PROSPECTS FOR ECONOMIC REFORM IN SUB-SAHARAN AFRICA

• Document Type: FOIA
• Keywords: LIBERIA
• Keywords: ECONOMIC REFORM
• Keywords: LIBERIA
• Keywords: ECONOMIC REFORM
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005281832
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 30
• Document Creation Date: June 22, 2015
• Document Release Date: March 11, 2009
• Case Number: F-2007-00443
• Publication Date: May 1, 1989

Director of
Central
Prospe ?ts for
Economic e r it
Sub-Saharan ri (u)
National Intelligence Estimate
This Estimate represents the views
of the Director of Central Intelligence
with the advice and assistance of the
US Intelligence Community.
APPROVED FOR
RELEASE DATE:
09-Dec-2008
(b) (1)
(b) (3)
NIE60170-89
May 198515
 Director of
Central
Intelligence
NIE 60/70-89
Se
Prospects for
Economic Reform in
Sub-Saharan Africa (u)
Information available as of 26 April 1989 was used
in the preparation of this Estimate.
The following intelligence organizations participated
in the preparation of this Estimate:
The Central Intelligence Agency
The Defense Intelligence Agency
The National Security Agency
The Bureau of Intelligence and Research,
Department of State
The Office of Intelligence Support,
Department of the Treasury
also participating:
The Deputy Chief of Staff for Intelligence,
Department of the Army
The Director of Naval Intelligence,
Department of the Navy
The Assistant Chief of Staff, Intelligence,
Department of the Air Force
The Director of Intelligence, Headquarters, Marine Corps
This Estimate was approved for publication by the
National Foreign Intelligence Board.
 Libya
Nigeria
NEW
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 Key Judgments
Western-backed policy reforms will bring modest improvement in pros-
pects for economic growth in those countries of Sub-Saharan Africa that
undertake them. But the key reforms-budget reductions, privatization,
and deregulation-will continue to be adopted grudgingly and unevenly
over the next five years, with occasional reversals. Even in those countries
likely to carry out a full reform program, such as Ghana and Senegal,
achieving self-sustaining economic growth is a distant goal that will require
substantial Western assistance over many years. F_~
Reform Obstacles and Incentives
Many African governments have already made politically "easy" reforms,
such as devaluing their currencies and increasing agricultural prices, but
will be much more cautious in adopting changes that burden powerful
groups, such as eliminating subsidies or privatizing public enterprises.
Despite political obstacles, however, we believe that the reform movement
will take firmer hold in Africa over the next five years:
? Particularly in agriculture, economic reform has recorded demonstrable
successes that will help make other policy adjustments more politically
palatable.
? Net Western aid is likely to increase, and a larger portion of it will be
conditioned upon implementation of reforms.
? Reforms gradually will spawn their own domestic constituencies, particu-
larly among farmers and those entrepreneurs who take advantage of
more open markets. F-
Outlook .for Growth
Most African economies will do well to grow faster than population. Even
for those countries that assiduously pursue reforms and are aided generous-
ly by the West, progress will be impeded by Africa's fundamental
problems:
? Largely unskilled labor forces, often weakened by disease and in some
countries threatened by the AIDS pandemic.
? Weak markets for most exports.
? Unpredictable weather, pest infestations, and environmental degradation
that severely handicap agriculture.
? Rapid population growth, the highest of any major region in the world.
? Deeply ingrained corruption.
? Inadequate transportation, utilities, and communications.
iii
NIE 60/70-89
 These problems, together with political uncertainties and in some cases
internal wars, will continue to cloud Africa's investment climate as well as
hamper growth.
Africa will remain the world's poorest continent for the foreseeable future.
For those Sub-Saharan countries whose natural resources and political
leadership offer the potential for self-sustaining growth-such as
Botswana, Cameroon, Ghana, Ivory Coast, Kenya, Nigeria, Senegal, and
Zimbabwe-development may not follow the pattern of the newly industri-
alized economies of East Asia; there are many countries in Asia and Latin
America better positioned than those in Africa to take advantage of the
"growth through exports" contest. Instead, sustainable African growth is
more likely to be based on indigenous development involving improvements
in agriculture and small-scale manufacturing for local and regional
markets.)
Implications for the United States
Of the eight Sub-Saharan countries most important for US interests, at
least half have poor prospects for sustaining reform programs. Because US
bilateral aid is less than 10 percent of total aid to the region, our bilateral
programs are likely to play a diminishing role in influencing the reform ef-
fort. The best opportunities for leverage will lie increasingly in multilateral
organizations such as the IMF and World Bank. F__]
African leaders who have achieved little short-term success from reform-
in part because of their own lack of commitment-are likely to become
more difficult in their relations with the United States:
? As their economies stagnate or worsen, Liberia, Somalia, and Zaire may
well attempt to trade more heavily upon their facilities access arrange-
ments with the United States.
? The most hard-pressed leaders, such as Zambia's Kaunda, will intensify
demands for debt forgiveness, commodity price guarantees, larger West-
ern bailouts, or restructuring the global economy rather than their own.
The Soviet Union will manipulate Third World concerns about debt and
trade in an effort to put the West on the propaganda defensive in Africa
and elsewhere. But prospects are slim for expanded Soviet influence
growing out of the economic reform process in Africa, and Moscow is
likely, in fact, to further encourage its African clients to seek aid from the
West.
Secret iv
 Secret
NOFORN NOCONTRACT
Table 1
Prospects for Economic Reform in Key
Sub-Saharan African Countries a
Progress on Outlook for
Economic Reform Further Reform
Liberia US access the most ex- Poor, particularly in Poor. Commitment is-lack-
tensive in Africa, Access , budget area. ing and corruption will
to port of Monrovia and ' persist.
Robertsinternational
Airfield, Low-frequency
navigational aid station,
Voice of America trans-'
mitter, diplomatic com-
munications relay sta-
tions.
See annex B for a more comprehensive discussion of reform
prospects.
