Abstract
Owing to persistent slowdown in economic growth and failure to achieve significant improvement in the standard of living, the period of early 1980s witnessed, almost worldwide, radical initiatives aimed at safeguarding and intensifying national economic performance in a more competitive world in many developing countries. A number of new programs were aimed at stimulating productivity and improving the economic environment in a national, regional and international context (Himbara, 1994). For African countries, despite this integration of the economic environment of the world and recognition of the need for new social, economic and political strategies, the Sub-Saharan African economic direction remained unaltered. Surprisingly, as noted by Himbara, the region remained engrossed in a crisis that consisted of every conceivable malaise. In total even ‘where population were not threatened by starvation, disease, or war, dissipation of the economic infrastructure amidst astonishingly widespread corruption became the norm’ (p. 2). Due to these reasons and under such circumstances African countries became increasingly marginalized in the 1980s and early 1990s. Clearly by the mid 1980s symptoms of malaise were evident everywhere. The returns on investment projects were relatively much lower in Africa than in other regions and more than a quarter of the existing projects failed to generate a positive rate of return (World Bank, 1994). This resulted in a drastic reduction in the region's share of international trade and foreign direct investment. In effect, Sub-Saharan African countries (SSA) had the least growth compared to other developing regions (and more so as compared to East Asian Economies) (World Bank). Clearly it was time for Sub-Saharan African countries to begin to adjust and improve their policies to restore economic growth along with other developing countries including Thailand. Beginning with late 1980s many governments of the region undertook major policy reform programs and restructured their economies to varying extents. Thus this was the beginning of the era of the ‘structural adjustment program’ with the objective of establishing a market-friendly set of incentives that can encourage the accumulation of capital and more efficient allocation of resources.1 As part of the structural adjustment program, financial systems (markets) were restructured in most of the countries, with a major emphasis on liberalization measures and reduction or removal of controls and state interventions.
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Notes
- 1.
These were some of the objectives of the adjustment program according to the World Bank, which could have been different from the point of view individual countries.
- 2.
This was a plan to intensify the development of the agricultural sector by transforming the economy of the land and extending individual and cooperative ownership. For specific details refer to IBRD (1963).
- 3.
With long collection lags and fixed level of expenditures, the money value of taxes deteriorated with prices raising, resulting widening deficit in real terms. On the other hand, foreign loans and aid disbursement declined from 8.15% in 1972 to 4.2% of GDP in 1996 (Mwega & Ndungu, 2002).
- 4.
This free trade agreement was signed by Kenya, Tanzania and Uganda in 1967, but the East African community had a custom union as early as 1937 (Hazelwood, 1979).
- 5.
NSE (2001) gives a historical background of the financial system in Kenya, including dates of establishment of numerous today's famous banks.
- 6.
The minimum liquid asset ratio for NBFIs was set at 10%.
- 7.
In particular this was used from late 1971 onwards.
- 8.
For example the banks were required to extend 17% of their deposit liabilities as credit to agriculture.
- 9.
Refer to Mwega and Ndungu (2002) for further discussion on this and for the breakdown of contributions by other important sectors.
- 10.
A detailed description of the content of this plan can be found in Kenya (1965).
- 11.
See also the behaviour of M2 (% of GDP) and M3 (% of GDP) during this period in Figure 2.2.
- 12.
Refer to my previous analysis for various reasons for inefficiencies in the manufacturing sector.
- 13.
For close comparison of money supply, domestic credit and interest rate movement in this period refer to Ndungu (1999).
- 14.
The boom did not actually result from coffee alone; in fact the price of most of the tropical beverages improved in one way or the other, but since coffee accounted for more than 70% of the terms of trade improvement, Bevan, Collier, and Gunning (1999) as well as other researchers termed this as the coffee boom.
- 15.
This trend is also revealed in Figure 2.3 where dramatic upward swings in savings and later investment rates are especially distinguishable.
- 16.
A breakdown of the fiscal pattern and analysis of transmission mechanism from private to public has been given by Bevan, Collier, and Gunning (1999, pp. 75–79).
- 17.
For example, in 1993 alone the Kenya Shilling was devalued three times losing about 70% of its value.
- 18.
This point is further elaborated by both Pryor (1990) and Channock (1972).
- 19.
- 20.
This includes the long-term development plan of 1965–1969, Gwedo No. 2 plan and DevPol I (Malawi, 1971).
- 21.
Note that the lower the measure of ICOR the higher the effectiveness, other things being equal.
- 22.
