One of the purposes of the establishment of the World Bank (“the Bank”) was to promote changes in the world trading system so as to make it more supportive of development especially of poorest countries and peoples across the developing world such as Senegal (World Bank 2003,140). However, it has been accused of working contrary to its aims as its policies have been criticised as being only in the interest of its shareholders.
This makes this subject a very sensitive one therefore great care needs to be taken when discussing it, particularly with the contemporary political and economic situation in
Following a brief history of the World Bank and some of its policies, the remainder of this essay will be subdivided into three parts, namely:
(i)
(ii) the motivation for going to the World Bank for a loan; and
(iii) the arguments for and against the impact of the loan from the World Bank on
From its establishment in 1944 at the Bretton Woods conference to the end of the 1970’s, the World Bank did not take a strong pro-market line (Brecknock 1997, 52); rather it saw its role in raising and allocating capital resources primarily as one assisting governments particularly in the development of infrastructural projects.
During Robert McNamara’s term as president of the Bank (1968-81), he laid emphasis on the realization of basic human needs, which the Bank was to achieve through the redistribution of growth. Unfortunately, things were to change as it was to adopt a neo-liberal approach as its driving force in the early 1980’s, which coincided with the electoral triumph of the “new rights” in two of the Bank’s largest shareholders - the United Kingdom (UK) and the United States of America (USA) - with the coming of power of Prime Minister Thatcher and President Reagan respectively (Berger & Beeson 1998, 490).
Under William Clausen’s presidency (1981-86), the Bank changed its orientation from a state-led to a market-led system. This meant the implementation of structural adjustment programmes based on economic liberalisation, deregulation and privatisation. John Williamson legendarily dubbed this set of policy recommendations originating from a
By specialising in what a country does best and trading in what it needs, it maximises its productivity (based on the theories of comparative advantage) but, like many newly independent African states, Senegal lacked the cash resources to invest in its development; hence the need to go to the World Bank for a loan. It appeared to be the right move as they were able to buy new technologies with the loan and increase their productivity and groundnut exports, using the rising proceeds to finance food imports, especially cereals such as rice and wheat (YouTube, online).
However, things did not remain rosy for
Moreover, the World Bank loan came at a cost in that the Bank had encouraged
This was to be short lived because in 1980’s the balance of the world groundnut market started to change; given that groundnut had proved to be a profitable and stable export crop, other developing countries began to focus on producing it as a means of earning foreign currency. Bigger states like the
Worse still for countries such as Senegal and Mozambique, whose economies rely heavily on groundnut production and exports, more developed countries like to United States who both export and import groundnuts further protected their farmers by imposing strict import tariffs. There was no equal opportunity for poorer countries such as
With all these factors conspiring against them and causing the fall in groundnut prices, developing countries especially
Facing bankruptcy,
Trade liberalisation is defined as “any set of reforms that reduces the bias against exports” (Morrissey 2000, 381); for
It is now imperative to turn to the argument for the impacts of the World Bank policies on the economy of Senegal, using its economic reforms of the 1980’s at a case study.
First, if the World Bank policies did nothing for
Commercialisation des Oléagineux (SONACOS) by the sale of a stake to Nouvelle Valorisation d’Arachide du Sénégal (NOVASEN) provided employment for the Senegalese farmers and transition from a total state control to partial privatisation.
It progressively became clear that the World Bank policy was the way forward for Senegalese economic growth in that there was a steep rise in the production of edible groundnut after the partial privatisation of SONACOS from 8,000 tonnes at the beginning of the 1970’s to more than 60,000 tonnes by the mid-1990s. Most people argue that this success was due mainly to increased rainfall although a more realistic interpretation (whist accepting that more rainfall helped somewhat) would conclude that this dramatic rise is in production should be attributed primarily to the agricultural expertise of NOVASEN and its ability to deliver higher yields (Mbaye 2009, online).
