African Economic Development in A Comparative Perspective: Yilmaz Akyüz and Charles Gore

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Cambridge Journal of Economics 2001, 25, 265–288
African economic development in a

comparative perspective
Yilmaz Akyüz and Charles Gore*
Conventional explanations of poor African economic performance generally fail to

pay adequate attention to causal mechanisms of growth, decline and stagnation.
Many African countries experienced investment booms after independence but, in
contrast to East Asian newly industrialising economies, these were not sustained owing
to failure to establish a virtuous growth circle involving complementary increases in
savings and exports. Structural adjustment programmes dismantled state-mediated
mechanisms of accumulation without putting viable alternatives in place, and failed
to tackle the structural constraints which impede productivity growth in agriculture.
A new policy approach, drawing on the experience of both post-colonial and adjust-
ment periods, is necessary.
Key words: Development, Structural adjustment, Capital accumulation, Africa.

JEL classifications: O100, O200, N170
1. Introduction
After about a decade of moderate growth, economic performance deteriorated rapidly in
sub-Saharan Africa (SSA) in the late 1970s and early 1980s. While much of developing
East Asia escaped the crisis of the 1980s, and many countries in other regions have
managed to restore growth after sharp declines in the 1980s, countries in SSA have, for
the past two decades, experienced continuous economic decline, or persistent stagnation,
or spurts of growth which have simply proved unsustainable. It has become increasingly
common to describe Africa as a continent of missed growth opportunities, and ‘paradigms
of doom’ (Chege, 1997) have come to permeate economic and social analyses of the con-
tinent. Explanation of this experience has increasingly been sought in the context of com-
parative analyses based on cross-country regressions and growth accounting techniques
(for a review, see Collier and Gunning, 1999). Within this econometric work the ‘African
dummy’ has often been found significant, and considerable effort has been spent on open-
ing up this black box in order to provide a more explicit account of what is rhetorically
dubbed as ‘Africa’s growth tragedy’ versus the ‘East Asian economic miracle’.
Manuscript received 21 March 2000; final version received 11 January 2001.

Address for correspondence: Charles Gore, UNCTAD, OSC/LDCS, Palais des Nations,CH-1211 Geneva
10, Switzerland.
* United Nations Conference for Trade and Development, Geneva. The authors have benefited from
discussions with Richard Kozul-Wright and Jörg Mayer as well as with the authors of the papers in this issue.
The opinions expressed in this paper and the designations and terminology employed are those of the authors
and do not necessarily reflect the views of UNCTAD.
© Cambridge Political Economy Society 2001

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266 Y. Akyüz and C. Gore

Two main lines of argument have been developed to explain Africa’s poor economic
performance in comparison with other developing countries. The first goes back to the
Berg Report (World Bank, 1981) and focuses on policy mistakes. The inward-oriented
strategy of SSA is contrasted with the outward-oriented policies of East Asia, and anti-
export bias, lack of openness, and intersectoral price distortions (notably urban bias) are
cited among the principal causes of economic setback in Africa. The second and more
recent approach revises the orthodox arguments and stresses the importance of deep-
rooted institutional and structural constraints—notably geography, demography and cul-
ture—in impeding economic growth (Easterly and Levine, 1997; Sachs and Warner,
1997; Bloom and Sachs, 1998; Temple, 1998). The critical geographical constraints are
due to the location of most African countries in the tropics, which leads to high levels of
morbidity and contributes to low agricultural productivity, and the existence of a large
number of landlocked states, which reduces the accessibility of producers to international
trade and contributes to adverse regional spillover effects. Key demographic factors are
low population densities and the delay in the demographic transition, which has resulted
in an increase in the ratio of the dependent population to the working-age population over
the past 25 years. Finally, ethnic fractionalisation and low social capital are identified as
contributing to slow growth, either by promoting political instability or by discouraging
growth-enhancing policies.
There can be little doubt that both economic policy errors and institutional and struc-
tural constraints have played important roles in the poor economic performance of Africa.
However, neither the orthodox view nor the revisionist position can provide a consistent
explanation of Africa’s economic trends. They fail to capture the essential features of the
history of economic change since independence, to explore and delineate the casual
mechanisms of growth, and to address the complex interplay between external and internal
factors in the African development experience.1 They do not explain various episodes of
rapid but unsustained growth in the immediate post-independence period. Nor can they
provide a satisfactory explanation as to why many countries in the region have been
unable to halt the decline, let alone to establish sustained growth, since the early 1980s
despite increased emphasis on market mechanisms and rapid opening up to international
competition in the context of structural adjustment programmes.
It is these lacunae which the present set of papers seeks to address. While they also
examine the African development experience in a comparative perspective, their focus is
on the factors governing the dynamics of accumulation and growth, and the interaction of
domestic and external factors in shaping this process, rather than on a comparative static
analysis based on cross-country regressions. In doing so, the papers draw, to varying
degrees, on successful East Asian experience. They provide a reinterpretation of the growth
process during the early post-colonial period, offer a distinctive critique of structural
adjustment programmes, and identify ingredients for an alternative approach.
2. Accumulation, trade and growth

Rapid and sustained economic growth in the most successful developing countries has
involved a process of late industrialisation in which the production structure has shifted
from the primary sector to manufacturing, alongside a progressive move from less to more
technology- and capital-intensive activities both within and across sectors, allowing
1
For an even stronger questioning of the orthodox view of constant African decline, see Sender (1999).
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African economic development in a comparative perspective 267

countries to build competitiveness in a range of activities established in more advanced
countries. Upgrading has occurred particularly through the imitation, adaptation and
learning of internationally available technologies and the diffusion of best practice from
more advanced to less advanced enterprises within a country, including from foreign to
domestic firms.
The engine of this process of structural change and productivity growth has been a
rapid pace of capital accumulation. In the first-tier East Asian newly industrialising
economies (NIEs), which remain the best exemplar, foreign savings were important in the
earliest stages of accumulation. But subsequently, high rates of investment were sup-
ported by rising rates of domestic savings, a central component of which was corporate
profits and other profit-related income (Akyüz and Gore, 1996; Singh, 1998). The accu-
mulation drive was thus founded on a strong investment–profit nexus whereby profits
provided simultaneously the incentives of firms to invest and their capacity to finance new
investment, while investment in turn raised profits by enlarging the stock of productive
capital and enhancing the pace of productivity growth.
Foreign markets played a crucial role in this process. Export growth supported invest-
ment because it earned foreign exchange needed for capital goods imports and advanced
technology, while new investment supported exports by providing the basis for product-
ivity growth and increased competitiveness, as well as by allowing production to be shifted
towards sectors and products with high income elasticity. Exports also supported domes-
tic income and savings by providing markets for goods which would not otherwise be
produced (i.e., vent for surplus) or, more importantly, produced only to meet domestic
consumer demand (i.e., providing a market without having to prime domestic consump-
tion and reduce savings) (Akyüz et al., 1998; UNCTAD, 1999A, ch. IV). Thus, rapid eco-
nomic growth in successful cases has been underpinned by rising rates of savings,
investment and exports, linked together in a virtuous circle. Typically, savings and exports
both rose faster than income and investment for two to three decades, gradually closing
the savings and foreign exchange gaps (Table 1).
Such a process of sustained rapid growth has generally been absent in SSA, with the
notable exceptions of Botswana and Mauritius. The majority of countries in the region
have not been able to build a sustained long-term accumulation process around a virtuous
circle of rising savings, investment and exports. However, it is often overlooked that SSA
experienced a marked increase in its investment rate during the 1960s and early part of the
1970s (see Mkandawire this issue), and some growth accounting exercises show that
physical capital accumulation accounted for around two-thirds of the growth in the period
1960–75, much as in East Asian countries over the long haul (Collins and Bosworth,
1996). The ratio of gross domestic investment to GDP rose from around 15% in the mid-
1960s to 26% in the 1970s. Increased physical investment was also complemented by
investment in human capital.1 Rising physical investment rates occurred in a wide range
of countries. Rodrik (1999, Table 3.2) identifies 47 episodes of what he calls ‘investment
transition’ in developing countries between the 1960s and 1980s, defined in broad terms
as a rapid rise in the investment rate which is sustained for at least five years. Twenty-one
of these episodes are in SSA.
But these post-colonial investment booms in SSA were all too often followed by a wide-
spread investment slump, rather than being translated into a virtuous growth process.
Although at the beginning of the 1990s, investment rates stopped declining, they have
1
School enrolments in sub-Saharan Africa rose more rapidly than in South Asia or Latin America, though
from very low bases (Hayami, 1997, pp. 41–5).
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Table 1. Savings, gross domestic investment and exports in selected developing countries (% of GDP)
Country Period Savings Investment Exports
Republic of Korea 1961–70 9·9 20·0 9·2

