• TABLE OF CONTENTS
HIDE
 Front Cover
 Title Page
 Table of Contents
 Introduction
 Why focus on Africa?
 Factors influencing US assista...
 Role of agriculture in Africa's...
 Why should matters of economic...
 What effect have structural adjustment...
 What does the future hold for Africa's...
 How has external assistance in...
 Reference






Group Title: International working paper series - Food and Resource Economics Department, University of Florida - IW91-3
Title: The role of U.S. assistance in Africa's economic development
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Permanent Link: http://ufdc.ufl.edu/UF00054800/00001
 Material Information
Title: The role of U.S. assistance in Africa's economic development
Series Title: International working paper series
Alternate Title: Role of United States assistance in Africa's economic development
Physical Description: 31 p. : ; 28 cm.
Language: English
Creator: Lele, Uma J
Publisher: Food and Resource Economics Dept., Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville Fla
Publication Date: [1991]
 Subjects
Subject: Economic assistance, American -- Africa, Sub-Saharan   ( lcsh )
Agricultural assistance, American -- Africa, Sub-Saharan   ( lcsh )
Agriculture -- Economic aspects -- Africa, Sub-Saharan   ( lcsh )
Economic development   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Includes bibliographical references (p. 30-31)
Statement of Responsibility: by Uma Lele.
General Note: "Prepared for the Board for International Food and Agricultural Development and Economic Cooperation (BIFADEC) Task Force on U. S. Development Assistance and Cooperation and presented at the National Conference - À Development Policy for the 1990s' ... June 17-18, 1991 ... Washington, D.C."
General Note: "August 1991."
Funding: Electronic resources created as part of a prototype UF Institutional Repository and Faculty Papers project by the University of Florida.
 Record Information
Bibliographic ID: UF00054800
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved, Board of Trustees of the University of Florida
Resource Identifier: aleph - 001667737
oclc - 24673699
notis - AHX9548

Table of Contents
    Front Cover
        Page I
    Title Page
        Page II
    Table of Contents
        Page III
    Introduction
        Page 1
        Page 2
    Why focus on Africa?
        Page 3
        Page 4
        Page 5
    Factors influencing US assistance
        Page 6
        Page 7
    Role of agriculture in Africa's development
        Page 8
        Page 9
        Page 10
        Page 11
    Why should matters of economic development strategy assume a center stage in future US assistance strategies?
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
    What effect have structural adjustment programs had on the pace and pattern of economic growth in Africa?
        Page 17
        Page 18
        Page 19
    What does the future hold for Africa's economic and political prospects?
        Page 20
    How has external assistance in general, and US assistance in particular, fared in dealing with Africa's problems?
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
    Reference
        Page 30
        Page 31
Full Text




IW91-3






THE ROLE OF U.S. ASSISTANCE
IN AFRICA'S ECONOMIC DEVELOPMENT

by
Uma Lele

IW91-3 October 1991


INTERNATIONAL WORKING PAPER SERIES


a ^E~ c(t


s \\


FOOD AND RESOURCE ECONOMICS DEPARTMENT
Institute of Food and Agricultural Sciences
University of Florida
Gainesville, Florida 32611
















THE ROLE OF U.S. ASSISTANCE

IN AFRICA'S ECONOMIC DEVELOPMENT



By



Uma Lele
Graduate Research Professor


University of Florida
Gainesville, Florida



August, 1991










A paper prepared for the Board for International Food and Agricultural Development and
Economic Cooperation (BIFADEC) Task Force on U.S. Development Assistance and
Cooperation and presented at the National Conference "A Development Policy for the
1990s: Reducing Poverty Through Education and Agricultural Science and Technology",
June 17-18, 1991, sponsored by BIFADEC and The Citizens Network for Foreign Affairs,
Washington, D.C.









TABLE OF CONTENTS


W hy Focus on Africa? ............................................... 3

Factors Influencing US Assistance ...................................... 6

Role of Agriculture in Africa's Development .............................. 8

Why Should Matters of Economic Development Strategy Assume a Center Stage in
Future US Assistance Strategies? ................................. 12

What Effect Have Structural Adjustment Programs Had on the Pace and Pattern of
Economic Growth in Africa? .................................... 17

What Does the Future Hold for Africa's Economic and Political Prospects? ...... 20

How Has External Assistance in General, and US Assistance in Particular, Fared in
Dealing With Africa's Problems? ................................. 21

R references ....................................................... 29








THE ROLE OF U.S. ASSISTANCE
IN AFRICA'S ECONOMIC DEVELOPMENT'

By

Uma Lele
Graduate Research Professor
University of Florida
Gainesville, Florida



Nearly 50 billion dollars are committed annually in the form of foreign aid by

developed to developing countries. Another $100 billion used to be committed annually by

private commercial banks before the debt crisis began in 1982. There is over 40 years of

experience with foreign aid. Yet, much of the discussion on effectiveness of aid has tended

to be polemical.' A few scholarly studies exist but they are formalistic cross-country

econometric efforts.2 Others have focused on evaluations of individual donor-funded

projects3, and still others were undertaken especially to mobilize more aid, or to reform

individual aid agencies. Few well-researched studies exist that take a broad or indepth view

of the actions of donors and recipients. They do not take advantage of the long period of

the experience to derive policy lessons. Prompted by these concerns, the World Bank

launched a program of research on the effectiveness of external assistance in the mid-1980s.

