ECONOMIC STAGNATION

Why Did So Many Countries In Sub-Saharan Africa Experience Economic Stagnation In the 1980s and 1990s?



Why Did So Many Countries In Sub-Saharan Africa Experience Economic Stagnation In the 1980s and 1990s?

Sub-Saharan African countries often have neither the administrative capability nor the political capacity to implement SAPs. Even if an Sub-Saharan African state has the requisite expertise to direct a structural adjustment program? this would only imply potential. The technocratic capacity of the state to direct change depends on the state's ability to insulate itself from societal demands. However? Sub-Saharan African countries are usually characterized as weak-meaning that even when the correct policies are identified? and the requisite institutional infrastructure is present? domestic pressures inhibit following the correct policy (Hawkins? 1991).

However? what make a country competitive are competitive industries. As Professor Tony Hawkins of the University of Zimbabwe states: "After all? it is firms? not nations? that make investment decisions? employ people? market products and compete in international markets."6 Regional economic integration can provide the economies of scale? and therefore the efficiency factor necessary for production; it does not necessarily make that industry competitive. This is because two aspects of the market must be distinguished? the technological aspect and the economic aspect. The technological optimum size of a market is linked to economies of scale and? at times? to economies of intra-industry specialization. It will? therefore? differ across industries.

For instance? one large UK multinational stated that the cut-off rate of return for a 500 million pound investment in Spain is 5%; for a 5 million pound investment in Nigeria it is 17%. Foreign investment is notoriously gun shy and part of any investment prospectus for Africa includes a risk analysis of the country. This is a particularly important factor because when the risk is relatively high the last type of investment to flow into the receiving country is foreign direct investment (Christopher? 1991). Instead? a premium is placed on the mobility of capital and? therefore? portfolio investment? and possibly? investment in companies distributing goods made elsewhere. As the most recent Mexican bailout shows? developing countries need more foreign direct investment. Unfortunately? the austerity measures accompanying SAPs in Africa foment instability. However? even if the market is brought up to an optimal level for a given industry in terms of production techniques this does not ensure that the market is also at optimum size economically. This is because many of the benefits of larger markets come from the effects of competition. Therefore? to reap these benefits? the market may have to be a multiple of the technological optimum. In other words? for a widget factory to be feasible there must be? let us say? a market demand for at least 100 widgets. However? in order for that widget factory to experience the positive benefits of competition there must be a competing widget factory in the same market (Christopher? 1991).

The implicit bargain promises that new foreign direct investment and commercial lending will follow sustained structural adjustment by Sub-Saharan African ...