1. INTRODUCTION

Since the growth performance of Southeast Asia (SE Asia) and Sub-Saharan Africa (SSA) began to diverge markedly in the 1980s, it has become commonplace to juxtapose the highly positive economic performance of Southeast Asia and the much less commendable achievements of sub-Saharan Africa in the last three decades. (See Table 1 and Figure 1). While the performance at both the macro and micro levels show great disparity, one of the most obvious differences in the performance and economic structure of the two regions has been the extent of participation in the international economy. As Asia has increased its participation in the world economy so has Africa shrunk its participation. Prior to the very onset of the Asian Crisis in 1997, the economic performance of four Southeast Asian countries - Indonesia, Malaysia, Singapore and Thailand - was popularly regarded as a ‘miracle’ along with that of other high performing economies of Northeast Asia, i.e., Japan, Hong Kong, South Korea and Taiwan.

Evolving dynamically their comparative advantages, the trade structure of these Asian countries has been dramatically transformed in the last three decades. Radelet and Sachs (1998) note that despite the recent turmoil in South-east Asian economies, the basic structure for participating in world trade that has evolved in the last three decades remains essentially sound. It is the form and scale of financial integration into international capital markets that has triggered the current currency and general economic crisis and exposed the vulnerability and fragility of these Southeast Asian economies.

In Sub-Saharan Africa, the weak foundation of many economies can be more vividly shown in their modes of international linkages. By the early 1990s, the failure to diversify export structure and attract foreign direct and portfolio investment flows had left the continent virtually bypassed by the dynamic forces that have swept the international trading and financial systems with the aid of advanced information and telecommunication technology. There have been fears that Africa will continue to be "marginalised" in the process of global integration and formation of a new international order.

Numerous factors, encompassing diverse internal and external conditions as well as the spectrum and implementation context of economic policies, must have given rise to these differential external performances. An in-depth comparative study is required to examine and discern clearly these factors and conditions. This is particularly so in view of the fact that some of the policies that are reputed to have worked in East Asian countries have also been applied in sub-Saharan African (SSA) countries, with different outcomes. Indeed, before the adoption of Structural Adjustment Programme in response to severe economic crises in the 1980s, SSA countries had had a mixed bag of various liberal and interventionist policies. Intervention in the industrial sector was widespread, as was the case with the financial sector in the 1960s and 1970s. In the case of SSA, however, intervention has never been so positively evaluated as has been the case in East Asia, where it has been increasingly acknowledged that government interventions have been systematically applied to address market failures, as exemplified by the World Bank’s (1993) East Asian Miracle study.

Table 1: Growth in GDP Per Capita

	1961-72	1973-80	1981-90	1986-96
Africa	1.3	0.7	-0.9	-1.0
East Asia	7.0	7.1	9.4	7.2
South East Asia	3.2	4.9	4.3
South Asia	1.3	1.6	3.3	2.9

Source: World Bank, Economic and Social Data Base.

However, as Jomo, et. al (1997) correctly stress, the East Asian Miracle study distinguishes subtly between the ‘success story’ of the Southeast Asian economies and that of the Northeast Asian economies. In contrast to the prevalence of selective intervention in achieving late industrialisation over a short time horizon in the Northeast Asian economies, the second-tier Southeast Asian NICs are seen to have achieved rapid growth and industrialisation without resorting to interventionist industrial policy as in Thailand or by abandoning it as in Malaysia and Indonesia.

Furthermore, the East Asian Miracle study rejects the replicability and appropriateness of interventionist policies, as applied in some ‘successful’ Northeast Asian economies, in other developing countries. It argues that an essential prerequisite for pursuing contest-based resource allocation, i.e. a high quality civil service with the capacity to monitor in isolation from political interference, is typically absent in other settings. Instead, the Study attached a lot of importance to "getting the basics right" (p.5) with emphasis on macroeconomic fundamentals, while keeping "price distortions within reasonable bounds" and the economies remain "open to foreign ideas and technology". Pointing to the Southeast Asian economies with strategies of courting foreign direct investment as more desirable alternative models for emulation, the Study recommends that other countries should focus on fundamentals and thereby create a market-friendly environment, rather than on getting interventions to work as suggested by the Northeast Asian model.

The above laissez-faire interpretation of the Southeast Asian policy experiences has been seriously challenged by many experts in the region as being too simplistic and naive to reflect the true complexities exhibited by the development path of these economies (Jomo et al. 1997). This paper examines the critical interrelationships between economic policies and external performance of the two regions in a comparative perspective in search for answers to questions: "what works when, where and under what conditions?".

Our paper consists of two parts. Part 1, which is presented here, is structured as follows: In Section 2 we provide a discussion of some summary statistics of external performance in the two regions and the differences in the degree and forms of integration into the global economy. In Section 3, we discuss the internal and external conditions that have influenced the development policy orientation of the two regions in relation to international transactions. In Section 4 we examine, in a comparative perspective, trends in economic policies of the two regions which will influence primarily the international linkages through trade transaction. These include trade policies, policies towards foreign investment and industrial and technology policies.

Part 2 will start with Section 5. In that section we shall examine policies of the two regions, which will influence international capital transactions. Here, the policies, under our comparative evaluation, will include macroeconomic management, policies towards international capital transactions and financial policies. We shall also consider the scale and pace of economic liberalization and its relationship to integration into the global economy. In this context, we shall examine the causes and effects of financial and currency crises in the two regions and their policy implications. Section 6 concludes with an evaluation of policies towards integration into the global economy. Differentiating strategic integration from market-driven wholesale liberalization, we shall look at the opportunities and limitations of different approaches to globalisation. We shall also evaluate the role of regional and global economic organizations in facilitating strategic integration of developing economies of SSA and SE Asia into the global economy, which is conducive to sustained economic development of the two regions.

2. EXTERNAL PERFORMANCE AND THE SCOPE OF GLOBALIZATION IN THE TWO REGIONS

Over the last three decades, SSA and SE Asia have developed contrasting balance of payments profiles. While many countries in both regions have, from time to time, experienced significant deficits in their current account balances, the remarkable growth of manufacturing exports and the accompanying significant changes of export trade structure are unique to the SE Asia. For many SSA countries the profile shows that the largely negative current account balance for most of the last three decades did not witness significant growth in both exports and imports, even if imports often grew faster. Many economies of SSA are still uncomfortably heavily dependent for export earnings on a very limited number of primary commodities - unprocessed agricultural and mineral products-, vulnerable to externally determined price and volume movements. The export sector often remains an enclave, generating very limited consumption-production linkages in the economies, and failing to provide either a stable or growing source of revenues.

With an average current account balance of -3.8% of GDP for the period 1990-96 for SSA, the need for external flows remains significant. While SE Asia has been able to attract large amounts of private capital flows to finance resource gaps, SSA has failed to do the same, creating significant gaps that have had to be filled with official aid.

While SSA’s exports have hardly grown, declining terms of trade and various external shocks continue to make countries vulnerable. In addition to the undesirable vulnerability to commodity price shocks from a narrow export base, the primary commodity export sector has generally failed to generate an impetus to growth and dynamic transformation of the economies in SSA. The SSA countries have continued to depend largely on OECD countries for the imports of both consumer items and capital goods. Lately, they have turned to South East Asian countries for the importation of a number of consumer items. Most SSA countries are oil-importers, in addition to basic machinery and equipment.

2.1 Summary Statistics on External Performance

We look in this section, first at some summary statistics on trade performance in terms of competitiveness and structural changes in trade and then look at capital transactions and then the external debt profile of the two regions, as well as aid flows and capital flight.

Trade Performance

The average annual growth of exports over the three decades (1965-1996) for selected countries of the two regions is shown in Figure 2. However, the divergence in export performance between the two regions has become most pronounced for the period, 1980-95, during which the role of rapid export growth in the industrialization of SE Asia is widely acknowledged (Harrold et.al. 1996). While the export of goods and services grew by only 1.9% in 1980-90 and by 2.5% in 1990-95 for SSA, this grew by 8.8% in the earlier period and by 13.5% in the latter period for SE Asia. The figures for SSA show a significant drop from the figures for the 1960s when they grew by an average of 6% per annum. The average annual drop of 0.7% per year for SSA has been remarkable, particularly when placed against the performance of SE Asia.

