EFFECTS OF STRUCTURAL ADJUSTMENTS PROGRAMMES IN AFRICA: A CASE OF GHANA

EFFECTS OF STRUCTURAL ADJUSTMENTS PROGRAMMES IN AFRICA: A CASE OF GHANA

Author: Tawanda Dodo (2015) About the Author- Tawanda Dodo is a successful Bachelor of Science Honors degree in Peace and Governance graduate with Bindura University of Science Education.

The transition from the colonial era to ‘independent states’ that most of the African states underwent through came with it the daunting task of economic challenges. Notable challenges, but not limited included hyperinflation, economic polarization, external debts, poverty and unemployment. The rationale for the operationalization of Structural Adjustment Programmes (S.A.Ps), therefore, was to address the problem of enduring, poor economic performance. Ghana, which will form the basis of this essay adopted the (S.A.Ps) in 1983 hinged on the neo-liberal ideology in an attempt to save the economy. The state adjusting the economy had to operationalize the privatization of state enterprises, liberalize capital markets and cut back on social spending. The Bretton Woods argue that Ghana is the most successful implementation of SAPs in Africa. However, the critics of the program point out that the SAPs intended to control inflation and generate foreign exchange to help pay off the external debts resulted in increasing unemployment, poverty and economic polarization. The international call for the debt cancellation on the third world countries further signify the ineffective of the SAPs in Ghana. Guided by the neo-liberal and neo- classical theoretical frameworks this essay attempts to analyze the effects of SAPs using Ghana as a case study. According to Corbo and Fisher (1995:2847) as cited in Zawalinksa (2004:4) define the term structural adjustment as a “process of market oriented reform in policies and institutions, with the goals of restoring a sustainable balance of payments, reducing inflation and creating the conditions for sustainable growth in per capital income.” Todaro et al (2011: 54) define development as “the sustainable elevation of an entire society toward a better or more human life.” On a national level development is evaluated with such indicators such as Gross Domestic Product (GDP) which refers to the market value of all final goods and services produced within a DODO. T

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country in a given period. Fiscal policy in political science and economic circle refers to the use of Government expenditure and revenue collection (taxation) to influence the economy. Ghana obtained her independence in 1957. Following two decades into independence the country adopted the SAPs against a backdrop of economic challenges. The standard structural adjustment reform package (known in Ghana as the Economic Recovery Program) was proclaimed by the government, including a maxi-devaluation, fiscal austerity and tight money. The implementation involved the Government reducing expenditure on social service like health and education and the privatization of state enterprises, (Collier and Gunning, 1999). Subsequently there has been improvements in the increase of production and exportation of staple products such as cocoa and timber, (Odutayo, 2015). Thus, fostering an environment for Foreign Direct Investment in mining and infrastructure. Critics, however, point out that national economic success does not necessarily translate into wellbeing for citizens. Contrary to what constitutes development to the World Bank (WB) and the International Monetary Fund (IMF) which is focuses solely on national economic growth as measured by such indicators as Gross Domestic Product (GDP). Hence, Odutayo (2015) concludes that “Ghana is a poignant example of how powerful states have used the implementation of SAPs to maintain the interests of the capitalist system by exploiting the resources of the global south.” Robert Bates attempted to justify why intelligent men of Africa adopt policies and practices which are detrimental to their own countries (Bates: 1981). Moyo (2009) concurs that there should be a stop in the continual pushing of aid agenda on Africa as this has resulted in what she terms ‘unintended outcomes.’ For example, corruption, debt burden and inflation. The notion of SAPs and its implementation meant that the Government had to reduce its expenditure in social services and privatization of state enterprises. Thus eroding the traditional role of the state. Aryeetey and Tarp (2000) point out that the Government was refrained from intervening in the economy except from taking care of macroeconomic management and a few other minimal functions. This is against the backdrop that, at least according to the Bretton Woods that the problems of the third world are due to the state’s intervention in the economy. Thus, the IMF and WB argue that when properly implemented the SAPs foster the conditions for growth and raising local living standards. According to Katarzyna (2004:4) the privatization of state enterprises was proposed in order to accurately define property rights and improve DODO. T

