UNIVERSITY OF PENNSYLVANIA - AFRICAN STUDIES CENTER
V. MEDIUM-TERM OUTLOOK FOR THE AFRICAN ECONOMY AND POLICY IMPLICATIONS
A. Prospects for 1995-1996
The economic prospects for the African region in 1995 appear quite favourable in 1995, as the year
opens, although there can be little certainty as to what the final out-turn might be, given the
fragility of African economies and the deficient information base used for the forecasts. What is
certain is that the overall economic performance in Africa in 1995 will, as in the past, depend
heavily on developments in the region's external sector as well as on climatic conditions. Progress
towards the resolution of the civil wars and ethnic tensions and conflicts that have had and continue
to have a damaging impact and repercussions on the domestic economy and the population at large will
no doubt have a favourable impact on performance in 1995.
While the overall outlook for commodity prices is bright for 1995, the situation remains mixed. A
strengthening in international coffee prices is expected because of the stock retention programme
being implemented and possible production declines, but cocoa prices may not change significantly
owing to uncertain demand situation and sluggish consumption in North America and Europe. And little
or no sign of recovery in the former USSR. Reduced stocks of rubber, together with the slowing down
of supplies of synthetic rubber, is expected to result in a tight global market in 1995. There are
indications also that the rise in metal and non-oil mineral prices on the world markets may persist
well into 1995. The expected surge in copper prices is related to signs of economic recovery in the
USA and Europe, and expectations of sustained growth in some developing countries. As for tin and
lead, prices are expected to increase, based on a rising trend in consumption.
As for the oil market, the prospects are rather shrouded in uncertainties in 1995. Since demand is
projected to increase at a meagre rate of less than 1 per cent per annum to the end of the decade,
future movements in oil price would depend very much on the behaviour of producing countries. If, as
has been the case in the past, they fail to observe the orderly supply arrangements established by
OPEC, prices are likely to decline owing to excess supply. Current estimates of future trends in oil
prices range from the US$17 to US$ 18 per barrel on average.
Whether there would be a substantial debt reduction and increased and sustained resource flows to the
African countries in 1995 is far from clear. At the end of the G7 Summit in December 1994 at Naples,
Italy, a new stage was reached whereby by the Paris Club to continue its efforts towards debt relief
for the poorest countries. The Paris Club creditors decided to grant 67 per cent debt or debt-service
reduction (the earlier limit was 50 per cent) to those countries whose per capita income is $500 or
less and whose ratio debt/exports - an indicator of debt overhang - is more than 350 per cent. But an
additional conditionality was that continued efforts be made by the countries to implement SAPs
entered into with the IMF over three consecutive years.
Aid budgets have been considerably cut back and down-sized in the industrialized countries, while, at
the same time, the recent crisis on the international financial markets and the turmoil unleashed in
the "emerging capital markets" have demonstrated convincingly the fragility of a world
financial system that is increasingly focused on speculative capital and the rapid movement around the
world of short-term funds. The new surge in portfolio investment and short-term capital flows have
generally bypassed the nascent stock markets in the Africa region and are likely to do so even in 1995
and the immediate future. However, there are grounds for believing that the improving business
climate across the continent; the impact of developments in foreign exchange policies and the slow but
steady growth of confidence in political stability; and continuity of economic policies and financial
reforms in parts of the continent are some of the positive factors that may be helping to reverse the
recent trends in disinvestment and the drying up of private investment, both foreign and African, in
the region.
At the domestic level in Africa, there are as yet few definitive signs of the likely agricultural
trends in 1995, apart from the limited indications from those countries that had entered their
cropping season by the end of 1994. It appears, at this point, that weather conditions may not be
favourable in the Maghreb, particularly in Morocco, and that the same situation may hold for some
countries in southern Africa. There are grounds also for concern in the Horn of Africa, where the
weather pattern at the beginning of the year was somewhat unusual. Those developments would suggest
only a modest increase in agricultural production for the whole region in 1995. The ECA secretariat
forecasts a 2.7 per cent increase in value added. At the same time, the overall food supply situation
is expected to be fairly satisfactory in 1995 except for a few possible cases of short-falls
associated with isolated cases of drought, flooding and pest and locust infestation. According to the
latest FAO estimates, total cereal import requirements in the region were expected to decline by 8.7
per cent from 28.6 million tons in 1993/1994 to 26.1 million tons in 1994/1995.