A number of the SE Asian economies managed to move from being primary export producers in the 1960s and 1970s to become major exporters of manufactured goods. Indonesia, Malaysia and Thailand raised the share of manufactured exports from less than 6% in 1965 to 41%, 61% and 77% respectively in 1992. For the period of 1980-1995 these three economies sustained the average growth rate of manufacturing exports in an impressive range of 9 -13 % p.a.(Table 2). In contrast, the share of manufactured exports for SSA countries hardly changed-- 7% in 1965 and 8% in 1990.

Table 2: ASEAN Industrialisation in Comparative Perspective

Country	Manufacturing value added (MVA), US millions		Manufacturing Annual growth rate(%)		MVA as % of GDP		Manufacturing export as % of Total exports		Resource Gap
	1980	1994	1980- 1990	1990- 1995	1980	1995	1980	1993	1981- 1990	1991- 1995
Indonesia	10,133	41,186	12.6	11.2	13	24	2	53	1.7	1.2
Malaysia	5,054	22,387	8.9	13.2	21	33	19	65	2.6	-1.3
Philippines	8,354	14,917	0.2	1.8	26	23	37	76	0.5	-7.4
Singapore	3,415	18,119	6.6	8.3	29	27	50	80	1.7	13.3
Thailand	6,960	40,791	9.5	11.6	22	29	28	73	-2.9	-5.3

What is indeed remarkable about the poor external performance of SSA economies is the fact that aside from being unable to match SE Asia in the area of manufactured exports, they also lost ground with the export of primary commodities, as SSA’s competitiveness in world markets decreased. The export of traditional export commodities such as cocoa, coffee. rubber, spices, tin and tropical vegetable oils declined throughout the 1970s and 1980s. This happened at the same time as Malaysia, Indonesia and Thailand raised their shares in the export markets for the same items. While the export of primary commodities has declined in value for many SSA countries, they continue to dominate their external trade, accounting for 83% of all exports in 1970 and 76% in 1992. (See Table 3). Consequently, since the rate of growth in trade for manufacturing goods and services was much faster than that for primary commodities (twice for mining products and four times for agricultural products), Africa’s overall share in world exports fell from 2.4 % in 1970 to 1 % in 1992.

Undoubtedly, one of the critical factors responsible for the unchanging structure of SSA trade patterns has been the lack of openness in economic policies pursued over a much longer time span. SSA did not invest in enhancing export performance in the 1960s and 70s when many countries followed inward-looking import-substitution policies. By not investing in infrastructure to facilitate exports and by not developing appropriate export-enhancing policies, the competitiveness of the marginal SSA exports became completely eroded by the early 1980s when various countries began to undertake economic reform programmes.

Table 3: Structure of Merchandise Exports

Country	Merchandise Exports $ Millions 1980 1995		Fuels, Minerals and Metals % of Total 1980 1993		Other primary Commodities % of Total 1980 1993		Machinery and Transport Equipment % of Total 1980 1993		Other Manufactures % of Total 1980 1993		Textile Fibres, textiles and Clothing % of Total 1980 1993
Cote d’Ivoire	3,130	3,939	--	15	--	68	--	2	--	15	--	--
Ghana	1,260	1,227	17	25	82	52	--	0	1	23	0	--
Indonesia	21,900	45,417	76	32	22	15	1	5	2	48	1	17
Kenya	1,250	1,878	36	16	52	66	1	2	12	17	3	3
Korea	17,500	125,058	1	3	9	4	20	43	70	51	30	19
Malaysia	13,000	74,037	35	14	46	21	12	41	8	24	3	6
Nigeria	26,000	11,670	97	94	2	4	0	0	0	2	--	--
Senegal	477	340	39	25	46	54	3	2	12	19	3	4
South Africa	25,500	27,860	33	16	28	11	4	8	36	66	4	3
Thailand	6,510	56,549	14	2	58	26	6	28	22	45	10	15
Uganda	345	461	1	--	97	100	3	1	0	--	2	--
Zimbabwe	1,415	1,885	23	16	39	48	2	3	36	34	1	11

Source: World Bank, 1997: World Development Indicators.

On the other hand, as Table 4 clearly shows, the rapid expansion of merchandise exports has allowed East Asian countries to increase their importing capacity. By selectively allowing in foreign products, they above all encouraged the introduction of new technologies, regarded as essential for supporting the exports drive. In contrast, despite the diminishing import capacity of SSA countries, their import dependence of industrial production for spare parts, equipment and raw materials remains high while the level of food self-sufficiency is alarmingly low.

Table 4: East Asian Growth in Merchandise Trade, 1980-93

(% per year)

Capital Transactions

SSA countries have not been able to offset the large negative current account balances with significant growth in capital flows. This is despite the fact that private capital flows, particularly foreign direct investment (FDI) and portfolio investment in equity and bonds, into the developing world grew remarkably in the 1990s. FDI and portfolio investments to the developing world were raised as shares in total private flows to an average 35% and 13.5% respectively in the period 1990-96, up from 12% and 1.2% a decade earlier. The growth is generally attributed to the growing integration of markets and financial institutions, increased economic liberalization and rapid innovation in financial instruments and technologies, particularly in the areas of computing and telecommunications.

For SSA, even though there was some notable increase in private capital flows in recent years, the magnitude paled in comparison to flows into SE Asia. Net private capital flows to SSA rose from $247 million in 1990 to $9,128 million in 1995. In East Asia and the Pacific, this rose from $19,323 million to $84,137 million. In the 1980s and the early 1990s, Africa 's share of foreign direct investment to developing countries was under 1 percent of the estimated total of around $200 billion per annum (Collier 1994). Portfolio investment in SSA in 1995 amounted to $978 million worth of bonds and $4,868 of equity. For the same period, East Asia and the Pacific attracted $7,856 million of bonds and $14,714 million of equity holdings. SSA’s share of private flows to developing countries fell to 1.6%. It is interesting to note that earlier in 1980, SSA was receiving more private capital than the SE Asian countries.

External Debt Profile

Since the early 1980s, high debt stocks and high interest rates have combined with increasingly adverse terms of trade to make debt service unmanageable for SSA, which had ensued rapid build-up of Africa’s debt overhang. Despite the repeated debt rescheduling facilities, the total external debt of SSA rose by 169% from $84,119 million in 1980 to $226,483 million in 1995. That of East Asia and the Pacific went up faster by 526% from $64,600 million to $404,457 million for the same period. In 1995, as much as 77.5% of the SSA debt and 79.7% of SE Asian debt was long-term debt. Further, while 74% of the SSA debt was public, only 65% of the debt of East Asia and the Pacific was public in 1995.

One interesting difference in the debt profiles of the two regions is that in the 1990s, the private sector holdings of external debt increased considerably in many East Asian countries, which precipitated the recent financial crises, as discussed below. Moreover, quite a large part of the new debt of the mid-1990s was short-term private borrowing, particularly in Korea, Thailand and Indonesia. By the end of 1996, the three countries had $68 billion, $46 billion and $34 billion respectively of short-term debt (Radelet and Sachs 1998). In these three countries, the ratio of short-term debt to foreign exchange reserves began to exceed one after 1994, which is a sign of vulnerability. This should have signaled a warning for the subsequent currency and financial crises. In 1995, the share of short-term debt in total external debt rose to 26 %, 27% and 48 % for Indonesia, Malaysia and Thailand respectively (Nidhiprabha 1997)

While SSA debt was smaller in magnitude and grew far slower in the last decade than that of SE Asia, difficult debt management in SSA was reflected in a higher debt burden. The present value of debt as a proportion of the exports of goods and services exceeded 200% for most SSA countries between 1993-95. For Malaysia this was only 33.6% in 1995 and for Thailand 77.6%. Although the debt service ratios did not vary much across the regions on the whole, the faster growing economies of SE Asia were for some time better able to sustain external debt with growing earnings from exports than the SSA economies. The sustainability of most of SSA debt has long been one of critical agenda for the international community and still remains questionable. Over the last 15 years, most of SSA countries have continuously had to deal with intractable external debt issues in one way or another. In contrast, most of the SE Asian economies had successfully graduated from the debt problem in the mid 1980s and enjoyed for a decade or so a sharply ascending rating in international capital markets before plunging into a major external debt crisis with the sharp fall in their creditworthiness in 1997.