 Contents
Key Judgments
Page
Reform: A Response to Economic Decline
2
The Political Dynamics of Reform
5
Forces Favoring Reform
5
Obstacles to Reform
7
What Is Needed, What Works
7
Budget Reforms
8
Exchange Rate and Other Trade-Related Reforms
9
Agricultural Reforms
10
Reforming State-Run Enterprises
10
Encouraging Investment
11
Outlook
12
Barriers to Growth Remain
12
Longer Term Prospects
13
Implications for the United States
13
Annex A: Economic Performance of the 20 Most
Populous Countries in Sub-Saharan Africa
17
Annex B: Prospects for Reform in Key African Countries
19
vii
 Discussion
After more than two decades of experience with
ineffectual economic policy based upon heavy state
intervention, antipathy to private investment, and
dependence on external aid, Sub-Saharan Africa' has
recently been coming to grips with the need for
fundamental change in its approach to economic
policy. Many African states have begun a process of
economic reform, which includes reducing govern-
ment spending, removing economic regulations, priva-
tizing state enterprises, and opening their economies
to foreign trade and investment.F--]
Despite its halting progress and frequent failures, the
economic reform movement in Africa represents a
fundamental shift in economic policy making. It
parallels similar movements occurring elsewhere in
the world-Vietnam, China, Eastern Europe, and the
Soviet Union, for example, and to a lesser extent in
Western countries with socialist governments-where
there is disillusionment with the economic results of
state control over the economy. Seen in historical
perspective, this broadly based movement is unique:
never before have so many governments worldwide
tried-however hesitantly-to reduce their own power
for the sake of economic progress.F_~
During the five-year period this Estimate covers,
issues related to economic assistance will be a key
element in US relations with Africa. Some 30 Sub-
Saharan African countries are pursuing or are about
to undertake economic reform programs endorsed by
the International Monetary Fund (IMF) or the World
Bank. These programs enjoy the strong support of
bilateral aid donors, who have made economic re-
forms a condition for further aid and debt relief.
However, in many African countries, implementation
of economic reforms is taking place in difficult eco-
nomic situations characterized by low levels of income
' This Estimate deals with the 45 African nations south of the
Sahara, except South Africa. Annex B presents short case studies
on reform in eight countries of particular interest to the United
States: Kenya, Liberia, Nigeria, Senegal, Somalia, Sudan, Zaire,
and Zimbabwe.
US Interests in Sub-Saharan African
Economic Performance
The United States has modest strategic, eco-
nomic, and political interests in Sub-Saharan
Africa, all of which are affected by the region's
economic performance. The United States ob-
tains some of its strategic materials and about
10 percent of its imported petroleum from Afri-
ca. Access to air, naval, and communications
facilities, particularly those on the Indian
Ocean, is of increasing, though not crucial,
interest. Denial or restriction of Soviet military
access is a companion concern. Because African
states comprise about one-third of the world's
nations and are a significant voting bloc at the
United Nations, the United States has an inter-
est in moving them closer to the West through
economic reforms that emphasize private insti-
tutions and reduction of state control. Africa is
not an important market for US exports, how-
ever, and US private investment in Africa is
only a small fraction of total US foreign invest-
ment.
To the extent that economic reform efforts
contribute to better economic performance, US
interests are likely to be promoted. Economic
growth clearly would ameliorate the debt situa-
tion as well as serve humanitarian objectives,
while economic decline can contribute to politi-
cal instability.F_~
and consumption, limited social services, and relative-
ly weak administrative capacities. In addition, many
of the reforms involve significant political risks, ad-
versely affecting powerful, entrenched political elites.
 Moreover, even where commitment to reform is sus-
tained, the economic benefits will only gradually
relieve Africa's economic problems. The United
States has strongly supported the emphasis on eco-
nomic reforms, and the extent to which these reforms
succeed will greatly affect Africa's future as well as
US interests and influence on the continent.)
Sub-Saharan Africa, the poorest region on earth, has
been becoming more destitute. Gross national product
(GNP) per capita has been shrinking during most of
the 1980s (see annex A). Food production per capita
has fallen substantially since the early 1970s. Interna-
tional borrowing has left many African countries with
a debt-service burden that absorbs a significant and
growing share of their export earnings. Economic
development of the kind now experienced by some
once-impoverished nations in Asia has simply not
taken hold in Africa.)
Substantial economic contraction during the 1980s
notwithstanding, rising economic pressures have rare-
ly led to regime changes. Increased external assis-
tance may have slightly cushioned the downturn in
many countries, but this is far from the whole story.
Often overlooked are the employment and income
generated in the informal sectors of African econo-
mies. These help to explain the relative social and
political calm of the past decade and will continue to
operate as shock absorbers against short-run disloca-
tions caused by economic reforms. Informal sectors
mushroomed because strongly interventionist govern-
ments made participation in the formal economy too
expensive in terms of time or money for the average
citizen. Individuals, frustrated by endless bureaucrat-
ic delays for everything from building permits to
authorizations for the slaughter of animals, started
their own unregulated, untaxed businesses. The infor-
mal sector is particularly important throughout Afri-
ca in construction, distribution, and services, and also
for manufacturing of consumer goods such as shoes
and clothing.)
Sub-Saharan Africa's burgeoning debt reached
$135 billion in 1988 and is increasing more
rapidly than any other region's debt. We expect
total Sub-Saharan debt to continue mounting
well into the 1990s and debt servicing to remain
a problem; restructuring and rescheduling will
remain essential to ease the debt burden. (See
table 2.) F__]
Faced with the prospect of default, many Afri-
can debtors have appealed urgently for relief
from Western creditors. The appeals are having
some success. For example, because of growing
recognition that Africa faces prolonged difficul-
ty in repaying its debt and that even concession-
al lending terms have led to a rising debt
burden, the Group of Seven Western industrial
nations recently responded by rescheduling con-
cessional debt. They also have approved a plan
that allows them three options for relieving the
burden of existing, nonconcessional debt service
on the poorest debtors (mostly in Sub-Saharan
Africa). reducing interest rates, partially forgiv-
ing delinquent payments and rescheduling the
balance, or granting a longer repayment period
for rescheduled amounts. Nonetheless, many
African debtors are likely to continue losing
their struggle to keep up with heavy repayment
burdens and will rely on more frequent resche-
dulings; though Sub-Saharan debt is only 13
percent of the total for all less developed coun-
tries, a disproportionate amount of new arrear-
ages among developing countries will occur in
Africa during the next several years. F_~
 Table 2 r
External Debt Position, 19$2 and 1987
( nill o US
Totat nb~ aharan Afrt a r 70, 2
1 -2 _1 WAS
ibert as 9
otal LD .: "~k"`T2~ 008
983,270
Many factors have contributed to Africa's economic
distress, but badly flawed economic policies often
have been pivotal. Overly centralized, statist ap-
proaches, in particular, have discouraged food produc-
tion and contributed to trade deficits, resource mis-
allocation, uncontrolled government spending, and
inflation. In addition, the African labor force is
generally deficient in skills and in many places is
weakened by disease. Recurring droughts, pest infes-
tations, and environmental degradation have taken
their toll on agriculture. Population growth of more
than 3 percent per year (the highest of any region in
the world) exceeds Africa's capacity to provide educa-
tion, jobs, and health care. Meanwhile, the AIDS
pandemic is potentially devastating to Africa's best-
educated government and business elites, though it is
unlikely to reduce significantly overall population
growth.' Because of technological change, African
primary products are of diminishing importance in
world markets; exports of minerals and basic com-
modities are stagnant, and manufacturing for export
2 For a detailed discussion of the AIDS pandemic in Africa, see
SNIE 70/1-87 (e June 1987, Sub-Saharan
~o era
C7tte
1987
has yet to take root in Africa. Inadequate infrastruc-
ture, small markets, political instability, and misguid-
ed economic policies further discourage private invest-
ment, both domestic and foreign (see figure 1). F_
Because fundamental weaknesses characterize most
Sub-Saharan African economies, only two possible
developments offer hope for improvement:
? Increases in prices for primary commodities-on
which most African economies depend heavily-
have brought relief and even temporary prosperity
to some African countries in the past, but we see no
significant relief coming from this source for most
commodities during the next five years. At best, any
commodity price increases would probably be only
temporary because these prices are cyclical. More-
over, past experience is not encouraging. African
governments have rarely made good use of revenues
from previous commodity price surges and have
squandered billions of dollars' worth of foreign
 Figure 1
Trends in Key Economic Variables for
Sub-Saharan Africa
Share of the world,economy is small.