1971–80 23·1 28·8 27·4
1981–90 32·4 30·7 35·4
1991–97 35·4 36·7 31·4
Taiwan Province of China 1961–70 19·7 21·9 20·4
1971–80 31·9 30·5 46·4
1981–90 32·9 21·9 53·5
1991–97 27·4 23·2 46·1
Indonesia 1961–70 8·3 10·4 10·4
1971–80 27·3 22·4 24·4
1981–90 30·1 27·5 25·1
1991–97 31·4 30·1 26·9
Malaysia 1961–70 23·8 19·9 42·3
1971–80 30·4 26·3 46·3
1981–90 33·4 30·8 60·1
1991–97 38·8 39·6 87·6
Thailand 1961–70 19·4 21·5 16·2
1971–80 22·4 26·2 19·9
1981–90 27·6 30·7 26·9
1991–97 35·9 40·2 39·7
Botswana 1961–70 –0·7 15·8 25·2
1971–80 29·5 39·5 38·8
1981–90 41·3 28·6 59·1
1991–97 39·0 27·8 50·8
Mauritius 1961–70 13·5 13·9 38·7
1971–80 20·0 25·0 47·9
1981–90 21·7 24·7 56·0
1991–97 24·3 28·5 60·8
Note: Savings are defined as: gross domestic fixed investment plus exports minus imports.
Source: Calculations based on World Bank, World Development Indicators 1999, CD-ROM and on national
sources.
begun to rise again in only very few countries, even during the economic recovery of
1994–96. Thus, whereas the ratio of gross domestic investment to GDP in the most suc-
cessful East Asian NIEs rose from between 10 and 15% in the 1960s to between 30 and
40% in the 1980s, investment rates in many African countries are generally at levels simi-
lar to those of the 1960s, averaging at some 17% during 1990–97 [International Monetary
Fund (IMF), 1999; Fischer et al., 1998].
The reversal of the investment boom in SSA appears to be due to the failure to establish
a virtuous growth circle involving complementary increases in savings and exports in the
way described above. This can be clearly seen in Figure 1, which contrasts the behaviour
of savings and exports during episodes of investment transitions, as defined above in SSA
(excluding Botswana and Mauritius) and East Asia.1 Comparing these two regions, it is
apparent that the initial surge in the investment rate during the transition, as defined
above, was actually greater in SSA than in Asia. Again, initially both regions depended on
capital inflows with the dependence of investment on foreign savings actually being some-
1
For a useful case study which identifies the importance of exports for the dynamics of the investment–
savings nexus in the United Republic of Tanzania, see Ndulu and Lipumba (1991).
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Fig. 1. Investment transitions, savings and exports: a comparison of sub-Saharan Africa and East Asia
(—, investment; - - -, exports; · · ·, savings).
Note: Following Rodrik, a country is said to undergo an investment transition at year T if (i) the three-year
moving average of its investment rate over an eight-year period starting at T+1 exceeds the five-year average of its
investment rate prior to T by 5 percentage points or more, and (ii) the post-transition investment rate remains above
10%. Savings are defined as: gross domestic fixed investment plus exports minus imports. The figures are
unweighted averages of the following countries and dates of transition year. For sub-Saharan Africa: Burkina Faso
(1970); Cameroon (1976); Gambia (1975); Kenya (1966); Malawi (1965); Niger (1972); Togo (1971) and
Zambia (1965). For East Asia: Indonesia (1969); Rep. of Korea (1965); Thailand (1966). These are derived
from Rodrik (1999, Table 3.2). The transition year on the graph is year 0.
Source: Calculations based on World Bank, World Development Indicators 1999, CD-ROM.
what greater in Asia than in Africa. However, while the investment boom in Asia was
accompanied by a rapid and indeed a faster increase in domestic savings, in SSA savings
lagged considerably behind investment, and the boom became increasingly dependent on
resource transfers from abroad. Over the eight-year period (from two years before the year
of the investment transition to six years afterwards), while the rise in the savings ratio (11
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percentage points) exceeded the rise in the investment ratio (8 percentage points) in East
Asia, in SSA the savings ratio rose by only 5 percentage points, compared with a 14 per-
centage points increase in the investment ratio.
There is a similar contrast between the two regions in the behaviour of exports. While
exports rose much faster than GDP in East Asia, resulting in a 9 percentage points increase
in the exports ratio over the eight-year period, there was no such a tendency in SSA. It is
striking that, initially, SSA had a very high export/GDP ratio in comparison to East Asia,
and hence it could not be expected to deepen its export orientation to the same degree.1
Moreover, sharp increases in traditional exports across the region would, in all likelihood,
have faced the fallacy of composition problem. However, as noted above, a dynamic
investment–export nexus would entail a structural transformation in exports, with non-
traditional exports growing much more rapidly than both GDP and traditional exports;
but such a process was not visible in SSA.
Certainly, there were large disparities within SSA in the post-colonial era, with different
countries experiencing spurts in growth in different periods. The comparison here demon-
strates that such spurts in investment and growth could not be translated into sustained
growth in large part because they were not accompanied by sustained growth in domestic
savings and exports. It should thus come as no surprise that the investment boom could
not be sustained in SSA, and eventually both investment and growth collapsed. Over the
same eight-year period defined above, while the investment rate continued to rise, the
average growth rate of GDP in SSA exceeded 5% per annum. But it fell subsequently to
less than 2% when the investment boom ended and export growth fell.
In some World Bank reports, the subsequent trends, which continued unabated despite
widespread adjustment programmes, have been dubbed an ‘investment pause’. But the
depth, ubiquity and longevity of the slump which occurred—which is just as remarkable
as the scale of the earlier investment boom—are worth underlining. The share of public
investment in GDP fell by more than a half from the 1970s to the 1990s and during the
period 1990–96 it was lower than any other region (UNCTAD, 1999B). Private invest-
ment fell from around 12% in the 1970s to around 10% of GDP in the 1990s. In a sample
of 31 SSA countries, the amount of physical capital per person during the period 1980–94
declined in two-thirds of those countries, while in half there was an absolute decline in the
stock of physical capital assets (Griffin, 1996). Moreover, along with the investment
slump, there has been a shift in the composition of investment away from equipment
towards structures. Limited evidence shows that this compositional shift is closely associ-
ated with trade liberalisation (Collier and Gunning, 1996), while some causal links have
been identified between adjustment programmes and investment slumps (Bleaney and
Fielding, 1995; Fielding, 1997). It is also striking that growth in some of the star perform-
ers under adjustment programmes has not been underpinned by rising rates of savings
and investment.2
Figure 2 charts the trajectories of savings, investment and exports in the five years
before and after a five-year adjustment period, with countries classified according to their
degree of compliance with the policy conditionality of adjustment programmes. The
1
For an assessment of African trade orientation in the 1980s in comparison with other regions, taking into
account population size, geography and the level of per capita income, see UNCTAD (1999B, pp. 70–1).
2
A number of countries included among the group of countries called ‘core adjusters’ by the World Bank in
the early 1990s were no longer in the list of strong performers in the late 1990s, and many of these (e.g.,
Ghana, Madagascar, Malawi, Mauritania and Zambia) had failed to raise their savings and investment rates
under adjustment programmes; see UNCTAD (1999B, pp. 12–13, Tables 1 and 18). See also Hadjimichael
et al. (1996) and Berthélemy and Söderling (1999).
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pre adjustment Strong Compliance post adjustment
Fig. 2. The dynamics of investment, savings and exports before, during and after adjustment: SSA
countries classified accordingly to compliance with conditionality the dynamics of investment, savings and
exports before, during and after adjustment: SSA countries classified accordingly to compliance with
conditionality (—, investment; - - -, exports; · · ·, savings).
Note: Figures are unweighted averages. The countries and dates of the adjustment period are: strong compliance,
Gambia (1987–91); Ghana (1983–87); Malawi (1981–85); Mali (1988–92) and Mauritania (1986–90);
weak compliance, Cote d’Ivoire (1982–86); Madagascar (1985–89); Niger (1986–90); Togo (1983–87) and
Uganda (1984–87); Poor compliance, Burundi (1986–90); Central African Republic (1987–91); Gabon
(1988–92) and Kenya (1980–84). Classification and adjustment periods based on World Bank (1997).
Source: Calculations based on World Bank, World Development Indicators 1999, CD-ROM.
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contrast with the East Asian trajectory, and also with the early African investment boom,
is striking. It is apparent that investment rates fail to rise significantly in any of the three
country groupings. In the weak and poor compliers, investment rates actually fall with the
onset of adjustment programmes though, according to the data, the decline is a continua-
tion of earlier trends, rather than something precipitated by adjustment. Investment rates
are higher in the strong compliers than in the weak ones, but this is more due to higher
resource inflows than higher domestic savings. In both groups, the average savings ratio
never exceeds 10% of GDP, and it is in fact the poor compliers that have rising savings
rates. A distinguishing feature of the good compliers is that their export orientation
increases with the adjustment programmes, but this is not sustained. Poor compliers also
appear to have a more marked increase in export orientation. Finally, it appears that there
is an association between the degree of compliance and pre-adjustment trends: in good
compliers there are rising rates of savings and exports on the eve of the adjustment
process, while in the weak and poor compliers these are declining, in the latter case
markedly so.
These results strongly suggest that even where adjustment policies have been rigorously
implemented, they have failed to establish a sustained accumulation process linking
investment with savings and exports. Consequently, although structural adjustment poli-
cies (SAPs) may have contributed to economic recovery in a number of countries, par-
ticularly where they were adequately financed, hardly any country has successfully
completed its programmes with a return to sustained growth. Adjustment was meant to
be a finite process whereby appropriate policies with the help of aid would permit
countries to restore growth and to tackle long-term development problems. Nowhere else
in the world have structural adjustment programmes been applied as intensely and as
frequently as within SSA. But at the start of the twenty-first century, many countries find
themselves locked into a permanent adjustment process. Surges of growth have occurred
in a number of countries at particular times, but these have rarely been sustained. Growth
thus continues to remain captive to weather, world commodity prices and aid flows.
Overcoming this vulnerability depends very much on drawing appropriate lessons from
the successes and failures of both the early post-colonial experience and the more recent
period of structural adjustment.
3. External vulnerability and post-colonial policy dilemmas