As part of this program, two major cross-country research projects were initiated: a sectoral

study on Managing Agricultural Development in Africa (MADIA);5 and, a macroeconomic



* A paper prepared for the Board for International Food and Agricultural Development and Economic
Cooperation (BIFADEC) Task Force on U.S. Development Assistance and Cooperation and presented at the
National Conference "A Development Policy for the 1990's: Reducing Poverty Through Education and
Agricultural Science and Technology", sponsored by BIFADEC and The Citizens Network for Foreign Affairs,
June 17-18, 1991, Washington, D.C.









study on Transitions in Development: the Role of External Aid and Commercial Flows.6

Both studies covered development experience in the post-World War II period. Both

involved senior policy analysts from donor and recipient countries with hands-on experience

to carry out the analysis. The MADIA study was a joint venture between the World Bank

and seven other donors (USAID, UKODA, DANIDA, SIDA, France, Germany and the

EEC). Governments of six African countries (Kenya, Tanzania, Malawi, Nigeria, Senegal

and Cameroon) participated in the study, to analyze the impact of macroeconomic and

sectoral policies, including the role of historical and political factors, resource endowments,

and external assistance on these policies as they affected agricultural and overall economic

development of countries. The study also involved a detailed comparative analysis of the

impact of the eight participating donors on the agriculture of the six African countries. It

addressed the extent to which external assistance responded to the development needs of

the recipients, and involved learning by doing by donors and recipients. The study on

Transitions analyzed the impact of official assistance and commercial capital flows on the

economic development of 11 countries in Latin America, Asia and Africa. Apart from

exploring the implications of the stages of development for content of aid, the study

analyzed the role of bilateral and multilateral aid, food aid, and issues related to the

transition of countries from being recipients of concessional assistance to relying instead on

commercial capital. Because the size and content of development assistance are but a few

of the many variables that determine economic development outcomes, both studies focused

on the economic policies, human, institutional and organizational capacity and the

technology deployed by the aid-receiving countries, and explored the way external capital

influenced these variables. This paper is based on the results of the two studies, with a







particular focus on Africa, and with an objective to derive lessons for US bilateral assistance.


The paper is divided into several section:

Section 1 Outlines the need for focus on Africa.

Section 2 Describes the factors influencing US assistance.

Section 3 Spells out the central importance of agricultural develop-
ment in Africa.

Section 4 Explains why it needs to be the focus of US strategy.

Section 5 Explores the impact of structural adjustment on
economic performance.

Section 6 Explores prospects for Africa.

Section 7 Explores the extent to which US assistance, and
donor assistance more generally, has been
responsive to Africa's needs.

Section 8 Explores why the US has not pursued its
comparative advantage.

The paper concludes with a few recommendations.



Why Focus on Africa?:

Sub-Saharan Africa is the only continent that has not yet joined a sustained long-term

economic growth path. Its development is the greatest challenge to the international

development community. Africa contains the largest number of least developed countries.

Its prolonged economic crisis is widely recognized to be centered on the failure of its

agricultural and rural sectors. That is where a large proportion of the African population

still resides even though urban bias in policies has caused the rate of urbanization to be far








more rapid in Africa than elsewhere. The rural sector contains the most poor although

declining employment opportunities and real wages resulting from rising food and other

prices, in the decade of the 1980s, has drawn attention mostly to the growing poverty of the

vocal urban populations. Africa was a model of development in the 1960s to then fledgling

Asia, but rapid population growth for nearly three decades has been accompanied in Africa

by a declining per capital food production. What little growth in production has occurred,

has been largely due to expansion of cultivation to marginal lands rather than from any

increase in factor productivity. The environmental consequences of the declining

agricultural productivity and the movements of populations on forests and pastures have led

to a growing concern about the sustainability of agriculture. With growing population,

shifting cultivation is giving way to a decline in the fallow period, reducing soil fertility and

land productivity and causing a shortage of fuelwood and grazing areas. Financing of

growing food imports to make up for an increasing food gap have been made difficult by

stagnant export volumes and a large debt burden which takes up a major share of the

limited export earnings. This situation has led to increased food aid and other forms of

financial and technical assistance. Sub-Saharan Africa currently receives nearly 4 billion

dollars worth of external technical assistance.



In a variety of ways, Africa's problems are typical of the problems faced by least

developed countries generally, i.e. Nepal and Bhutan in South Asia, Haiti in the Caribbean,

and Bolivia in South America. These countries receive a large amount of per capital aid

ranging between $35 to $50 compared to $2 or less per capital for large countries such as

China or India. Aid constitutes over 10% to 15% of their Gross National Products and







between 50% to 70% of their public expenditures. Their low level of human capital and

institutional development means that their dependence on external aid extends beyond

financial to the management and uses of aid. Donors who play an important role in policy

dialogue and choices of investment must therefore examine how their assistance strategies

could help turn around the economic situation in Africa, and other least developed parts of

the world.



Without a turn around, the number of poor living in Africa is expected to increase

from the 185 million estimated in 1985 to over 265 million by year 2000, according to the

World Bank's 1990 World Development Report. With little or no growth in per capital

incomes, the proportion of the poor in the total population is expected to increase as well,

while such proportion is projected to decline in Asia, although Asia still contains the largest

number of the world's poor. As a late developer, Africa has a major task to catch up on

matters related to economic policy, social political and commercial organization, and science

and technology. The ability to "borrow" ideas and knowledge most relevant to its own quite

unique diverse historical and physical circumstances, however requires considerable human

and institutional capital, as the examples of the more successful countries such as Japan,

Thailand or Korea show. Notwithstanding the contribution that the US and other donor

assistance has made in the past, due to its initial conditions Africa still woefully lacks the

necessary capacity to plan feasible economic development strategies and even more

important, to implement them. This contributes to the vicious circle of underdevelopment

in contrast to the situation in much of Asia and Latin America where policy planning and

implementing capacity to achieve sustained development largely exists, and where much








economic progress has occurred notwithstanding the "lost decade" of the 1980s. Yet Africa's

problems have tended to move into the background except in the cases of droughts, wars

and famines. Political conflicts have increased and contributed to a growing refugee

population. Radical political and economic reforms in the Eastern block countries with

whom the US and other aid giving countries have greater ethnic and cultural affinity, have

begun to take center stage.



