debt

The impact of neoliberalism on post-colonial Africa in the 20th century

The decolonisation of Africa in the 1950s and 1960s was seen as the great opportunity for the continent to finally realise its potential independently. Spurred by the sustained demands for self-determination by leading nationalists such as Jomo Kenyatta and Kwame Nkrumah, many countries throughout Africa would take back their sovereignty from their European possessors. For the first time in more than a century, Africans had once again acquired control of their resource-rich continent, and could now build upon their individual liberation movements and fulfil their ambitions to not only compete with, but overtake their former oppressors. However, merely twenty years after independence several African countries encountered severe economic complications. Thus, as Africa’s principal development partner, the World Bank, alongside its partner organisation the International Monetary Fund (IMF) stepped in by supplying loans to cash-strapped African economies through Structural Adjustment Programmes (SAPs). However, the SAPs – and the programme’s specific emphasis on neoliberal reform, would further disintegrate Africa’s economic capabilities, and entrench poverty throughout the region by the end of the 20th century.

African economies had originally performed relatively well after independence. As Nana K. Poku stated, during the 1960s gross domestic product (GDP) and exports grew at rates comparable to other main developing regions at the time, and generally better than South Asian countries. Economic growth in the continent was stimulated by an emphasis on industrialisation to reduce dependency on manufactured imports (with domestic agriculture being undervalued in the process), and a significant increase in government-led initiatives to strengthen the public sector. Motivated by the popular socialist economic principles of the Cold War, and the large sums of donor support from international financial institutions (IFIs) and developed countries, government expenditure accelerated throughout Africa. On the contrary, the private sector remained relatively dormant during this period. African economic policy during the 1960s led to major investments in infrastructure, and created an expansion in public health and primary education.

Unfortunately, by the 1970s African economies began to take a dramatic turn for the worst, negating the positive gains made a decade earlier. There were several factors that perpetuated the economic decline in Africa. Internally, between 1972-73 the continent contended with a severe drought that affected large parts of the region, shattering the already under-utilised agricultural sectors. This caused food and livestock shortages across many countries, stimulating forced migration and the inflow of refugees. Moreover, growing political instability and corruption throughout Africa resulted in the mismanagement of government enterprises, and led to the poor maintenance of highly expensive machinery and domestic labour forces.

There were also external shocks that threatened Africa’s economic sustainability. The Organisation of Petroleum-Exporting Countries (OPEC) decision to dramatically increase oil prices in 1973 devastated the economies of most African countries, who now had to deplete their foreign exchange reserves and acquire foreign loans to import oil. In fact, oil imports as a percentage of export earnings rose from 4.4% in 1970 to 23.2& by 1980. However, the decision was incredibly beneficial for oil exporting states, including African countries such as Nigeria and Gabon, who were able to maximise their profits at the expense of their continental counterparts.

There was also a fall in the price of African commodities, with some commodity prices becoming lower than the cost of production for the commodity itself. This was propagated by the low consumer demand in the West emanating from the economic recession of the late 1970s. The recession intensified Western protectionism, reducing the commitment of Western governments to IFIs, while simultaneously increasing the interest rates on loans obtained by African countries. This coincided with the gradual move away from Keynesian economics in favour of neoliberalism – spearheaded by the ‘New Right,’ and manifested by the policies of  Margaret Thatcher and Ronald Reagan. As a result, the attempts by the Organisation of African Unity (OAU) to quell the economic disparities through the state-driven Lagos Plan of Action were largely disapproved of by IFIs and Western governments in favour of economic reform based on free market capitalism.

Despite the internal and external shocks, the World Bank and the IMF argued that the financial difficulties in Africa were largely attributed to the defective economic policies of domestic governments, particularly the excessiveness of state intervention and their gross resource mismanagement. Thus, in order to stimulate positive growth in Africa, the World Bank and IMF proposed under the principles of the ‘Washington Consensus’ that African governments should refrain from intervening in their economies and social services, liberate market forces by increasing privatisation and deregulation, reduce trade barriers and price controls, and impose strict fiscal and credit policies to control government  expenditure.

Under the Structural Adjustment Programme (SAP) the World Bank would attach the aforementioned neoliberal reforms as conditionalities to their lending policy, with the IMF assisting with the macroeconomic development of the region. This subsequently forced indebted African countries across the continent to adopt the adjustment policies ascribed by the World Bank to acquire the vitally needed loans from the organisation to alleviate the existing financial strains on their economies. Though the SAP were expected to encourage long-term growth, throughout the 1980s and 1990s the implementation of SAPs was extremely damaging to social, economic and political conditions in Africa.

SAPs had an incredibly detrimental impact on the delivery of basic services in sub-Saharan Africa, particularly in the provision of healthcare, education and welfare. The economic reform packages severely rationalised government expenditure commitments, with the introduction of user fees diminishing access to social services, particularly for the most vulnerable in African society. background-20_295x215During the two “lost decades” of the 1980s and 1990s, social spending in sub-Saharan Africa declined per capita to 76 per cent of the level spent in 1981. The reductions to civil services also diminished government capacity, deteriorating the administrative ability of African countries to address public concerns. Furthermore, liberalisation policies inflated the price of food, and lessened employment and trade opportunities, particularly in rural areas. This caused widespread poverty, and lead to the proliferation of disease, especially in the case of HIV/AIDS and tuberculosis. The anticipated transformation in private enterprise through the SAPs failed to stimulate growth, creating deeper holes in the finances of already-depleted services, and escalating social inequality.

The negative effects of the SAPs was compound by the fact that it damaged the ability of African governments to service their foreign debts. In 1980, at the onset of the World Bank and IMF’s intervention in Africa, the ratios of debt to gross domestic product (GDP) and exports of goods and services were respectively 23.4% and 65.2%. By 1990, they had deteriorated to respectively 63.0% and 210.0%. African government can only pay off debts from earnings in foreign currency (through exports, aid or from additional loans), making it incredibly difficult for countries to manage their debts.

The scale of problem is overwhelmingly illustrated by the fact between 1980 and 2000, Sub-Saharan African countries had paid more than $240 billion as debt service, that is, about four times the amount of their debt in 1980. Moreover, by the end of the 20th century all African countries with the exception of South Africa were spending more on debt repayments than on domestic healthcare. The World Bank and IMF did introduce the Heavily Indebted Poor Countries (HIPC) initiative in 1996,  providing debt relief and low-interest loans to the world’s poorest countries. However, eligibility for the initiative hinged on the successful implementation of SAPs, which as stated above, often led to the decline of Africa countries in any case.

The inception of the HIPC coincided with the introduction of Poverty Reduction Strategy Papers (PRSP), which eventually replaced SAPs in 2002 with a poverty-focused approach to economic development. Indeed, the World Bank would ultimately acknowledge that the SAPs had very little impact on economic growth in several of its evaluation reports on sub-Saharan Africa. With that said, rather than to place the blame on the destructive nature of their neoliberal economic agenda, the World Bank argued that African governments had once again failed to manage their economies effectively, and that they had poorly implemented SAPs.

The PRSP has placed a greater emphasis on reducing poverty in Africa, and has led to a more country-driven direction towards development , unlike the “one size fits all” approach under the SAP. Despite this, PRSPs have continued the World Bank and IMF’s insistence on neoliberal reform, with both organisations maintaining the imposition of conditionalities on their lending policy. The positive impact of PRSPs remains questionable, and have ultimately failed to eradicate the extensive criticisms and negative discernments aimed towards the World Bank and IMF for causing needless hardship in Africa that continues to this day.