It is expected that progress towards the restoration of peace in 1995 would launch countries
previously embroiled in conflict on the path of recovery and sustainable development. It is hoped,
similarly, that the fragile situation in Angola, Rwanda and Burundi will become more viable in 1995
and that significant breakthroughs towards peace and reconciliation will be forthcoming in Liberia,
Sierra Leone, Somalia and southern Sudan, so that those countries could emerge from protracted
emergency or relief dependency into rehabilitation, reconstruction and real development. It is also
hoped that transition to democracy in other African countries will move forward under peaceful and
less destructive conditions in 1995 and that the economic and social costs of such transition will be
contained.
In South Africa, in 1995, it is expected there will be an intensification of efforts, through the
implementation of the Reconstruction and Development Programme (RDP) to correct the gross socio-
economic imbalances inherited from the apartheid era. Coupled with the firm stance towards fiscal
responsibility, price stability, support for the private sector and encouragement of foreign
investment, South Africa's economic growth rate should accelerate. That, however, will also require
cooperation by labour and employers to build a new pragmatic relationship, based on a sympathetic
understanding of each other's basic concerns as they set out to correct the labour market distortions
entrenched by years of apartheid.
There is little doubt that African countries will continue to intensify their economic reforms in the
direction of growth and transformation in 1995. Already, it is a good sign that most national budgets
in Africa are indicating a reduction in deficits and in the inflationary spiral associated with
excessive money creation. It is hoped that in 1995 the economic efficiency and macro-economic
stability concerns of the reform process will be integrated within a sustained long-term programme to
build critical capacities in the areas of human resources, institutions and economic and social
infrastructure that will put Africa on a sustainable footing and make it fully competitive in the
modern world economy.
Altogether, therefore, there are grounds for only modest optimism regarding the growth prospects of
the regional economy in 1995. Based on the above considerations and assumptions, ECA secretariat
estimates that Africa's regional output should grow by about 3 per cent in 1995. It is to be noted,
as usual, that this is an average of widely divergent results by countries and subregions. In Central
Africa, which was severely hit by political turmoil in 1994 and remains mired in political
instability, real development remains somewhere on the distant horizon with only a faint hope for
output rebound in 1995. In contrast, a strong recovery is expected in East and Southern Africa, the
subregions badly affected by drought in 1992.
It is yet too early to quantify prospects for 1996, but it would seem that growth may not exceed the
rate expected in 1995, which in itself is far from what is required to make an impact on poverty and
social welfare in the region. African countries' earnings from agricultural and mineral exports may
retain their current positive trends if the dynamics of the recovery in the OECD countries is
maintained. On the other hand, the surge in commodity prices in 1994 and 1995 may well encourage an
expansion in productive capacity that was previously discouraged in Africa and elsewhere by low and
declining world prices; and it may cause prices to revert to their secular trend. As in 1995 and
previous years, therefore, the vicissitudes of the weather and price movements on the international
market continue to cast a cloud of uncertainty over future growth prospects in Africa, in view of the
importance of agriculture's contribution to aggregate output, export revenues and employment. And so
may the violent conflicts affecting a significant number of countries and the lack of democratic and
enlightened governance in many cases. It would be an error, though, to conclude that mere political,
economic and financial liberalization will automatically bring about development. A lot would indeed
depend on the real changes in the production sphere, in terms of competitiveness and productivity -
and in intra-African cooperation - all of which are crucial for socio-economic progress and
transformation in the region.
B. Major policy challenges
African countries will have to cope effectively with a number of major challenges, if they are to
cope with the demands of socio-economic transformation and structural change. On the domestic front,
there is the urgent need to build and effectively utilize the human, institutional and infrastructural
capacities for managing a modern economy and polity, harnessing the region's physical, and financial
resource endowment to bring about a meaningful and sustained transformation of the African economy.
In that respect, they need to revitalize the social sector and to step up the mechanisms for conflict
prevention and peaceful resolution of political disagreements and differences in order to minimize the
needless waste of human and national resources, promote popular participation in the political process
and focus world attention on the development needs of the continent rather than on conflicts and
emergencies.
In their management of the economy, African Governments need to adopt macroeconomic policies that are
consistent with the maintenance of monetary and price stability and a realistic exchange rate; that
provide an enabling environment for domestic and foreign investors; and that involve an incentives
structure consistent with the maintenance of economic efficiency and a high level of productivity.
