Finding the Right Path

Consensus exist as there are regions in the world. For Africa, the panoply of reforms subsumed under the term has been useful as a guide to economic policymaking—with the main focus on fiscal discipline and privatization—even though it has proved difficult for most African countries to pursue all of them. Few countries anywhere have applied the reforms of the Washington Consensus completely, not least because some of them are culturally and historically sensitive. A larger difficulty, however, is that the reform agenda only partially addresses the growth constraints faced by many developing countries. Macroeconomic stabilization is critical for growth, but it is not clear that privatization is. Moreover, privatization and deregulation simply do not apply to African countries in the same way that they may in Latin American countries. Nevertheless, most African states have made strong progress with many of the reforms, which helps explain, in part, the continent’s improved economic performance in recent years. Economic growth in Africa is expected to average 3.1 percent this year and 4.2 percent next year—more than twice the average in 1984–93 and marginally higher than the average for all developing countries. Macroeconomic stability is being consolidated, with average consumer price inflation at 9.7 percent in 2002, down from 13.2 percent in 2001 and 54.6 percent in 1994. Underpinning the better inflation picture are lower fiscal deficits, which have declined from an average 5.2 percent of GDP in 1994 to 2.1 percent in 2001. Of course, to reduce poverty, more consistent and rapid economic growth is required. One of the most important drawbacks of the Washington Consensus was that, while it provided a good mixture of reforms to both stabilize the economy and encourage private sector activity, it did very little to help resolve structural and institutional constraints on growth. John Williamson pointed this out in his 2002 speech at the Center for Strategic and International Studies, “Did the Washington Consensus Fail?” when he asked why so little of development economics had made its way into Washington thinking. Three aspects of development economics are particularly relevant to African economies and their growth problem: the “dual” economy, the creation of social capital, and the role of the state. But before turning to those issues, it is worth discussing the role of external factors in African development, among them, trade and development assistance. The Washington Consensus implicitly assumed that there was nothing wrong with the development assistance relationship, but certainly, from an African perspective, development assistance has tended to undermine growth prospects, even if it has helped fill the investment-savings gap.