Factors Influencing US Assistance:

The US was once a major donor whose large external assistance prompted by a broad

vision of a democratic world and humanitarian considerations made a major impact on the

economic prospects of many countries in Asia and Latin America. However, the size of US

assistance and consequently the US's role has declined greatly. Whereas the US contributed

nearly half of OECD countries' bilateral assistance, it's share now constitutes only a third.

Other OECD countries have expanded their aid more rapidly. The US contributes less than

0.25% of its GNP in assistance compared to between 0.5 and 1% by most Western

European donors, and over 1% of GNP by Japan. Strategic interests have also driven the

allocation of US bilateral development assistance to become increasingly concentrated.

Whereas India and Brazil, with then a population of over 1/2 billion, were the top two

recipients in the 1960s, Egypt and Israel with a population of 55 million received 37% of US

assistance in the 1980s.7 Aid allocations of other OECD countries are more broadly

distributed, as they are based primarily on commercial interests and historical ties.

Humanitarian lobbies play a role, both in the US and other OECD countries, but that is

mainly in influencing food aid, famine relief and aid to private voluntary organizations






(PVOS). Such aid constitutes only 10% of the total, and the US share of aid to PVOS has

also diminished as other OECD countries have expanded aid to PVOS. Commercial

considerations have resulted in the tying of aid to personnel, equipment, shipping lines and

other services in all OECD countries including the US. The US makes contributions to

several international agencies, such as the World Bank, the IMF, the Regional Banks, and

various UN agencies and its share in those, while large, has declined as well. This paper

focuses mainly on US bilateral assistance to Africa.



Africa has not been as important to the US strategic or security interests as other

parts of the developing world. Consequently, the US share in the total economic assistance

of African countries has been minuscule (10% or less) in most countries. This is in sharp

contrast to the situation earlier in Latin America or Asia where the US was the most

important donor. It is now one of the several, and often not a major player.



In Africa as well, the share of US assistance has depended on strategic interests.

Consequently, those countries who are the larger recipients of US assistance are not

necessarily those with the greatest commitment to economic development. For instance,

Zaire and Somalia-- both poorly performing countries-- have been large recipients,8 whereas

Zimbabwe has run into difficulties because of its policy towards Southern Africa.



Even with the relatively minor role the US plays financially in Africa and

notwithstanding the rather limited positive role foreign assistance as a whole has played in

Africa relative to other parts of the world,9 Johnston et al document in the MADIA study








that the US has made an important contribution to the development of human and

educational institutional capital in Africa, e.g. in Nigeria, Kenya, Tanzania and Cameroon.

In Asia, however, the science and technology capacity the US created played a major role

in generating a Green Revolution thereby alleviating hunger, reducing susceptibility to

recurring droughts and improving the food and economic prospects of countries.'0 This has

not been the case in Africa. There has often been inadequate follow through in Africa on

an effective development strategy which would enable the full utilization of the human

capital and the institutional infrastructure the US assistance has helped to create. We

therefore, first outline the type of a development strategy important for Africa. We then

outline which countries have performed well and why and finally return to addressing issues

of external aid to Africa again.



Role of Agriculture in Africa's Development:

Agriculture-- defined in the broadest sense to include in addition to cropping,

livestock, forestry and fisheries-- provides the most important source of income and

employment for a large proportion of the population in Africa. Since nearly 25% to 35%

of GNP originates in agriculture, overall economic growth is closely related to the growth

of the agricultural sector. Trade plays an important role in many African economies, and

in virtually all countries, agriculture and agro-based products form an important share of

trade, amounting to as much as 80% in some countries (e.g., Malawi). Agricultural exports

have traditionally been an important source of government revenues through implicit (e.g.

via the overvaluation of the exchange rate) or explicit taxation. Agricultural households

have provided a major portion of the public and private savings in the economy, and







constitute an important market for consumer goods (e.g. textiles, shoes, umbrellas, hurricane

lamps, and building material for homes), investment goods (e.g. seed, fertilizers, and

agricultural implements) and services (transport) produced in the non-agricultural sector.

Increased incomes of rural households generate productive employment in the non-agricul-

tural sector through a strong stimulus to non-agricultural growth.



The size and distribution of agricultural exports are thus a better barometer of the

health of African economies than their mineral exports (e.g. the petroleum which has been

important in Nigeria and Cameroon or phosphate in Senegal). The latter tend to originate

in a small enclave sector. Agricultural exports, on the other hand, have traditionally been

derived from a large number of small farmers. Production, transport, processing and exports

from agriculture are highly labor intensive. Thriving agricultural exports require a

sophisticated organizational and management structure that serves the interests of a number

of rural households and increases their productivity. Productivity growth not only creates

employment and incomes in the nonagricultural sector, but reduces poverty, arrests urban

migration and population growth, while simultaneously increasing the quality of the

population.



The link between the size and welfare of the population on the one hand and the

development of the agricultural and the rural sector on the other is brought about through

the investment in health, education, rural water supply, food and nutrition of rural

households. Lack of investment in these activities affects health and nutrition, in turn

affecting infant and child mortality and increasing the desire for large families as a cushion








against social insecurity and old age. A low level of investment in social services also affects

cognitive ability of infants and children which in turn adversely affects their school

performance and limits labor productivity. Low labor productivity is, however, also

determined by a low level of technology, including an extreme reliance on the handhoe

cultivation prevalent in Africa. Whereas, in Asia only about half the value-added in

agriculture comes from labor, as much as 80% comes from labor in Africa, reflecting the

low level of capitalization of the smallholder agricultural sectors. Low labor productivity

reinforces the demand for children as a means of increasing labor input into farming,

fetching water and fuel wood, minding cattle and transporting farm surplus to the market.

Thus, the benefits of raising children to the rural households are large, but costs tend to be

low in a situation of few schools and other social amenities. In contrast, in the more

advanced countries the cost of schooling, health care and other activities often outweighs

the benefits of additional children.