and getting smaller.
of Global GDP a Sub-Saharan Real GDP Per Capita a
20
0 1970
Sub-Saharan
Africa
Sub-Saharan
Africa
a Source: World Bank.
b Estimated.
18 82 83 84 85 86 87
and investment drying up.
Average Annual Growth of
Gross Domestic Investment a
Sub-Saharan
Africa
 exchange earnings.
? Sustained policy reforms to attack deep-rooted
inefficiencies in an economy are another path to
improved performance. A recent, highly publicized
report by the World Bank concludes that, among
African countries, strong reformers have outper-
formed weak reformers by a significant margin over
the 1985-87 period (see inset and table 3 on page 6).3
There is evidence that a combination of reforms and
substantial external assistance has led to higher
agricultural growth, improved export and invest-
ment performance, and stronger growth in gross
domestic product (GDP). But successful reform
requires sustained implementation. The ability of
fragile African governments to sustain adjustment
programs in the face of imposing political and
economic obstacles is open to serious question.
The Political Dynamics of Reform
"Economic reform" encompasses a host of specific
actions meant to reduce the role of government in the
economy and to instill greater reliance on the market
mechanism to determine prices and allocate resources.
The main reforms that have been recommended by
Western aid donors have focused on liberalizing trade
and encouraging private-sector initiative.
While the economic arguments for reform are gaining
acceptance, the question of what gets done is essen-
tially political. Disillusionment with traditional poli-
cies will not, by itself, ensure that appropriate reforms
are adopted. Instead, the most basic political dynamic
of economic reform will continue to be how the
question of "who gets what" is answered by the self-
interest and power of key political factions. This is
' Africa's Adjustment and Growth in the 1980s, World Bank-
UNDP, March 1989. (u)
complicated by the fact that achieving the full bene-
fits of reform requires a long-term commitment.
African rulers want economic gains, but in the near
term they are inhibited by the perceived costs of
political discontent associated with initiating reform.
On the other hand, economic deterioration and declin-
ing aid levels caused by failure to adopt economic
reforms can endanger a regime's long-term political
viability.F_
Forces Favoring Reform
The main internal impetus for reform is economic
failure. As it becomes more and more obvious that the
prevailing statist economic policies are not working,
support for change builds and leaders who share the
dissatisfaction with the status quo have an easier time
promoting their new policies. When Ghana hit rock-
bottom in 1983, for example, with gross food short-
ages and malnutrition throughout the country, it was
relatively easy for Party Chairman Rawlings to mar-
shal support for reform plans drawn up with the help
of Western donors. No one had much more to lose,
and the government had no money left with which to
continue its failed policies. Similarly, in many other
African countries-for example, Tanzania, Guinea,
Madagascar, and Benin-overextended governments
are simply being forced by insolvency to reform.F_
A second force for reform is intellectual acceptance,
or at least a change in perception by government
leaders of which policies work. We believe that disillu-
sionment with Marxist economic models and better
understanding of market forces are spreading, partic-
ularly among the growing number of top economic
managers. Such proreform attitudes, however, do not
yet penetrate very deeply in bureaucracies often
staffed by locally trained officials who benefit from
the status quo and are not well versed in the technical
issues. Pragmatic approaches nonetheless are being
explored in certain African universities where a few
market-oriented scholars have joined faculties that
were once almost uniformly socialist in character.
 Does Economic Reform Foster Economic
Growth?
A recent study by the World Bank concluded
that the average annual rate of GDP growth for
14 Sub-Saharan African countries rated as
strong reformers was 3.8 percent during the
period 1985-87, while seven countries with weak
or nonexistent reform programs grew by only
1.5 percent. The strong reformers also showed
better results in agricultural production, invest-
ment, and savings. (See table 3.) (u)
We judge that this evidence supports the con-
nection between reform provided it is accom-
panied by substantial foreign financial assis-
tance-and improved economic performance.
The positive impact of economic reform in
agriculture is particularly significant. The
study also compared performance during the
period 1985-87 with that during 1980-84, with
results suggesting that the impact of reform is
gradual but that sustained commitment pays
off Nevertheless, even the best performing
countries have so far managed rates of growth
in agriculture and in overall output that barely
kept pace with population growth. Moreover,
although economic reform will contribute to
growth, the ability of African countries to
achieve self-sustaining economic growth has not
yet been demonstrated; significant levels of for-
eign assistance will remain a necessary element
if reform is to be effective. F--]
These internal pressures for change are reinforced
from the outside by conditionality, whereby foreign
lenders and aid donors require specific reforms in
exchange for continued assistance. This approach to
aid has grown in importance during the 1980s because
of Africa's increasing need for financial support to
meet external debt and other balance-of-payments
obligations. Budget austerity is usually among the
first conditions imposed.F-~
Table
r n andG row L ~ er r
Economic
fo
Results, o rld ani 7~D ' tudwy
I - NO M.-
prodzt o~ e
et;
tit)
a Excludes countries experiencing strong shocks from severe weath-
er or commodity price fluctuations especially oil exporters. Strong
reformers: Central African Republic, Gambia, Ghana, Guinea,
Guinea-Bissau, Ivory Coast, Kenya, Madagascar, Mauritania,
Mauritius, Senegal, Tanzania, Togo, and Zaire. Weak reformers:
Benin, Equatorial Guinea, Liberia, Mali, Sierra Leone, Somalia,
and Zambia.