Given the high degree of export orientation of the African economies, as well as their
dependence on a small number of primary commodities, it should be of little surprise that
there is a close correlation between their economic performance, commodity prices and
terms of trade (Deaton and Miller, 1995; Deaton, 1999). For most of the period since
1954, Africa has experienced declining terms of trade. But after 1973, both oil and non-
oil countries benefited temporarily from higher world prices for their primary commodity
exports. This commodity boom, together with increasing aid flows (thanks in part to Cold
War politics), boosted import and investment capacity, masking the increasingly prob-
lematic export performance of the 1970s. However, with the second oil shock of 1978, the
terms of trade of non-oil exporting countries began to decline again, and the balance-of-
payments situation of many countries deteriorated seriously. By the end of the decade,
many countries were experiencing growing fiscal and current account imbalances, and
total SSA long-term external public and private debt stood at 40% of GDP in 1980, up
from 18% in 1970 (UNCTAD, 1999B). Net capital inflows dropped by almost half
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between 1980 and 1984, and with rising interest rates, a continuing steep decline in the
terms of trade for non-oil exporters, and slower external demand associated with the
global recession, a large majority of countries were driven into deep crisis.
International and national policy mistakes prevented effective policy responses to the
changing international environment in the 1970s and the early 1980s. Resources were
misallocated during the commodity booms, and international borrowing, increasingly
from commercial sources, together with tightening import controls, rather than enhanced
export promotion, was initially used to deal with worsening trade balances. Commodity
forecasts were extremely optimistic, some ‘wildly incorrect’ (Deaton, 1999, p. 32),
encouraging inappropriate policy prescriptions. Yet there was more to the African crisis
than macroeconomic mismanagement of external shocks within a particular conjuncture.
The post-colonial accumulation model had inherent contradictions which were rooted in
the interplay between external conditions, domestic policies and structural conditions,
and it is these contradictions that the external shocks of the later 1970s and early 1980s
finally exposed.
3.1 Agriculture
For most African economies, trends in capital accumulation and exports during the early
post-colonial period depended strongly on economic activity in the agricultural sector. At
independence, manufacturing activity contributed less than 10% of GDP in the majority
of countries. A few, notably the oil exporters, could increase savings and earn foreign
exchange through mineral exploitation, but the majority of countries were predominantly
agricultural.
A central objective of most post-colonial governments was to promote rapid industrial-
isation. Their basic challenge was to manage the relations between agriculture and the rest
of the economy so as to promote agricultural growth and to enable a structural transform-
ation towards manufacturing. Policies designed to increase the contribution of agriculture
to the rest of the economy could easily impede agricultural growth, thereby failing to
achieve their original objectives. This is an ubiquitous problem of early industrialisation,
but it was particularly difficult in Africa, owing to the predominant patterns of agrarian
production relations and institutions, and prevailing structural conditions.
At independence there was some large-scale capitalist farming in almost all countries,
and this was well-developed in the settler economies. However, for most countries, the
dominant form of production in Africa was peasant agriculture, in which work was
organised around diverse household relations through a gender division of labour in
which women provided the major part of the labour input, access to land was organised
through indigenous tenure systems in which membership of the local community was the
primary source of various land-use rights, and farm households met their consumption
needs through self-provisioning, production of export or food crops for sale, or off-farm
employment. The patterns varied between richer and poorer peasant households, but
usually involved some combination of these three sources. Although very few rural
households were totally out of the market economy, few were totally in it. Owing to high
transactions costs and risks, they continued to engage in some degree of subsistence pro-
duction, even when higher returns could be expected through specialisation in high value
export and food crops.
Experience in East Asia shows that it is possible to promote industrialisation on the
basis of farm household production. However, in Africa, as Karshenas (this issue) makes
clear, various initial structural conditions made the policy dilemma particularly difficult.
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First, much production took place in a difficult, risky and fragile natural environment.1
Large amounts of investment were needed in rural transport, power and irrigation infra-
structures, delivery systems for fertilisers, seeds and pesticides, and research and exten-
sion services, to ensure sustainable productivity growth and raise agricultural surplus
(agricultural value-added minus agricultural producers’ total consumption), but there
was very little public investment in these areas.
Secondly, the agricultural economy was generally labour constrained rather than charac-
terised by surplus labour, except in some high population density areas, and in countries
where the expansion of settler farms, plantations and estates had seriously dislocated
smallholders. Although the situation is now changing, the general absence of agricultural
surplus labour was recognised as an important characteristic of African economies in the
1960s and 1970s.2
Thirdly, ‘basic food staples behave essentially as non-tradables in much of sub-Saharan
Africa’ (Delgado, 1995, p. 231). International markets for key domestic food staples
(cassava, yams, plantain, millet and sorghum in west and central Africa, and white maize
in southern and eastern Africa) are thin, and there is little demand for these commodities
outside the region and few other international sources of supply. But non-tradability is
basically rooted in product characteristics, such as perishability, as well as the under-
development of internal transport systems and long distances between production and
consumption centres.3
These initial conditions have important implications for the nature of the growth pro-
cess in early stages of industrialisation. If agricultural production is labour constrained,
the withdrawal of labour can lead to a decline in agricultural output. It has been
observed—drawing in particular on careful household studies in southern Africa—that,
‘contrary to orthodox thinking, withdrawal of labour from the African countryside tends
to result in residual farm work forces which have lower productive potential than they
would otherwise have had’ (Low, 1986, p. 188). The situation is of course complex, as
people can obviously work longer hours. However, the fact that it is often male labour
which moves out can exacerbate the production problem because of gender constraints on
access to complementary productive assets. Furthermore, in economies with surplus
labour, various infrastructure investments at early stages of development can be ‘financed’
not so much by consuming less as by mobilising under-used labour. But in economies
without unlimited supplies of labour, investment must be financed through the prior
mobilisation and channelling of savings, which in predominantly agricultural economies
must come, in the absence of foreign savings, from farmers.
The fact that many basic foodstuffs are non-tradable outside the continent adds further
complexity to the policy problem. A key pitfall of early stages of industrialisation is the
Ricardian trap, in which rising food prices put pressure on wages and reduce profitability
in the incipient industrial sector (Hayami, 1997, Section 3.3.2). Within Africa, this con-
straint is tighter because rising food demand cannot always be met through imports.
1
It is estimated that 46% of the contentional land mass is unsuitable for direct rain-fed cultivation because
the growing period is too short, and that of the land which is suitable for rain-fed production, about half is
marginal land in the sense that for a representative range of crops, yields are only between 20 and 40% of the
maximum achievable on the best land (FAO, 1986, Table 8).
2
Among those who drew attention to labour shortage are Stiglitz (1969), Berry (1970) and Mellor (1986),
as well as Lewis (1954) in his original formulation of growth under unlimited labour supply.
3
For further discussion of non-tradability, see Delgado (1992, 1995) and Kyle and Swinnen (1994).
UNCTAD (1999B; Table 7) sets out share of major food groups in total dietary energy supply in different
African countries.
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Except where food production is complementary with export crops, or there is sufficient
land and labour to raise both food and export crops, a serious trade off could emerge
between exports and foodstuff, impinging on economic activity either through high wage
costs or foreign exchange shortage.1 The latter also has the effect of reducing the supply of
incentive goods whose availability is essential for the continued expansion of the agricul-
tural marketed surplus, including both food and export crops. The growth process is thus
on a knife-edge. Synchronising prices to provide the right balance between food and
export crops is extremely complex (Cowen, 1986); world prices for most agricultural
commodities are beyond the control of African governments, and food prices are highly
variable because of the rain-fed nature of most agricultural production.
It is clear that African governments failed to resolve the strategic dilemmas of sustaining
agricultural growth while mobilising resources for industrial development, even during
the commodity price boom of the 1970s. Agricultural output per capita fell by about
20% in the 1970s, and the volume of agricultural exports declined by over 30%. Out of 45
countries for which data are available, a declining volume of agricultural exports is recorded
in 34 (UNCTAD, 1999B). Significantly, labour productivity in agriculture declined
throughout the 1970s (Singh and Tabatabai, 1993).
The failure of agricultural performance is often attributed to excessive taxation of
export crops. But there is little evidence of a systematic increase in the rate of taxation of
the agricultural sector as a whole during the period 1965–80 (Karshenas, this issue).
Moreover, comparative analysis of the ratio of producer prices to border prices on a
commodity basis for five major export crops shows that it was only for cocoa and tobacco
that the ratio was significantly lower in the 1970s than for other major exporters. For
coffee and tea, the ratio of border to producer prices was sometimes lower in Africa than
in other major exporters and sometimes higher, while for cotton there is no significant
difference (UNCTAD, 1999B). Claims that African agricultural taxation rates ‘are the
highest in the world’ (World Bank, 1994) reflect exchange rate overvaluation as well as
excessive reliance on a study based on a sample of three African countries, two of which
are cocoa exporters (Krueger et al., 1991).
As Karshenas argues, the major policy failing in relation to agriculture is not the rate of
taxation per se, but rather the failure to put money back into agriculture to increase
productivity and thus nurture an increase in the net agricultural surplus (see also Teran-
ishi, 1997). In East Asia, there was a two-sided approach in which the state taxed agri-
culture, but at the same time counterbalanced this resource outflow by making adequate
investment in basic infrastructure for agricultural production, and helping to introduce a
stream of innovations needed to enhance the productivity and profitability of private
investment. In Africa, many governments also sought to raise revenue by taxing agricul-
ture, but much of these funds went into urban-industrial investment or urban con-
sumption.
Those resources which did go back into the agricultural sector were concentrated on
the promotion of food crop production. This was not irrational, but some of these
resources were spent on subsidising marginal areas through pan-territorial price support,
often for political reasons, as part of an implicit social contract designed to redress
1
As a letter signed ‘Disgusted Coffee Peasant’ from Muranga District put it in the Kenya Daily News
following a Ministerial ban on interplanting food crops (such as beans) with coffee because it reduced coffee
yields put it: ‘The Minister seems to be interested in the foreign exchange derived from coffee forgetting that
local exchange is also vital . . . I would not mind if my coffee output dropped by say 200 kg and I harvested two
bags of beans from my coffee shamba simply because the income from the 200 kg would not be able to buy
two bags of beans for the family’ (quoted in Cowen, 1986).
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colonial imbalances and ensure that certain ethnic groups with less fertile land and limited
access to markets were not excluded (see, for example, Jayne and Jones, 1998).1 A sig-
nificant proportion of total support also took the form of financial subsidies for inputs
(e.g., fertilisers), credit and marketing, and did not go sufficiently into the infrastructure
investment and agricultural research necessary to enhance agrarian capital formation and
productivity growth.
3.2 Industry
As industrialisation occurs and a corporate sector emerges, the net agricultural surplus
becomes relatively less important as a source of accumulation and exports. But the sus-
tainability of industrialisation depends on the timing of the shift from agriculture to
industry as a central locus of accumulation, and the momentum of the savings-investment
process within the industrial sector. If resources generated by agriculture are transferred
to industry before considerable progress has been made in raising agricultural product-
ivity and while industry continues to depend on such transfers, then the industrialisation
process is unlikely to be sustainable. Recognising the importance of profits as a source of
savings in developing countries, Lewis (1954, p. 157) observed that ‘if we find savings are
increasing as a proportion of national income, we may take it for granted that this is
because the share of profits in national income is increasing’. However, establishing an
industry does not mean that it generates profits; nor is the re-investment of profits an
automatic process. Moreover, industrial accumulation depends very much on imports of
intermediate and capital goods, and such a process would not be sustainable unless
industry itself becomes an important source of foreign exchange earnings.
As noted above, while manufacturing activity grew rapidly in the post-colonial period in
a number of countries in SSA, this depended on the growth of domestic demand (Riddell,
1990) and provision of foreign exchange by the primary sector and external resource
transfers. The import substitution process did not lead to a significant development of
manufacturing exports, and there was little learning by doing and productivity growth
(Mytelka and Tesfachew, 1998). Data on profitability and investment behaviour are
scarce, but many observers suggest that profits depended on protection and subsidies, and
where profits were made they were not re-invested.2 In a number of countries such as
Ghana, Côte d’Ivoire and Nigeria, the share of the richest quintile in personal income
distribution was close to or greater than 50%, while private investment barely reached 5%
of GDP (UNCTAD, 1997, pp. 160–1).
These features give some support to the conventional explanation of the failure of
import-substitution industrialisation. Comparative analysis using the Sachs–Warner
measure of openness does indeed suggest that African economies have been more closed,
in a policy sense, than others [see Ng and Yeats (1997) and Coe and Hofmeiseter (1999)
for recent trends]. But capturing the nature of a trade regime in a single measure is
generally difficult, and the significance of the statistical relationships between openness
and growth is controversial.3 Regression results for the 1980s show that the ratio of trade
1
In the 1980s, major increases in food grain production were achieved in Kenya, Zambia and Zimbabwe
through pricing and market support policies, which encouraged farmers to adopt hybrid maize seed, resulting
from decades of agricultural research, and increased fertilizer. Policies included the expansion of marketing
boards’ buying stations in smallholder areas, expansion of state credit disbursed to smallholders and subsidies
on inputs, and provided the basis of what has been called Africa’s emerging maize revolution (see Byerlee and
Eicher, 1997).
2
See case studies in Fransman (1982) and Riddell (1990).
3
One important early study found that the degree of instability of import volumes had a more significant
relationship with growth than export orientation in African countries (see Helleiner, 1986).
01 265-288 Akyuz 2/4/01 10:42 am Page 277