The arguments presented in the paper about the importance of the development of

export crops should not be interpreted to mean that export agriculture should be promoted

at the cost of food crops. Both donors and recipients in Africa have tended to draw far too

much of a dichotomy between food and export crop production instead of focusing on a

broadbased agricultural development strategy. Emphasis on food self-sufficiency in the

1970s through integrated rural development programs funded by donors neglected export

crops. The donor studies carried out under MADIA document the extent to which virtually

all donors shifted assistance away from export crops in the mid 1970s. As the

macroeconomic crises deepened by the end of the 1970s, donors shifted attention to export







promotion and as the criticism of structural adjustment programs mounted that the programs

were neglecting the poor, the emphasis shifted once again to food security. This swinging

pendulum has resulted in a lack of consistency and continuity in the design of policies and

investments in support of both food and export crops, and indeed livestock and forestry as

well, as part of a systematic long-term agricultural development strategy. Food and export

crop production are highly complementary. Farmers concerned with food security devote

a significant portion of their resources to nonfood activities as a diversification strategy to

spread risks of food crop failures, and to increase incomes. An increase in the productivity

of either food crops or other productive rural activities, i.e. export cropping, livestock,

fisheries or forestry thus releases land and labor for the production of the other. Most

importantly, increasing incomes of rural households increases their command over food.

This is an important consideration in Africa. With increased poverty, a larger proportion

of the rural households in countries such as Malawi and Kenya are becoming reliant on the

market for food. Since low income households spend a major share of their income on

food, increased food prices (often being encouraged in the course of structural adjustment

as an incentive to increase food production) have an adverse effect on a large portion of the

urban as well as rural households." Greater reliance needs to be placed on productivity

enhancing nonprice factors relative to the emphasis placed on price incentives alone,

especially in the context of structural adjustment.



Many of the nonprice factors needed to increase the productivity of food crop

production, e.g. access to technology, transportation and information networks, credit, inputs

and assured markets require that governments play an important role by providing a








conducive macroeconomic and sector policy framework and a long-term investment program.

Public investment is necessary in transport, communications and information, education,

village water supply, agricultural research and extension to develop factor and product

markets and to establish the necessary institutional, human capital and physical infrastruc-

ture, so that private individuals can respond to economic incentives.



Why Should Matters of Economic Development Strategy Assume a Center Stage in Future
US Assistance Strategies?

Both the MADIA study and the study of Transitions show that country policies and

the strategy of economic development countries pursued made the major difference to the

economic development outcomes, i.e. the rate of growth of per capital GNP and the

distribution of the benefits of economic growth. Quite surprisingly the "luck factor",

meaning the extent to which natural resource endowments or external events such as

external terms of trade or the levels of aid were favorable, made relatively little difference

if economic policies were unfavorable. For instance, in Africa among the countries selected

for the MADIA study Nigeria, Cameroon and Senegal in West Africa experienced favorable

terms of trade of their major export commodities; oil in the case of Nigeria and Cameroon;

and, phosphates in the case of Senegal. In contrast Kenya, Tanzania and Malawi in east

Africa all of which depend on agricultural rather than mineral exports, experienced

deterioration in their real external terms of trade with a temporary boom in the prices of

tea and coffee in the mid 1970s. The terms of trade shocks were more severe in the case

of Kenya and Malawi relative to Tanzania which had a more diversified export base. And

yet Kenya and Malawi were two of the better performing countries when the rate of growth






of GNP is considered. Both countries pursued outward oriented policies in which the

development of the agricultural sector played a major role. They were two of only a handful

of countries in Africa that gained shares in the relatively stagnant world markets for

traditional exports while much of the rest of Africa lost shares. When the distribution of

benefits is considered together with the rate of overall economic growth, however, Kenya

performed better. Malawi fared poorly in involving large numbers of small farmers involved

in the growth process.



Kenya increased export volumes of tea and coffee as well as other high value crops

leading to an increased share of small farmers in the production process, whereas large

European farmers had dominated production in the colonial period. Through a land

registration program, small farmers were given titles to land. They were paid international

parity prices for their tea and coffee by enabling them to sell their produce in the same

markets in which large estates sold theirs. Together with development of feeder roads,

agricultural research, extension, credit and marketing facilities, small farmer production took

off in Kenya.12 In contrast, in Malawi much of the increase in export volumes came from

large farms and estates owned and operated by Malawi's new African elite. Malawi

reserved the right to grow certain high value crops such as burley and flue-cured tobacco,

sugar, tea and coffee, to the estate sector, and allowed the estates to sell their produce in

auctions at close to international parity prices. Small farmers on the other hand are

required in Malawi to sell the produce they are allowed to grow to the marketing board

(ADMARC) at half to a third of the prices received by estates.









Kenya's approach has resulted in rapid growth in income and employment both in

the agricultural as well as the nonagricultural sectors by increasing savings, investment and

consumption by a large number of rural households. Agricultural growth in turn has led to

the growth of small towns and investment by entrepreneurs in small scale manufacturing and

the service sectors, including transport. Despite having one of the highest rates of growth

of population, the real wage for unskilled workers in Kenya has not declined as much as had

been predicted in the 1970s by the World Bank and the ILO. In comparison, real wage in

Malawi has declined significantly. The rate of investment in primary and secondary

education is part of the explanation for the differences in the behavior of the real wage in

the two countries. Education has expanded much more rapidly in Kenya than in Malawi.

Increased educational access has resulted in keeping young children in the school and

increasing the reservation price of labor. In contrast, in Malawi the low access to primary

schooling and lack of employment opportunities in the smallholder sector has increased the

supply of labor, including children, to the estates thereby depressing the real wage. Since

labor constitutes the most important source of income in African agriculture and economies,

clearly changes in wage rates and employment are a major determinant of living standards.



