Economic Digression in Africa

Despite considerable economic improvements and expected increase in GDP in the beginning of the twenty first century, the economic performance after 2007 slowed down and is not capable to deal with the growing poverty and inequality in Africa. It is clear that today most African countries are facing the task of achieving important structural changes in their economies in order to protect hard-won economic gains of the recent years and try to achieve Africas development goals. There is need in effective economic and legal reforms directed towards improvement of the business environment and removing trade barriers, thus creating favorable investment climate in the countries. In order to achieve the above goals the structural economic adjustments should be implemented that will try to engage the private sector in the states developmental programs. This paper argues that higher and sustained levels of economic growth by means of integration with the world and liberalization agenda can hardly be achieved without the promotion of the still only starting to grow and develop private sector as a dynamic engine for growth. To support this argument, this paper considers the case of Tunisia. Strong win-win partnership between private and state sector is Tunisias major priority in itseconomicadjustment strategies. Tunisias legislative and regulatory framework provided enticing advantages to foreign investment that led to overall economic growth, reduction of inflation and budget deficits, and adjustment to growing debt services (Jere-Malanda, 2009, p. 52). After examining, first, the current economic situation in Africa and, second, the development of private sector, why it remains generally weak and how the unfavorable legal fretwork hinders investment into the countries, the paper then provides proposals how to remove serious barriers to private sector development in Africa and thus support overall economic growth.

After a long economic and politic decline from the 1980s to early 1990s, Africas economic growth prospects have improved substantially in the period of 2003 to 2007, with above 5 per cent economic growth per annum between 2000 and 2007 (IMF African Department, 2009). For the most part the economic progress has occurred as a result of economic reforms introduced starting from the 1980s. This process of recovery was evidenced by a gradual drop in budget deficits and inflation rates. Moreover, more favorable exchange rates and real interest rates were attained in most African countries (Hope 2002, p. 172). From that time on, however, the picture has gradually become one of economic setback instead of development and growth. Today most African countriesare suffering from global economic weakness that is further worsened by the fact that the developing countries have rather weak legal and political framework. The present paper will consider the macroeconomic problems facing African countriesat present, with particular emphasis on legal problems during the continuing crisis.

Through the examination ofTunisias strategy of handling of its social, economic, and political problems, this paper demonstrates that economic adjustment is seen as the key measure to eliminate economic setback and promote growth and development in the developing countries. It might be right to be surprised what lessons such small North African country as Tunisiacould offer in comprehending the nature of a significant international problem such as elimination of economic setback and economic adjustment. Yet geographical size is not a crucial factor in reaching adjustment success. Successfully adjusting developing countries as Tunisia may be at some point or another called the best example of strongeconomicpolicy of the countries on the Mediterranean (Marks, 1992, p. 2). Tunisias economic and legal reform in the time of crisis is what makes the country a good example for the study of economic adjustment in African countries during todays global financial crisis. Tunisiawill be offered as a model of adjustment of a conceptual framework that should be implemented in other developing countries. This will be accomplished through an analysis of the critical role of state-private sector relations in Tunisias economic and political adjustment. The following discussion will help understandTunisias own relative success in economic adjustment and how it may be applied to African countries in the time of global crisis and economic setback.

Africa and the Global Economic Crisis
African countries are currently well integrated into the world economy.  From 2003 to 2007 globalization through trade and regional cooperation has been promoted and developed in the region. Actuality, before the global crisis and economic slowdown, Africa directed its efforts towards intercontinental alliances and international joint operations. As a result, its economy has finally begun to recover from prolonged economic stagnation (Lundahl 2001). However, the global economic crisis has presented African countries with many new problems and economic setback.

The African economy is facing difficult times. For almost a decade it was characterized by a growth rate. In 2007, however, the growth machine began to stop work properly. According to African Development Bank Group (2009), what is most worrying is that what took Africa a decade to build has been wiped off in a matter of months (p. 3). A series of global shocks, notably the oil price slump and decreased commodity prices, put pressure on the economy in the region. In a very short period, oil exporting countries witnessed a budget deficit of -7 of GDP in 2009 against a surplus of 7 of GDP in 2008 and 3.8 of GDP in 2007 (ACON Chief Economists Office, 2009, p. iii). IMF reports that FDI in Africa lowered by approximately 26.7 per cent in 2009, in comparison with 2008 (Arieff et al., 2009, p. 15). The World Bank (2009) reported thatinAfrica GDP growth was expected to halve from 4.9 percent in 2008 to 2.4 percent in 2009. The considerable drop in commodity prices had strongly struck economy across African region.