This was due to a combination of inconsistent government policy choices and repressive financial operations.
- 23.
This was an administrative federation to which Malawi belonged from 1954 to 1964.
- 24.
List of important events that had largely influenced economic performance in Malawi are given in Table 2.10.
- 25.
For example DevPol II and various trade policies were either differently implemented or ambiguously projected.
- 26.
Despite these agricultural oriented plans, the contribution of the manufacturing sector to the GDP in particular was significant during the 1970s (see Table 2.11).
- 27.
With difficulties in the capacity to create wage employment and uncertainties in wage policies, elasticity of employment in industrial sector was weak compared to the agricultural sector.
- 28.
Refer to Harrigan (1999) for an examination of Malawi's temporary positive trade shock.
- 29.
- 30.
An extensive coverage of the fiscal pattern of 1970 to 1983 is also given by Harrigan (1999).
- 31.
Likewise Kayanula and Quartey (2000) estimate that cost, insurance and freight (CIF) margins increased from an average of 15% in early 1970s to about 40% during 1980s.
- 32.
In this aspect the government amended the Reserve Bank Act 1965 and the Bank Act 1965 and enacted the Reserve Bank Act 1989 and the Bank Act 1989.
- 33.
It is estimated that only about 4% of all the land can easily be cultivated while the rest is either desert or barely suitable for grazing land (Acemoglu, Johnson & Robinson, 2001).
- 34.
Acemoglu, Johnson and Robinson (2001) remark that at independence there were only 22 Batswanans who were university graduates and 100 others from secondary school.
- 35.
This union was founded in 1910 and Botswana has been a member since then.
- 36.
For further discussion on the specifics of these national development plans see Maipose and Matsheka (2002).
- 37.
This section is heavily based on facts, issues and analyses provided in Ahmed (2006)
- 38.
The analysis of savings and investment trends is depicted in Figure 2.6.
- 39.
A fairly detailed analysis on this can be found in Sharma and Mhlauli (1994).
- 40.
These are the first and second presidents of the country.
- 41.
Samatar (1999) devotes a whole chapter for the purpose of discussing the class of leadership in Botswana.
- 42.
This depicted trend in the inflation seems to be very closely linked to the rates in South Africa, reflecting declining prices in both countries as discussed by Hope (1997).
- 43.
See Table 2.18 and further discussions later.
- 44.
With Botswana, the other two countries who used Rand currency issued by South Africa were Lesotho and Swaziland.
- 45.
For an extended discussion of the renegotiation of the new Customs Union Agreement, see Harvey and Lewis (1990, pp. 189–192).
- 46.
This was outlined in the Transitional Plan for Social and Economic Development, 1966.
- 47.
See also Table 2.19.
- 48.
Of specific concern was the behaviour of the commercial banks where, despite taking deposits from Botswana, they invested more than 50% of their funds outside the country when these funds were seriously needed to finance many development projects in the country.
- 49.
Additionally, to discourage large capital expatriation, foreign companies were not allowed to borrow more than they brought into the country.
- 50.
Here we are considering savings necessary to finance both goods Kc and Kl.
- 51.
Good (1992) notes that external debt stood at US$14miilion in 1970.
- 52.
Harvey and Lewis (1990) give a breakdown of planned development spending on agriculture. This spending has been significantly increasing from NDP2 (1970–1974) to NDP5 (1980–1984).
- 53.
Note that the Orapa mine was opened in 1971 and expanded in 1978, the Letlhakane mine was opened in 1976 and the Jwaneng mine was opened in 1976 and expanded in 1983 (Hill & Knight, 1999).
- 54.
Harvey and Lewis (1990) analyse the impact of these two booms on the whole economy and on the mining and non-mining sectors.
- 55.
A detailed statistical breakdown for the period of 1976–1980 is given by Oden (1981).
- 56.
For a complete discussion of the nature, causes and impact of the diamond boom and shock in Botswana, see Hill and Knight (1999).
- 57.
While most of the African countries had a fixed exchange rate during the 1970s and 1980s, Botswana adopted flexible exchange regimes earlier and more frequently relative to other SSA. Probably this positioned the country more competitively and helped it face booms and slumps.
- 58.
Formally this only continued for 3 months before exports returned to their normal level.
- 59.
The recent exchange rate objectives are as stated in the Bank of Botswana Annual Report 2000.
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Ahmed, A.D., Islam, S.M.N. (2010). Background, Structure and Financial Reforms. In: Financial Liberalization in Developing Countries. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2168-0_2
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