They need to ensure that policies for sustainable economic growth stimulate employment and concentrate
largely on employment-intensive approaches and strategies, particularly in the rural areas and in the
urban informal sector. Above all, they will have to galvanize the institutions of regional and
subregional cooperation more effectively to expand intra-regional trade and to promote regional and
subregional approaches to sectoral development. On the external front, they need to arrest their
declining share in world trade, diversify their trade structures, widen export markets and import
sources, participate in the growing global linkages and interdependence of enterprises, expand trade
in services and explore the opportunities provided by the Agreement which concluded the GATT Uruguay
Round, while minimizing its adverse consequences.
The policy measures for coping with those challenges are closely interrelated. Indeed, focusing on
the right priorities could achieve a number of objectives simultaneously. For example, virtually all
the subregional economic communities have developed programmes in many of those areas, while at the
regional level plans are afoot to strengthen the subregional initiatives and encourage regional
programmes in many areas. The major obstacle is the failure to implement agreed decisions and
strategies. It is on that issue that new and innovative efforts would have to be directed if the
challenges facing African countries are to be met effectively.
1. Making more progress with diversification
There are two observations on the limited progress of diversification in the African countries so
far: the first is that there are major gains to be reaped in the diversification process if certain
critical bottlenecks can be removed; and the second is that there are a few success stories of
diversification in Africa which the rest of the continent can emulate and is indeed beginning to
emulate. Added to these, the spectacular examples of diversification in Asia and the Far East have
become the subject of much discussion and debate in African countries. Comparisons have been drawn
between Africa and Asia and the Far East, as a way of drawing attention to a number of lessons that
Africa can learn if it is to make more rapid progress with the diversification process. The
successful experience of diversification in Asia and the Far East illustrates, in particular, the
important role played by education, foreign investment, small-scale enterprises, domestic resource
mobilization, linkages with established transnational corporations (TNC), sound infrastructure and a
generally supportive macroeconomic environment, in a successful diversification programme.
The experience has also demonstrated the role of a dynamic manufacturing sector as a promising
vehicle for promoting a vibrant and diversified economy. In addition to expanding the production and
export base, as well as easing balance-of-payments pressures, the manufacturing sector induces
technological transformation and builds up know-how.
Finally, it has demonstrated the crucial role of the private sector in the diversification process.
Clearly, if the structure of exports is to change and imports of manufactured goods decrease, the
private sector must be supported and encouraged to exploit their entrepreneurial talent to take
advantage of both domestic and external windows of opportunity. That requires, among other things,
the creation of a conducive environment, improved incentives structures, access to targeted credit,
and training in technological and marketing skills, as well as exposure to external markets. The
rapid development of African economies in a free-market world environment, will be difficult to
achieve without the active and dynamic participation of the private sector.
African Governments have a critical role to play in creating a supportive environment for rapid
diversification. In particular, since diversification is a central objective of SAPs, the impact of
current SAP policies on the diversification process need to be constantly evaluated, to ensure that
this central objective is achieved.
The donor community needs to support the diversification effort of African countries by providing
financial, technical and managerial assistance for the development of non-traditional exports, and the
creation of a conducive environment for industrial development.
2. Expanding economic cooperation and intra-regional trade
Intra-regional trade is an essential vehicle for the promotion of diversification and the
establishment of linkages between production units in different countries of the region. Not only
will this contribute to improved productivity and greater competitiveness for African products, it
would also provide a stronger basis for an effective participation of the African region in the
evolving global linkages and interdependence of production units. The present slow progress of intra-
regional trade is therefore a retarding factor in the diversification process and more needs to be
done to remove the obstacles to intra-regional trade.
The present slow progress stems from (a) the limited market size of many countries; (b) survival of
the historical links of African countries with their previous colonial centres, which have created
production structures entrenched in supplying the centres with raw materials in return for
manufactured goods; (c) concentration on increasing export earnings from a limited range of
commodities at the expense of diversification; (d) failure to exploit the potentials of intra-African
trade through coordination of development plans at subregional levels and the development of
complementary links among production units; (d) poor and inadequate intra-regional transport and
communication facilities to support expanding intra-regional trade; (e) lack of harmonization of
standards, specifications and trade documentation; and (f) non-convertibility of African currencies,
inappropriate exchange-rate policies and non-availability of trade financing, and insurance and credit
facilities.
Needless to say, a good road and transport network will greatly facilitate intra-regional trade.