Conditionality is unlikely to bring sustained reform,
however, unless creditors cooperate to maintain pres-
sure and also resist debtors' attempts to exercise
counterleverage. For example, when the government's
commitment to reform is weak, the availability of
alternative, unconditional financing can remove the
incentive to reform; the World Bank cited French
lending to Ivory Coast as a reason Abidjan chose not
to meet the loan conditions called for by the Bank.
Other countries (Somalia and Zaire, for example) are
confident that their importance to US strategic inter-
ests allows them to stall on reform and still receive
economic assistance, with the result that negotiations
with the IMF are protracted and implementation is
spotty.F-
 Conditionality nonetheless is likely to remain a fixture
of Africa's relations with the West. It can aid African
leaders who favor reform by giving them a powerful
excuse for resisting antireform pressures from recalci-
trant leaders and elites in their own countries. Even
when African governments use the IMF and World
Bank as scapegoats for economic failures, this is often
a tactic of political convenience that masks an under-
lying recognition of the necessity of reform. With
foreign assistance equivalent to a large portion of
government spending (well over half in countries such
as Burkina, Mali, and Tanzania), aid donors will
continue to have direct leverage for reform. F
Obstacles to Reform
The main obstacle to reform will continue to be
opposition by groups of potential losers-government
workers who stand to lose their jobs or influence,
consumers who stand to lose subsidies, and elites who
benefit from corruption. In Ghana, mere rumors of
impending cuts in subsidies for students led to wide-
spread protests at universities. In Nigeria, an attempt
to raise fuel prices by reducing subsidies caused riots.
We believe that support for reform by potential
gainers (such as farmers and exporters who would
benefit from higher prices) will remain weak and
unorganized in most African countries. As a result,
political expediency will continue to dictate slow
headway on economic reform, which will begin with
broad measures to stabilize the economy-such as
selected budget cuts and devaluation-that often are
easiest to implement. When these reforms are in
place, the process becomes more difficult because
reforms targeted on specific sectors of the economy-
such as privatization and removal of subsidies-begin
to hit entrenched interests.
Ideology also remains an obstacle to reform. African
socialism-the dominant postcolonial economic phi-
losophy-still has a strong hold among elites, who
often equate private enterprise with foreign domina-
tion and exploitation. Some African leaders still
blame "rich nations" for poor economic performance,
resist efforts to liberalize policy affecting foreign
investment, and attempt to undermine fledgling re-
forms by exploiting disappointment when results are
not immediate.
Where results are slow to come, disillusionment with
reform erodes confidence and commitment. Such
"reform fatigue" can result in temporary backsliding,
as occurred in Zaire and Ivory Coast. Moreover,
painful reforms that bring no early results make the
leadership vulnerable politically. F_~
What Is Needed, What Works
Reform programs negotiated with African countries
have been based on a combination of economic neces-
sity and political feasibility. Under IMF and World
Bank programs, economic stabilization precedes
structural adjustment reforms. Budget and trade re-
forms are the principal stabilization measures re-
quired, even though large budget cuts often generate
considerable political opposition. Among the structur-
al reforms, the raising of administered agricultural
prices is relatively easy politically; significant. agricul-
tural reforms have been undertaken in at least 15
African countries. In contrast, reducing the size and
number of government enterprises stirs considerable
political opposition, and progress has been slow.
 Stimulating investment over the longer term requires
a multifaceted policy, involving not just an easing of
specific regulations and the provision of economic
incentives but also a fundamental change in the
business climate that even the most reform-minded
African regimes will bring about only gradually.
Budget Reforms
With so many African governments facing unsustain-
able deficits, it became obvious in the early 1980s that
budgets needed to be tightened; large public sectors
were drawing resources away from the private sector
and squandering foreign assistance on wasteful bu-
reaucracies that have provided more than half of the
formal employment in some countries. Moreover,
large bureaucracies and extensive government control
over the economy have facilitated corruption on a
scale that seriously retards economic growth. In
Zaire, for example, President Mobutu has diverted
billions of dollars from funds intended, among other
things, for investment in infrastructure and other
sectors of Zaire's economy. In countries such as
Liberia, spending is hard to control because key
officials are empowered to spend independently of
formal appropriations; in such a climate, efficient
allocation of public funds is difficult. In Kenya,
government officials demand a rakeoff on most pri-
vate investment initiatives, with much the same effect
as a heavy tax on investment. F_~
Official creditors, unwilling to finance unsustainable
economic policies, have forced spending curbs on
African governments as one of the first priorities of
economic reform. But potentially severe political
problems are stiffening African resistance even when
spending restraint seems to be the only resort. The
most troublesome problems are those associated with
the hardships experienced by fired government em-
ployees and consumers who suddenly lose subsidies.
Opposition from these sources is the main reason for
slow progress on budget reform. For this reason,
spending limits have fallen disproportionately on pub-
lic capital formation and social services, where the
political opposition is the weakest. Moreover, budget
restraint that is not offset by external assistance
constrains domestic spending and reduces the level of
economic activity.F_
Reforms affecting the foreign sector:
? Align the official value of the currency with
its true market value by instituting a foreign
exchange auction or at least by depreciating
the official rate. Remove controls.
? Reduce tariffs and other barriers to imports.
? Reduce obstacles to exports, such as high
taxes and regulations. (u)
Reforms affecting the domestic economy:
? Limit credit expansion and raise interest rates
to promote saving.
? Remove price controls.
? Improve the environment for investment by
removing restrictions and by instituting mea-
sures that encourage investment.
? Improve incentives in agriculture, particularly
by eliminating regulations and the marketing
boards that set prices. (u)
Reforms in the government:
? Reduce overall spending levels.
? Reduce government employment.
? Improve management and budgetary controls.
? Improve the tax structure and the revenue
collection system.