The relatively greater success in smallholder agriculture in Kenya does not mean of

course that there is no growth in the absolute number of people living in poverty, nor that

there is political development; i.e., freedom of the press, full political participation by all

ethnic groups, etc.



Nigeria, Senegal, Tanzania and to some extent Cameroon, pursued import







substitution policies and neglected their agriculture. Nigeria's agriculture declined rapidly

in the wake of the oil boom, due in part to the high degree of implicit taxation of the

agricultural sector, and to changing thrusts in the policy initiatives encouraged by the oil

boom. In Senegal, despite favorable prices for phosphates in the 70s, neglect of the critical

groundnut sector and the import substitution of rice through high-cost irrigation resulted in

a failure to diversify the economy. By the end of the 1970s, Tanzania's agricultural exports

had stagnated as well, although Tanzania was (and continues to be) one of the largest

recipients of foreign aid. The reasons for neglect of agriculture and an emphasis on industry

include the desire to get out of the colonial dependency associated with past international

trade, to avert the decline and year to year instability in real international prices of primary

commodities by shifting to industrialization, and not the least important, to meet the

expectations of the largely urban and socialistically-dominated independence movements that

considered export agriculture as backward and primitive. The ideas of export pessimism and

import substituting industrialization were reinforced by the intellectual support lent by

Africa's western economic advisors in countries such as Tanzania and Senegal. The role of

policy advice increased with the rise of external assistance in the 1970s. External advice

became even more dominant in the 1980s, as the financial dependence of African countries

increased.



Much debate ensued in the early 1980s about the extent to which internal policies,

rather than the adverse external environment (i.e., terms of trade shocks, stagnant demand

for exports, instability in commodity prices, wars or famines), were the cause of Africa's

economic problems. The question of the behavior of the external terms of trade is of course








complex as answers depend on the choice of the base and end periods, and commodities

under consideration. The extent of decline in real terms, as well as the volatility of the

terms of trade varies by countries. The MADIA study shows, however, that the same

international price environment was interpreted differently by African countries and

Africa's main competitors. As stated earlier, while most African countries lost shares in the

world market, their non-African competitors gained shares rapidly.



Second, and relatedly, governments of countries expanded their public expenditures

rapidly. Increased government revenues, resulting from peaks in terms of trade or foreign

aid, were permanent, rather than temporary. The IMF estimates that the proportion of

African government expenditures to GNP increased from a fifth in the early 70s to a quarter

in the mid 80s, and African budget deficits increased from 4% to 6% of the GNPs in the

same period, at a time when external aid also rose sharply. Nigeria's public expenditures

increased sevenfold in less than a decade in the 1970s. Other oil exporting countries, such

as Indonesia, pursued a more cautious policy and performed better.



The primary problem in Africa has nonetheless been the quality and allocation,

rather than the high share of government expenditures in GNP. Several European countries

have much larger shares of government expenditures in GNP than do African countries. A

rising and a high share of public expenditures went to salaries and wages leaving little for

operating expenditures and maintenance. The high wage component was a result of a

tendency of governments to use public and parapublic entities as the source of assured

employment to the school and university-leaving graduates. Also, a lion's share of public







expenditures went for the benefit of the urban populations, leaving few resources for rural

health, education, farm to market roads etc. According to the 1990 World Development

Report, subsidy of education in Africa increased sharply from $48 per primary pupil to $233

per secondary student, and to $2710 at the university level. Similarly, expenditures on

hospitals in the capital cities expanded rapidly relative to those on rural clinics. Even

Tanzania, which has had a strong rhetorical commitment to broad-based development,

allocated only 6% of the 1988-89 budget to preventive health services. Redistributive

policies of governments entailed discrimination against the relatively more resource rich

regions, (e.g. in Tanzania, Arusha and Kilimanjaro which produced coffee, the Sukumaland

which produced cotton, and Tobora which produced tobacco, suffered relative to the poorer

regions, e.g., Dodoma or Mara).



African governments need to maintain overall levels of public expenditures which are

consistent with the levels of domestic resources, external aid and capital which they can

realistically expect to receive on a consistent, long-term basis. They also need to improve

the balance of expenditures:



1. away from the urban to the rural sectors,

2. away from salaries and wages towards operating and maintenance expenses, and

3. away from protected industrial sectors towards rural social sectors.



What Effect Have Structural Adjustment Programs Had on the Pace and Pattern of
Economic Growth in Africa?








To correct the problems discussed above, well over 30 Sub-Saharan countries have

been under structural adjustment since the early 1980s. Adjustment has involved reductions

in public expenditures; devaluations of the exchange rates and other price adjustments as

a way of reducing overall demand and budget deficits, and to increase the supply of

tradeable goods vis-a-vis nontradeable goods. Price incentives are complemented by

nonprice measures including such things as divestiture of the public sector activities to

provide incentives to private enterprise.



The structural adjustment process has certainly challenged the basic premises on

which governments and donors operated in Africa. Resistance by African governments to

the adjustment measures is understandable, given that few African governments represent

(and are accountable to) the majority of their populations. Moreover, controls have been

pervasive in African economies. Therefore, even under the best of circumstances in which

governments undertake all the necessary reforms, considerable lag in supply response should

be expected. Physical and social infrastructure has been depleted. It needs to be restored

and developed further for individuals to be able to respond to new economic opportunities,

but pervasive shortage of human and institutional capital limits the ability to reverse the

physical decline.



Adjusting countries are performing better than nonadjusting countries in terms of

agricultural production, exports and GDP growth, according to the World Bank.13 Critics

have argued that public services have declined with retrenchment of government

expenditures, loss of employment in the public sector, and increase in prices, resulting from







a combination of removal of subsidies and adjustment of the exchange rate. As a result, the

poor have suffered.