Other essential measures are the improvement of trade information, cooperation in investment ventures
to increase complementarity and harmonization of macro-economic policies. In that connection, the
harmonization at the subregional level of the SAPs being pursued by various countries of the region
would help the growth of intra-regional trade and open the way for the development of joint policies
on major economic and social issues. Indeed, there has been much discussion of the implications of
SAPs for regional economic cooperation. For example, it has been argued in the African Development
Report (ADB), 1993, that: "Global trade liberalization, an important component of most SAPs, does
not necessarily march hand-in-hand with preferential regional trade liberalization, since rapid global
liberalization obviously reduces the margin of advantage that can be enjoyed from preferential trade
liberalization. However, this very constraint may encourage speedy action by regional groupings to
remove other impediments to intra-regional trade, such as payments restrictions and other non-tariff
barriers which have placed such trade at a disadvantage relative to extra-regional trade. In this
sense, structural adjustment and economic integration are mutually reinforcing."
Against that background, it may be asserted that, now that barriers on extra-regional trade have been
substantially reduced, African countries should aim to remove all tariff barriers on goods of regional
origin entering intra-regional trade in the shortest time possible. That will still leave a number of
non-tariff barriers to tackle but it will give a major boost to intra-regional trade.
The current emphasis within African integration organs on the need to harmonize macroeconomic
policies and the implementation of SAPs is an acknowledgement of the fact that trade is only one
aspect of regional integration, albeit a very important and crucial one, and that other areas of
cooperation are also important for the overall success of the integration process. Even if all the
major barriers to intra-regional trade were swept away in one fell swoop, it should not be expected
that it would be followed in the short and medium terms by a major surge in intra-regional trade.
Such a measure will, without doubt, give a major boost to such trade, but its impact will still be
very limited without major progress in subregional and regional cooperation in major sectors of
economic activity - in particular, agriculture, industry and energy - such as would lead to growing
linkages and interdependence among African economies.
This awareness also explains why many integration organs have been making serious efforts to expand
cooperation in major sectors of economic activity, though with only limited results so far. In West
Africa, the transmission of electric power from Ghana to some neighbouring countries and current moves
to pipe Nigeria's natural gas to Benin, Togo and Ghana are examples that could be replicated in other
areas, with much benefit to intra-regional trade in goods and services. Such efforts certainly
deserve to be encouraged and supported.
3. Meeting the challenges of the Uruguay Round Agreement
Given the wide coverage of the new Agreement, which includes trade in goods and services,
intellectual property, trade-related investment measures, the progressive integration of agriculture
and textiles into the work of the successor World Trade Organization (WTO), and a wide range of
international rules and disciplines, the outcome of the Uruguay Round poses particular challenges for
Africa's international trade and payments. That is the more so since current assessments indicate
that Africa is expected to lose up to $3 billion per annum during the initial years of implementation
of the Agreement, while other trading countries share benefits that could amount to $500 billion per
annum. Meeting these challenges implies taking measures to minimize the disadvantages of the
Agreement and exploring any opportunities that it may provide.
The following represents a brief and preliminary evaluation of the challenges which the Agreement
poses for Africa and their implications for future policy:
(a) Market access: Although tariffs on products of interest to developing countries have
been cut, they will remain at higher levels than those applied to products traded among developed
countries. Tariff escalation will be reduced but not significantly. Of more concern to African
countries is the annulment of special preferential arrangements, in particular the Lomé
Convention. With the annulment, African exports would confront more competition from other producing
nations and higher tariffs in consuming countries. Early estimates by UNCTAD show tariff increases of
up to 28 per cent in the European Union (EU), 40 per cent in Japan and 16 per cent in the U.S.
markets;
(b) Agriculture: African agricultural exports are dominated to the extent of 50-100 per
cent by tropical products. Those products, which enjoyed preferential treatment under the Generalized
System of Preferences (GSP) and the Lomé Convention, have seen their preferential margins
collapse under the Agreement. With regard to the preferential treatment enjoyed by African countries
of the Africa, Caribbean and Pacific (ACP) group under the Lomé Convention, there has been an
erosion of preferential margins by 100 per cent for coffee, coffee by-products and cocoa, 50 per cent
for phosphoric acid, more than 30 per cent for petroleum by-products, crustacea and leather, and more
than 20 per cent for tobacco. With trade liberalization, African countries would face greater
competition from Asian and Latin American countries on those products. Since the bulk of Africa's
foreign trade is with Europe, it is expected that the reduction of preferences in the important sector
of tropical products would be about 80 per cent of the margins under GSP and 50 per cent under the
Lomé Convention. African producers of the ACP group are likely to incur losses in their major
exports - being the weaker trading partners - and to be the big losers in the short term.
