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Speeches & Transcripts

Stanley Please Memorial Event - Remarks by Mr. Makhtar Diop, Regional Vice President, Africa Region

June 24, 2013

Makhtar Diop Washington, DC, United States

As Prepared for Delivery

It’s a great pleasure to be here today with so many friends and colleagues to honor a former Bank staff member, and someone who really had Africa’s interests at heart.

I’d like to structure my remarks around three interconnected issues: Stanley’s insights concerning the centrality of policy reform, the policy framework in Africa today, and Stanley’s legacy in terms of the Bank’s role.

First, Stanley Please’s greatest contribution to Africa and the World Bank—the insight that policy reforms are necessary to make development projects productive—is also one of the most controversial, because it is associated with the infamous “structural adjustment programs” of the 1980s and 1990s.

That his insight was seminal is borne out by the fact that it seems obvious today.

  • The aid effectiveness literature has provided empirical justification.
  • The World Bank’s CPIA—which allocates aid according to a country’s policy and institutional quality—has internalized the message.
  • African policymakers are constantly concerned about their policy framework -- I know this is true: I was one of them in Senegal.

It is also true that most of the structural adjustment programs of the 1980s and 1990s, which aimed to reform policies and institutions so that investment could be productive, had a mixed record (to put it politely)

  • Economic growth during these decades was barely enough to keep up with population growth.
  • Poverty increased.
  • The programs were hugely controversial in the countries themselves.  Some governments (as in Benin) fell, most ended the period with unsustainable debt, necessitating debt relief.
  • Even the policy framework did not improve in many countries -- exchange rates were overvalued; financial sectors were weak and fragile, and trade restrictions remained, or were re-instated.

Looking back, I think we can see why the record was mixed.  Let me point to a few reasons.

There was perhaps too much focus on the big macroeconomic issues, and a lack of understanding of the complexities of reform.

  • Trying to get the price right through liberalization was important, but an oversimplification.  As we saw, liberalizing prices did not necessarily lead to increased competition, or result in the anticipated supply response.

The idea that a reduced role for the state was better was also an oversimplification.  As we have learned from experience, it is much more complex. 

  • To take education, for example.  Increasing enrollment without also focusing on the quality of education simply meant that the quality of education declined, with consequences that are still felt.

The reforms of the 80s and 90s totally underestimated the importance of political economy, and there was limited recognition that vested interests could de-rail reform.

  • There was a tendency to think that economics was separated from politics, which was not at all the case. 
  • Let me give you an example of vested interests at work in Senegal.  At the time, the most important people were the Director of Commerce and the Director of the National Bank, because they were the people who gave out the licenses for trade and decided who got loans.  The easiest way to get either was to pay a bribe, so there was no support for reform. 
  • When I became Minister of Finance twenty years later, the economy was still paying the price. 

Issues of distribution and the social impact of reforms were also completely missed. 

  • By the time policy makers and the Bank woke up because of protests and riots in the streets, it was too late and any support for reform had been eroded. 
  • The “social dimensions of adjustment” add-ons were an attempt to mitigate the impact and show concern for the poor, but they were neither very effective nor convincing.

The risk premium for private capital was misunderstood and underestimated. 

  • There was an assumption that privatization would result in inflows of private capital and increased competition, and that social welfare would improve as a result of growth.
  • Instead, what happened was that a state monopoly was replaced by a private sector monopoly. 

My second point is that today the situation is very different in Africa.

How is it different?

  • Africa is growing—faster than any other region (except parts of Asia).
  • Poverty is falling.
  • The policy framework has improved significantly (Africa’s CPIA score for economic management is higher than other low-income countries).
  • External capital flows exceed foreign aid.

Why is it different?

  • African policymakers undertook many of the same policy reforms that were advocated under structural adjustment—but this time they worked!
  • The difference was that, starting in the late-1990s, these reforms were designed and implemented by Africans themselves.  Policy makers had internalized the need for reform and the lessons of the past.
  • There was a new generation of well-trained technocrats who designed policies and programs based on deep understanding of the issues and problems—like Kwesi Botchwey in Ghana—who is with us today, Emmanuel Tumusiime in Uganda, Benno Ndulu in Tanzania, Njuguna N’dungu in Kenya, some guy named Diop in Senegal…
  • This generation of policy makers understood the complexities of reforms, but also their necessity.  Within Ministries of Finance there is now broad recognition that hyperinflation hurts the poor and that over protection hurts traders and small businesses.

Another change from the past is the understanding that good economic policies can help politicians.

  • The end of the cold war ushered in competitive elections in most African countries. 
  • To be elected, governments needed to pursue pro-poor policies, such as competitive exchange rates and high agricultural prices.
  • Having pursued these policies and registered strong growth, there was greater political support for further reform policies. 
  • A virtuous cycle and new social contract were created.  Voters are now better informed and have more opportunities to influence policies.

This new social contract is still being put in place, but there is an understanding that growth is not enough, and that issues of inclusion have to be addressed. 

  • Let me give you an example from Senegal.  Once, when I was Minister of Finance I had just given a speech about growth, and I asked a taxi driver what he thought about the economic situation and prospects.  His response was “I can’t eat growth.”
  • That taught me that without the right policies and the right social contract, growth will not result in benefits for ordinary people. 
  • This is still a challenge for African countries – growth is often driven by capital intensive sectors.  We need to make sure that ordinary people benefit. 

One issue that still remains is the high risk premium for private capital.  There is still a bias against investing in Africa and a perception that it is high-risk.  This is changing, but not fast enough.

My third point is that the new Africa—and the relationship between African countries and their development partners—confirm Stanley Please’s legacy.

His commitment to Africans and to young people was deep.  He believed Africans should define their own development priorities.

The development paradigm has shifted:

  • Donor partners now recognize that reforms need to be “owned” by the people of Africa.
  • They also realize that African governments need to be given the space to design and implement their self-defined reforms.
  • The World Bank understands that its role is to support the process of reform in countries, not dictate what the reforms should be.
  • African policy makers have the confidence to set and implement their own reform agenda.

Within this new development paradigm, we need to address current challenges so that the continent can continue to move forward. Let me highlight a few of them.

We need to diversify the sources of growth, and make it less capital intensive. 

  • This is part of the new social contract, and job creation will be crucial.  Ordinary people have to feel the benefits of growth.

We need to look beyond orthodox answers and find solutions that fit the circumstances. 

  • For example, in management of natural resources we need to balance the demands of the present with the demands of the future.
  • Countries like Norway can put profits from natural resources into funds so that future generations can benefit.  It is harder for African countries, given current income levels.
  • It may be necessary for African countries to invest more now to change the trajectory and increase the number of people moving out of poverty.

A last point about moving forward is also part of Stanley’s legacy.  It is the importance of data. 

  • African policy makers today are faced with a real problem of paucity of accurate data. 
  • So my final point is that good information and data is a not only a public good, but that it is also essential for policy making.  As Stanley realized, you need to have accurate information in order to implement sound policies. 

Thank you for giving me the opportunity to speak.  It is fitting that today, as Africa enjoys unprecedented growth, we honor Stanley Please, whose twin visions of the importance of policy, and the importance of empowering Africans, are finally being realized.

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