Aid Flows

Having benefited very little from the growth of private capital flows to the developing world in general in the 1990s, Africa has continuously had to use official development assistance to make up for the shortfall in resource flows. This means that SSA is on a per capita basis ($31), the largest recipient of ODA among the developing regions of the world. In real terms, net ODA for SSA from all donors doubled from $7,622 million in 1980 to $15,505 million in 1995. Net ODA to SSA amounted to over 6% of GDP by 1995. If South Africa and Nigeria are excluded, net ODA amounted to 13.2% of GDP in 1995 for SSA. ODA amounted to less than 1% of GDP for East Asia and Pacific, and only 1.9 % for South Asia. While aid to SSA was increasing in the 1980s, it was understandably shrinking in the high-performing SE Asian economies. Aid per capita for Malaysia was reduced from $26 in 1980 to $3 in 1994, one of the starkest reductions in the whole period. The Republic of Korea became a net donor instead of a recipient in the same period.

More than a half of net ODA to SSA came from the DAC donors, while multilateral donors provided a little under a half, with the small remainder coming from non-DAC donors. It is interesting that in the 1990s, Japan has emerged as one of the leading bilateral donors to Africa, having taken over that role from the traditional colonial powers in many countries. This has occurred at a time when Japan has cut back extensively on its aid to a number of SE Asian countries, arguing that they successfully graduated from a status of official recipient and hence many no longer require Japanese aid.

Aid to SSA includes balance of payments support, which tends to dominate aid in many countries, free standing technical co-operation, investment-related technical co-operation, investment project assistance, food aid and emergency relief assistance. The fact that many SSA countries have to seek frequently BOP assistance is a clear indicator of the precarious nature of their participation in the global economy. In Ghana, for example, ODA disbursements have shown a higher component of investment project assistance and balance of payments support since 1988. Investment project assistance grew rapidly after 1991 to become the main focus of ODA. It rose from 15% of gross investments in 1988 to about 30% in 1993 when its share in total ODA was over 50%. This happened at the same time as Japanese aid to Ghana became the largest component of ODA. This was because Japanese aid places greater interest in the development of projects with significant infrastructural content as well as those with considerable commercial orientation.

Capital Flight

Capital flight refers to large private capital outflows from developing countries. It is seen as a problem inasmuch as the outflows present major macroeconomic problems for those countries. Noting that there are several methods and concepts for measuring these flows and stocks, Claessens and Naude (1993) have carried out estimates of capital flight for various countries that suggest that capital flight was in the 1980s and early 1990s indeed more of a problem for some SSA countries than it was for SE Asia. Using the World Bank’s residual measure, for the period 1981-91, Nigeria was the seventh largest source of flight capital in the world, with an average annual flow of over $2800 million. Indonesia was the only SE Asian economy that was ranked in the top-ten sources of flight capital, with an outflow averaging $1500 million annually for the period 1981-91. For SSA, the stock of capital flight at the end of 1991 represented more than 85% of the region’s GDP. The situation was worse only in the Middle Eastern and North African region, with the region’s capital flight stock equivalent to 118% of 1991 GDP. SE Asia had a capital flight of only 15% of 1991 GDP, which was the least in the developing world. Collier and Gunning (1997) reckon that African wealth owners have chosen to locate 37 % of their portfolio outside Africa. This share is compared to 29 % for Middle East, 17 % for Latin America, 4 % for South Asia, and 3 % for East Asia. For individual SSA countries, we note that Gabon, Nigeria and Uganda were included in the top-ten countries for the ratio of capital flight stock to GDP in 1991. Gabon had a stock of capital flight that was almost triple its 1991 GDP. Nigeria and Uganda had the equivalent of about 150% and 140% respectively of their 1991 GDP flowing out. Other major sources of capital flight from SSA in the 1990s have been Zambia and Sudan.

Ibi Ajayi (1992) has indicated that trade faking is an important vehicle for capital flight in Nigeria. For the period 1970-89, he suggests that "a significant amount of under-invoicing of exports and over-invoicing of imports took place" (p.59). Exports were under-invoiced to the tune of $8.2 billion while imports were over-invoiced by up to $5.96 billion. Most of this was related to Nigeria’s oil trade. He concludes from his econometric work that domestic macroeconomic policy errors were responsible for the capital flight. These included high inflation, exchange rate misalignment, fiscal deficit and the lack of opportunities for profitable investment in the domestic economy.

Chang and Cumby (1991) suggest that, observing a similar scale of capital flight for many SSA and Latin American countries during the debt crisis in the 1980s, " there are often two-way capital flows, with the private sector increasing its external assets at the same time that the public sector is increasing its external liabilities" (1991, p.162).

2.2 Forms of Integration into the Global Economy

In the past few decades, globalization has gathered pace as economic links have widened and intensified through the multiple channels of trade, finance, investment and technology and migration across nation states and regional trade blocs. Undoubtedly, the lowering of tariffs worldwide, after several years of negotiation under the aegis of

multilateral trading arrangements, has accelerated the growth of world trade. A rapid increase of cross-border private capital flows followed this trend not only for financing merchandise trade but also in the quest for higher investment returns and for the diversification of risks. The fast advancement of technology for production, transportation and communication has well underpinned this on-going process of globalisation of trade and finance.

In particular, globalisation of the last decade has taken place against a backdrop of increasingly liberal regimes governing trade and financial transactions in the developing economies after the debt crisis and the subsequent adoption of Structural Adjustment Programmes. Thus, recent literature on globalization (World Bank 1994) stress the fact that it is those developing countries which adopted outward oriented policies that have benefited most from globalization. At the same time, many developing economies are increasingly exposed to various external forces, which have been shaping the pace, intensity and forms of globalisation. Since the limited opening up of most of SSA economies took place only in the last decade or so, they have only just begun to experience the effects of globalisation with the benefit of drawing on the lessons from other developing regions. In this section we examine general trends in globalization for SSA and SE Asia.

Globalization through Growing Trade Links

The world has globalized the market for goods and services in several ways. The ratio of world trade to GDP has doubled since the 1960s. With this expanding international trade, the ratio of merchandise exports to GDP rose from 11% to 18% while the share of primary products in total world trade was halved and that of manufactures rose. Among manufactured goods, there has been a decisive shift towards trade in intermediate goods and a major growth in intra-industry trade. About 20% of the imports of many growing economies are for parts and components. It is estimated that close to a half of the world trade in manufactures passes through multinational corporations. The trade in services has grown even faster as commercial service exports accounted for about 20% of world trade in 1996. It is expected that the internationalization of these services will continue.

While these developments have taken place, the share of SSA in world trade has fallen from over 3% in the 1960s to less than 2% currently. Taking out South Africa, this share is only 1.2%. As we discussed earlier, also there has been very little diversification. It is estimated that for SSA the erosion of the world trade share between 1970 and 1993 has meant a loss of $68 billion or 21% of GDP (World Bank 1998). The poor integration of SSA economies into the global economy is reflected in Table 5 below where we compare a number of SSA and SE Asian economies. In Korea, Thailand and Malaysia, the various indicators of trade integration suggest greater integration as these grew much faster than in any SSA country. Trade as a percentage of GDP was as high as 70.2% in Malaysia in 1996 and only 21.5% and 20.7% in Nigeria and South Africa respectively, two of SSA’s largest economies.

As Table 5 indicates, the growth in real trade as a percentage of GDP was fastest in Malaysia and Thailand. Only Kenya recorded a high growth rate among the SSA countries. For SSA, real trade as a share of GDP declined by an average 0.35 percentage points annually between 1980 and 1993 while it went up by 1.4 points for East Asia and the Pacific.

While observing that trade in SE Asia has grown much faster than in SSA in the last decade, it is also important to emphasize, particularly within the context of the recent Asian crisis that export growth in that region began to slow down in the mid-1990s. Except in the Philippines, export growth dropped sharply in 1996. The worst case was in Thailand where the nominal dollar value of exports actually fell. This has been attributed by Radelet and Sachs (1998) to overvaluation of exchange rates, the appreciation of the Japanese yen against the dollar after 1994, the competitive effects of Mexico’s participation in NAFTA and the peso devaluation, and the world-wide glut in semi-

conductor production. It is important to emphasize the point, however, that the basic infrastructure for expanding output still exists in SE Asia.