The decision to reduce export and domestic subsidies would increase the world price of food,
resulting in higher import bills for African net food importers. In the short term, th watill put
pressure on their balance of payments, since they will have to spend more foreign exchange on food
imports. In the long term, however, it could encourage them to undertake measures to increase
domestic food production, by drawing attention to domestic bottlenecks that need to be removed if
success is to be assured.
Reduced preferences are envisaged in the tropical products subsector of 80 per cent under the GSP and
50 per cent under the Lomé Convention. In the case of agricultural products based on natural
resources, the preferential margin will fall by 60 per cent under the GSP and 16 per cent under the
Lomé Convention. For exports like coffee and cocoa the EU tariff reduction will lead to the
removal of preferential treatment enjoyed by those products, which would cause a significant decline
in the export revenues of African countries;
(c) Global most-favoured-nation treatment: The underlying principle of the new Agreement is
the non-discriminatory application of the most-favoured-nation (MFN) principle. In future, regional
and subregional economic groupings would have to satisfy stricter rules and to be generally outward-
looking, if they are to be consistent with the provisions of the Agreement;
(d) Textiles and clothing: A major gain for African exporters of textiles is that the
Multi-Fibre Agreement (MFA) is to be phased out within 10 years. The textile exports of African
countries are affected by the MFA quota system, which reduces their market shares. Mauritius is a
case in point;
(e) Services: The General Agreement on Trade in Services (GATS) covers a wide range of
services: tourism, transport, telecommunication, insurance industry, business services, financial
services and other professional services. In all those areas, African services are relatively
undeveloped, even in comparison with those of developing countries elsewhere. Opening them up to
foreign competition could therefore have a negaveti impact on the indigenous service industries of
African countries; and the choice facing them is not whether or not to liberalize their services
sector but how quickly they can mobilize their collective effort to strengthen their service
industries so that they will be better able to face the new competition. In that connection, there
are many provisions of the Agreement which they can invoke to gain time to strengthen their service
industries. First, they may have up to 10 years to claim sectoral exemptions from MFN treatment.
Secondly, they may liberalize their services sectors to a lesser degree than developed countries and
can make market access conditional on measures to assist them in strengthening their own services
sector. Those provisions do not absolve African countries from the obligation to raise the
competitive level of their service industries in the long term and to join the ranks of developing
countries which are already competing effectively with the developed ones in a wide range of services,
notably airline services, computer accounting services and writing software. For example, Swissair
has transferred its revenue accounting operations to Bombay, India, as part of its overall cost-
reducing and revenue-enhancement programme;
(f) Trade-related intellectual property rights: The agreement on trade-related intellectual
property rights (TRIPs) mandates the extension of patentability to virtually all fields of technology
recognized by developed countries. Its scope covers copyrights, industrial patents, trademarks, trade
secrets, industrial designs, layout designs of integrated circuits, and geographical indications. It
will oblige African countries to enact strict national legislation with regard to intellectual
property protection according to standards prevailing in the developed countries. It will be a
constraint on their decisions "over seeds and patents" and affect the costs of medicines and
products or processes. African countries may also have to face higher costs in their quest for
technological development, since they would have to pay for copyrights and patents;
(g) Trade-related investment measures: The agreement on trade-related investment measures
(TRIMs) will permit only weak restrictions on foreign investments. It will make it difficult for
Governments to use policy measures in the interests of national development, such as domestic content
and trade-balancing requirements, for the regulation of the activities of foreign investors. African
countries, in particular, are concerned that restrictive business practices by TNC will stifle
competition from potential new rivals in the host countries and from other developing nations.
The results of the Uruguay Round, as they pertain to Africa, reflect not only the weak negotiating
position of African countries but also the structural weakness of their economies. Africa
participated in the negotiations from a position of conspicuous weakness. The continent (including
South Africa) contributes no more than 3 per cent to globally traded goods, which is too small to have
an impact on world trade. Secondly, the African contracting parties were negotiating individually
rather than as a block with a common position, unlike other groupings, notably EU and most of Asia and
Latin America. Failure of African countries to coordinate their position eroded whatever influence
they could have had on the outcome of the negotiations. Thirdly, their negotiating leverage had been
weakened by the trade liberalization programme which they had already adopted under the World
Bank/IMF-inspired SAPs.
