Structural adjustment and private investment in Africa

• Main Author: Abdou, Abdella A.
• Language: en_US
• Published: 2007
• Online Access: http://hdl.handle.net/1993/828

This study examines the effect of structural adjustment programmes on private investment in Sub-Saharan Africa. The impact of the three main components of structural adjustment--macroeconomic adjustment, sectoral reforms, and institutional adjustment--on factors that affect private investment, and hence on private investment is delineated theoretically and investigated empirically. The study deals with the effect of restrictive fiscal and monetary policies, and devaluation on investment, the relationship between public and private investment, the importance of credit availability for capital formation, the effect of external debt on investment decisions, and the impact of privatization and deregulation on private investment. The econometric investigation specifies an investment model that takes into account the structural characteristics of developing countries. Data on four African countries--Kenya, Malawi, Mauritius, and Zimbabwe--for the period of 1970-92 is used for the econometric analysis. The equations are estimated by the method of ordinary least square for the four countries separately, as well as using pooled cross-section time series approach. A dummy variable is used to take into account the structural break that may have occurred due to the debt crisis and structural adjustment programmes after 1982. The results show that structural adjustment has failed to revive private investment in Africa. The results on the relationship between many of the economic variables included in the study and private investment tend to be weak. The discussion on the institutional adjustment and its impact on private investment shows that the reforms do not seem to have succeeded in encouraging African entrepreneurship or attracting foreign direct investment.