Table 5: Integration with the global economy
		Trade				Trade				Growth		Mean		Gross private				Gross
						in goods				in real		tariff		capital flows				foreign direct
										trade less								investment
										growth in
										real GDP
		% of				% of				percentage		All products		% of				% of
		PPP GDP				goods GDP				points		%		PPP GDP				PPP GDP
		1986		1996		1986		1996		1986-96		1990-96 /a		1986		1996		1986		1996
Côte d'Ivoire		36.0		32.0		118.5		151.6		0.7		4.8		4.9		3.4		0.5		0.1
Ghana		11.0		15.3		44.6		126.6		2.4		..		1.9		2.4		0.0		0.4
Indonesia		10.7		13.6		55.0		69.7		1.3		13.2		2.0		2.1		0.1		0.8
Kenya		16.8		17.9		67.1		115.2		5.5		..		2.9		2.5		0.2		0.0
Malaysia		33.6		70.2		163.5		269.0		7.8		9.1		2.8		4.6		0.7		2.0
Nigeria		17.2		21.5		65.0		98.6		-2.0		..		11.2		12.4		0.4		1.4
Senegal		22.6		16.1		108.6		98.9		-0.6		..		7.7		4.5		0.3		0.4
South Africa		17.4		20.7		93.4		105.4		3.8		8.8	d	2.2		3.5		0.1		0.1
Thailand		14.7		31.3		85.8		138.2		6.9		..		1.6		5.0		0.2		0.8
Uganda		10.1		6.3		28.9		32.6		-0.2		..		6.0		1.8		0.0		0.6
Zimbabwe		13.8		19.8		76.1		139.1		3.6		24.3		2.0		3.8		0.1		0.2
Korea		33.6		46.7		115.0		118.0		4.5		11.3		3.5		11.1		0.8		1.1

Source: World Bank 1998, World Development Indicators.

Changing Tariff Structures

A number of multilateral trade arrangements that emerged in the last three decades had the goal of encouraging and assisting nations to bring down trade barriers. Industrial economies were encouraged to reduce tariffs and open up their markets for exports from developing nations through a general system of preferences (GSP) and a number of other privileges under the special and differential (S&D) status. However, as a rule, SSA countries played rather passive roles in most of the negotiations leading to such agreements (Oyejide 1993). This is attributed to the fact that "African countries have largely subsumed their own interests in multilateral trade negotiations under those of the global (G-77) coalition of developing countries" (Oyejide 1993, p.428). That approach, it is argued, led to SSA and other developing nations arguing for the privileges that went with special, differential status. But those benefits are observed to have accrued largely to the more advanced of the developing nations (Brown 1986).

As a consequence, for the Uruguay Round, SSA nations appeared reluctant to be bunched together with other developing nations, particularly the SE Asian economies in the negotiation of privileges. While generally expressing a desire to liberalize trade, they still sought a special status, even if this was expressed in a confusing manner, with significant variations among countries. The end result has been that trade regimes vary extensively across SSA and the degree of openness is lower than in other regions. Subsequently, "at present, despite considerable reductions in trade barriers over the past decade, most African countries impose fairly high barriers through tariffs and export taxes or through managed exchange rate arrangements" (Oyejide et al. 1997, p.16). Tariff levels in SSA are some of the highest in world trade. Even though there has been significant rationalization of tariffs and the number of tariff categories, nominal average tariffs have not declined much in SSA, averaging 40% in the 1990s, which is not much different from what they were in the 1980s. In South Asia, these average 30%. Whereas the mean tariff on all products was 24.3% in Zimbabwe for 1990-96, it was only 9.1% in Malaysia, 13.2% in Indonesia and 11.3% in the Republic of Korea. Cote d’Ivoire has one of the lowest in SSA at 4.8%.

It is suggested in the Africa Competitiveness Report (1998) that import tariffs and other restrictions are more likely to provide negative effective protection and raise costs to firms in SSA than in other regions, since they must buy a high share of inputs from abroad. Compared to a success story emerging from SE Asia, duty drawback systems are known to function poorly in many SSA countries because customs administrations are inefficient.

Even though many SSA governments have pledged to work towards the reduction of tariffs unilaterally as they pursue reforms, the pace continues to be slow and there does not appear to be much prospect in sight for faster action. A number of regional preferential arrangements suffered from this condition. In what used to be the PTA in southern Africa, it was expected to achieve a trade liberalization programme of reducing tariffs by September 1992, after having reduced initial tariffs by 10%-70% and planning to reduce these further by 25% every two years. This was not implemented. The UEMOA has committed to abolishing internal tariffs and to a simplified common external tariff with lower rates by the year 2000. A major obstacle to unilateral trade liberalization is the likely loss of tax revenue in the short run, which makes such a move appear tantamount to shooting oneself in the foot. In a number of countries, trade taxes provide more than 30% of fiscal revenue. Such revenues will remain crucial so long as the economy remains small and undiversified and they are unable to undertake generalized tax reforms.

Globalization through the Flow of Private Capital

We noted earlier in section 2.1 the significant growth in the flow of private capital to SE Asia in the last decade. Table 5 shows that Malaysia, Thailand and Korea experienced, as a percentage of PPP GDP, the most significant growth in private capital flows between 1986 and 1996. For Malaysia, Korea, Thailand, Philippines and Indonesia, capital inflows increased from an average of 1.4% of GDP between 1986-90 to 6.7% between 1990-96. As shown in Table 6, in Thailand inflows averaged 13% of GDP in 1995. This consisted largely of borrowing by banks and private financial institutions. Banks borrowed as much as $2,898 million in 1995, up from $1,692 million in 1990. In Indonesia, while bank borrowing actually dropped dramatically between 1990-95, the growth of portfolio investments was significant as investment in equities shot up from $312 million in 1990 to $4,873 million in 1995. The influence of the private sector in attracting these flows must be emphasized. Malaysian inflows averaged 9% of GDP, and jumped to 15% in 1992 and 1993. Most of this was FDI, however. It attracted the largest amount of FDI among the SE Asian economies. While not shown in Table 6, we may note that China was the largest recipient of foreign direct investment (FDI) flows in 1995, attracting as much as $35,849 million, when the entire developing world took in $95,489 million.

Table 6: Private Capital Flows

Country	Net Private Capital Flows $ millions 1990 1995		Foreign Direct Investment $ millions 1990 1995		Portfolio Investment Bonds Equity $ millions $ millions 1990 1995 1990 1995				Bank and Trade-Related Lending $ millions 1990 1995
	1990	1995	1990	1995	1990	1995	1990	1995	1990	1995
Cote d’Ivoire	57	36	48	19	-1	0	0	3	10	14
Ghana	-5	525	15	230	0	0	0	267	-20	29
Indonesia	3235	11468	1093	4348	26	2248	312	4873	1804	180
Kenya	124	-42	57	32	0	0	0	0	67	-74
Korea
Malaysia	1799	11924	2333	5800	-212	2240	293	2299	-614	1585
Nigeria	469	453	588	650	0	0	0	6	-119	-203
Senegal	42	-24	57	1	0	0	0	0	-15	-25
South Africa	--	--	-5	3	--	--	0	4571	--	--
Thailand	4498	9143	2444	2068	-87	2023	449	2154	1692	2898
Uganda	16	112	0	121	0	0	0	0	16	-10
Zimbabwe	85	99	-12	40	-30	-30	0	18	128	71

Source: World Bank 1997, World Development Indicators.

A number of factors account for the flow into SE Asia, as discussed in detail in the subsequent sections. These came from changes in both internal economic policies as well as the world capital markets. For the world capital markets, financial innovation and capital account liberalization in the industrialized countries facilitated a greater flow of funds to emerging markets all over. "New bond and equity mutual funds, new bank syndicates, increased Eurobond lending and other innovations allowed capital to flow across borders quickly and easily" (Radelet and Sachs 1998). Also low interest rates in the US and Japan made the outward movement of investments rational and attractive.

On the domestic front, the most important factor was the high economic growth achieved in the SE Asian region. This made investors confident. Further, the attempts to deregulate banking systems in various countries made it easier for banks to tap into foreign capital markets. Additionally, the pegged exchange rates of the various countries ensured that investors could easily predict returns on investments with reduced exchange rate risks.