? Privatize, rationalize, or liquidate government
enterprises. (u)
African governments that have attempted reform
have by now made most of the spending adjustments
that were relatively easy in political terms, and we
believe that their resistance to further reductions will
stiffen. For example, President Mobutu will continue
to clash with the IMF over its insistence that he
strictly control Zaire's budget. Moreover, African
finance and planning ministers, meeting recently un-
der the auspices of the UN Economic Commission for
Africa, opposed budget cuts by citing the serious
 social costs of austerity measures. Nevertheless, fur-
ther discipline in African budgets is necessary. Al-
though the data are rough, it appears that government
spending in Africa is now a substantially larger
portion of GNP than it was in the early 1970s, and
that in recent years restraint in one part of the budget
was often outweighed by increases elsewhere. F--]
Better budget management is likewise a vital part of
reform, but in many countries corruption and a lack
of administrative competence hamper implementa-
tion. As a result, some revenue remains uncollected
and substantial expenditures often go unrecorded and
uncontrolled; in some cases, for example, government-
owned companies are used by senior officials as
sources of funds for unbudgeted expenses. Because
most African governments have difficulty policing
their own expenditures, requirements for better man-
agement are fairly common among the conditions
imposed by creditors. Such stipulations are difficult to
monitor and enforce, however, and the problem is
compounded by the shortage of trained and skilled
technocrats. The OPEX^ project in Liberia-the most
extreme example of external imposition of managerial
improvement-is unlikely to be duplicated elsewhere
because no other African government appears willing
to give up so much sovereignty to foreigners, regard-
less of the need. More fundamentally, graft and
corruption are intrinsic to the system by which some
rulers, such as Mobutu, retain power by paying off
opponents with government-financed favors.)
Exchange Rate and Other Trade-Related Reforms
African nations need to adopt a full range of foreign-
sector reforms if they are ever to compete successfully
in world markets. But many African rulers are at-
tracted to exchange rate controls that allow them to
allocate foreign exchange to favored sectors or indi-
viduals. The result has been uncompetitive exports,
artificially cheap imports, trade deficits, and other
economic distortions.
? US Operational Experts, the team of financial analysts that began
working within Liberian economic ministries in January 1988 to
improve management and budgetary control. It was canceled by the
United States in December 1988 because of the uncooperativeness
The IMF has been the leading proponent of reforms
that would install market-determined foreign ex-
change rates or at least devalue currencies toward
appropriate levels that would draw resources into
more productive uses. Devaluation is frequently an
initial, crucial reform requirement for a stabilization
program by the IMF. African governments have had
to accept this condition mainly because of their
inability to maintain overvalued currencies (as a result
of a lack of foreign exchange) and also because of
their increased understanding of the economic harm
done by currency controls and appreciation of the
gains from reform. For exports, however, the benefits
of devaluation will be limited to those few goods
where Africa is already established-basic commod-
ities and some agricultural products. Competing in
world manufacturing markets is unforeseeably dis-
tant, but devaluation also will encourage indigenous
production for domestic consumption by making im-
ported alternatives more expensive.F--]
Devaluation also entails political costs, however.
When controlled exchange rates are grossly out of line
with market rates, major devaluations can trigger stiff
opposition from consumers who have become used to
cheap imports and resent the perceived austerity
resulting from rapid devaluation. Devaluation boosts
prices of imports-including food and luxury goods-
almost at once, while the benefits to the export sector
are gradual. Thus, plans to liberalize exchange con-
trols, even gradually, often result in some immediate
political backlash in countries such as Nigeria and
Zambia, especially among urban and government
elites.)
Similar obstacles impede the implementation of other
trade reforms, such as tariff reductions and removal
of quantitative import restrictions. Because they usu-
ally do not bring quick, economywide results and may
not directly benefit currently powerful groups, such
reforms have been pursued only reluctantly by most
Sub-Saharan countries. Furthermore, taxes on inter-
national trade are an important source of government
revenue (often over 40 percent) in most low-income
 countries, a dependency that stands in the way of
tariff reduction. Such obstacles notwithstanding,
foreign-sector reforms will remain a central feature in
stabilization programsF_~
Agricultural Reforms
Reforms that raise incentives for agricultural produc-
tion are among the most successful in African experi-
ence. When individual land ownership and security of
tenure have been encouraged, markets freed from
state control, and prices allowed to rise in response to
market demand, output has risen. Thanks to pricing
policies that allow farmers a profit, for example,
Zimbabwe's booming agricultural sector produces
food for famine relief in neighboring states. Similar
policies-albeit on a limited scale-have proved suc-
cessful in Senegal, Ghana, Zaire, Mali, and else-
where. In contrast, many African governments typi-
cally have used marketing boards to appropriate a
large share of the revenues from exports and to keep a
lid on prices paid by domestic consumers. Hence,
farmers have received artificially low prices. Market-
ing boards have tended to bring general rigidity and
bureaucracy to the farm sector in countries such as
Kenya, Tanzania, and, until recently, Ghana. F_
We believe that, as the success of agricultural reforms
becomes better known, they will be adopted more
broadly. The main barrier to agricultural reform-
opposition by urban consumers who benefit from
artificially low food prices-will, however, remain
politically powerful, particularly as consumers' buying
power is pinched by other austerity measures. The
challenge to African leaders is to translate the eco-
nomic self-interest of those who benefit from agrarian
reforms into effective political support capable of
offsetting urban resistance.F_~
Reforming State-Run Enterprises
State-run enterprises account for a large share of
employment and income in most African countries.
Improving their efficiency is essential for long-term
growth, but, because of entrenched political opposi-
tion, little headway has been made. Options range
from closing down uneconomic operations, to putting
the enterprises on a commercial footing, to privatizing
them. During the next five years, we expect little
progress overall. Most efforts will be devoted to
improving the efficiency of existing enterprises, with
varying results. In extremis, governments will liqui-
date or attempt to privatize unprofitable government
enterprises. Liquidation is politically the most painful
and least likely measure to be adopted, even though it
is the best option for uneconomic, chronically money-
losing enterprises. Mali, for example, sold all of Air
Mali's planes and equipment to several buyers.
Government ownership and control over large portions
of the economy has in nearly every case proved to be a
major impediment to efficiency and economic growth.
