Trade reform in ten sub-Saharan African countries : achievements and failures

One cause of the disappointing performance of the tradable goods sector in sub-Saharan Africa after several years of adjustment and investment of considerable resources is the less-than-exemplary implementation of reform, concludes the author. The author summarizes the experience of ten sub-Saharan countries with trade reform. Trade reform is broadly defined to encompass reform of foreign exchange and other measures (such as domestic price decontrol) that directly or indirectly affect the relative profitability of the tradable goods sector. She singles out several factors that explain the different implementation records of the countries sampled and evaluates the likelihood that reform will be sustained in the future. Of the ten countries examined, only a few (Ghana, Tanzania, Uganda, and, to a lesser extent, Mali) began and sustained trade reform in the 1980s and 1990s. In other countries, most liberalization measures adopted were later reversed or suspended because of a balance of payments crisis or social unrest or both. Compatible macroeconomic and exchange rate policies are ranked as most crucial for successful trade reform. Incompatible macroeconomic policies, for instance, brought about the reversal of trade liberalization in Kenya and of foreign exchange market liberalization in Nigeria. Experience in the three franc zone countries, especially Cote d'Ivoire and Senegal, highlights the enormous difficulty of achieving a consistent real exchange rate under the constraint of a fixed nominal exchange rate. In theory, under certain conditions a devaluation's impact on relative prices can be mimicked through equivalent tax-plus-subsidy schemes, but experience in these countries shows how administrative difficulties and price rigidity make it almost impossible to achieve this goal in practice. Experience in all countries also highlights that early attention to institutional reform, consensus building, and domestic market reform is indispensable for lasting trade reform. Even among the few countries where trade reform has been sustained, none can yet boast of the same low levels of protection as now prevail in reforming countries elsewhere in the world. Sub-Saharan African countries'very distorted trade regimes, their weak administrative capacity, and their low levels of income all contribute to the relatively slow pace of trade liberalization in these countries. The author identifies three indicators of the sustainability of reform: the change in level and composition of government revenues and expenditures; the rate of growth of, and the diversification of, exports; and the level of investment, especially private investment in productive activities. On the basis of these indicators, experience in the sampled countries is not promising. Few of them have radically changed the structural parameters of their economies. In most countries, government revenues are still heavily dependent on trade taxes; budget deficits have been contained, if at all, chiefly by curtailing government spending in priority areas; and little export diversification has taken place.