In SSA, Nigeria is the largest recipient of FDI, but this is not diversified and mainly restricted to the extractive sector of the economy, as is the case in Ghana. Africa’s inability to attract private capital is derived from the fact that it has not been "structurally able to assimilate these large flows" (Aron 1996). From the mid-1970s, monetary and fiscal policy continued to be loose, while trade and exchange controls prevented the adjustment of the exchange rate. Unlike the situation in SE Asia, the deterioration in the terms of trade coupled with high inflation ensured that the real exchange rates appreciated rapidly, forcing significant macroeconomic instability. With the deterioration in national economic management all over SSA, aggravated balance of payments problems and fiscal deficits, the continent saw considerable capital flight instead.

Aid in the Absence of Private Capital

The recent work by Burnside and Dollar (1997) suggests that aid has a positive impact on growth only in developing countries with good fiscal, monetary and trade policies. Collier (1997) has similar comments on aid to SSA where he finds that those countries with relatively good policies have seen more ‘sustained’ growth. Some of them have also been the largest recipients in Africa, including Uganda and Ghana. They both achieved fast growth with a strong dose of structural adjustment and other reform measures, which also acted as a catalyst for attracting aid. In an evaluation of aid effectiveness in Ghana, Aryeetey (1997) suggests that the effect of aggregate aid on growth after putting in place a structural adjustment programme was significant, even if this was of a short-term nature. While showing a high "correlation" between aid flows and short-term growth, he concludes that aid was useful for the reform process but did not result in sustainable growth and long-term development. Many people take the view that without those substantial aid inflows, Ghanaian economic reforms could not have been pursued (Jeffries 1991). Aid facilitated considerable public investments in infrastructure and limited improvements in production and policy-making capacity.

Considering that the high-performing East Asian economies were once large recipients of ODA and combined these with acceptable polices, the argument would follow that they were better able to make use of aid received than SSA countries. Japanese aid to Malaysia in particular has been credited for significant expansion of the infrastructural and industrial base of that country. That expansion helped Malaysia to be integrated into the global economy by facilitating the expansion of manufactured exports.

Technological Improvements and Globalization

Attempts to increase and maintain international competitiveness exert constant pressure on exporters to search for new technologies as well as on governments to facilitate the process of introducing those technologies. The World Bank’s East Asian Miracle report (1994) stressed that "an important factor in East Asia’s successful productivity-based catching up was openness to foreign ideas and technology" (p.301). Governments were supposed to have encouraged improvements in technological performance by keeping a number of channels of international technology transfer open. In some countries this was achieved through FDI, as in Malaysia at certain times in the 1970s and 80s, for example, while Japan and Korea had selective approaches to FDI but pursued aggresively transfer of most advanced technology through purchasing technology licenses and importing equipment often in the form of patent rights, detailed drawings, operating instructions etc. (Kim and Ma 1996) "This selectively permissive attitude toward the acquisition of knowledge of international best practice was reflection of the view that the world market for goods and services provided an opportunity not a threat" (World Bank 1994, p.302).

In Malaysia, it has been suggested that flexibility in trade policy after the recession of 1985-86 had a dramatic effect on foreign investment. The new investments were directed toward electrical and electronic products, chemical products, rubber products, basic metal products and petroleum. "In 1985, the thirteen American semi-conductor manufacturers in Malaysia spent more than $100 million training Malaysian workers, mostly engineers and technicians. Local value added has been rising as established firms upgrade their technology to keep up with world markets, and firms have added testing of semiconductors to their assembly activities" (World Bank 1994, p.302).

The attitude of the East Asian economies is often contrasted with other developing regions that had a less open regime towards foreign technologies and ideas. "Suspicion of external trade was often reflected in a mistrust of DFI and licensing. Even where DFI was permitted in inward-oriented economies, it was not viewed as providing access to international best practice but rather as a source of additional domestic production" (World Bank 1994, p.303). In many SSA countries, multinational corporations were treated with a great deal of suspicion throughout the 1970s and 1980s. They were regarded as being exploitative, seeking cheap labour to produce goods that will only be sold in Europe and America, with all or most of the benefits accruing to those companies. Quite a bit of the antipathy towards foreign investment was ideological as countries fought to expunge themselves of the memories of colonialism. Indeed Kwame Nkrumah in the 1960s labelled the entry of multi-national firms into African economies as "neo-colonialism" whereby the new firms operated as surrogates of colonial powers in maintaining their domination over the economies of Africa (Nkrumah 1967).

The consequence of not putting in place adequate measures to attract new technologies is that SSA lags far behind the rest of the world in communications and knowledge management. There are 0.4 telephone lines per 100 people in SSA, which is only 10% of what is available in East Asia. This has made it difficult for SSA to hook up effectively to the information super-highway and take advantage of the information available for production and exchanges. The inability to modernise production processes is also related to the difficulty in improving human conditions in SSA. While literacy rates remain low, SSA is unable to hold the relatively few highly skilled persons it produces, losing them to the industrialised world. Unlike the situation in SE Asia where the brain drain has been reversed, SSA has not been able to do this and depends extensively on foreign technical assistance. It is estimated that about 20,000 highly qualified African are lost annually to the western world. Over 100,000 expatriates who cost $4 billion each year have filled their places.

3. INTERNAL CONDITIONS AND EXTERNAL ENVIRONMENTS

To a large extent, both SSA and SE Asia inherited previously colonized territories. The way they responded to this common factor depended a great deal on a number of domestic and external pressures that we explore here. Thus, the fact that SSA countries largely chose to limit their interaction with the world economy after independence in the 1960s was a consequence of the general desire to reduce what was regarded to be its dependence on the colonial powers and other powerful external economic forces. The strong belief that development could only be achieved through reduced dependence informed economic policy-making. In that situation, the apparently ‘logical’ development strategy was to use the new apparatus of government to open up access to resources to indigenous people while shutting out what were perceived to be the agents of the ex-colonial powers. The new breed of radical historians and political analysts provided the intellectual leadership that guided the realization of these ideals. They influenced politics and politicians using mainly ideology. It was easy to blame the mass poverty and stark under-development of SSA countries on deliberate policies of the colonial authorities to deprive indigenous people of access to essential resources.

The "search" for a strategy coincided with the polarization of the world between the super-powers and the struggle between them for the domination of the world. Each power bloc tried to assert its influence over the developing world in a bid to stop its adversary from reaching those areas. Aid became the tool for buying African support, and often-inappropriate aid, such as military equipment. In the midst of this, SSA leaders failed to make the necessary domestic policy adjustments in order to compete with the rest of the world. But the super-powers accommodated this tendency with selective aid that basically allowed weak governments to hold on to power without providing the basis for growth and development.

In addition to the internal and some of the external influences above, the broad development thrust of SE Asia was influenced by a number of other quite different factors, the most significant one being its proximity to Japan and Japan’s attitude towards the region. In this regard, it will be overly simplistic to look at states and policies in the two regions as being either developmental or predatory. The extent to which states became developmental or predatory depended on the degree of success or failure with their well-intentioned development goals and the pressures they came under.

3.1 Development Strategy, Internal and External Economic and Political Conditions in SSA

The typical African State has gone through a number of transitions with economic policy-making since the 1960s. Aron (1997) has described it as having evolved from a small but interventionist state at independence into the large socialist state from the mid-1950s to the mid-1970s. It then became the unsustainable state in the rest of the 1970s suffering from external shocks that it was not equipped to deal with. In the 1980s, with structural adjustment, the state diminished in size, as reforms required fiscal prudence and the Bretton Woods institutions saw to this. In the 1990s the state has become very fragile, having failed to achieve a number of the goals of reforms and unable to deliver various services and resources to its people, leading to a loss of credibility and growing frustration.

Why did the small state at independence find it necessary to expand rapidly and how did this affect participation in world trade? Falola (1997) suggests that "the struggle for independence was at the same time a struggle for economic development. New leaders had to be judged by their performance in liberating people from poverty" (p.12). There were two sets of ideas that were offered to new governments on how to achieve this. On the one hand, development economics was only just beginning to take note of developments in SSA. Several economists saw the challenge that SSA raised and were anxious to rise to the task. "Economists had a field day, using Africa as the laboratory to test theories and models of development. These theories are the fore-runners of the modern-day, market-based, liberal-oriented reforms of structural adjustment programmes" (Falola 1997). On the other hand there were the ideologues that saw rapid industrialization in an inward manner as the way out.