Second, a linked micro-simulation analysis based on a survey of Senegalese households showed that trade liberalization reduced poverty in Senegal, particularly in rural areas, in contrast with the previous assumption that trade liberalisation would lead to a fall in the relative wages of rural workers leading to rural households losing the most from its implementation. The reverse happened because rural households were in fact compensated by greater consumer price savings, given that they consumed more goods from the initially protected agricultural and agro-industrial sectors (Cockburn et al March 2010, online), so in practice the implementation of the Washington Consensus improved the lives of the rural dwellers as they were able to buy food and crops at a very cheap prices.
In summary, liberalisation had a marked effect on the Senegalese economy. On balance the reform of the market served as a poverty alleviation programme particularly for the rural people of the country in that the benefit of much cheaper prices of their basic requirements of food and domestic products (that the free and more competitive market had forced down) more than outweighed their reduction in income from the lower price of groundnuts.
Having noted some of the advantages of the World Bank policies on the Senegalese economy in the 1980s, it is important to deduce the disadvantages of such policies. The key disadvantage of these policies was that they were somewhat unbalanced in that they gave developed countries like the United States and the Netherlands easy access to export into growing economies like Senegal whilst allowing the former to protect their own economies with tariffs thereby making it almost impossible for the weaker countries to compete or even survive economically. Further details will be given below.
First, the implementation of the World Bank policy proved to be a loss to Senegal’s economy because whereas it was assumed that trade liberalisation, privatisation and even cuts in public funding would generate more cash with which to repay the country’s debt and improve its economy, the reverse happened to be the case. This strategy of the World Bank was to be implemented and followed for at least the next 10years but the situation only got worse as the price of groundnut continued to go down due to factors such as trade protectionism in the developed countries, poor weather condition in Senegal, and the fact that there were so many developing countries who were exporting groundnut as a source of revenue creation. For these reasons, with the price of groundnut declining over the years as shown below, Senegal’s debt got out of control and today it is officially one of the World’s most indebted nations.
Second, although the partial privatisation of SONASCO to NOVASEN brought about some improvement and transparency in the industry, it did more harm than good for the poor farmers in Senegal (who depended on their business dealings with SONASCO for their livelihood and a means out of poverty) as their trading relationship changed automatically with NOVASEN in charge of most of their deals. The production of groundnut was drastically reduced; before the privatisation (under the control of SONASCO) the state was producing about 120,000 tonnes of seed per year, including 50,000 tonnes of pedigreed seed, whereas since state withdrawal due to privatisation the private sector has been struggling to produce 15,000 tonnes of certified seed per year (Mbaye 2009, online).
There are so many reasons for this negative outcome but one of the main ones is that it is becoming harder and harder for farmers to grow premium-grade crops because their seed capital is not being renewed as it was under SONASCO. Increasingly, NOVASEN uses a skimming procedure to select the seeds to be planted for the next crops; indeed, it has been suggested that the company has not renewed the seed capital for more than 15 years. Given the poorer quality of seed available, it is difficult for farmers to achieve premium-grade harvests thus the low yield in production (Mbaye 2009, online).
As a result, farmers migrate to cities in search of livelihood thereby creating labour shortages in the fields, resulting in lower production.
Third, with the World Bank policy came increased poverty, including a lack of good or affordable health care, as one of its reform policies was the introduction of cuts in public spending. These cuts brought about increased corruption as most of the funds arising from savings were unaccounted for, which did nothing to quell civil unrest arising from falling prices for groundnut crops; from falling yields of groundnuts due to infertile land and lack of new seed; and from governments being more interested in producing groundnut for export leaving not enough for local consumption – all of which meant that people migrated from rural to urban areas in search of livelihood adding to the urban poor.
Not only was this a bad thing for the poor in Senegal, the liberalisation of trade and privatisation also left the country destitute; the debts still needed to be repaid. The government has had to repay the debt by any means practicable and as its high priority, and it is not surprising that so far Senegal has spent more money paying back its debt to the World Bank than on health care and the education of its citizens combined (McColl 2005, 889).