While Africa should accept the outcome of the Uruguay Round in principle, it should nevertheless
explore all the provisions for exemption from full compliance and delayed implementation until it has
been able to rehabilitate its economies and improve its competitive position. It should seek special
compensation from Europe to be devoted exclusively to economic restructuring, in order to make up for
the expected losses arising from the Agreement. It should also avail itself of the provision for
amending the Lomé IV Convention in the event of multilateral trade negotiations within WTO or
other measures relating to general trade liberalization which lead to the loss of competitiveness in
the export of ACP agricultural products to the single European market. It should also join other
developing countries in preparing the ground for future negotiations within WTO on issues of
importance to them which were not completely settled during the Uruguay Round negotiations. Chief
among these are: (a) the need for special balance-of-payments assistance to meet the difficulties that
are likely to be encountered during the transition to the new system; and (b) the need to ensure that
cooperation between WTO, the World Bank and the International Monetary Fund (IMF), for which the
Agreement provides, is used to maintain the consistency of international policies in the areas of
trade, money and finance, rather than as a new source of pressure to constrain the freedom of African
countries in policy formulation and implementation.
In the long term, if Africa is to take advantage of the new open trading system, it would have to
undertake reforms to improve its competitive position in many spheres and also to accelerate measures
to diversify its economies from primary commodities to manufactured goods. It would also have to
create the dynamic linkages within and among the various sectors of the domestic economies of
individual countries. The dynamics of an increasing participation in world trade and technological
transformation are clearly to be found above all in the manufacturing sector. Without greater effort
to mobilize their collective strength through regional and subregional cooperation, such dynamic
linkages would be very difficult to achieve under the conditions of free trade which the Uruguay Round
Agreement aims to promote.
In the new competitive atmosphere created by that Agreement, a quick turn-around to sustainable
growth will be difficult to achieve without the active support of the international community, in the
form of trade concessions and increased resource flows. The relevant international agencies,
including WTO, and the region's trading and development partners, should strive to assist African
countries in the mobilization and effective utilization of external resources for rapid economic
transformation. Helpful supportive measures by WTO would be such as to facilitate investment and
greater lending for structural adjustment. They would assist African countries in dealing with
balance-of-payments pressures and transitional strains consequent on policy reforms, and thereby to
benefit from the implementation of the Final Act of the Uruguay Round. In the new circumstances which
they face, African countries also need increased capital flows and an accelerated approach to debt
relief. WTO could assist them to benefit from, rather than fall victims to, strengthened
international rules and institutions, thus promoting trade and investment. WTO could also assist them
to secure greater access to business technology, distribution channels and information networks, which
would enable them to develop their capacity to participate effectively in the expanding trade in
services.
4. Participating in global linkages and interdependence
One of the most remarkable developments in recent years has been the success of several developing
countries, mostly in Asia and the Far East, in becoming major participants in the growing global
network of enterprises linked together by trade in goods and services and by investment flows. Most
of them have developed the capacity to provide efficient off-shore production facilities and services
for TNC.
It has been noted in the United Nations World Investment Report (1993, p. 177) that "Those
developments make it more important than ever for developing countries to build up their own human and
physical infrastructure. In addition to providing the basis for industrialization and development of
the domestic economy, it would allow national enterprises to join up with TNCs on a more equal basis.
It would raise the quality and sophistication of the foreign direct investment (FDI) a host country
could attract and would strengthen the prospects for technology acquisition. It would also enable
host developing countries to build up supplier capabilities which are sometimes a precondition for the
location of TNC activities and which, moreover, add to the economic and technological spillovers from
affiliates. The building up of such facilities has been an essential feature in the developing
countries, including those in Asia and Latin America, that have succeeded in restructuring both their
international and domestic production sectors towards higher-value-added activities."
The same source has noted further, perhaps with most African countries in mind, that "Other
developing countries that do not offer the locational advantages required by regionally or globally
integrated firms, such as a skilled labour force, an open trading and investment environment, a
developed communication and transport infrastructure and networks of local suppliers on which TNCs can
draw, risked being further marginalized. Those countries need to consider how to formulate and
coordinate policies so as to maximize the benefits to them from the emerging integrated international
production system as well as from FDI in more traditional organizational forms which they may be in a
better position to obtain."
