In The News

IMF is optimistic about Africa’s future

IMF is optimistic about Africa’s future
  • PublishedJune 13, 2013

Antoinette Sayeh, the director of the IMF’s African Department, says the organisation has learned from its 80s-90s mistake of forcing what turned out to be harmful structural adjustment programmes on African countries, and has now adjusted its programmes to make sure they are more effective. The lady from Liberia talked to John P. O’Malley, and noted that now “there is a healthy relationship between the IMF and Africa”.

In an article published on the website of the International Monetary Fund (IMF), the organisation admitted its policies had failed a number of African nations in recent history. “New classical” and supply-side economics, provided the theoretical rationale for bold, if sometimes misguided, policy experiments. And for much of the developing world, the 1980s were thought of at the time as the “lost decade”, when living standards stagnated or fell year after year.

It is now generally accepted that the IMF’s bailout loans in the 1980s – which encouraged austerity and liberalisation –significantly contributed to the number of people living in poverty across Africa rising from 205 million in 1981 to 330 million in 1993.

The former senior vice president of the World Bank, Joseph Stiglitz, in an interview he gave to the BBC World Service, claimed that in the 1980s he witnessed:

“[The IMF] pushing ideas of financial liberalisation in Africa where interest rates would soar. They would get rid of government boards that would buy grain; letting markets [dominate], where farmers suffered, and mafia groups took over. You saw that in the structural adjustment policies, as they were called in Africa. Today the industrial sector is smaller than it was 30 years ago.”

When I begin my conversation with Antoinette Sayeh, the current director of the IMF’s African Department, I ask if Stiglitz’s and other such comments about the organisation she represents was fair? “Structural adjustment programmes in Africa in the 1980s are often criticised,” says Sayeh without hesitation. “Some of that criticism is justified. But we have learned from those experiences and adjusted our programmes at the IMF to make sure they are more effective.

“One way we do this is not to include any structural performance criteria anymore. We also make sure that our low income members do all they can to protect their social expenditure, even with constrained budget resources.”

“It’s also important to remember that most countries that came through the structural adjustment path had severe problems before turning to the IMF. For example, Tanzania in the mid-90s was in severe economic distress from bad policies: exports had fallen and interest rates had sky-rocketed.”

“This led to an overvalued exchange rate. In the banking sector many public enterprises didn’t repay their loans. This meant the poor suffered most from that rising inflation.”

Today Sayeh speaks about a healthy relationship existing between the IMF and Africa. Even those who no longer need financial support from the IMF still seek out programmes without financing under the organisation’s Policy Support Instrument (PSI). Tanzania is one such country, Sayeh explains.

This anecdote does not seem arbitrary. Tanzania – indirectly – helped stabilise relationships that had gone sour between the IMF and many African countries. This was done in 2009 when the IMF held a conference in Tanzania’s commercial capital, Dar es Salaam, titled: Changes, Successful Partnerships for Africa’s Growth Challenge. “The Tanzania conference really was a changing moment for consolidating the relationship between African countries and the IMF,” says Sayeh.

“It brought together African policy makers, the private sector, civil society, the IMF, and various financial institutions, to discuss the challenges that the continent faced. This was amid the backdrop of the most severe economic crisis that the world had faced in 60 years.”

Many plans were drawn up at that conference. Some of these included a consolidation to the debt relief process, the need to accommodate African countries in infrastructure and finance opportunities, as well as concentrating on policy dialogue between the IMF and its member countries.

Four years later, does Sayeh feel that the roadmap as laid out at that conference yielded significant results?

“I certainly think progress has been made in almost all of those areas,” she says with a tone of optimism. “IMF financing was doubled, and interest rates for our loans were lowered to zero, and the debt sustainable framework has been made more flexible.”

Although the conference may have solved many issues facing Africa, oil subsidies was not one of them. In resource-rich countries like Nigeria, the topic has caused widespread violence, leading to a number of deaths in some cases. The Nigerian government – with the backing of both the IMF and the World Bank – has repeatedly called for the phasing out of energy subsidies.

The debate surrounding the issue is highly polarised. Many argue that oil subsidies give the poor some sense of ownership of a national resource that is otherwise unevenly distributed. A conservative estimate puts 80% of the economic benefits in Nigeria from oil going to just 1% of the population. But along with people like Nigeria’s finance minister, Ngozi Okonjo-Iweala, the IMF has repeatedly called for the phasing out of subsidies. In a report published in 2009, the IMF said doing so would be “an important step” to making sure money was made available to spend on valuable things like education and infrastructure.

Sayeh certainly makes a convincing argument when she speaks about this. “In 2011, fuel subsidies averaged about 2.5% of GDP in African countries. On top of that, electricity subsidies average 1.5% of GDP. So you have a situation in some countries where 4% of GDP is being spent on fuel and electricity subsidies. Only higher income groups benefit here because they consume the most electricity.

“Energy subsidies also discourage investment in power generation. That has negative consequences for competitiveness, and for potential growth when there are no energy supplies to run factories, or to help mind natural resources. Since 1985, per capita, energy subsidies in sub-Saharan African have not increased at all.

“Today in Africa, installed energy production is only equal to that of Spain. Africa cannot afford to continue with this if it wants to sustain the very high growth rates that it has been having these past several years.”

But given how difficult this issue has proven to be politically, how does the IMF feel it can be resolved peacefully?

“It’s particularly important to start with effective public information, so that people on the street really understand the disadvantages and the inequities of the subsidies,” says Sayeh.

