Rethinking government economic activism in sub-Saharan Africa: Some contending issues of the privatization strategy

Journal of Third World Studies, Spring 2001 by Ugorji, Ebenezer C

RETHINKING GOVERNMENT ECONOMIC ACTIVISM IN SUB-SAHARAN AFRICA: SOME CONTENDING ISSUES OF THE PRIVATIZATION STRATEGY BY EBENEZER C. UGORJI*

INTRODUCTION

Since the 1980s there has been increased debate about the trend toward increased government spending, continued government ownership of enterprises, and the appropriate level of government intervention in the economy. Privatization, which has been embraced by governments in both developed and developing countries, has become the focal point of this debate.1 At the center of the debate is the contention by proponents of privatization that government is inherently inefficient, and that privatization would improve bureaucratic efficiency and the provision, at lower costs, of public services. As government resources declined, this view assumed even greater importance.

In sub-Saharan Africa (SSA), the nature and scope of government intervention in the economy have, since the 1980s, become a matter of debate between SSA governments on the one hand, and the International Monetary Fund (IMF), the World Bank, and Western donor countries on the other. At issue is how to address the inability of the economies of SSA to adjust to external price shocks and the deterioration of the region's macroeconomic performance since the 1980s.

The nature of SSA's economic crisis has been widely documented.2 Some researchers have blamed SSA's economic crisis on international economic factors such as the region's high level of external debts, adverse terms of trade, and limited access to the markets of developed countries. The contention is that these factors have not only contributed to the economic decline of SSA but have also exposed the weaknesses of the region's economies.

The World Bank, the IMF, and other critics of government intervention in the economy have argued that Africa's current economic malaise, which began in the mid-1980s, cannot be satisfactorily blamed on an adverse international economic climate. The World Bank, for example, blames not only excessive government intervention in economic activities, but also domestic difficulties that include structural rigidities, institutional weaknesses, government controls and restrictions, a bias against agriculture, and trade and exchange-rate biases against exports. All of these, it argues, have "limited the ability of sub-- Saharan Africa to adjust..."3

Faced with deteriorating economies and the necessity to avert further financial crisis, and as condition for economic assistance, SSA governments began to implement IMF/World Bank-sponsored structural adjustment programs (SAPs). Broadly, SAPs have macro- and micro-economic dimensions. The macro-dimension seeks to streamline government expenditures, boost taxes, increase the domestic cost of credit, reduce public sector expenditures, eliminate all price subsidies, impose wage restraint, and massively devalue the currency. The micro-dimension addresses the inefficiencies of the price system and resource allocation via privatization.

Privatization would not only address the failure of state-owned enterprises (SOEs) to contribute to economic development, but also reduce the level of government intervention in the economy, bring about efficiency in the use of limited public resources, enhance private economic expansion, and broadly redefine the role of the state in the economy. In effect, by adopting structural adjustment policies, African countries have been pressured to reexamine the economic development model in which SOEs have played a leading role.

Given the above circumstances, the purpose of this study is to examine some of the concerns and challenges of privatization as a strategy for rethinking government economic activism in sub-Saharan Africa. It will be shown that after independence, the activist role governments played in economic development in SSA produced an expansion of their public sectors beyond sustainable level. As the economic difficulties of the 1980s and beyond exposed these weaknesses, scaling back government economic activities and reforming public sector operations became imperative.

The use of privatization as a strategy to limit government economic activism, however, generates some concerns that need to be addressed in the context of the region's realities. Among these are: (1) Given the limited nature of SSA's private sector, can the region afford the competition that is essential for the success of privatization? In other words, is privatization "essentially an industrial country phenomenon"?4 (2) In the absence of efficiently functioning capital and financial markets, how fast should SSA countries implement privatization? (3) With extensive public ownership, which enterprises should be candidates for privatization? (4) Do African governments have the political will to adopt the politically risky policies that are prerequisites for successful implementation of privatization, such as economic liberalization, with its potentials for exposing vital economic sectors to foreign domination? Finally, (5) would privatization promote the ability of SSA countries to sell their exports in the world market?