It is difficult to judge the extent to which increases in production and exports

observed by the World Bank studies are a result of general improvement in policies and

institutions, as distinct from simply the additional finance from donors. Donor assistance

has been directed exclusively towards the adjusting countries, making increased imports

possible. Improved economic indicators may also simply reflect a shift in volumes traded

from informal (or parallel) to official markets with the removal of controls and price

adjustments. In the long run, absence of parallel markets should reduce risks, increase

incentives, and result in increased production. But it is difficult to know how soon

production will respond on a sustained basis. Exogenous factors such as the weather have

also played a role. Part of the recovery in agricultural production in the later half of the

1980s in the Sahelian countries was a result of improved rainfall rather than any noticeable

increase in the use of fertilizers and other purchased inputs needed to intensify production.

On the contrary, in many countries abolition of the public sector monopoly distribution

systems has resulted in the collapse of the input distribution and output marketing systems.

Lacking finance, accessible roads or market information, and experiencing continued

harassment from governments, the weak private sector has often been unable to respond to

the reforms at the speed expected earlier.



Increased cost of imported inputs and transport as a result of the devaluations has

also eroded the benefits of devaluations and of the removal of taxes on exports. The cost








of food imports, which the poor consume, has increased. Moreover, while liberalization of

internal food markets has made marketing of food more open, the reduced role of the

governments in grain purchases has reduced an assurance of a market for some of the

cereals, causing collapse in market prices with even a modest increase in production.



Finally, the private sector has not only faced physical and institutional constraints, but

it has at times been less than competitive, dominated as trade tends to be by a handful of

individuals with access to working capital and political power. They tend to replace the

operations of the public and parapublic agencies, essentially transferring the rents previously

accruing to public sector employees to themselves, without reforms necessarily benefitting

either the consumers or the producers.



To gauge the net effect of these various economic and political factors, objective and

empirically-based assessment of adjustment programs is needed on a country-by-country

basis. To date, too few resources have been committed by donors and governments to

empirical evaluation.



What Does the Future Hold for Africa's Economic and Political Prospects?

It is clear from the analysis presented in this paper that Africa's problems are deep

rooted and wide-ranging. Political and economic conditions vary substantially from country

to country, but require fundamental changes in the systems. Adjustment programs have

made an important beginning in stimulating changes, but the programs are unable to address

all the deep-rooted political problems of African states and the way they influence the







content of economic policy. In some areas, donors have made an important beginning. For

instance, Africa urgently needs to build its human and institutional capacity in order to

formulate and implement effective economic policies. This means giving high priority to

utilizing the large number of educated Africans who are currently under-utilized for political

and ethnic reasons, as well as a systematic reduction in the dependence on external technical

assistance. There is also a need to assign the highest priority to the education and training

of African personnel and to the development of private as well as governmental, social and

political institutions. The Capacity Building Initiative (ACBI), undertaken by The World

Bank, the African Development Bank and USDP, is beginning to address that problem,

albeit in a small way.



How Has External Assistance in General. and US Assistance in Particular. Fared in Dealing
With Africa's Problems?

Strategic considerations have tended to make US assistance more sporadic and less

predictable than is true for several bilateral aid programs. These bilateral aid programs

tend to be influenced by commercial considerations which require developing long term

relationships. The study on Transitions shows how in Pakistan, India, Sri Lanka and Egypt

strategic factors made levels of U.S. assistance unpredictable and reduced its effectiveness.14

With unstable aid levels, recipients could not plan on long-term uses of aid. Even in Africa

where, as pointed out earlier, strategic factors have been less important but nevertheless

operative, Johnston, et al. in their study of USAID show the sporadic nature of U.S.

assistance.








However, not all variation of U.S. assistance is by any means related to strategic

considerations. Changes in the directions of aid, e.g. between poverty orientation, policy

reform and more recently the sustainable environmental concerns, have caused revisions of

views about development strategy. For instance, however well intentioned the focus on

poverty in the mid 1970s, Johnston, et al., shows that it led USAID to discontinue the

support it had been providing for higher education in Tanzania as "Washington preferred

projects that would benefit the poor in the shortest possible time."15



The shift away from project assistance to balance of payments support in the early

1980s was made by USAID, as well as other donors, once again leading to the abandonment

of much of the physical and institutional infrastructure that was created and supported in

the 1970s when the poverty oriented assistance was in vogue.16 Even though, compared to

the World Bank, USAID has placed larger numbers of staff in field missions relative to the

dollars committed, and even though this allows it to be relatively more knowledgeable about

the particular needs of recipient countries, its assistance has nevertheless largely been driven

by the changing directives from Washington.



As with other donor assistance, U.S. assistance in Africa has also tended to focus

narrowly on changing "fads", i.e., on poverty alleviation in the 1970s and on macro policy

reform in the 1980s. It has not been focused on areas in which the U.S. has had clear

expertise, for example, on the development of human and institutional capital for growth.

Each shift in the USAID and other donor emphasis has been well-founded. For instance,

the Green Revolution in Asia in the late 1960s resulted in a concern that the impressive







technological change which engineered the revolution was not reaching the poorest of the

poor. This lead to an emphasis on poverty orientation in the mid 1970s. Similarly the shift

to structural adjustment resulted from a prolonged neglect of macroeconomic management,

as rapidly expanding donor programs in the 1970s oriented to poverty alleviation swelled

public expenditures. These extreme swings of emphasis, however, reflect the absence of an

overall vision about a consistent albeit flexible long-term economic development strategy

which reconciles micro and sectoral level concerns with the changing macroeconomic

circumstances. Similarly, balance has been missing between directly productive activities in

agriculture and manufacturing and long-term social sector investment activities which

increase overall income productivity. Fads tend to be the result of active lobbying by

specific interest groups, e.g. the humanitarians in the case of poverty, the commercial

interests in the case of privatization associated with structural adjustment, and more recently

the environmentalists. These lobbies place excessive emphasis on a particular aspect of an

overall development strategy. However, since fads are by nature mercurial, an important

consequence of the repeated waves of new themes is the decline of professionalism and

replacement of specialists by the generalists. Virtually every study of donor aid carried out

as part of the MADIA study bemoans the decline of the specialist and the technical expert

in their respective agencies, and the increasing tendency on the part of donors to respond

to specific aid lobbies within their own countries. Specialists are also less able and willing

to shift their expertise to suit each changing fad, and to the directives from the capital city

of the aid agency. They also tend to have greater need for stable, predictable long-term

relationships with donors and recipients. The lack of vision on the part of donors in general

and USAID in particular, is a more serious problem in the case of assistance to the African








continent than it was in Asia earlier. The capacity of the recipient countries to articulate







their needs and to ensure that the assistance is channeled in the direction they most desire

was greater in Asia.



