It is a broad concept with singular interpretation and literary refers to any structural adjustment loans and SALs provided by the International Monetary Fund (IMF) and the World Bank to countries that experience economic crises.
Their purpose is to adjust the country’s economic structure, improve international competitiveness and restore its balance of payments.
Starting from the mid-1980s, sub-Saharan countries have been following structural adjustment programmes (SAP) of one kind or another under the auspices of the IMF and World Bank Structural adjustment economic policy. Has this become the most conspicuous economic policy in sub-Saharan Africa?
Although certain details may differ according to each programme, SAP has general tenets that are observable in all programmes in sub-Saharan Africa.
Whether SAP is successful or not in its ultimate verdict has got to be its effects on development in the region and the jury is the population of the region, whose lives are daily affected by SAP.
In this approach, the success of SAP is not determined by economic variable statistics, such as budget surpluses growth rates of GDP, the growth rate of money supply and such other technical jargon with meaningless real realisation to the manners of the population who live wretched lives.
Any serious judgement of SAP should, therefore, ask the right questions that are associated directly with the daily lives of the people, such as: Has SAP created more jobs or led to job losses?
Has SAP led to more school places or not, etc.?
Has SAP led to more access to quality medical care or worsened access?
These are the developmental questions any realistic economic policy should directly address. If the answers to the above questions are affirmative, then SAP could be said to be successful.
However, if the answers are negative, then one has to be extremely naïve to consider SAP successful – even if GDP has been growing.
The fundamental approach of assessing SAP is, therefore, not as a policy that affects the economy but, as a policy that affects real people in the slums of cities, villages, children in hospitals, peasants, education systems, etc., the ultimate goal of the policy is to serve people not aggregate statistics.
Following the liberalisation of exchange rates, domestic currencies depreciate tremendously against major international currencies.
SAP argued the depreciation in the exchange rate would be conducive to promoting exports and discouraging imports; therefore, resolving the BOP crisis.
However, this expectation has not been realised.
A proper analysis of the type of exports from Africa would have anticipated that exports can be promoted significantly by merely liberalising the exchange rate.
Few if not many African economists perceive more importance of the use of a single African currency that will help transform trade within the continent and ease the burden of relying on the IMF and World Bank, which, in return, create the wheel of poverty.
This is because, in most cases, the structural adjustment loan are misplaced and misused on unprecedented items and projects – and one would only predict that with the positive initiation of the African Continental Free Trade Area (AfCFTA) treaty signed by almost all African countries, it will be fruitful in minimising dependency from the IMF.
Exports from Africa generally have a very low price elasticity of demand. This means price changes due to currency devaluation do not induce much demand. Even if demand was inducing the supply rigidifies in the export sector, it precludes a fast supply response.
The liberalisation and consequent depreciation in the exchange rate have, however, adverse effects on the economy. Production in Africa is largely dependent on imports in terms of raw materials and other inputs.
Since depreciation means these inputs now cost more, this has had the highest effect on the cost structure of production. Domestic prices had to rise to take account of the higher costs of imported inputs.
Overall, therefore, currency depreciation had review inflationary effects on the domestic economy. The economy imported inflation that compounded the already severe economic problems in sub-Saharan Africa.
Taking Namibia in context back in 2021, a huge amount of billion Namibian dollars was approved to the Namibian government by the IMF, an amount that could have transformed Namibia today should it have been appropriately administered, but here we are in 2022 with mass domestic strike reverted at the last minutes costing the government almost a billion Namibian dollars.
The Namibian newspaper on 5 August 2022 reported the Namibian trade deficit dropped to N$2.5 billion, a huge challenge to the future economy of the country should this figure continue to drop in the coming years.
After more than a decade of following SAP in sub-Saharan Africa, the attention has shifted to the impact of these programmes on the development of these countries. In developed countries, if demand exceeds supply, it is expected that supply would adjust by expanding to take advantage and exploit increased demand.
This behaviour is based on a classical economic theory. The major assumption here is that supply is flexible and can expand, provided the price is right.
However, in African countries, supply is not constrained by demand. Supply is inflexible, constrained by various factors of production, especially backward technology. Under conditions of rigid supply, the market cannot perform its orthodox role of efficient distribution of resources.
If prices are liberalised, the net impact would be a spiral of price increases without any expansion in supply. This is essentially what is happening in sub-Saharan economies. When prices were freed according to SAP prescriptions, suddenly prices sky-rocketed to an unaffordable level for the majority of people.
Potential investors are scared of borrowing from the banking system due to high-interest rates. Consequently, the higher interest rates therefore, prohibit economic growth by making capital expenditures. No investment in production takes place – and as a result, these economies cannot experience growth.
From a holistic financial perspective, it will serve no positive interest for the African government with all the potential richness of their natural resources to continue borrowing at the high-interest rate and conditions imposed by the IMF, from which many of the countries have not yet recovered from.
Something to ponder on is the definition of dependency by Theotonio Dos Santos: “Dependency is the situation in which the economy of certain countries is cautioned by the development and expansion of another economy to which the former is subjected. The relation of interdependence between two or more economies, and between this and world trade, assume the form of dependency when some countries can expand and can be self-sustaining while other countries can do these only as a reflection of that expansion, which can have either a positive or negative effect on their immediate development”.