In conclusion, based on the evidence presented and the arguments for and against the impact of the World Bank policy on the economy of Senegal especially in the 1980s, it is clear that, even though some of its policies helped Senegal fit in with global competition, the examples given above show that the World Bank got it wrong as its policies were more about devising a way for Senegal to repay its debts than about improving its economy. It has also been suggested that one or more of these so called reform policies brought about increased corruption as people in government embezzled a lot of money so as to buy privatised state companies.
Evidently, many developing nations like Senegal are in serious debt, continue to experience severe poverty and are over dependent on developed countries partly due to the policies of the World Bank. It prescribed cutbacks, “liberalization” of the economy and resource extraction/export-oriented open markets as part of the structural adjustments that it demanded as conditions for its loans, which in turn minimised the state role to the detriment of the poor people of the developing countries.
The World Bank’s policies were not all bad, for example the 1994 devaluation of the CFAFR brought about short term improvement in Senegal’s economy, arising from a boost in groundnut exports thanks to corresponding increases in world prices. But even this had a negative effect on Senegal’s domestic production as the devaluation also brought about high operating costs which squeezed margins even with the higher prices.
Undoubtedly, the World Bank reform policies only favoured its shareholders and not the developing economies like Senegal that it was claiming to help. The above shows that these policies were implemented to ensure that Senegal pays back its debt to the World Bank against all odds; whilst less care was given to how the lives of the Senegalese people can be improved (Shah 2010, online).
Bibliography:
Badiane. O. & Kinteh. S., (1994). Trade Pessimism and Regulation in African Countries: the Case of Groundnut Exporters. IFPRI, PP.10.
Badiane. C., (December 2001). Senegal’s Trade in Groundnut: Economic, Social and Environment Implications. [Available online: http://www1.american.edu/TED/senegal-groundnut.htm]. Accessed on: 20th March, 2011.
Berger M. & Beeson M. Lineages of Liberalism and Miracles of Modernisation: the World Bank, the East Asian Trajectory and the International Development Debate. Third World Quarterly: Vol. 19, No. 3, pp. 490.
Bolton .G, (2007). Poor Story: An Insider uncovers how Globalisation and Good Intentions have failed the World’s Poor. United Kingdom: Ebury Press, pp.7.
Brecknock. J., (1997). “The World Bank and the State: a Brief History”. In: Hildyard W. (Ed.). (1997). the World Bank and the State, a Recipe for Change. London: Bretton Woods Project, pp. 52.
Clarke T. & Pitelis C., (Ed.). (1995). Introduction. In: Clarke T. & Pitelis C., (Ed.). (1995). the Political Economy of Privatisation. New York: Routledge, pp. 7.
Cockburn et al, (March 2010). Centre Interuniversitaire Sur le Risqué les Politiques Economiques et l’Emploi (C.I.R.P.E.E). The Gender and Poverty Impacts of Trade Liberalization in Senegal. [Available online: http://www.cirpee.org/fileadmin/documents/Cahiers_2010/CIRPEE10-13.pdf]. Accessed on: 18th March, 2011.
Crawford G., (2006). The World Bank and Good Governance: Rethinking the State or Consolidating Neo-liberalism? In: Paloni. A. Zanardi M., (Ed.). (2006). the IMF, World Bank and Policy Reforms. United States: Routledge Taylor & Francis Group, pp. 116.
Narayan .B.N., (2002). Essence of Managerial Economics and Management Science. New Delhi: Anmol Publications PVT. LTD., pp. 89.
Mbaye A. A., (2009). “Sanitary and Phytosanitary Standards and African Country Agro-Food Exports: An Assessment of the Senegalese Groundnut Subsector”. African Integration Review: Vol. 3, No. 1. [Available online: http://www.africa-union.org/root/ua/Newsletter/EA/Vol3%20No1/Mbaye.pdf]. Accessed on: 19th March, 2011.
McColl R.W., (2005). Encyclopaedia of World Geography, Volume 1. New York: InfoBase Publishing, pp. 889.
Morrissey O., (2000). Foreign Aid in the Emerging Global Trade Environment. In: Tarp. F. & Hjertholm P., (2000). Foreign Aid and Development: Lessons Learnt and Directions for the Future. London: Routledge, pp. 381.