The short time-horizon has often undermined the effectiveness of US assistance. The

type of investments that are needed, the investments in human and institutional capital

which the US has a comparative advantage in providing, require a long time-period to

establish.



Another problem with USAID has been that there is not much correspondence

between the effective uses of aid and aid levels. To place USAID's aid allocations among

countries in a larger perspective, it should be emphasized that bilateral aid on the whole has

tended to be allocated less on the basis of economic performance than has multilateral aid.

The World Bank has tended to use more objective considerations consistently,18 and so has

played a stabilizing role by ensuring a steady supply of capital to more deserving developing

countries.19 Consequently, there is relatively little relationship between aid levels and the

economic performance of countries. In Africa, for example Tanzania and Senegal, two of

the largest recipients of aid, were poor performers.



Indeed, both the aid studies have shown that far too often "aid booms" had much the

same (Dutch Disease) effects as "commodity booms" experienced by countries, namely the

overvaluation of the exchange rate, excessive growth of public expenditures and misinvest-

lent of resources.17 Instead of spending the revenues of the temporary windfall wisely, i.e.

investing in activities which would increase the productivity of resources, recipients tended









to squander aid on unproductive expenditures or on premature heavy industrialization which

their economies could ill support.



Aid allocations of other donors have also changed radically due to changes in the

views of development strategy, although as stated earlier overall aid levels of other donors

have been relatively more stable than of the U.S. For instance, Radetzki, who carried out

the study of Swedish aid, and Hanak and Loft, in their study of Danish aid, point out that

SIDA and DANIDA gave twice as and three times as much more aid to Tanzania than to

Kenya, respectively, although Kenya used the aid more effectively.20 Tanzania's socialistic

ideology and rhetoric of participation appealed to the Scandinavian donors more than

Kenya's relatively more freewheeling capitalistic approach to development. More lately,

Kenya's human rights concerns have affected aid levels, although the record on rights of

some of the other recipients of donor aid is not necessarily any better, but Kenya has

suffered more adverse publicity in the western media.



To avoid excessive swings in the capital flows from donors due to the "bandwagon

effect", the aid studies carried out in the World Bank emphasize the need for donors to play

up to their comparative advantage, i.e., to provide assistance for those activities which the

donors can carry out most effectively. Most donors have shown a distinct comparative

advantage in assisting in particular areas. Frequently these areas are related to the presence

of an efficient domestic industry in donor countries. For instance, Denmark has a distinct

comparative advantage in assisting in dairy development due to its strong domestic dairy

industry, and the know-how it possesses, particularly in the temperate zones of Africa.







Hanak and Loft in their study point out that Denmark was more successful for this reason

in dairy development in Kenya than in Tanzania.



Sweden similarly has a comparative advantage in the development of the forestry

sector given its large domestic forestry industry, albeit in the temperature zone. Moreover,

it has developed expertise advantage in assisting in development of rural water supplies

although as Radetzki points out, Swedish assistance to rural water supply in East Asia

employed technology not manageable at the local level, involved operating and maintenance

costs the central government could not afford, and made inadequate provisions for local

participation.21 There have not been systematic investigations by SIDA at the sectoral level

to explore how it might provide assistance for water development to countries which would

be more appropriate. These problems are, however, not unique to Swedish aid. The

MADIA study has shown them to be a pervasive problem with external assistance.



The U.S. has shown a strong comparative advantage in the development of education

and training, particularly the university and post doctoral level science and technology

needed for generating technical change in the agricultural sector. This comparative

advantage in higher level education, training and research by the U.S. played a crucial role

in the generation of the Green Revolution in Asia. It comes from the access of the U.S. to

one of the best systems of higher education, an industry which now also contributes an

important U.S. export. Moreover, there has been a stronger philosophical commitment in

U.S. external assistance to the concept of investment in the education and training of

developing country nationals than has been true of other donors.








Many of the areas in which donor countries have a comparative advantage are those

in which recipients need assistance on a consistent long-term basis as part of their overall

long-term economic development strategy. However, donors are not always able to assist

in areas in which they excel. The U.S. for instance, has considerable expertise in many of

the crops which African countries produce and export, such as cotton, tobacco and

groundnuts. However, because they compete with U.S. domestic production and exports,

congressional guidelines prevent U.S. assistance to developing countries in such industries.

Denmark similarly has difficulty playing up to its comparative advantage in the dairy

industry except in situations where the growth of such industry would increase internal

consumption of dairy products by the poor, consumption which would not otherwise be

promoted through imports and when the development of such industry might lead to the

growth of exports of machinery for the processing of products. In Kenya's dairy

development, all these objectives were fulfilled. But donor studies carried out for the

MADIA study show how lobbying by commercial interests in donor countries for certain

types of aid results in aid-tying to equipment or even to entire projects leading to

inappropriate choice of advanced, capital intensive technology, and even to investments that

developing countries at an early stage of development can ill afford, e.g. the pulp and paper

mills financed by Sweden and the World Bank and the steel plants financed by German aid

in Tanzania. The U.S. similarly ends up using vehicles which do not fare as well in tropical

countries with poor infrastructure, etc.