In general, the global crisis has several dimensions in African developing countries. Slowing or negative economic growth, serious balance of payments difficulties, considerable fiscal problems, and ineffective and underproductive agricultural performance, in addition to problems of rapid rates of population increases, are only some indications of the economic crisis. Other dimensions of economic crisis involve rapidly growing unemployment. Thus, for example, according United Nations Development Programme (UNDP) (2009), in the Katanga province of the Democratic Republic of Congo, 60 percent of enterprises have closed and about 300,000 people have been laid off. In South Africa, where migrants from Lesotho and Swaziland also work in the mines, more than 5,000 workers lost their jobs in February 2009 alone. There are also considerable reductions in investments on indispensable social services and education, worsening health conditions and growing child mortality. Loss of environmental resources and degradation, including such problems as desertification and deforestation, also hinder economic development. Furthermore, these conditions are worsened even more by the fact that the political and legal systems are generally characterized by corruption, inefficient policies, particularly regarding the private sector. The following section will briefly review the current profile of the private sector in Africa and constraints experienced by the private sector.

The Current Profile of the Private Sector in Africa
The private sector plays an important role in the economies of developing countries of Africa. In particular, it contributes to GDPs, creation of employment opportunities and foreign direct investment. Private sector encourages economic progress and development, and therefore makes contributes to the state program of poverty reduction (see Williamson and DAlessandro, 1999 The World Bank Group, 1999 International Monetary Fund, 1998 Department of Econ.  Soc. Affairs  United Nations Conference on Trade  Dev., 1999 Ibru, 2009 Jonah, 1995 Supporting the Private Sector for Growth, 2009).

The activity directed towards development of the private sector, especially in the time of economic crisis, not only generates jobs, but can also be an effective mechanism of participatory development (Olowu and Sako 2002 Platt, 2007). This means that it provides a vast part of the population, particularly the poor, with an opportunity to participate in the process and profits of economic development.

Constraints on Private Sector Development
Process of developing private sector in Africa is hindered by a number of restrictive conditions, some of which are policy-related and others legal. According to a well-known study by Brunettiet al. (1997), examining and analyzing approximately 3600 private businesses in 69 countries, African businessmen indicated that regulatory, legal, and institutional constraints were main difficulties. Corruption was indicated as the most problematic aspect of doing business in Africa, followed by tax laws or extremely high taxes.

According to Ferreira and Bayat (2005), corruptionin the government service is the major concern among foreign investors. Moreover, the authors note that according to the CPSI, a survey of sixty-nine countries rankedcorruptionas the single largest obstacle to doing business with SouthAfrica (pp. 15-17). In Brunettis study,ineffective structure and organization came third, in addition to inflation.

The Case of Tunisia Economic Adjustment
Tunisiais considered in this section as a framework for the developing countries of Africa. This is accomplished through an examination of the important role of state-private sector relationship and partnership in the context of economic and legal adjustments during economic crisis. The following discussion will help understandTunisias own success in economic adjustment and how it can be applied to most developing countries.

After decades of very poor economic performance, Tunisia launched Economic Recovery Programme (ERP) in 1986 that included efficient steps towards economic strengthening, structural adjustment and process of recovering from stagnation. The main goal of the program was to improve private sector development and its relations with the state. As a result, there were introduced many price incentives within agriculture sector and was made a more efficient distribution of currency within the manufacturing sector. In addition, new regulatory fiscal and monetary policies were to be introduced, the currency was to be reduced in exchange value and the economy was to become increasingly open, liberated and oriented towards the foreign investors.

The ERP produced many positive results. A number of important steps were taken in the right direction, and as a result GDP grew in a short time. Despite the fact that the social infrastructure was not included in the ERP goals, income distribution was considerably improved as a result of the measures that produced improvements in farming (see Howard, 2001 Hansson, 1993 Grilli and Salvatore 1994). Importantly, Tunisia negotiated with the IMF and as a result was granted in 1988 an Extended Fund Facility (EFF) loan. It should be noted, at the same time, both Morocco and Algeria were denied EFFs. The loan granting and its following extension demonstrated confidence in Tunisias economy (International Monetary Fund, 1991).