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efficiency and profitability of the economy. In the long run this would restore macroeconomic balances and prepare economies for global competition, (Carbo and Fisher, 1995). However, during the restructuring exercise in the first decade of the SAPs 200 000 individuals in the public sector lost their jobs. This also contributed to the increase in the rate of unemployment. It is believed that the rate increased from 10% in 1980 to 19% in 1987 and to 21% in 1993, (Odutayo, 2015). The implementation of the Adjustment Programs from the 1980s to the early 1990s registered drastic turnaround of the economic performance. The Gross National Investment (GNI) rose from 3,7% to 16% and inflation declined from an average rate of 73% to about 13%, (ibid).Notwithstanding the increase in the economic performance the SAPs contributed to a variation between the rich and the poor. The concept of market deregulation resulted in the Ghana experiencing minimum wage increase of 75% in the first three years of SAPs. The situation was worse among members of the public due to a rise in the food prices and higher fees for social services. For example, in 1986 rates for water were raised, electricity bills went up from 47% to 80%, (Odutayo, 2015). Hence, it was a challenge for most households to access the services. The other aspect of the implementation of the SAPs was external trade and balance of payments. This meant that Ghana had to promote openness to trade and capital flows. The Government achieved this through devaluation during the period of 1983 and 1986. The process was accompanied by import liberalization and the abolishment of import licenses in 1990, (Ghana Country Report, 2001). Import tariffs were reduced between 10 and 30%. The local manufacturing industries gained an opportunity to acquire scarce commodities through trade. According to Harrigan (2000) the goals of economic reform program under this aspect were to narrow the gap between official and parallel exchange rate, clear up arrears, and achieve a variable balance of payments among others. The commodities that were used for external trade were mainly cocoa, gold and oil in which, however, was dominated by the transnational firms, (Oduro, 2000). Thus, the players in this sector such the exporters were allowed to retain an increase of share earnings thereby cutting on the revenue to the central Government and the local industries were no longer protected from foreign competition through restrictive trade policy regimes. According to the Ghana Country Report (2001:21) “By 1987, domestic manufacturing DODO. T

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accounted for 9.4 per cent of real GDP. Since then, however, performance has been rather unimpressive in terms of growth, share of real GDP and industrial output.” As a result, there was perpetual increase in the external debt and inflation. For example in 1992 during the democratic process which resulted in the budget deficit coupled with the bad harvest of cocoa. Hence a fall in revenue and a rise in expenditures contributing to huge primary deficit. Closely related to the above mentioned point is the role of the mining sector in Ghana’s economy. The Ghana Country Report (2001) argues that Ghana comes third after South Africa and Zimbabwe in geological ranking. She is the producer of various minerals such as gold, diamonds, bauxite, manganese, alluminium and others. The sector has also been seen as a contributing sector to the economic development of Ghana. Major mining companies nationalized from Britain since the state obtained independence from Britain in 1957 such as Bibiani, Tarkwa, Prestea and kanongo have during the implementation of the SAPs contributed to the Foreign Direct Investment (FDI). For example by 1999 the gold sector reached a massive inflow of over US$3 billion, (Ghana Country Report, 2001). However, in the case of Tarkwa there has been a number of negative social impacts reported like youth unemployment, inadequate housing, prostitution and degradation of land and vegetation, (ibid). In summation, it can be noted that the rationale for the implementation of the Structural Adjustment Programmes were to alleviate poverty and promote growth. This was against the population growth that the state like any other African states were experiencing. In terms of the objectives of the SAPs as identified and analyzed above one can point that at one time the prescriptions worked. However, the issue of aid in case of the SAPs which were conditional in nature had a neo-colonial agenda in terms of controlling the affairs of Ghana. Hence, the programmes were preoccupied with achieving macroeconomic stability through fiscal and inflation targets, at the expense of growth, employment and poverty reduction.

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REFERENCES Akua. B, Kwesi. J, Ferdinand D. T (2001): Structural Adjustment Participatory Review Initiative (SAPRI): Ghana Country Report, Accra Bates, R. (1981). Markets and States in Tropical Africa: The Political Basis of Agricultural Policies. Berkeley: University of California Press. Katarzyna, Z (2004): What has been an economic impact of Structural Adjustment Programmes in Transitional Countries? University of Cambridge, U.K Moyo, D (2009): “The World of Aid” in Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa. Farrar, Straus and Giroux, New York Odutayo. A (2015): Conditional Development: Ghana Crippled by Structural Adjustment Programmes. E- IR Todaro, M and Smith, S.C (2011): Economic Development. Pearson Publications. India

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