The IMF / World Bank Economic Structural Adjustment Programmes in Sub-Saharan Africa: What Were the Impacts on Small Enterprise Development?

Abstract

One aspect of government policies often addressed is the effect of economic structural adjustment programmes and policy reforms that have taken place in many countries (often at the recommendation of the IMF and the World Bank) on the small enterprise sector. This paper addresses the same topic with specific reference to Sub-Saharan Africa. It draws from research findings from a survey of secondary sources of data. There are some common features in all the World Bank/ IMF Economic Structural Adjustment Programmes. There are four main elements in all of these programmes, and they are external sector reforms (trade liberalization); fiscal and monetary reforms; public sector restructuring; and domestic deregulation and liberalization of internal trade. In Sub-Saharan Africa, the impact of external sector reforms on small enterprises depends on the level of participation of these enterprises in the external trade sector. Immediate effects of trade liberalization are to increase the volume of imports and open up the economy to external competition. If the small enterprises used imported inputs to produce for the domestic market, two diametrically opposite outcomes may result. First, devaluation of the local currency will make imports more expensive and this will threaten the viability of such small enterprises. On the other hand, decontrol of foreign exchange allocation will result in a benefit for small enterprises as they will enjoy improved access to foreign exchange to import raw materials. However, they are also exposed to the negative effects of increased competition from finished goods imported from other countries. If the small enterprises used primarily domestic inputs, then they will benefit from exchange rate depreciation as the larger import-intensive firms are squeezed out of the market. In Sub-Saharan Africa, the decontrol of prices, coupled with the removal of subsidies from basic consumer goods, and retrenchments to reduce the public service wage bill, led to a fall in purchasing power among the clientele of small businesses. The fall in purchasing power translates into a decline in demand for small enterprise goods and services. Retrenchments have also resulted in an influx of new entrants in the small business sector as retrenched workers seek alternative means of livelihood. The resultant increased competition among small businesses, coupled with falling product demand, has meant lower prices for their products and led to serious viability problems in the small business sector. The benefits of corporate tax reductions have accrued only to the extremely small number of small businesses who are registered and are submitting tax returns. Survey results in Sub-Saharan Africa have indicated only a few success stories of the IMF/ World Bank Economic Structural Adjustment Programmes with regard to their impacts on the small business sector. The overwhelming evidence points to the fact that these ESAPs have been largely detrimental to the fortunes of small businesses in the region. The recommended way forward is to resuscitate depressed and negatively affected small businesses which had fallen victim of the economic reforms. Maybe the IMF and World Bank should come to the forefront as key players to support domestic governments in this resuscitation drive.