Agricultural Transformation and Development

Based on the fact that SSA was considered to be a region that was highly endowed with natural resources, (mainly agricultural), many economists were for the idea of African economies investing in developing their agriculture to make it modern and competitive on the world market as the first stage in development. As part of the new development process, they were also expected to diversify the range of agricultural products. Processing and diversification into manufactures were expected to come at a later stage. It is important to emphasize the point that for most traded primary commodities, such as cocoa, coffee, rubber, sisal, tobacco, gold, copper, bauxite, manganese, etc., SSA produced a major part of the total world output. Its comparative advantage in the production of these was beyond doubt. What remained crucial was how to add value to these in the short-medium term without losing the comparative advantage in production. That process called for considerable human resources that had not been developed in the colonial era and major investments in technology. People like Arthur Lewis envisaged that rising agricultural incomes would reduce the mass rural poverty. Lewis advised on the need to build human capital through appropriate educational investments as well as other social commitments of the state in order achieve the agricultural transformation required. It would appear that at time many people were indifferent to the question of the ownership of the capital to be used in modernizing agriculture.

Unfortunately, the pre-independence ‘hype’ about new jobs, modern amenities and social advancement for the masses made it difficult to adopt what was seen as the long-drawn process of going gradually through improved agricultural production. While accepting the need for enlarged social expenditures in order to make up for what colonial governments did not deliver, many political leaders saw the process of first developing agriculture as too slow since they had become accustomed to low and fluctuating international prices for primary commodities and they would still have to import expensive consumer goods from the former colonial powers. They subsequently only paid token attention to agriculture. For them, since there "was no need to re-invent the wheel", it made more sense to go into import-substitution production.

Reducing Dependency through Import-Substitution

Import-substitution production was perceived to reduce the dependence on outside economies. This was important in creating amongst the broad masses of various countries a feeling of being on the path to self-sufficiency and gaining the respect of the comity of nations. In addition, any suggestions for gradual upliftment of agriculture for exports was "severely attacked by the Marxists who argued that international trade, dependency and capitalism were the primary constraints to development" (Falola 1997).

In many countries, import-substitution was undertaken with state ownership of the capital. This was essential since dependence on foreign capital had to be avoided, except in cases where this was not feasible. Even in those countries that were classified as capitalist, including Kenya, Nigeria and Cote d’Ivoire, the state’s participation in production was not marginal. In many instances the state went into partnership with the foreign companies that previously owned the enterprises, as did the Nigerian government with banks. In Ghana, the state nationalized all major foreign production and distribution enterprises and set up even more. The state found itself involved in mining, manufacturing, services, and sometimes in agriculture. It financed these by running down reserves, borrowing from private and public sources abroad and with aid by way of technical assistance. The state’s investment in agriculture in most countries was minimal as it devoted more resources to manufacturing. The irony of the import-substitution approach was that many of the firms established in many countries were highly dependent on imported fixed and variable inputs, which ensured that the import bill did not shrink. But since the firms were not intended to produce for exports, they could not generate adequate foreign exchange to finance the importation of inputs, hence leading to significant difficulties with the operation of plants and major balance of payments problems. The growth in exports that SSA recorded at the time came from the old investments in agriculture.

Economic Developments after 1970 and Reforms

As we noted earlier, the state has been weakened in most of SSA. It is today quite fragile, not trusted and lacking in credibility in many places. Its fragility began in the 1970s when it failed to respond adequately to oil price shocks. Despite the commodity price rises that took place in the latter part of the 1970s, the export earnings of most of SSA contracted in real terms as the terms of trade turned against agricultural exporting countries. These affected foreign exchange earnings and fiscal revenue. With this came the growing inability of the state to finance its investments as well as other public expenditures. While public expenditure was generally curtailed, recurrent expenditures on defence, public debt service and pensions grew strongly. The subsidies paid to SOEs continued since employment levels had to be maintained. The difficulty in meeting these obligations undermined the state’s authority extensively as economic growth slowed down.

The per capita GDP in SSA by the beginning of the 1980s of under $450 was less than the figure of $500 for the mid-1970s. Even though net transfers to the region had been higher than for other regions, SSA had to borrow more to feed the over-bloated public sector budgets. Increased borrowing to meet the continuing effects of oil price shocks and deteriorating terms of trade following commodity price dips ensured that short-term private lending to the region grew, creating a significant debt problem. The problem with a large part of that borrowing is that it was not efficiently utilized.

It is ironical that in the face of obvious problems with the external sectors, governments refused to adjust exchange rates through devaluation. [We will show later why governments remained averse to devaluation]. As currencies throughout SSA became overvalued, they began to hurt exports directly. By the beginning of the 1980s, parallel markets were thriving greatly in the SSA environment. The parallel premia in various countries were far higher than in any other region. The premium was 5.78 in Ghana in 1980. In Uganda it was 1,020.63. As commodity exports hurt with the overvalued currencies, the ability of countries to import suffered immensely, often leading to severe shortages of basic consumer items and the lack of inputs for the SOEs. The quantity controls on international trade were tightened in order to avoid devaluation.

An interesting point about devaluation in the 1970s and 1980s in SSA was the fact that it became a highly-politically sensitive issue. Governments were overthrown for attempting to devalue currencies, as was the case in Ghana in 1972. So long as inflation was not hyper, governments were able to use quantitative controls to insulate themselves from the domestic and international pressures on the currency. This often meant they had to administer at great expense domestic prices also. Some governments were prepared to do this so long as it helped to contain the agitation of likely opponents.

Not wanting to adjust exchange rates, SSA countries effectively limited their participation in world trade. The erection of various tariff and non-tariff barriers were simply a means to take away the allocation of foreign exchange and other productive resources away from the market and place it in the hands of the eroding state.

Structural adjustment programmes sought to correct the imbalance in most economies and put them back on a path to growth and development. Despite the fact that most countries have undertaken reforms in one form or another, many countries have had difficulty doing this on as comprehensive a scale as perhaps in Ghana and Uganda. Exchange rate re-alignment has been undertaken with a lot of support from the Bretton Woods institutions in many places. Fiscal deficits have come down by an average of 4% of GDP in many countries since the late 1980s. Restrictions on currency convertibility have been relaxed in a number of countries and the share of foreign exchange allocated to the private sector has grown. To some extent, controls on markets and trade have been relaxed. Governments have sought to improve their capacity to manage their economies with reformed public sectors.

The World Bank’s evaluation of the outcome of the reform effort indicated that no country had achieved a good macro-economic framework by 1994. The fiscal stance remained fragile despite the improvements recorded. On the monetary situation, the thin markets in most countries made indirect monetary management difficult, such that tight monetary policies often meant very limited availability of credit to the private sector. While major improvements had been made in the price and trade reforms, a number of reversals had occurred in some countries, notably Nigeria.

The limited outcomes of the reforms of many countries have left the state, in some cases, even more fragile than before. Aid dependency has grown tremendously (World Bank 1998). To ensure that aid continues to flow from both bilateral and multilateral sources, governments have had to accept conditionalities that effectively have reduced further the power of the state. Public institutions that are expected to manage the reforms are generally perceived to be very weak, therefore leaving significant room for the engagement of technical assistance to oversee regular tasks of the public services. Weak governments find themselves subject to pressures to appoint persons to run economic management institutions based mainly on political considerations. In the end, while the governments simply cannot do as they wish with foreign resources coming in as aid, their own ability to generate substantial returns is limited by the inefficient utilization of human capacity. Weak governments find themselves inundated with ‘policy advice’ from several sources but lack a mechanism for sifting through the advice in order to make optimal choices. They are therefore likely to make the wrong policy choices since short-term political considerations are the main motivating factors. They have not developed mechanisms for restraining themselves in the misuse of the resources under their control. So parliaments and the legal system remain ineffective. The direction of economic policy has been left to small but politically active groups who are averse to the competitive environment. In the sub-sections following, we analyse the components of the two dimensions of internal and external factors influencing SSA’s participation in global trade and other exchanges.

Internal Economic and Political Conditions

There were a number of socio-political factors that put pressure on governments to make the choices they made. Note that by the policy choices there had developed an anti-export bias with heavier taxation of agricultural and mineral exports than was the case earlier. Also agricultural producers were forced to sell crops through marketing boards and received real prices that were only a fraction of what was available to farmers in other regions. The private sector in a number of countries felt discouraged and frustrated as the allocation of credit favoured state-owned enterprises and other rent-seekers. The allocation of dwindling foreign exchange as well as import licenses seemed to follow the same pattern. The above pattern was the result of various influences that distinct groups had on governments.

