Alemayehu Geda (Prof.)In the first issue of this magazine, I have attempted to present the political economy of policy making in Africa and the implication of that for private sector development in the continent. This was based on a recent study by the United Nations Economic Commission for Africa (UN ECA) study. In this issue, I will finalize the commentary by highlighting the empirical evidence about the implications of policies designed in such a manner on private investment in the continent using the same study. The ECA study is an attempt to examine the impact of macroeconomic policies and investment climate for private investment in Africa. Based on this analysis, the study attempts to draw lessons so as to come up with policy implications that could help to strengthen the role of private investment in Africa As I have noted above, the ECA study commenced by showing that macro policy in Africa is generally informed by the political economy of policy making which I have briefly summarized in the last issue.
Macro policy is not made in a political vacuum. The political economy context, both internal and external, in which macro policy is formulated, has a strong bearing on the resultant macro policy and hence the macroeconomic environment that private economic agents do face.
Macro Policy making in Africa has been primarily driven by the influence of the World Bank and International Monetary Fund (IMF) (International Financial Institutions, IFIs henceforth) for the last three decades. This is complemented by the political and intellectual support of IMF to the bank. The macro policy that emerged from the IFIs, termed as ‘Structural Adjustment Programs [SAPs]; and ‘Poverty Reduction Strategy Papers [PRSPs], was, and still is, effectively implemented in the continent. This is mediated through aid conditionality.