Because such enterprises often intrude upon or even
monopolize industries that, in most cases, would be
better left to the private sector (manufacturing, hotels,
airlines, trucking, refineries, for example), they inhibit
private investment and interfere with the efficient use
of resources. Moreover, as a result of overstaffing,
poor management, corruption, and inadequate con-
trols, government enterprises have operated at a loss,
acting as a major drain on the budgets of almost every
African nation. In Gabon, for example, several direc-
tors of parastatals received salaries of more than half
a million dollars each in 1987, though all of the three
dozen companies they managed lost money. Reform
programs have focused on reducing overstaffing and
establishing financial controls to put such enterprises
on a sounder commercial footing, improvements that
would also facilitate eventual privatization. Too little
evidence is available, however, on which to judge the
likely effectiveness of such reform efforts in improv-
ing the performance of state enterprises. F__1
Privatization programs vary greatly from country to
country. Mali has embarked on an ambitious program
that, if carried out, would leave the government
running public utilities and little else. Nigeria has less
extensive, though significant, plans and is selling
shares in state enterprises. But, by and large, privati-
zation in Africa is moving slowly. Since public enter-
prises are frequently used to create jobs en masse,
opposition by employees and managers, who know
they would be fired, is the main barrier to their
privatization. Some nominal privatization plans call
for governments to retain substantial stock ownership
SSeeZ'rct, 10
 11uiml ary o Fubi ~elr tse? et f
T npie ne - d >< Su Sahar t > a, $
I en'
l~ to
axfl_tain
o ..E.
or
y
on
n V 11 Wgi 10
W
11 _Q1
NS! &R, "Alt
A Sales of shares.
b Sales of assets.
and require the new management to retain redundant
workers, provisions that repel potential buyers. Gov-
ernments also resist privatizing companies that are
showing a profit, ignoring the main benefit of privati-
zation-greater efficiency. In addition, high-level
government officials who skim revenues from public
companies resist privatization and potential buyers
are inhibited by loose accounting practices; in Ghana,
for example, 18 state enterprises proved unsalable
because there were no financial records. Finally,
private ownership often means bringing in foreign
management, always unpopular in Africa.F--]
Encouraging Investment
Self-sustaining economic growth will not take place
without more productive investment, yet private in-
vestment in the formal sector-from both foreign and
domestic sources-is generally moribund and, we
believe, unlikely to improve significantly. Indeed, loss
of capital, through disinvestment by foreign-owned
firms and capital flight, is widespread. Much of the
malaise stems from the general lack of profitable
economic opportunities in Africa-markets are small
and purchasing power weak-but in many cases it
also reflects a poor investment climate traceable
directly to bad policies. Even in Kenya, policies
designed to promote business ownership by indigenous
Kenyans necessarily interfere with investment by
foreigners and non-African Kenyans. In Zimbabwe,
the ratio of investment to GNP declined from a
healthy 20 percent in 1982 to under 12 percent in
1986, with a shift in the composition of that invest-
ment from the private sector to the usually less
productive public sector. Potential investors have been
stymied by endless redtape, labor and foreign ex-
change regulations, price controls, and uneasiness
about the security of their property against national-
ization, given the government's deeply rooted suspi-
cion of foreign investment. Although Zimbabwe has
yet to enact an "investment code" or take other
concrete steps that would improve the investment
climate, Mugabe recently announced plans that, if
fully implemented, would significantly liberalize regu-
lations governing investment.F--]
Most African governments have been wary of the
power that foreign investors might gain in the local
economy. Hence, they generally have paid only
lipservice to removing barriers to foreign investment
and the incentives they have made available have
been few and ineffective. Although fear of ceding
economic sovereignty remains strong, political resis-
tance to removing obstacles and offering investment
incentives has shown signs of weakening recently and
could probably be overcome in most countries by
determined leadership.
Apart from direct incentives, such as tax credits or
reduced regulations, investors also must be assured
that reforms will be sustained and that the govern-
ment will not revert to policies of nationalizing invest-
ment, restricting repatriation of profits, or impeding
domestic investment. Thus, even where appropriate
investment incentives are offered, they may be insuffi-
cient to surmount the greater barriers that stem from
 political instability, uncertainty, corruption, or inade-
quate markets. For example, extensive reforms and
incentives in Nigeria had no appreciable effect on
investment. Consequently, prospects for significant
improvement in the overall investment climate will
remain guarded, at best, for the next five years, and
most African countries will continue to depend on
other sources of stimulus to growth.F__-]
We foresee some improvement in Africa's economic
conditions during the next five years, with consider-
able variation from country to country. There is no
prospect of rapid growth continentwide, however.
Even with a radical improvement in growth, made
possible by sustained external aid and reform, Africa
would remain a low-income region for many years to
)
come. For example, if GNP per capita of $370 (the
average in Sub-Saharan Africa) were to grow by an
average annual rate of 5 percent-a sharp increase-
after 30 years it would have reached only $1,600.
We believe the evidence is strong that economic
reform brings results. The imposing political obstacles
to economic reform notwithstanding, we see some
reason to expect progress. First, economic reform has
gained at least a foothold in Africa during the 1980s.
Despite loudly voiced opposition from some African
leaders, economic reform has recorded many demon-
strable successes, particularly in agriculture, that will
help make reforms more politically palatable.
Moreover, Western aid donors are likely to continue
making aid conditional upon economic reform.
Planned increases in multilateral aid to Africa, to-
gether with an improving understanding of how to
administer conditional aid, will make this force for
change more powerful than it is now. Sub-Saharan
Africa is likely to receive net inflows of aid over the
course of this Estimate, and donors will increasingly
target aid on countries that adopt reform.~-
Internal opposition to reforms is likely to diminish
because of the growth of domestic political constituen-
cies that stand to benefit. Given the relative success of
relaxing farm price controls, farmers are the most
likely constituency to support reform. Additional sup-
port could come from those manufacturers who would
be able to compete in foreign markets because of
realistic exchange rates. The political ground will
shift only slowly, however, since it will take time for
farmers and entrepreneurs to increase their political
influence.)
Paradoxically, some forms of economic improvement,
such as cyclical increases in commodity prices, may
reduce the commitment to economic reform. Many
African leaders will continue to regard cyclical lows
in commodity prices as one-time aberrations and
cyclical highs as permanent plateaus. After years of
austerity, they would be tempted to use new revenues
to resume the free-spending policies of the past,
particularly those that would solidify their political
positions.
Barriers to Growth Remain
Whatever the progress in reforming economic policies,
Africa's other fundamental problems will continue to
impede economic growth. Continuing environmental
deterioration will restrict economic progress, particu-
larly in the Sahel and the Horn. Drought has caused
damage that even several years of above normal
rainfall will not restore. Such countries as Ethiopia,
Sudan, and Somalia will almost certainly continue to
request massive relief aid from the West. Deforesta-
tion and accompanying erosion will persist throughout
Africa; the forests of countries such as Ethiopia,
Kenya, and Ivory Coast already have been substan-
tially depleted. As a result, timber, crop, and livestock
yields in many countries will be severely reduced, and
traditional wood and charcoal fuels will become in-
creasingly scarce. In West Africa, unrestrained off-
shore fishing by foreign vessels-especially Soviet-is
threatening fishery resources.F__1
The number of AIDS cases will rise sharply in several
African countries, judging from the current rates of
HIV infection. Already impoverished families will be
burdened increasingly with caring for the sick and
dying. While it is certain that some countries will lose
 enough key managers and other professional workers
to cause noticeable operational problems, it is too
early to determine the economic impact continentwide
of the AIDs pandemic.F--]
Even in those nations with better economic prospects,
political turmoil-or the threat of it-may overtake
reform. In Nigeria, for example, the return to civilian
rule planned for 1992 would most likely result in a
government too weak to follow through on all of
President Babangida's reforms. In Kenya, President
Moi will face growing opposition as living standards
decline, in which case oppression rather than reform
would be his likely response. In other countries-
Somalia and Sudan, for example-festering insurgen-
cieswill crowd reform from the political agenda.
