policy of trade liberalization. The neo-liberals argue that, by removing all the bureaucratic controls over the foreign exchange market, African businesses would be able to import the necessary inputs for their industries while more foreign investment would be attracted in to the continent. In addition, by abolishing government control and direct participation in the marketing of agricultural products and therefore removing the exploitative tendencies of marketing board, the increased income would be passed on to farmers thereby increasing rural incomes. This according to the neo-liberalists would encourage increase production by the urban dwellers. The impact of this on African economies is that, the African economies continue to be situated within the neo-classical economy of comparative advantage which advocates that African countries should continue with the imperialist imposed international division of labour which placed them in the position of producing raw materials for the western capitalist countries.

Privatization is another policy that SAP has imposed on Africa and this too has not done any good to African economies. Giving the concrete realities of Africa, privatization is seen as a tool for the promotion of neo-colonial dependency, imperialist control and underdevelopment in Africa. In fact a study of Kenya’s industrial sector has demonstrated that, commercialized state owned industries sometime perform better than private ones . According to Grosh, evidence from Kenya suggest that s efficiency level in public manufacturing are comparable to private sector manufacturing and quasi-public firms combining both private and public control substantially surpass efficiency level in the private sector considered separately.

In fact the ravaging effects of SAPs are evident in the fact that in virtually all African countries where the policies have been implemented, the outcome has been the collapse of the economies of those countries. A good case in point is Zambia where the economy collapsed in the early 1980s due to the implementation of SAP. Another illustration of the destabilizing effect of SAP is Zimbabwe whose economy was still on a relatively sound footing when it made the fatal mistake of swallowing the bitter pill of SAP in the early 1990s. The outcome was the virtual collapse of the Zimbabwean economy, which has not been able to recover since then.

The only success that the international Financial Institutions and their intellectual apologist have tried strenuously to showcase in favour of SAP in Africa is Ghana. Although when compared to the pre-Rawlings era Ghana has made some modest gains, the bottom line fact is that giving the high level of economic hardship in the country, the much-trumpeted success has been an exaggeration. Moreover, it has been pointed out that the state of Ghana’s economy before Rawlings took over, coupled with the authoritarian nature of Rawlings regime which ironically is at least in theory at variance with the minimization of the state policy Created the condition for the very modest gains yet some of these so-called gains have been blown out of proportion.

In the political scene, the forces of Neo-Liberalism through its SAPs have also been at work on the African continent. This has produce enormous impact on the African political life. In fact a serious detrimental effect of SAPs is their implication for African autonomy. International Financial Institutions (IFLs) through their SAPs have gone a long way to influence political appointments on the African continent. For instance an inter-ministerial ministerial committee set up by the Babangida regime between IFLs experts and Nigerian officials in 1985 was used as an avenue to influence the appointment of former World Bank official and one of the strongest proponents of SAPs Kalu Idika as the Finance minister in Nigeria.

Moreover, a combination of the imperialistic role of the IFLs and wide spread poverty caused by SAPs in various African countries has led to a large scale and Anti-SAPs uprisings African countries like the case of Zambia and Nigeria . This has created political instability on the Continent. As a result, the IFLs particularly the World Bank have introduced what it terms Politcal Condtionality. Here the neo-liberals call for good governance, democratization and human right. Through this the neo-liberals tended present them selves as friends of the civil society while presenting the state as enemy of civil society. The emphasis on liberal democracy and state sponsored democratization has only resulted in the installation in power of the corrupt and decadent element that in the first place contributed greatly to the development crisis.

In fact as far as neo-liberals are concern, human rights and democracy are for those elements in the civil society who champion their course. That is to say those who are sympathetic towards SAP. They do not hesitate to support massive use of state power to construct civil society and democratization that reflects the aspirations of neo-liberals rather than the aspirations of the majority of the people. While issues like democratization, accountability and human right are certainly impressive, in the current African situation they can only be attained through genuinely popular democratic processes that are constructed from below by active elements of the civil society like market women, students, peasants, workers and the unemployed.

This work concludes that Neo-Liberalism has done much harm to Africa. In fact, it can be seen as the brain chill behind Africa’s development crisis as Africa’s development crises have been dominated by neo-liberals. This has been basically through the numerous SAPs initiated by the neo-liberals. Moreover, because the neo-liberals themselves cannot solve Africa’s development problems, it is suggested that meaningful solutions have to be internally generated by the African peoples based on their unique experiences and realities. In this regards, Activists and independent civil societies acting on the basis of popular democratic tradition in the various African countries are better placed to fashion adequate solutions for the crisis.