Table Of ContentSTUDIES ON THE AFRICAN ECONOMIES
General Editors: Paul Collier and Jan Willem Gunning
Published in associa~ion with the Centre for the Study of African
Economies, University of Oxford
Editorial Board:
Paul Collier, Director, Development Research Group, World Bank, and
Professor of Economics, University of Oxford; Jan Willem Gunning,
Professor of Economics, University of Oxford, and Free University,
Amsterdam, and Director, Centre for the Study of African Economies,
University of Oxford; Ibrahim Elbadawi, World Bank; John Hoddinott,
Research Fellow, International Food Policy Research Institute,
Washington, DC; Chris Udry, Professor of Economics, Yale University
This important new series provides authoritative analyses of Africa's
economies, their performance and future prospects. The focus will be on
applying recent advances in economic theory to African economies to
illuminate and analyse the recent processes of economic reform and
future challenges facing Africa. The books, published in association with
the Centre for the Study of African Economies, will bring together top
scholars from universities and international organizations across the
world.
Titles include:
Arne Bigsten and Steve Kayizzi-Mugerwa
CRISIS, ADJUSTMENT AND GROWTH IN UGANDA
A Study of Adaptation in an African Economy
Paul Collier and Cathy Pattillo (editors)
REDUCING THE RISK OF INVESTMENT IN AFRICA
Paul Glewwe
THE ECONOMICS OF SCHOOL QUALITY INVESTMENTS IN
DEVELOPING COUNTRIES
An Empirical Study of Ghana
John Knight and Carolyn Jenkins
ECONOMIC POLICIES AND OUTCOMES IN ZIMBABWE
Lessons for South Africa
Jo Ann Paulson (editor)
AFRICAN ECONOMIES IN TRANSITION
Volume 1: The Changing Role of the State
Jo Ann Paulson (editor)
AFRICAN ECONOMIES IN TRANSITION
Volume 2: The Reform Experience
African Economies
in Transition
Volume 1: The Changing Role of the State
Edited by
JoAnn Paulson
~ in association with
~
PALGRAVEMACMILLAN
First published in Great Britain 1999 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS and London
Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 978-1-349-27482-6 ISBN 978-1-349-27480-2 (eBook)
DOI 10.1007/978-1-349-27480-2
First published in the United States of America 1999 by
ST. MARTIN'S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue, New York, N.Y. 10010
ISBN 978-0-312-17751-5
Library of Congress Cataloging-in-Publication Data
African economies in transition / edited by Jo Ann Paulson.
p. cm.
Includes bibliographical references and index.
Contents: v. I. The changing role of the state - v. 2. The reform
experience.
ISBN 978-0-312-17751-5 (v. I). - ISBN 978-0-312-17752-2 (v. 2)
I. Africa-Economic policy. 2. Africa-Economic conditions-I 960-
I. Paulson, Jo Ann.
HC800.A5674 1999
338.96---DC21 97-23323
CIP
© Centre for the Study of African Economies 1999
Softcover reprint of the hardcover lst edition 1999
All rights reserved. No reproduction, copy or transmission of this publication may be made
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No paragraph of this publication may be reproduced, copied or transmitted save with
written permission or in accordance with the provisions of the Copyright, Designs and
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Any person who does any unauthorised act in relation to this publication may be liable to
criminal prosecution and civil claims for damages.
The authors have asserted their rights to be identified as the authors of this work in
accordance with the Copyright, Designs and Patents Act 1988.
This book is printed on paper suitable for recycling and made from fully managed and
sustained forest sources.
10 9 8 7 6 5 4 3 2 I
08 07 06 05 04 03 02 01 00 99
Contents
Notes on Contributors ............................ vii
Preface ........................................ ix
Introduction
Jo Ann Paulson ................................... 1
Part I: The State in Macroeconomic Reforms
1. The Changing Role of the State in Formerly-Socialist
Economies of Africa
Jo Ann Paulson and Michael Gavin .................... 11
2. Government in Africa's Emerging Market Economies
Edgardo Barandiaran .............................. 66
3. The Macroeconomics of the Transition from African
Socialism
David L. Bevan and Paul Collier ...................... 93
4. Exchange Rate Management in Liberalising African
Economies
Paul Collier and Jan Willem Gunning ................. 169
5. The Impact of Liberalisation on Private Investment
Paul Collier and Jan Willem Gunning ................. 193
Part II: Public Enterprises and Privatisation
6. Privatisation in Sub-Saharan Africa:
Results, Prospects and New Approaches
Elliot Berg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 229
7. Privatisation in Sub-Saharan Africa: Some Issues
in Regulation and the Macroeconomics of Transition
Christopher S. Adam . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 290
Index ........................................ 325
v
Notes on Contributors
CHRISTOPHER ADAM is University Lecturer in Development
Economics and a Research Associate at the Centre for the Study
of African Economies, University of Oxford. He received a
D.Phil. from Nuffield College, Oxford in 1992, and previously
worked as a macroeconomist in the Ministry of Finance of
Swaziland.
EDGARDO BARANDIARAN is Principal Economist at the World Bank
Resident Mission in Beijing, and was Principal Economist in the
Africa Region of the World Bank when this project was started.
ELLIOT BERG is a long-time consultant with a major role in past Africa
studies, and is presently with Development Alternatives Inc.