These harsh political and economic realities will
reduce near-term prospects for sustained reform. We
expect a continuation of inconclusive economic policy
adjustments by most African governments, along with
protracted negotiations over reforms that will be
initiated largely to mollify lenders and survive current
crises. Debt relief and new money will ease the burden
of economic adjustment and help forestall political
instability in those countries that adopt reforms, but
others (Liberia, for example) probably will have to hit
rockbottom economically before they become ready to
make fundamental changes. F__1
Longer Term Prospects
Even though we see no dramatic improvement in the
economic hardship that plagues most of Africa,
growth is now occurring in parts of the world that not
long ago were nearly as poor as Africa. The ingredi-
ents for eventual self-sustaining economic progress
are present in some parts of Africa, but development
there may not follow the pattern of the newly industri-
alized economies of East Asia. Many countries else-
where are better equipped for "growth through ex-
ports" contest-for example, China, Brazil, and
others in Asia and Latin America. Instead, sustain-
able African growth is more likely to be based on
indigenous, grassroots development, involving gradual
improvements in agriculture and the expansion of
small scale, labor-intensive manufacturing and ser-
vices directed to African markets. The relatively
vibrant informal sectors are pointing in this direction.
This would be a slow process, and net inflows of
external aid would be required for many years.
Successful implementation of economic reforms in
Africa will advance the interests of the United States.
African leaders with little to show by way of short-
term success from reforms are likely to become more
difficult to deal with, however. Indeed, of the eight
African countries of most importance to the United
States, we judge at least half to have poor prospects
for sustaining reform programs. Some think that they
have great leverage with the United States, believing
that their strategic importance entitles them to drag
their feet on reform without losing US aid. As their
economies stagnate or worsen, countries such as Libe-
ria, Zaire, and Somalia may attempt to trade even
more heavily upon their access arrangements with the
United States.
The magnitude of the direct US aid commitment to
Africa is not sufficient to yield much leverage over
African policies. With its bilateral aid at less than 10
percent of total aid to Africa (see figure 3 on page 15),
the United States is not a dominant force. Even
Liberia, which receives more than 40 percent of its aid
from the United States, could not be induced to
cooperate with the OPEX agreement. F__1
The most economically hard-pressed African leaders
will call increasingly for external solutions to their
economic problems. As their economies falter and
their debts mount, these leaders will be attracted
more to ways of transferring the burden to the
developed world. Most will intensify demands for
unconditional debt forgiveness combined with contin-
ued or expanded aid; commodity price guarantees will
also get revived attention. Such African leaders gen-
erally have an exaggerated view of the importance of
Africa and its right to assistance. They are likely to
show renewed interest in "total solutions" that call for
restructuring the world economy in the belief that the
 Some African countries possess greater potential
than most-resources, competent policymaking,
and relative political stability-to begin modest
but sustained economic growth as long as they
remain or become-committed to reform:
? Botswana, already growing rapidly, has a strong
but narrowly based market economy centered on
diamond mining. Its conservative fiscal policy,
sound foreign exchange position, and attractive
investment climate represent good potential for
broadening growth and development.
? Cameroon has only recently faltered, largely
because of a fall in oil and other commodity
export prices and weak political leadership.
Moreover, borrowing and spending have been
excessive, but Cameroon could resume its
growth with revamped policies.
? Ghana is an established primary product export-
er that has implemented coherent economic re-
forms. Its relatively well-educated labor force
and sustained commitment to reform augur well
for future growth, but Ghana remains vulnerable
to fluctuations in commodity export prices.
? Ivory Coast, too, has recently faltered because of
an increasingly confrontational stance toward
reform, a decline in revenues from agricultural
exports, and paralysis in senior decisionmaking.
But it has an attractive investment climate,
sound infrastructure, and a number of skilled
farmers and businessmen able to contribute to
growth if policy and leadership improve.
rest of the world, rather than they, needs to reform.
Such proposals often take on moral and ideological
overtones regarding the alleged obligation of wealthy
nations-especially the United States-to bail out the
poor nations.F_
? Kenya has a tradition (relative to the rest of
Africa) of free enterprise and a core of skilled
farmers and small businessmen. It also is well
supplied with external financial assistance.
? Nigeria still has sizable earnings from oil, which
could be helpful in promoting development if
they were used efficiently. It has a better-than-
average infrastructure and core of educated
workers, but the transition to civilian rule could
well undermine reform policies.
? Senegal has a pool of relatively educated man-
power and strong leadership committed to eco-
nomic reform. Despite limited natural resources
and the vulnerability of agricultural production
to adverse weather, its recent track record with
reform holds the promise of further progress.
? Zimbabwe is well endowed with agricultural and
mineral resources and possesses established
manufacturing and service sectors. Because of
these factors, the country's economic potential is
among the highest in Sub-Saharan Africa, but
the government's willingness to undertake addi-
tional reforms is uncertain.F_~
Other countries with ample resources for sustained
growth do not have the political stability (for
example, Angola) or the committed leadership (for
example, Zaire) to embark on a path of sustained
growth in the next five years.F_~
Some African leaders may be receptive to Soviet
economic initiatives in the United Nations and other
forums. Skillful manipulation of Third World con-
cerns about debt and trade could put the West on the
 Figure 3
Trends in Aid to Sub-Saharan Africa, a
1983-87
a Net disbursements of Official Development Assistance.
bEstimated for 1987.