Because of ERPs success in Tunisia, observers in many international financial institutions (such as the IMF and the World Bank) many times admiredTunisias advances in economic adjustment, for instance calling it one of the best examples of how a developing country can overcome apparently intractable difficulties (OSullivan, 1992, 5).

One of the most important features of Tanzanias ERP has been that of legal reforms. It should be noted that economic reforms are closely interrelated with legal reforms and may not be functioning effectively unless they are undertaken at the same time. The policy measures that will be employed to steer an economy are ultimately determined by the legal system that prevails. Certain lows are simply not compatible with certain economic systems, and if the new economic system is to be implemented, legal system must be reformed as well. Perhaps the best example of this is whenlegalframework in the country must be made highly liberal before it is possible to go ahead with a market-oriented incentive policy directed towards favorable investment climate. Thus, by the end of 2000, the Tunisian state introduced a number of laws providing the necessary legislative framework foreconomicreform. In particular, these included the budget law, the law on economic processes, the law on foreign direct investments, the law on foreign exchange and the law on public businesses (see Tunisias Commitment to an Open Economy in a Global Environment, 1996 Dorraj, 1995 Gibbon and Ponte, 2005). As a result, foreign trade has been made more liberal and price controls removed. These measures have undoubtedly contributed to the development and consolidation of the private sector.

Improving Private Sector Development in Africa
It is widely acknowledged that the creation and development of a sound macroeconomic and legal framework is a required condition to the quick and steady growth and development of Africas private sector (see Winiecki et al. 2004 Chui and Gai, 2005 Olowu and Wunsch, 2004 Brntrup et al 2006). The consequences of ineffective macroeconomic and legal framework are easily noticed in high inflation, low foreign direct investment and slow growth, with negative impact on private sector trust and participation in state economy. As can be seen from above discussion, some African countries, such as Tunisia, have succeeded considerably in improving their macroeconomic and legal environment in last ten years and continue to do so. During this process, such developing countries have removed strict foreign exchange regulations, and there have been activities in liberation of credit allocation and interest rates, and in making fiscal management more effective. An essential part of legal reforms has been the removal of import license, of price regulations and of direct allocation of inputs and foreign exchange (see Mbaku, 1994 Siddiqi, 2006 Nevin, 2000 Spraracino, 1997 Husain, 1994 Adamolekun, 1999).

To foster improvements in the business environment in most developing African countries today, therefore, attention needs to be focused on many of these areas. In general, these should include improving the legal and judicial system and making the regulatory framework better in quality and more effective encouraging and providing the necessities of productive work for business development encouraging the progress of trade and foreign direct investment speeding up the process of privatization and stabilizing the financial area.

Tunisian successful adjustment politics were chiefly based on improving the regulatory and legal framework. In the same manner, in the present time of global economic downturn African countries should direct state efforts towards development of competitive markets by supporting entrepreneurship, removing strict regulations and controls from business activities, and getting rid of barriers to entry and exit in a number of sectors. Importantly, legal reforms should be worked out with focus on promotion of competition, something that is a foundation for effectual private sector growing and advance. Legal reforms should also concentrate on improving tax and customs management, together with business permissions and registration regulations. New laws for competitive labor markets are also needed to provide small businesses with more freedom in reacting to constantly transforming competition. A trustworthy and reliable legal and judicial framework in Africa that would support private economic rights is essential for private sector activity and building of transparent relations between state and private sectors. At the moment, in many African countries, there are ineffective legal institutions with inappropriate management of procedures and lack of qualified employees to introduce necessary laws.

Today, many developing countries need concentrate their efforts on saving their wealth gained in the pre-crisisperiod and follow current economic developments goals. Whenthe world economy is facing adeepdownturn this is rather difficult task. Yet, improvement of state-private sector relations may play a key role in effective economic adjustment process. Taking as an example Tunisian adjustment program, this paper demonstrated that developing countries can succeed even during the height of thecrisis and overcome seemingly intractable difficulties. Tunisian experience demonstrates that the private sector development can lead to a rapid growth of economy and improvement of social conditions in general.


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