Introduction
The prominence of
the neo-liberal policies in the last the last three decades has prompted major
debates among academics and policy makers around the globe although it appears
as though advocates of free-market economic policy are winning the argument.
Starting from the early 1970s many developing countries experience unprecedented
economic crisis of which some of them were caused by decline in demand for
goods in world markets and financial crisis. It could be argued that liberalism
of economic and financial system in the 1970s and 1980s merely ruined economic policy
framework in developing countries hence inability to protect themselves against
external pressure. So many developing countries such as those in Latin America
and the African region began to experience
uncontrolled balance of payment deficits, worsening of fiscal deficit
and unsustainable national debts.
However, supporters of neo-liberal economics
believes the sluggish growth recorded in many developing countries were largely
due to resource misallocations and tight regulations on economic and investment
activities. In addition to that, neo-liberal advocates also assumed that
underdevelopment in Africa was caused by huge government expenditure, state
ownership of enterprises, trade restrictions and existence of exchange
controls. For instance, nearly 80% of Zambia`s economy was made up of stated owned enterprises by 1980 as the country engage in
nationalisation process of all major industrial sector. Also Zambia`s economy
relied heavily on copper which accounted for majority of its exports commodity
and accounted for almost 90% of the country`s total revenue in the 1970s.
In
addition to that, majority of developing countries pursued the socialist model
of development which was characterised by generous welfare system, strong trade
policy regimes to protect local industries and highly regulated economic
activities to prevent foreign investments in some cases. Moreover, the
newly independent countries of the 1960s and 197os such as Zambia faced
numerous development challenges ranging
from infrastructure and lack of skilled labour force. For example, Zambia had
only few university graduates and about 0.5% of the country’s population were illiterate
making state-led development more necessary as a way of promoting economic
constructions of the country. Given that many African economies relied
on primary production for export revenue generations, most of these commodities
were prone to shift in world demand making their economies more vulnerable to
external shocks which may in some cases cause unsustainable deficits. However,
after it appeared as though, state-led development strategies failed to promote
growth up the 1980s, many African countries were recommended by the IMF and World Bank to adopt neo-liberal economic policies. These policies
were aimed at privatisation of state enterprises, deregulation, protection of
intellectual property rights and prudence macroeconomic policy to allow flexible
exchange rates and tightening up of fiscal policy. Nevertheless, IMF and World
bank`s conditionality programs were unsuccessful as growth declined sharply in
most adjusting countries of the region between 1980 to 2004.So, the report
present a summary of the author`s critique of the Neo-Liberal explanation for
Africa`s growth “failures” over 1980-2004, and attempt to explain why the
“structural handcap” argument for poor growth not apply exclusively to Africa. It
will then focus on recent Chinese inward FDI /assistance into the region and
assess its impact on the continent`s its future prospects.
Literature Review
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