to GDP in African countries at that time was very much in line with their per capita
income and population (Rodrik, 1998; UNCTAD, 1999B). Moreover, recent estima-
tions of levels of trade using gravity models have even gone further and concluded that
SSA was actually over-trading in the 1970s, while East Asia was under-trading (Coe and
Hofmeister, 1999). The real issue is not so much about the extent of export orientation of
the economy as about the nature of that orientation. While there can be little doubt that
the African policy regime failed to generate the kind of investment–export nexus that
characterised East Asian industrialisation, it is doubtful whether such a nexus could be
created simply by adopting more liberal trade policies (see Akyüz et al., 1998).
African economic failure is also commonly attributed to political constraints and weak
bureaucratic capacity. From this perspective, the post-colonial African state has been
characterised as a ‘rentier state’, a ‘predatory state’, a ‘patrimonial state’, a ‘parasitical
state’, or a ‘lame leviathan’, to use some of the epithets quoted in Mkandawire (this issue).
Moreover, it is argued that the state did not have the ideology, the capacity or the auto-
nomy to manage the economy in a way which could promote rapid industrialisation and
development. But Mkandawire points out that conjunctural features of African states
associated with the dramatic increase in state revenue in the immediate post-colonial era
have been treated as if they constituted structural or intrinsic features of African societies.
Many post-colonial African leaders supported a national project of development with
commitments to eradicate poverty, ignorance and disease. However, the first generation
of leaders concentrated their energies on the politics, rather than the economics, of nation
building. Policies were also strongly influenced by donors to the extent that ‘most of the
policies which are today attributed to neopatrimonialism and rent-seeking were the
orthodoxy of the day brought to Africa in well-funded and well-manned packages’
(Mkandawire, this issue; see also van Arkadie, 1995).
It is striking that many types of intervention which were used to promote industrial-
isation in post-colonial Africa were similar to those applied in East Asia, e.g., the establish-
ment of government-owned development banks, control on interest rates and credit
allocation, exchange controls, state-owned industrial and commercial enterprises, import
controls and licensing, subsidies and tax incentives. But together with divergences in the
strategic orientation noted above (namely, the nature of agricultural policy and the
importance attached to manufacturing exports), differences in four areas appear to have
been significant in explaining why government intervention failed in Africa in comparison
with East Asia.
First, in Africa there was a tendency to regard domestic capitalists with suspicion,
particularly when modern and large-scale enterprises were owned and managed either by
persons belonging to ethnic minorities or by nationals of former colonial powers. As a
result, the investment drive in SSA was based on public investment to a much greater
extent than in East Asia, with the exception of the Taiwan Province of China (see
Nissanke, this issue). Secondly, there was no reciprocal control mechanism to ensure that
the provision of rents created through government policy was contingent on performance.
This has been identified as a critical difference between successful and unsuccessful late
industrializers (Akyüz et al., 1998; Amsden, 2000). Thirdly, an important feature of
African accumulation in the early post-colonial era was a number of legislative initiatives
designed to reverse colonial discriminatory regulations by providing privileged or mono-
poly access for Africans to certain avenues of accumulation. Although some of these
measures were production-oriented, these measures opened some non-productive
channels of obtaining and using wealth, and as a result the structure of profitability within
01 265-288 Akyuz 2/4/01 10:42 am Page 278