Source: OECD
propaganda defensive in Africa and elsewhere. Re-
cently, Moscow proposed the suspension of interest
payments on Third World debt, an increase in conces-
sional Western loans, and the establishment of a "new
international economic order." Although such themes
play well in Africa, most African leaders are aware
that tightfisted Soviet economic assistance is no sub-
stitute for Western aid, and they will be in no position
to shun Western advice and conditionality.F--]
We see only a very limited potential for expanded
Soviet influence growing out of the economic reform
process in Africa. Traditional Soviet-style economic
planning has never had much appeal in Africa; to the
extent that economic reforms demonstrate the superi-
ority of market-based policies, disinterest in statist
approaches will be reinforced. Whatever their disillu-
sionment or impatience with reform, Africans with
few exceptions do not view recourse to Communism as
an alternative. Indeed, the Soviets' own recent interest
in economic reform may place them in a less adver-
sarial relationship with the West when it comes to
guiding African economic policy. The Soviets are
beginning to encourage market-based policies in some
African client states; Angola and Mozambique, for
example, have enacted a fairly broad slate of econom-
ic reforms, and Moscow has encouraged freer markets
and discouraged rural collectivization in Ethiopia,
albeit with little effect so far. Ethiopian reforms are
 largely cosmetic, forced by financial constraints and
designed to secure funds from the World Bank and
European Community. Although such Soviet flexibili-
ty may allow Moscow to retain influence, it also offers
the West the possibility of increased access and
influence in those states.)
Most European nations will continue to support eco-
nomic reform, mainly through multilateral organiza-
tions. In bilateral aid, commercial interests and politi-
cal concerns are often of higher priority, however.
becoming tied increasingly to economic reform, a
trend that is likely to be strengthened by measures
associated with economic unity in the European Com-
munity (EC) in 1992. Indeed, we expect an expanded
EC role over the next five years in delivering econom-
ic assistance to Africa.___1
Japan will continue to increase its financial aid to
Sub-Saharan Africa. Sensitive to its position as a
leading trading partner of South Africa, Japan has
made particular overtures of aid to Frontline States,
such as Mozambique and Zimbabwe, and also to
Nigeria and Zaire. As part of its drive for a greater
role in the World Bank and International Monetary
Fund, Japan will increasingly attempt to shape the
policies of those organizations. Japanese private-
sector investors, however, continue to show little
interest in Africa.)
Given the diversity of motivations and objectives
among other developed nations, together with the
relatively small and declining portion of total aid
under US control, US bilateral aid will play a dimin-
ishing role. The best opportunities for US influence on
the reform process will lie increasingly in the multilat-
eral arena. We believe that strong Western economic
Figure 4
Sources of Economic Aid to
Sub-Saharan Africa, 1987
assistance to support economic adjustment programs
in Africa will be sustained over the period of this
Estimate. The region will continue to benefit particu-
larly from increased structural adjustment lending by
the World Bank, greater cooperation and financing
from bilateral and other multilateral donors, addition-
al IMF resources, and debt relief from the Paris Club.
We expect these and similar initiatives to be main-
tained and to contribute substantially to the reform
effort.)
 Annex A
Economic=Performance of the 20 MostPopulous
Countries in Sufi "Saharan Africa ,.
u 1965-$(t;:` , . 1980 86
h
QW,
Jammergan 10 5 ' , ... `91 21 3 2 3 4.8
4,,t
i mega ~ 8 42Q: 8 0.4 0,3`;
Ken~yab; 21.2 X300 _.; ,_ 2.6 2.7 0.7
Malaww ?,7.4 160,K 2 9 x . 3.2 ,8,,x
Zimbabwe n - 8 7 .~_~'u_ . 62Q x~ , 25.8 : a. 1. y.~ 9 1 z
Wanda 6.2 ,_ }, 290 338 7 . , 16,.; _' 1.5
t iopia 43 12 X4.8 Q 6
7
Zaire b
Uganda` 15r 2 3(
Sudan`a`.. 22.6..,_; 320
Tanzania
Ghana=.=.
Ivory Coast"
- - -----------
Niger
Nigeria`b
23.0
13.2
4ft
10.7
250
390
66 260
103 640
14.2` x
Ranked by growth of per capita GNP, 1980-86.
n Of particular importance to the United States; excluding Liberia,
which is not among Africa's 20 most populous countries.
13.1 2.0 2`3.
41 08 ,24
29 0.4 - 2` 5
66.8 , 1 3 { 3 `5
z...~,,,.
0.6
5=:
F3
29.7 a'
3
 Annex B
Prospects For Reform in Key
African Countries
Prospects for reform vary widely from country to
country, including among eight countries where the
United States has significant interests. F_~
Liberia
In January 1988, the United States sent a team of 17
financial experts to Liberia to improve management
and reduce corruption. These US Operational Experts
(OPEX) recognized that Liberia's first priority should
be to achieve greater budget discipline. At first,
OPEX received a passable degree of cooperation from
President Doe and the ministries, and some progress
was made. But by late 1988 extra-budgetary expenses
had risen from 20 percent to 30 percent of the budget.
A visiting IMF team in October 1988 was appalled at
the state of Liberian finances and the lack of any
effort to remedy the situation. Because of Liberia's
backsliding, the United States terminated the pro-
gram, which was to have lasted two years. Without
even the modest discipline that OPEX imposed, Li-
beria's finances are sure to deteriorate.
19 -geef4t-
 The OPEX agreement was unique in attempting to
put key portions of economic administration into
foreign hands. Though ultimately unsuccessful, the
fact that it was attempted reflects the broad extent of
US influence in Liberia and that country's fundamen-
tal dependence on US assistance. F_~
In addition to its short-term budget muddle, Liberia
faces numerous longer term reform problems. Several
parastatals, such as the state-owned petroleum refin-
ery, need to be made more efficient or privatized.
Currency reform is a priority; the current dual ex-
change rate system invites corruption and discourages
foreign trade.F_~
As in so many other African countries, the fundamen-
tal obstacle to reform in Liberia is the entrenched
interests of those who have turned the current system
to their advantage. In the ministries, mid- and low-
level bureaucrats stand to lose their jobs. More effi-
cient parastatals, or their privatization, would mean
great reductions in the work force and replacement of
most managers by foreigners. In the private sector,
those who have secured lucrative market positions by
bribing government officials would be forced to com-
pete
Liberia's economy is unlikely to regain even its 1979
level of prosperity for some years. Nevertheless, the
economy is doing significantly better than is reflected
in the official statistics, which miss the growing but
unreported activity in the informal sector. In addition,
illegal activities will continue to mask growth. For
example, timber exports are booming, but, because of
huge underreporting of income to evade taxes, the
magnitude of this economic growth cannot be mea-
sured.
President Doe will undermine reforms that impair his
personal access to government revenues. In spite of
Liberia's high degree of dependence on the United
States, he has resisted the reform process. Doe is
likely to be reelected in 1991 and will become less
friendly to the United States if he continues to
perceive US demands as growing and US support as
declining.F__1
 21 _SftfaL
 Sew
Set- 22
 23
 lvcf e1 24