Donors, including the U.S. have, however, not chosen to pursue their comparative

advantage, except when it serves domestic commercial interests and have instead attempted








to copy each other, e.g. towards poverty oriented projects, or structural adjustment.

Similarly, Howell in the study of UKODA, Kennes in the study of EEC assistance, Claude

Freud in the case of French aid, and Heimpel and Shulz in the case of German aid point

out the shift away from export crops by donors who had a comparative advantage in giving

assistance to export sectors of Africa.2



It is clear that fundamental changes are needed in USAID assistance to Africa if it

is to contribute effectively to changing economic prospects as it did earlier in Latin America

and Asia. The U.S., (together with other donors), needs to help African countries to

develop a long-term strategy of economic development, and to ensure through effective aid

co-ordination that strategy is carried out consistently, while focussing its own assistance in

the area in which it has the greatest ability to excel. This would mean that the U.S. would

need once again to draw on its universities more for human and intellectual capital. It

would need to rebuild the technical capacity of its own staff and it would need to begin to

be more responsive to the needs to developing countries whose economic development it

is geared to serve.








References


1. Hayter, Theresa, and Catharine Watson. 1985. Aid and Development. Baltimore:
Johns Hopkins University Press.
Lappe, Frances Moore, Joseph Collins, and Cary Fowler. 1977. Food First: Beyond
the Myth of Scarcity. Boston: Houghton Mifflin.

2. Levy, Victor. 1987. "Anticipated Development Assistance, Temporary Relief Aid,
and Consumption Behavior of Low Income Countries." Economic Journal 97, pp.
446-58.

3. Hirschman, A. 1967. Development Projects Observed. Washington, D.C.: Brookings
Institution.
Lele, Uma. 1975. The Design of Rural Development. Baltimore: Johns Hopkins
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4. Cassen, R., and Associates. 1986. Does Aid Work? Report to an Intergovernmental
Task Force. Oxford: Oxford University Press.

5. Lele, Uma. Ed. Aid to African Agriculture: Lessons from Two Decades of Donor
Experience. Washington, D.C.: World Bank (In Press).

6. Lele, Uma, and Ijaz Nabi, eds. May, 1991. Transitions in Development: The Role of
Aid and Commercial Flows. San Francisco: Institute for Contemporary Studies.

7. Mellor, John, and William A. Masters. May, 1991. 'The Changing Roles of
Multilateral and Bilateral Foreign Assistance", in Transitions in Development: The
Role of Aid and Commercial Flows, edited by U. Lele and I. Nabi. San Francisco:
Institute for Contemporary Studies.

8. Lele, Uma. Ed. Aid to African Agriculture: Lessons from Two Decades of Donor
Experience. Washington, D.C.: World Bank (In Press).

9. Lele, Uma, and Ijaz Nabi, eds. May, 1991. Transitions in Development: The Role of
Aid and Commercial Flows. San Francisco: Institute for Contemporary Studies.

10. Ibid.

11. Lele, Uma. Sept., 1990. "Structural Adjustment, Agricultural Development, and the
Poor: Some Lessons from the Malawian Experience." World Development, Vol.
18, No. 9, pp. 1207-1219.

12. Lele, Uma. 1989. "Agricultural Growth, Domestic Policies, the External Environ-
ment, and Assistance to Africa: Lessons from a Quarter Century." MADIA
Discussion Paper No. 1. Washington, D.C.: World Bank. Also published by the
Institute of Contemporary Studies Press, San Francisco.






13. Lele, Uma, Kofi Adu-Nyako. May, 1991. "An Integrated Approach of Strategies for
Poverty Alleviation: A Paramount Priority for Africa." Prepared for the Annual
Meetings Symposium of the African Development Bank Group, Abidjan, Cote
d'Ivoire, Africa. Table 1.

14. Lele, Uma, and Ijaz Nabi, eds. May, 1991. Transitions in Development: The Role of
Aid and Commercial Flows. San Francisco: Institute for Contemporary Studies.

15. Johnston, Bruce F., Allan Hoben, and William K. Jaeger. "U.S. Activities to
Promote Agricultural and Rural Development in Sub-Saharan Africa," in Aid to
African Agriculture, Uma Lele Ed. Washington, D.C.: World Bank (In Press).

16. Lele, Uma. Sept., 1990. "Structural Adjustment, Agricultural Development, and the
Poor: Some Lessons from the Malawian Experience." World Development, Vol.
18, No. 9, pp. 1207-1219.

17. Collier, Paul. May, 1991. "Aid and Economic Performance In Tanzania", in
Transitions in Development: The Role of Aid and Commercial Flows, edited by U.
Lele and I. Nabi. San Francisco: Institute for Contemporary Studies.

18. Mellor, John, and William A. Masters. May, 1991. "The Changing Roles of
Multilateral and Bilateral Foreign Assistance", in Transitions in Development: The
Role ofAid and Commercial Flows, edited by U. Lele and I. Nabi. San Francisco:
Institute for Contemporary Studies.

19. Ibid.

20. Radetzki, Marian. "Swedish Aid to Kenya and Tanzania: Its Impact on Rural
Development: 1970-84" in Aid to African Agriculture: Lessons from Two Decades
of Donor Experience. Uma Lele Ed. Washington, D.C.: World Bank (In Press).

21. Ibid.

22. Kennes, Walter. "European Community Assistance for Agricultural Development in
Cameroon, Senegal, and Tanzania (1960-87)."
Freud, Claude. "French Economic Cooperation with Senegal and Cameroon: Rural
Development from Independence to the Present."
Howell, John. "British Aid to Agriculture in Malawi, Tanzania, and Kenya."
Heimpel, Christian and Manfred Schulz. "German Aid to Agriculture in Cameroon,
Kenya, Malawi, Senegal, and Tanzania."

All of the above in Aid to African Agriculture, Uma Lele Ed., Washington, D.C.:
World Bank (In Press).




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