the economy was not effectively orientated towards productive activities (Kitching, 1980;
Boone, 1990). Finally, many African states after independence used development policies
as a central element in their strategy of building multi-ethnic coalitions. Such coalitions
were seen as essential for national unity and stability, given high post-colonial expecta-
tions and the multi-ethnic nature of most African states, but the politics of inclusion
entailed redistributive measures which tended to focus on government consumption, and
to reduce efficiency and dissipate investment funds.
The structural conditions in Africa also exacerbated the problem of promoting
sustainable accumulation within the industrial sector. Unlike in East Asia, the industriali-
sation process started from a very low base; for Africa the median value of share of
industry in total employment was in less than 5% in 1965, compared with 12·5% in Asia
in the same year (Karshenas, this issue, Table 1).1 Moreover, African resource endow-
ment has been, as Wood and Mayer (this issue) show, very different from that of East
Asia, favouring primary products rather than labour-intensive manufactures, even though
there are unexploited opportunities in the latter sector. Karshenas points out that one
major consequence of African agrarian conditions was that the opportunity cost of labour,
and hence the reservation wage, was close to the average product of labour in agriculture,
while in East Asia, owing to higher population densities and prevailing production rela-
tions, the reservation wage was much lower. This pushed real wages much higher in Africa
and rendered very difficult the creation of even a rudimentary investment–profits nexus in
the emerging corporate sector.
Despite poor agricultural performance, rising commodity prices, together with expand-
ing foreign aid, provided considerable resources for industry, which managed to grow at
twice the rate of agricultural output. However, since the manufacturing sector depended
crucially on the expansion of domestic demand and the provision of raw material inputs,
wage goods and foreign exchange by the primary sector, a considerable burden was placed
on agriculture for sustaining industrialisation in Africa, particularly in countries lacking
mineral resources. Given the poor productivity performance of agriculture and worsening
conditions in global commodity markets, industrial growth could not be sustained; when
commodity prices collapsed and foreign capital became scarce in the late 1970s and early
1980s, industrial growth took a big dive, falling to the level of agricultural growth.
The economic collapse soon turned into a self-reinforcing process. A tighter balance-
of-payments constraint meant that industrial capacity could not be fully utilised, giving
rise to shortages of manufactured goods. This triggered a withdrawal of smallholders from
market-oriented activities, which in turn aggravated the balance-of-payments difficulties,
leading to further shortages of manufactured goods and further decommercialisation of
farming. The depression of agricultural activity thus interacted with the decline of manu-
facturing activity through the balance of payments to engender a cumulative economic
crisis (Berthelemy and Morrisson, 1989; Bevan et al., 1989; Wuyts, 1994).
4. The limits of orthodox adjustment