DAVID BEVAN is a Fellow of St John's College, Oxford, and a member
of the Centre for the Study of African Economies, University of
Oxford.
PAUL COLLIER is Director of the Development Research Group of the
World Bank, on leave as Professor of Economics, University of
Oxford, and a Fellow of St Antony's College, Oxford.
MICHAEL GA YIN is a Senior Economist in the Research Department at
the Inter-American Development Bank, and was Principal
Economist in the Africa Region of the World Bank when this
project was started.
JAN WILLEM GUNNING is Director of the Centre for the Study of
African Economies at the University of Oxford, on leave from
the Free University of Amsterdam.
Jo ANN PAULSON is Senior Economist at the Financial Sector
Development Department of the World Bank, and was Senior
Economist in the Africa Region of the World Bank at the time
this project was started. She was formerly a faculty member of
the University of Minnesota.
vii
Preface
The collected papers in these volumes are the outcome of a research
programme initiated by Alan Gelb in the Transitional Economies
Division of the World Bank and financed by Trust Funds from the
Government of Japan. Staff support in the World Bank was
arranged by Ishrat Husain.
The question for the project was whether there were lessons
from African reform experience in the late 1980s and early 1990s
that would ease the adjustment process in Mozambique. The search
for lessons started with experience in countries with a similar
background of strongly interventionist government and economic
policy guided by socialism. This project turned out to be extremely
difficult to execute. The African socialist countries are short of data,
and lack a research community with time to undertake detailed
investigation of past economic performance or to write scholarly
papers. Many aspects of attempted reforms and economic manage
ment over the last decade have not been well documented, studied
or debated. Furthermore the sample is limited because some of the
African socialist countries are still mired in wars, making reforms
impossible, while others have undertaken only mild reforms.
Therefore over time the project shifted to a broader focus to look for
lessons across a more diverse set of African countries.
The efforts of the authors of these studies to gather scarce
information and data are gratefully acknowledged. There was also
a dedicated pool of reviewers from the World Bank and academic
institutions who kept the debates on the papers lively, and
improved the quality of the work.
ix
Introduction
JoAnn Paulson
Economic performance in the majority of African countries has been
disappointing since the 1970s. While there has been some
improvement since the lows of the 1980s in reforming countries, the
improvement has been short of what is needed to raise per capita
income. The poor economic performance in Sub-Saharan Africa
defies simple explanations, but there are some commonalities in past
economic policies important for the discussions in this book. During
the 1970s and part of the 1980s many governments on the African
continent embraced state-led development strategies. Government
efforts to use state institutions to compensate for the small base of
indigenous capital and skill reflected the dominant development
thinking at the time of independence.
The states that assumed a dominant role in the economy
intervened in pricing and allocation, or monopolised the most
important markets, e.g. foreign exchange, imports, credit, food
staples for urban areas and primary commodity exports. Many
states taxed agricultural or mineral exports heavily and invested in
import-substituting industries operating as domestic monopolies
protected through restrictive trade regimes. The vast majority of the
population continued in smallholder agriculture, interacting with
the broader economy through the state input and output marketing
institutions. Cheap urban food policies were the rule, and prod
uction incentives and support services for smallholder agriculture
were neglected. Throughout the economy, the private sector was at
best ignored or at worst suppressed. This development strategy left
undiversified economies with critical commercial functions assigned
to the public sector and rigid economic policies, poorly equipped to
respond to changing international economic conditions and t~rms
of-trade shocks. These policies exacerbated the other structural
weaknesses inherited by many African countries.
There is a growing consensus that African countries need to
moderate state-led development strategies, adjust the role of
1
2 Jo Ann Paulson
government in the economies, and reduce reliance on direct state
production and control of markets. This means rethinking the mix
of private and public activities and downsizing the state sector
while strengthening the state functions needed to support markets;
stressing efficiency of resource use for activities that remain in the
public sector, and expanding the use of markets and allowing
greater participation by the private sector. But reorientating the mix
of state and private activities is not straightforward. The traumatic
economic transition across the former Soviet Union has reinforced
the pitfalls of liberalisation without clear property rights, laws and
regulations, the difficulty of privatising into poorly developed
markets, the possibility of perverse policy interactions, and the
problems of establishing credibility for economic reforms.
This project was organised to examine the process, problems,
and lessons learned as African countries attempted to recover from
the economic decline of the 1980s by reorientating policies away
from state dominance of the economy. The discussions draw from
experiences across the continent, but emphasise the subset of
African countries that strongly embraced statist economic policies
in the 1970s and 1980s by declaring themselves Marxist. These
countries have some of the most unfavourable initial conditions for
reforms, and represent a convenient group to discuss early
experience in trying to adjust the role of the state.1
Outline of the Volume
This collection of essays and studies was commissioned in 1992 and
1993. The authors were asked for their reflections on lessons learned
from attempts to liberalise African economies, focusing on reforms
needed to deal with the distortions and institutional structures from
the period of state-led development policies. Some examples include
administered allocation replacing markets; government bureau
cracies that directly intervened in markets rather than developing
the legal and regulatory framework for indirect control; fiscal
budgets stretched across commercial activities as well as traditional
public sector activities; capital-intensive parastatal industries, tech
nologically outdated and starved of rehabilitation financing; and a
suppressed and nervous private sector operating in an incomplete
and frequently inconsistent framework of property rights, laws,