As part of the implementation of SAPs, many African countries have developed a new openness towards
FDI. They are improving infrastructure but are far behind in developing skills for its utilization
and maintenance. They would have to move faster along that road if they are to participate
effectively in the evolving global system.
5. Intensification of efforts at resource mobilization
The prospects for resource mobilization in support of the development process in Africa would depend
on the success of the reforms of the financial sector which are in progress in a number of countries
in the region. There is general agreement that much more needs to be done in order to make domestic
financial markets effective avenues for mobilizing and allocating financial resources. Despite the
abundance and vitality of informal financial institutions in Africa, their potential for enhancing the
development process has not been effectively harnessed. Efforts so far exerted by central banks to
bring about a closer relationship between the formal and informal financial institutions have been
grossly inadequate. And the commercial banks have shied away for too long from financing smallholder
agriculture and micro-enterprises, pleading the high transaction costs.
Prospects in most African countries for mobilizing adequate external resource flows in 1995 and
beyond look rather difficult. First, competition for foreign aid resources is likely to intensify as
more countries in Africa and elsewhere persevere in their economic reform programmes. Furthermore,
aid donors have become more selective in their support to developing countries, as well as in the
choice of the programmes and projects they fund. Secondly, the competitive global trading environment
which will be engendered by the implementation of the provisions of the Uruguay Round Agreement may be
expected to impose additional difficulties on African countries in their endeavours to compete
effectively on international commodity markets and thereby to earn adequate foreign exchange to
support their development process. Thirdly, the failure of the IMF Board of Governors and the World
Bank at their last Annual Meetings, held at Madrid, Spain, to agree on a new allocation of Special
Drawing Rights (SDRs) to increase international liquidity means that developing countries cannot
expect an easing of the foreign exchange and balance of payments constraints on their economies. More
importantly, it reflects a divergence of opinion among major developed countries as to whether
adequate liquidity already exists to support world economic recovery.
While African countries should exploit all possible opportunities to increase the volume of external
resource inflows, they should nevertheless be conscious of the limitations and difficulties likely to
limit their success. The competition for foreign resources is growing steadily more intense, in
consequence of which recipient nations could risk ending up losing more in the way of other benefits
than they receive in the shape of increased inflows. The growing relative scarcity of foreign capital
might well make it more expensive; and its phenomenal mobility - and, indeed, its instability - makes
it increasingly hard to acquire and control.
In the circumstances, African Governments need to mobilize domestic resources more intensively and to
ensure that investment resources as a whole are used more efficiently. The goal of self-reliant
growth, whose banner African countries raised in the Lagos Plan of Action, may now be inaccessible
because of restricted access to foreign resources. The situation is fraught with challenges and
opportunities for the African people and their Governments. If they are to rise to the occasion, they
must create a conducive environment by maintaining political stability and pursuing appropriate
economic policies.
People must strive to increase domestic savings and Governments must assist by intensifying efforts
to mobilize resources through appropriate fiscal, monetary, commercial and exchange-rate policies.
Financial institutions should be expanded and widely dispersed throughout the countries, instead of
maintaining the present urban bias. Countries must intensify efforts to diversify exports in order to
generate additional foreign resources.
6. Erasing the debt burden
On the outlook for a solution to the African debt problem, there is scope for both hope and
pessimism. The elements for hope may be found in the pronouncements made by the international
community at various fora, including that of the Summit of the Group of Seven at Naples, Italy, the
Summit of the Non-Aligned Movement at Jakarta, Indonesia, and the meetings of the Board of Governors
of IMF and the World Bank. The international community and African countries are agreed that more
needs to be done in order to bring the debt stocks of most African countries to sustainable levels and
that durable solutions would invariably have to include more concessional terms for debt rescheduling
and the cancellation of a larger proportion of the debt stocks. However, two things remain to be
agreed upon: whether finding lasting solutions will need to be dealt with on a case-by-case basis or
at a subregional and/or regional level; and what conditionalities should be attached to such debt
relief. Those are the issues that will occupy African countries and the international community in
1995 and beyond. Pessimism as to whether a durable solution to the African debt problem can emerge in
1995 springs from the fact that, while a general consensus has emerged as to what the main elements of
a lasting solution ought to be, implementation of appropriate measures by the international community
has been dragging. That now appears to be the only stumbling block.