4.1 Agricultural policies
Starting in the mid-1980s, adjustment policies sought to correct the neglect of agriculture
and aimed to accelerate African economic growth by stimulating agricultural exports. The
1
For a comparison of initial conditions in East Asia with the present conditions in Africa see UNCTAD
(1999B, p. 100, Box 4). This comparison shows a much poorer physical and social infrastructure, particularly
the education base, in Africa.
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central mechanism through which this was expected to be achieved was by reducing
agricultural taxation through changes in output pricing policies, devaluations and market
deregulation. However, what has happened under adjustment has been very different
from what was expected.
There can be little doubt that various economic indicators show improvements after
1984, when adjustment policies started to be more widely adopted. There was some
acceleration in the volume of agricultural production, and the downward trend in the
volume of agricultural exports has been reversed (UNCTAD, 1999B). Some countries
have also begun to diversify on a small scale into non-traditional agricultural exports, par-
ticularly horticultural products. However, the acceleration in agricultural output was only
sufficient to halt the decline in agricultural output per head. Despite increased agricul-
tural exports, SSA’s agricultural trade balance has continued to deteriorate. Moreover,
recovery has not been broad based. There is a clear tendency for agricultural growth rates
to be lower in the post-1984 period than in the 1970s in low population density countries.1
In addition, there is a clear divide between southern and East African countries on the one
hand, and West and Central African countries on the other hand; while the latter regions
have generally achieved faster growth and rising labour productivity, conditions appear to
have deteriorated in the former.
How these trends are related to various policies pursued under structural adjustment is
difficult to ascertain, since agricultural performance is affected by weather and changes in
international prices as well as by adjustment programmes. Moreover, the impact of the
latter depends on implementation and financing as well as on policy design. A main critic-
ism of agricultural policy reforms is that they rely excessively on price incentives (often
dubbed as ‘pricist’), and have little impact on agricultural performance because of neglect
of global price trends and various structural constraints faced by farmers (see, for
example, Lipton, 1987; Beynon, 1989). Boratav (this issue) considerably refines this view
by examining what has actually happened to agricultural relative prices under adjustment
programmes.
He shows that deregulation has not been associated with improvements in real pro-
ducer prices or terms of trade favouring agricultural producers. For export crops, except
cocoa, the ratio of producer prices to border prices fell faster, or rose much less rapidly in
countries with ongoing or newly liberalised marketing arrangements, than in countries
with continued government intervention. Moreover, since 1984 the overall domestic
terms of trade for agriculture have moved much more favourably in countries maintaining
intervention in the marketing process. Finally, real producer prices for cocoa, coffee,
cotton, tea were generally 40–50% lower in the early 1990s than their average levels in the
1970s. These trends are clearly related to world commodity prices, but Boratav shows
that in general real producer prices have held up better in those countries which continued
interventionist policies in markets for the specified commodities than in those with more
liberal regimes (see also Barrett, 1997; Belshaw et al., 1999).
The dynamics of agricultural price formation and problems facing reformers and export
crop farmers cannot properly be understood in the national context alone. When world
prices for agricultural commodities are rising, there is scope for surplus extraction without
undermining incentives and production. In a period of falling international prices, on the
1
Dividing countries into high, medium and low densities, according to the classification of Binswanger and
Pingali (1988), which takes account of agro-climatic potential, it is apparent that the agricultural growth rate
declined or was stagnant between the 1970s and post-1985 period in eight out of ten low-density countries, four
out of 11 medium density countries, and three out of 11 high density countries (see UNCTAD, 1999B).
01 265-288 Akyuz 2/4/01 10:42 am Page 280

