Trade and Fiscal Adjustment in Africa (review)

This volume of essays addresses the history of trade and fiscal reform in Africa, with particular attention paid to the design and efficacy of those reforms (p. 2). The essays are culled from two workshops of the Development Economics Consortium and are organized under three headings: Trade liberalization, Fiscal reform, and Interactions between trade and fiscal reform.

The chapters' authors address the central issues of economic reform in sub-Saharan Africa by using formal models to query central paradoxes in Africa's liberalization process. The volume, therefore, is most accessible to readers familiar with formal economic models of trade and macroeconomics. There are twelve chapters so each cannot be reviewed in detail. Nonetheless, they share common themes, and these will be briefly addressed, although the volume could better frame these themes by a stronger introduction and, in particular, a conclusion that highlights common findings and remaining fault lines.

Lurking in the background of the entire volume is the simple question, why do economic reforms in sub-Saharan Africa, both those initiated by the international financial institutions (World Bank and International Monetary Fund), and by shadow programs (self-adopted reform) have such a poor track record? The answer seems to be that orthodox structural adjustment programs are blunt instruments; this volume attempts to offer more surgical tools.

Most African countries soon after independence instituted high tariffs, import restrictions, and foreign exchange controls (p. 1). Since at least the late 1970s many, maybe most, African countries have shifted away from inward-import substituting trade regimes (p. 15) and have tried to confront the twin evils of high levels of import restrictions and high fiscal deficits (p.i1). Thus arrives the first paradox in chapter two: how to time fiscal and trade reform. For political as well as economic reasons, it is almost impossible to do both at once. Zimbabwe's Economic and Structural Adjustment Program (ESAP) launched in 1990, for instance, failed because interest rates were liberalized before the fiscal deficit was under control (Addison and Laakso 2000: 6). Much of the formal modeling in the volume tries to figure out the right mix, but the reader is left with a Gordian Knot.

One of the central conundrums is that trade liberalization often causes a balance of payments problem. An accompanying exchange rate change can help (p. 42), but only under certain conditions. Foreign aid could help in the transition (p. 229) but because it is often "tied aid" (p. 73) it has its own set of problems, and is possibly causing a slow export response (p. 5). A second puzzle is that investment slumps follow liberalization (pp. 50, 221). Again the proper mix of fiscal and trade reform is difficult to judge.

Cutting across all of these technical issues is the political economy of economic reform. Herein lies the most interesting, but quite underdeveloped, theme of the volume. The issue of political support for liberalization is framed as a problem of credibility. Within this discussion is the debate on whether reforms should be gradual or sudden (pp. 36, 51, 78, 108). There are no technical economic grounds for a consensus but the politics are clearer: liberalization hurts import competing sectors (p. 30), subsequently abrading entrenched elites' ability to garner rents (p. 229); and large, abrupt trade reform can lead sectors producing importables to shed two-thirds of their labor force in the first year (p. 220). Nonetheless, there is a debate over sudden versus gradual reform, one author arguing that the latter misses "transient windows of opportunity" (p. 36).

This is an important collection of essays. Not so much, however, because of its conclusions, but rather because it embraces the complexity of economic reform in sub-Saharan Africa, and offers no "cookie-cutter" solutions to those challenges.