Macroeconomic Policy Challenges in Africa

Abstract

Macroeconomic instability was one of the major difficulties undermining the development of African countries in the 1970s, 1980s and 1990s. The character of the macroeconomic framework has implications for economies in terms of not only economic outcomes but also the subsequent social configuration following a ‘macroeconomic event’ (Fischer, 1991). A relevant macroeconomic framework is the basis of any social development agenda. It is arguable that Africa’s macroeconomic reform ‘project’ of the 1980s and 1990s has failed primarily because their theoretical premises generalise macrodynamics simplistically in terms of market clearing adjustments to achieve stability. Any consideration of macroeconomic policy must distinguish between long-term factors affecting economic growth rates (e.g. low savings/investment rates) and shorter-term macroeconomic management issues. The over-emphasis on market-based adjustments is misplaced as state involvement in the choice of the type of adjustment remains a major consideration. This chapter describes the character of the market in Africa, which has imperfect information and staggered adjustments, and suggests how economic decisions are more or less based on a rule of thumb, with disproportionate effects on different socio-economic groups. More importantly, macroeconomic policy processes tend to be resolved through institutional conflict mechanisms in that poverty is more likely to decline faster in countries that pay attention to the restoration of macroeconomic balance with equity objectives in mind.