other hand, it would be difficult for public marketing agencies to impose an additional
squeeze on farmers through forward market linkages, i.e., by higher margins between
border and producer prices. In a sense, low taxation may have been an inevitable response
to adverse global conditions elsewhere. Under such conditions, linking domestic prices
closely to international markets through deregulation of marketing activities would simply
result in further declines in producer prices.
With market reform, competition amongst traders is expected to limit the scope of
surplus extraction from farmers. In particular, the lifting of institutional restrictions on
marketing can benefit farmers in more accessible and high population density areas.
However, whether liberalisation is an appropriate approach to agricultural development
in a situation of missing and imperfect markets, adverse global conditions and poor infra-
structure is very questionable. As argued by one of the most experienced observers of
African agriculture, ‘donor emphasis on precipitating market liberalisation in the short
run may well set back the cause of market development’ (Lele, 1988, p. 204).
Reforms have also failed to tackle effectively the key structural constraints which
impede productivity growth in agriculture. Indeed, ‘SSA suffers from structural handi-
caps that are impossible to remove or reduce through the standard policy reform pro-
grams’ (Hayami and Platteau, 1996, p. 34). In some cases, some ingredients of reforms
have actually aggravated the constraints faced by smallholder producers.1 An important
trend in many African countries during the policy reform is decline in use of purchased
inputs. Input prices have risen sharply with the removal of subsidies, and fertiliser dis-
tribution systems have broken down as private traders have not adequately replaced
marketing boards, particularly in supplying farmers in need of small quantities in remote
areas. There are also problems related to credit markets. The marketing boards had
offered an institutional response to the problem of missing private credit markets. As they
had a legal monopsony over marketed output, they could provide inputs on credit against
the potential crop as collateral. Through the interlocking of input supply and output
marketing, a larger number of small farmers had access to both inputs and working
capital. With privatisation, this system of seasonal credit has broken down (Poulton et al.,
1998).
In addition, agricultural research expenditure, which had been growing rapidly in the
1960s and moderately in the 1970s, ceased to grow in the 1980s and early 1990s. In 1991,
such expenditure amounted to only 0·7% of agricultural GDP in a sample of 19 SSA
countries (Pardey et al., 1997). Public investment in rural infrastructure has been cut back
with the general reduction in public expenditure and the shift in the ODA from
investment projects to policy support. The decline in external aid to sub-Saharan African
agriculture was very steep during the period 1987–94, when it dropped, at constant 1990
prices, from $4609 million to $1322 million [Food and Agriculture Organization (FAO),
1996, Table 8]. Although donor support for agricultural research has increased, real
public expenditure in this vital area ceased to grow in the 1980s and early 1990s.
The post-1985 recovery in agricultural production and export volumes was brought
about by increased utilisation of existing resources, and was associated with a recovery in
imports. Exchange rate adjustment and trade liberalisation also appear to have contri-
buted by shifting the incentives towards exports and reducing shortages of incentive
goods. In countries where the currency was grossly overvalued and parallel markets were
1
Important exceptions to this situation for smallholders are those countries where, in the past, attempts
were being made to foster African capitalist agribusinesses or state farms. In such cases, significant restric-
tions on smallholder choices and access to resources have been ended.
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pervasive, exports had either declined or were diverted into unofficial channels, and cur-
rency adjustments in such cases achieved positive results by raising exports and bringing
them back to official (statistically recorded) marketing channels.1 However, the recovery
in agricultural output and exports have not been followed by increased private investment
and an acceleration of productivity growth, in large part because the complementary
public investment needed to overcome structural constraints has not been forthcoming.
4.2 Industry and the informal sector

Many sector-specific incentives designed to promote industry have been dismantled in
the context of adjustment programmes, which sought to promote manufacturing activity
through economy-wide measures in trade, finance and macroeconomic policy. The
immediate impact has been widespread deindustrialisation. The share of manufacturing
value-added in GDP fell in 13 out of 24 countries over the period 1980 and 1994 (Soludo,
1998). In 1980, there had been 14 countries in SSA with per capita manufacturing com-
parable to, and in many cases considerably higher than, Indonesia, but all (for which data
are available) had been overtaken by 1995. Formal sector manufacturing employment
also declined dramatically. In Ghana, for example, one of the star performers under
adjustment, it has been found that manufacturing employment fell from a peak of 78,700
in 1987 to 28,000 in 1993, and that ‘large swathes of the manufacturing sector were
devastated by import competition’ (Lall, 1995, p. 2025). Even though Ghana’s current
resource endowment, according to Wood and Mayer (this issue), indicates unrealised
potential for manufacture exports, sectors such as garments, footwear, toys and other light
consumer goods in which the country should be developing a competitive edge, have been
unable to survive the import threat (Lall, 1995, p. 2026).
It can of course be argued that deindustrialisation was precisely what was needed, as it
reflected the elimination of inefficient import substitution industries artificially nurtured
through subsidies and protection. However, a positive response to the removal of protec-
tion and changes in relative prices requires a considerable amount of new investment.
There is also a need for supply-side measures to develop skills, capabilities and technical
support. Such a successful restructuring based on new investment and productivity
growth generally proves to be extemely difficult in a contractionary environment brought
about by hikes in interest rates and the credit crunch associated with financial liberal-
isation (see Nissanke, this issue) and fiscal restraint, as well as under increased foreign
competition due to a sudden rollback in trade protection and removal of subsidies. In four
countries for which reliable recent survey data on manufacturing firms are available
(Ghana, Cameroon, Kenya and Zimbabwe), labour productivity fell, and the annual
gross investment rate was only 6% of the value of capital stock and amounted to 11%
of value added, suggesting that net investment was negative (Bigsten, 1997, quoted in
Collier and Gunning, 1999). Privatisation has proved much more difficult to implement
than envisaged (Ariyo and Afeikhena, 1999). FDI inflows have also not met expectations.
Foreign greenfield investment is mainly concentrated on a few countries with rich mineral
resources, and there are some mergers and acquisitions in consumer goods industries.
Detailed analysis of the behaviour of British manufacturing firms in Africa during
1989–94 shows considerable disinvestment (Bennell, 1995).
1
Yiheyis (1997) found that, for 13 sub-Saharan African countries in the 1980s, ‘official depreciations
which were preceded by relatively large exchange misalignment and were accompanied by a reduction in the
latter, as proxied by the currency premium, exerted roughly twice as much positive effect on real exports as
other official depreciations’.
01 265-288 Akyuz 2/4/01 10:42 am Page 282

Although formal sector manufacturing activities have generally contracted under
adjustment, and public sector employment has been subject to severe retrenchment, the
urban population is growing faster than ever—at 4·9 per annum in 1997 (Gelb, 1999)—
and informal sector activities of all kinds have flourished.1 Wuyts (this issue) examines the
dynamism of informal sector development, which is a key feature of the adjustment pro-
cess in Africa. Drawing on the case of the United Republic of Tanzania, he argues that the
flourishing of informal sector activities under adjustment has its roots in the household
livelihood diversification strategies which were adopted in response to the economic crisis
of the early 1980s and the squeeze on formal sector employment and wages. These activi-
ties have subsequently expanded rapidly, as policy reforms have resulted in a dramatic
increase in the availability of incentive goods. As a consequence, there has been a cheap-
ening of the cost of wage goods, because of both increases in the supply and the propor-
tion of marketed production. This, together with the continued practices of multiple,
diversified and spatially extended livelihood strategies, appears to ensure conditions of
social reproduction in spite of the economic insecurity of the informal sector.
However, although cheapening wage goods led to the increased competitiveness of
informal sector activities in Africa, it is not clear whether this can provide the basis of
sustained growth. It is of course possible for informal sector activities to develop into
export industries. But Nissanke (this issue) shows that in this respect the segmentation of
the financial system can constitute a key impediment. Wuyts also argues that there is a
lack of synergy in intersectoral linkages with agriculture and industry—which contrasts
markedly with the East Asian experience—and he warns that the growth of informal
sector employment tends to fuel the demand for food without promoting rising product-
ivity in food production. He thus concludes that: ‘Just as the earlier processes of import-
substituting industrialization ended up falling into the Ricardian trap because of its failure
to address the agrarian question, the present day vibrancy of the informal sector under
structural adjustment may well end up suffering a similar fate’ (Wuyts, this issue).
5. Conclusions
It is clear that major policy errors have been made during both the import-substitution
industrialisation and adjustment periods. Simplifying somewhat, the critical problem of
the earlier period was that rapid industrialisation was pursued without adequate prior
attention to the promotion of agricultural growth and industrial competitiveness. The
critical problem of the latter period has been that policies have sought to free market
forces without adequate attention to the shortcomings of domestic markets and enter-
prises, physical and human infrastructure, and institutions. In each period, there has been
a remarkable failure to take proper account of external conditions in policy design, despite
the rhetoric of dependency which was a popular justification for the import-substitution
strategy in the earlier post-colonial period, and of outward-orientation and the costs and
benefits of globalisation propounded in the adjustment era. In both cases, policies have
been founded on excessively optimistic expectations regarding the international environ-
ment. Moreover, in each period, pragmatism has been trumped by ideology—in the
1
Estimates for Sierra Leone, the United Republic of Tanzania and Zambia in 1990 suggest that over four-
fifths of the total urban labour force is in the informal sector. In the United Republic of Tanzania, wage
employees’ share of the urban labour force is estimated to have declined from 33% in 1981 to 16% in 1990,
while in Zambia the decline for the same period is from 35% to 18% (Jamal, 1995).
01 265-288 Akyuz 2/4/01 10:42 am Page 283