“It’s also been the IMF’s conclusion that strong institutions are needed to sustain energy reforms. We need to break the cycle of underinvestment, poor maintenance, and high cost: because this creates an environment that is not conducive to efficiency gains. But this is a very complex issue that is about more than just tariff increases.”

When it comes to how political conflicts are affecting the IMF’s performance in Africa, opinions vary, depending on whom you talk to within the organisation. In January, the IMF’s managing director, Christine Lagarde, said recent impressive growth rates for many African countries were being undermined by lingering conflicts across much of the continent.

She claimed that “security is too fragile in many countries, especially in West Africa. If there is no peace, the people simply won’t have the confidence or courage to invest in their own future, and neither will [foreign investors].”

Sayeh believes that the security situation is actually better than it has been for the previous two decades. “I don’t think that we can say that conflict in general has significantly increased in sub-Saharan Africa. When you looked back to the 1990s, the whole of western Africa, including Liberia, where I come from, was involved in a long-standing conflict. Today that is a very different situation, although there are some countries – like Mali – in the region who are embroiled in conflict.”

When I ask her what steps she believes need to be taken to ensure that these conflicts do not go beyond the local level, Sayeh says she does not feel qualified to talk about this issue any further.

“The IMF is not a conflict-preventing institution. Of course, in our economic work, and in the support we give to countries, we make a contribution to help them avoid conflict, and our programmes contribute to that. I believe a shared and robust growth is a critical ingredient for avoiding conflict in most African countries. In that area we are certainly making progress.”

Internal conflicts within some African countries is a problem that the IMF may have no control over, but the organisation has noticed a steady increase in healthy relationships with other global trading partners in recent years, particularly with China. Over the past decade, trade between Africa and China has risen from $11bn to $166bn. Sayeh believes this has contributed significantly to the impressive growth rates that African countries have experienced in recent years. “The trade investment between China and Africa has grown remarkably in the recent past. And China is now sub-Saharan Africa’s largest trading partner. China’s foreign direct investment has increased sharply. We estimate at the IMF that it was $15bn on a cumulative basis in 2011.

“China has also stepped up financial assistance to the region. In July 2012, when the Forum on China-Africa Cooperation took place, the Chinese announced a credit line of some $20bn. But the relationship is not uniquely about natural resources, it’s a very broad spectrum of investment – where 60% of China’s investment is now in the manufacturing, construction, and services sectors.

“It’s important to make the most out of this relationship: it has served sub-Saharan Africa well in terms of the diversification of both the trade and investment. That diversification was at the source of the resilience shown by sub-Saharan Africa, because the region was less dependent on traditional partners, which were hardest hit by the global recession.”

The IMF’s World Economic Outlook projected compounded annual growth rates for 185 countries from 2013 through 2017. Over half of the countries featured in the top 20 of highest growth were from Africa. Sayeh believes that because the fundamentals of these economies were better than they had been for a long time in the region, steady growth was able to flourish. “This reduced fiscal deficit inflation, and the countries also benefited from debt relief, thereby making fiscal space for other priorities. Many sub-Saharan African countries were able to utilise counter-cyclical economic policies to insulate their economies from the downturn in the advanced countries,” she adds.

Despite this good news for the lower income bracket countries, those in Africa with more developed economies have not grown as robustly over the last few years.

The reason for this is quite simple, Sayeh explains. “Those middle-income countries with closer trade links and ties to Europe – through manufactured goods and tourism – did not do as well. South Africa for example was hit badly. Its growth in 2012 was below 2.5%.

“This is because there are still strong ties between South Africa and Europe. In Nigeria, the economy was affected primarily by floods. This led to lower growth in agriculture.”

“But most of the low-income countries in the region have done reasonably well. This is also where the bulk of the poor in sub-Saharan Africa live. So overall, there has been a reasonably good outcome in terms of resilience shown amid the crisis.”

But Sayeh admits that the growth rates of economies do not tell the entire story of each individual country and labour market. In the IMF’s Regional Economic Outlook, Sub-Saharan Africa, there was an entire chapter dedicated to structural transformation: this is where workers shift from low average labour productivity to those with higher aver-age labour productivity. This can then contribute to an increase in the average labour productivity for the economy as a whole.

Sayeh says that although the report found there has been structural transformation in Africa in the past decade, it has been less widespread than in Asia.

Moreover, in contrast to low-income countries in South Asia, where the manufacturing industry is booming, the share of employment and output in manufacturing in low-income African countries has generally been weak, most notably in agriculture. “The IMF thinks there is a clear need to raise the productivity in agriculture in Africa. Output per worker is very low in agriculture, with severe deficiency, in terms of availability of good quality seeds, fertiliser, and suitable irrigation levels,” says Sayeh. “The bulk of employment – almost 70% in Africa – is in agriculture. So raising productivity there is critical from the perspective of inclusion as well.”

Nearly five years into her current position as director of the African Department at the IMF, Sayeh has witnessed one global recession, and two severe food price crises. Despite these small setbacks, the general mood in the IMF is one of optimism for the future of African countries in the coming decade.

I ask Sayeh one final question: in what area is the IMF expecting to see more progress within Africa in the coming years?

And where is there room for improvement? “Progress is perhaps slower than what we might have wanted on the governance side,” she responds. “But there have been moves in the right direction there. And adding a second executive to each of the two African chairs on the IMF board has really helped. It’s also extremely important in the longterm perspective that African economies diversify, export, and reduce their reliance on commodities.”

Written By
New African

Leave a comment

Your email address will not be published. Required fields are marked *