The main source of pressure on post-independence SSA governments has been urban workers. This was not too surprising as many of the early post-independence governments drew their strength from urban working populations that had greater expectations from independence. They had provided the support that was essential to resist colonial governments. For many, it was ‘pay-back’ time. The state-owned enterprises were intended to employ many of them. Restrictions on the prices of agricultural products protected their consumption. Limiting trade with the rest of the world initially did not harm them so long as controls on domestic prices could be used as a tool to cushion them and they were more or less guaranteed their jobs. They drew support from left-wing political analysts and intellectuals who suggested that the only way to reduce dependence was to sever all trade links with the colonial powers. Increasingly, their influence on ruling political parties was tightened and ideology became the main guiding principle in economic policy making.

The position of industrial entrepreneurs and traders has been quite ambiguous in a number of SSA countries. Most indigenous businessmen were simply involved as redistribution agents of foreign firms in the pre-independence days. Indeed, there is hardly any history of organized industrial production of goods beyond informal production such as that by woodworkers and blacksmiths. This is partly to do with the fact that the old colonial businesses themselves did not produce any industrial goods. There was therefore no economic structure for developing a local modern entrepreneurial class. After independence, the early governments were in no hurry to develop such a class, particularly since they could be perceived to be exploitative under the Marxist doctrine that prevailed in a number of countries. Kwame Nkrumah (1967) described them as such, calling them the bourgeois class. The traders who had always dominated urban economic activity simply became agents of nationalised foreign concerns. They retailed either imported consumer items or locally made goods from state-owned enterprises. When foreign exchange difficulties limited the importation of goods, they often became anxious, but never reacted overtly. The allocation of import licenses became a tool for dividing their ranks as those that supported the ruling parties found it easier to obtain such licenses and retail goods through other party supporters. Thus, how big they could become as traders often depended on their relations with political parties. Traders were major financiers of political parties so long as the parties helped them to obtain goods for sale.

We must note also that since the large traders, often linked to the ruling party, thrived immensely from the economic rents generated by having access to goods in short supply and the parallel markets, their incentive to transform their businesses into producing units was rather limited. They could discern the fluidity of the economic policy apparatus and therefore limit themselves to short-term concerns. There was little incentive for any commitments to long-term investments in industrial production. In any case, it was not obvious that the party machinery and urban workers would have been receptive to these.

Ethnicity is a peculiar phenomenon in African politics and economics. On the positive side, it can be a useful means for linking up people with a common cultural heritage, i.e. language and customs. On the negative side, it can be a tool for gaining access to resources that would not ordinarily be available in a competitive environment as people are made to feel obliged to assist one another. One way in which ethnicity has been used to influence SSA participation in world trade has been the extension of it into nationalism and its use to divide citizens of countries on the basis of ‘indigenes’ versus ‘outsiders’ (Randrianja 1997). In Uganda, Idi Amin was able to ostracize Asian businessmen through a number of arbitrary means, leading to a collapse of entrepreneurship and participation in economic activity. In Ghana, ethnic groups that have been known to be entrepreneurial and likely to want to participate in global trade were for years kept out of the leadership of national politics on the basis of their support for opposition groups. Similar practices in Nigeria led to a civil war that devastated the economy and limited its participation in world trade in the 1960s until oil became a money-spinner. In many countries ethnicity has led to conflicts that have made it impossible for proper economic policy planning to take place. Ethnicity has often been used by politicians to maintain themselves in power and to support faulty ideologies.

External Economic and Political Conditions

From outside the continent, SSA’s involvement in global trade has been influenced first by geo-political considerations and ideological influences, external shocks of all kinds, multilateral trade agreements and the kinds of regional groupings that countries have found themselves in.

As indicated earlier, the geo-political considerations that influenced SSA’s involvement in global trade came out of the east-west confrontation that followed the second world war and its escalation in the 1960s and 1970s. We must point out that the conflict was played out in SSA in the form of ideological conflicts that later were reflected in divisions between military and civilian regimes, a division which often led to chaos in the development of economic and social policies. In a number of instances, the colonial powers had sought to influence the types of governments that would take over from them, planting less radical regimes that were likely to want to continue with liberal policies that were favourable to the status quo that had been established in trade relations. Where this failed, as in Guinea and Ghana, the early post-independence governments were superficially strongly opposed to the colonial powers, a factor which made it relatively easy for them to form alliances with eastern bloc countries that proposed to be ‘better substitutes’ for the relationship with the ex-colonial powers. This marked the introduction of the several variants of Marxism that SSA came to be associated with two decades ago, e.g. as in Tanzania.

The more protracted the struggle for independence the greater the likelihood of its attracting the participation of western and eastern interests, as in Angola, Mozambique, Namibia. In places where radical pro-eastern forces took over from the colonial powers, it did not take long for the west to attempt to exploit social and economic tensions that emerged in new nation-states, as in Ghana and Zaire (Congo). This meant unattractive governments were often forcefully replaced by more pro-western regimes. The worst example of this was Mobutu’s Zaire. In francophone Africa, governments were likely to survive if they were strongly pro-France. The consequence was that francophone Africa’s participation in world trade was dictated by its relationship with France, which determined its exchange rate under the CFA arrangements.

The entry of the military into SSA politics marked a new dimension in the east-west confrontation in the region. Several of the military governments that emerged in the 1960s and 1970s, often with western support, devoted little attention to the development of key institutional structures for effective economic policy-making that would take into account the positions of their countries in relation to others, beyond the traditional colonial arrangements. Governments were more interested in the simplest sets of policies that helped them to keep the populations under control and strengthened their positions. The use of control regimes in the management of most SSA economies came under such military regimes. In Ghana, the military government after 1972 fixed exchange rates, interest rates, wages and salaries and the prices of several consumer goods in one of the most extensive cases of economic controls.

In effect, the outcome of the east-west confrontation was major political instability in most of SSA for long periods, which was translated into significant economic instability as the appropriate institutions for policy-making were hardly developed. In a number of cases, the ideological confrontations became entangled with the ethnic divisions that led to civil wars and other ethnic strife. The civil war in Nigeria was a classic example. The long-drawn out confrontations in Angola and Mozambique have been the results of similar divisions.

While SSA was embattled with problems of governance in the 1960s and 70s, the situation became worsened by the oil price shock of the 1970s. As indicated earlier, the oil price shocks turned the terms of trade against these agricultural commodity-exporting countries in a dramatic fashion. This generally led to a contraction of foreign exchange earnings and fiscal revenue. The situation led to a further contraction of the import-dependent SOEs that had been established and a general compression of imports.

SSA countries initially responded to the oil price shocks in one of two ways. Treating the situation as a temporary terms-of-trade shock, some borrowed from the international capital markets to support their balance of payments right from the beginning. The effect that this had on the economy often depended on how open the system was and how quickly they were able to adjust their export flows to the new foreign exchange requirements. For a larger group, however, the initial response to the shock was to run down their reserves. How well they performed depended on the quantum of reserves they held before the shock and how quickly they adjusted exports. Balassa (1982) has shown in studies of several developing countries that those countries that borrowed early and adjusted their export volumes and exchange rates appropriately were better able to deal with the shock in terms of overall impact on balance of payments. Most of the SSA countries studied did not fall into this category, however. Many began to borrow from the reserves of the petro-dollar holders first after running down their reserves, which were scanty, anyway. By the time their short-term debts became due, they had already been dragged deeper into balance of payments crisis than had been the case earlier.

In the face of poor management of external reserves, mishandling of exchange rates, dwindling export volumes and values and rapidly accumulating debt, the debt crisis marked a new development in SSA’s economic history. As we saw in section 2, the magnitude of the debts and the difficulties of their management were enormous. Governments sought rescheduling of debt as a means of gaining temporary respite from repayment problems. Arrears on debt repayment kept mounting. These difficulties prompted the private sector to cease lending to SSA countries by the beginning of the 1980s. The absence of such facilities forced many countries to withdraw even further from world trade. They simply lacked the means to sustain imports while their export capacity had diminished.