earlier era by a bias against, and hostility towards, the nascent national entrepreneurial
class, and in the latter era by a bias against state intervention per se.
Adjustment programmes have dismantled the state-mediated mechanism of capital
accumulation on which post-colonial investment booms were based, but have failed to
put viable alternative mechanisms of accumulation and growth in its place. They have
been founded on the premise that once policy distortions are removed, the domestic
economy will behave according to the textbook models of perfect competition, and eco-
nomic activity will automatically spring up like mushrooms. However, in practice, liberal-
isation has often led to greater instability and failed to generate appropriate incentives,
while structural constraints and institutional weaknesses have prevented incentives from
being translated into a vigorous supply response through new investment for the expan-
sion and rationalisation of productive capacity.
It is clear that a bold vision is now needed incorporating a comprehensive and realistic
reassessment of international and domestic policy approaches (see also Rwegasira, 1999;
Mkandawire and Soludo, 1999). This requires a new synthesis which draws on the experi-
ence of both post-colonial and adjustment periods, as well as on the successful experience
of East Asian industrialization.
First, the central policy task should be to raise rates of private investment in productive
activity, and to establish a strong nexus between savings, investment and exports (see
Akyüz and Gore, 1996). At present, there may be some unused capacity in both agri-
culture and industry which could be brought into use, and some static efficiency gains
may be attained by reshuffling resources. But unless such increases in production and
incomes are translated into new investment, it will be impossible to break the vicious
circle of low productivity and dependence on a small number of commodities, and to
generate strong productivity growth and long-term improvement in living standards.
Secondly, there are major structural differences between East Asia and Africa which
mean that particular policies cannot be transferred wholesale to accelerate economic
growth.1 These differences are found, to varying degrees, in the endowment of human
and physical infrastructure and land resources, the extent of availability of agricultural
surplus labour, the dependence of domestic economic activity on exports of a small num-
ber of primary goods, the degree of integration of national markets, the non-tradability of
many basic food staples, the degree of industrialisation, and the importance of the entre-
preneurial class. However, it should also be recognised that the pressure of labour over
land is rapidly changing in Africa; agriculture is becoming less labour constrained, there is
a transition from land abundance to land scarcity, and a high rate of urbanisation (which
is the fastest in the world, likely to make Africa a predominantly urban region in the next
25 years).
Thirdly, there is a need for a more active government role than permitted under adjust-
ment programmes. This should be designed to animate and guide the private sector and
shape the structure of incentives, so that the energy and effectiveness of business is
channelled towards meeting national development needs. It is particularly important to
encourage agrarian capital formation and productivity growth. This requires a policy
which increases the profitability of investment and lowers risk by providing a stable
environment and lowering technical and financial constraints on the capacity and willing-
ness to invest. Public investment remains central to strong and sustained productivity
1
In a sense, this is one of the main problems with adjustment programmes, which often apply lessons from
successful cases, be it in East Asia or in the industrialised world, to countries at different stages of develop-
ment, irrespective of their differences in economic structures and institutional capacity.
01 265-288 Akyuz 2/4/01 10:42 am Page 284

growth and reduced transactions costs. It should be concentrated in regions of greatest
potential, and there is a strong case for commodity-specific supply-side policies. In
general, the weak social and physical infrastructure implies that there are potentially
strong complementarities between public investment and private investment (Oshikoyo,
1994). In countries with a more developed corporate sector, a range of fiscal instruments
can be used to encourage reinvestment of profits (see Akyüz and Gore, 1996).
There is widespread agreement that countries in SSA currently lack the basic institu-
tional capacities to undertake complex economic policies, in part because they have been
eroded through adjustment programmes. A major lesson from the East Asian experience
is that these capacities are built up through a learning process (see Akyüz et al., 1998).
There is certainly a need to undertake reforms to create a competent and independent
state bureaucracy, and to build close ties between such a bureaucracy and an emerging
business sector. The policies needed to develop resource-based activities and some
simpler labour-intensive industries, which should provide the core of an initial investment
and export drive in most countries, are no more demanding than the daunting array of
measure which are required by adjustment programmes. There is little reason a priori to
deny that engagement in a limited number of policies during the initial stages of invest-
ment and export promotion in Africa could allow governments to learn the art of policy
design and implementation.
Finally, it is clear that in order for the growth process to be kick-started, greater and
more stable external resources are needed (see UNCTAD, 2000). The most propitious
place to start is through adequate debt reduction in order to restore the financial viability
of the public sector and remove the debt overhang which deters economic growth and
investment. Over 90% of SSA external debt is public and publicly guaranteed and almost
80% is owed to official creditors, with a substantial and growing part owed to multilateral
financial institutions. As a proportion of exports and of GDP, the African debt is the
highest of all the developing regions. Accumulated arrears on interest and principal pay-
ments, reached $64 bn in 1996, amounting to more than 27% of the total debt. Moreover,
two-thirds of the increase in the debt since 1988 have been due to arrears (UNCTAD,
1999B). Since the external debt is mainly owed by governments, the debt overhang deters
public investment in physical and human infrastructure, as well as growth-enhancing
current spending on education and health. It also creates a problem of credibility and
considerable uncertainty for private investors, foreign as well as domestic. Indeed, simu-
lation analyses suggest that the debt overhang is having a serious negative impact on
private investment rates (Elbadawi et al., 1997). While eliminating the debt overhang will
not be a solution to the African development, it would mean one less problem to grapple
with. Together with a reversal of the downward trend in official development assistance
(ODA),1 it could provide the critical mass needed for takeoff into sustained growth,
provided, of course, that it is combined with appropriate policies.
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Cambridge Journal of Economics 2001, 25, 265–288

African economic development in a

Conventional explanations of poor African economic performance generally fail to

Key words: Development, Structural adjustment, Capital accumulation, Africa.

Manuscript received 21 March 2000; final version received 11 January 2001.

© Cambridge Political Economy Society 2001

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2. Accumulation, trade and growth

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Country Period Savings Investment Exports

Republic of Korea 1961–70 9·9 20·0 9·2

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3. External vulnerability and post-colonial policy dilemmas

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African economic development in a comparative perspective 275

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4. The limits of orthodox adjustment

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African economic development in a comparative perspective 281

4.2 Industry and the informal sector

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