The absence of private capital in the 1980s increased the reliance on multilateral and government lending. It was the growing reliance and the growing threat of default on multilateral and government debt in many countries that prompted the Bretton Woods institutions to change the conditions of lending. IMF lending, which had been by very short-term stand-by agreements that incorporated stabilization policies and some project loans in which conditionality was targeted at project preparation and evaluation, institution-building, procurement, technical pricing and marketing issues, was restructured to provide for more medium-term programmes and adjustment lending. It was this new structure that forced governments to pay greater attention to budget deficits, exchange rate policies, trade policies, etc. under reforms in the 1980s. But when half-hearted reforms did not generate the expected supply response early enough, policy reversals became common.

Since the mid-1960s, SSA countries have shown considerable interest in regional integration. Probably the most conspicuous feature of African regional co-operation and integration efforts is the large number of units on the continent. Another important feature is the variety of forms that the regional integration arrangements have taken. The Economic Commission for Africa (ECA) has promoted three sub-regional arrangements for West Africa (ECOWAS, established in 1975), East and Southern Africa (PTA, now COMESA, established in 1981) and Central Africa (the still-under negotiation ECCAS).

The ECA's involvement in regional integration attempts came out of its interest in SSA's industrial future, as part of the International Development Strategy for the Third United Nations Development Decade (1980-1990). SSA governments intended to use the decade "for the purpose of focusing greater attention and evoking greater political commitment and financial and technical support, at the national, regional and international levels for the industrialization of Africa". Within the framework for the operationalization of the strategy, action was to be initiated at the national level, sub-regional and regional levels and at the international level. The approach for the establishment of a sub-regional industrial programme was based on the identification of priority branches and the necessary inter-sectoral structures within a sub-region. It was suggested that these might include basic sectors such as the iron and steel, metallurgical, chemical, petrochemical, mechanical and electrical engineering, capital goods, agro-related, forest products and building materials industries.

In order to implement the sub-regional plan for industrialization, the importance of trade expansion within the region was considered a priority. The ECA noted several constraints to increased intra-African trade. These included deficiencies in physical (transport and communications) and institutional (commodity exchanges, clearing houses, etc.) infrastructure, tariff and non-tariff barriers, lack of adequate information on products, relatively high prices of African manufactures and the need for competitive prices, lack of facilities for trade and export credit, inadequate marketing and distribution channels, instability of supply and payment difficulties.

Unfortunately, however, much as the ECA rightly recognized the need to attach priority attention to industrial development, the approach adopted focused rather extensively on the creation and strengthening of institutions that were expected to facilitate the operation of production agents and less on the production agents themselves. The absence of direct efforts to stimulate the private sector under an industrialization goal was not surprising considering the fact that a number of the participating governments remained, at best, ambivalent towards the private sector. It is equally not surprising that the efforts at regional integration based on preferential tariff structures were proposed in view of the suspicion that SSA governments held about "the international economic order" and its exploitative nature. In sum, regional integration efforts meant a more insular approach to development, which hardly was operationalized. SSA approach to regional integration has hardly changed since.

3.2 Development Strategies, Internal and External Conditions in Southeast Asia

Internal Socio-political and Economic Conditions in Southeast Asia- The Nature of State and State-Business Relationships

There are a number of critical differences in conditions found at the end of the Second World War between Southeast Asian economies and Northeast Asian economies, which would make comparative studies of economic performances and development records between countries in Southeast Asia and SSA more appropriate and interesting. The Southeast Asian economies were predominantly agrarian economies, endowed well with natural resources but with little experience of manufacturing during the colonial period, as in SSA. At the end of the war or at the time of independence, they did not carry out major agrarian reforms on the scale observed in Japan, Taiwan and South Korea. Consequently the agricultural sector is characterised by a peasant economy experiencing high population growth and inequalities in ownership as well as access to land and incomes, although considerable investments were made in agricultural expansion and rural development in the subsequent years and large amounts of labour were absorbed into the industrial sector as industrialisation proceeded rapidly after the 1970s.

Like SSA countries, nation-states in Southeast Asia were also created as by-products of European colonialism, with the notable exception of Thailand, which was never formally colonized. Compared to the Northeast Asian economies, they are far less homogeneous in terms of ethnicity, culture and religious heritage, which have undermined the emergence and sustenance of economic nationalism. This can be contrasted with the conditions found in Northeast Asia, where strong impulses and collective goals for catching-up were well supported by economic nationalism and the sense of unity (Nissanke and Aryeetey 1998). As Jomo et.al. (1997) argue, in the latter countries, industrial policy has been a variant instrument of economic nationalism by developmental states and nationalism, combined with their strategic geo-politics in the post-war era, has long served as a key legitimizing ideology for late industrialisation projects.

In comparison, the basis of developmental states is known to be weaker in Southeast Asia, though successive governments in the region, as a rule, had to draw support on a developmental platform. Booth (1995) notes that, while in Northeast Asia the success of the state has been due, in considerable measure, to the very active guidance provided by government agencies, in Southeast Asia successive governments have found the process of policy reform hampered by the need to appease different constituencies based on different regional, religious or ethnic groups (p.287-8). This is similar to some of the pressures that SSA governments have had to contend with. She suggests that the process through which states evolve away from the predatory model to produce an efficient, growth-promoting regime with property rights has not been completed, further giving a verdict for Indonesia, "the developmental state may in fact be simply a front for a predatory state" (p.304).

Also, it is often argued that in Southeast Asia, as in many SSA countries, a strong urge for industrialisation was slower to emerge and develop, since the countries were well endowed with natural resources. Resource rents captured by governments from exporting agricultural and mining commodities were long available to finance infrastructural development and social services and to legitimize the role of states in redistribution and "nation building". However, as the ‘Dutch Disease’ literature suggests, while it has undoubtedly supported the fiscal viability of nation-states, the availability of resource rents is also known to have given rise to conditions of soft-budget constraints leading to inefficient deployment of resources. The process of allocation and distribution of rents has also proliferated political patronage and clientelism as well as unproductive resource-based rent politics such as timber politics and land politics (Jomo and Gomez 1996). Eventually, the high volatility and sharp decline of commodity prices in the world markets since the early 1970s has shaken this sense of complacency of resource-based economies and induced a big push towards labour-intensive export-oriented industrialisation.

Against this general background, the transformation of resource-based agrarian economies to fast industrialisng economies has taken place in the region. In Indonesia, the Suharto government which consolidated itself on the basis of a developmentalist ideology and programmes, has been active and successful in rural development and agricultural extension programme in achieving rice self-sufficiency and lower fertility rates. It has also been highly praised by the Bretton Woods Institutions for its record in maintaining macroeconomic stability in the presence of large external shocks. It is well known that macroeconomic management was left to the "Berkeley Mafia", i.e. the group of the technocratic elite, who were well insulated from political pressures. However, industrialisation in Indonesia has always proceeded with strong state intervention and a large public sector.

Despite government promotion of a nationalist corporatist developmentalist ideology since the 1980s, "the overwhelming presence of the state and the power of politically influential business interests are seen to have constrained the emergence of more democratic and participatory corporatist processes" (Jomo et. al. 1997 p.19). Rather, "the military leaders allowed politically marginalised and vulnerable Chinese to run very profitable private business enterprises to their mutual advantage (Jomo et. al, 1997, p.17). Despite a series of selective economic liberalisation implemented since the mid-1980s, it is observed that the degree of state intervention in economic activities has been increased rather than reduced in the 1990s in association with a number of ambitious heavy industrialisation projects and Habibie’s highly publicised hi-tech projects.

In Thailand, governments were successively run by military-led regimes before a civilian-led government was installed in the 1990s. Under such fragile political conditions, the Thai bureaucracy, in the presence of the constitutional monarchy served the continuity of the developmental mission. Through this state machinery, private business interests have been promoted through the operations of the Board of Investment and influential business associations. Jomo et al (1997) note that while there has been little significant public antagonism to the economically powerful ethnic Chinese in Thailand, rival business interests are closely connected to politicians and generals, resulting in considerable clientelism in the political and economic decision making processes.

In Malaysia, having inherited a highly open trade-dependent economy with the relatively developed infrastructure from the British colonial administration, the government, dominated by the United Malays National Organisation, initially followed essentially laissez faire economic policies in the 1960s. However, in the 1970s it switched to more interventionist policies, actively using increased oil revenues and resource rents to create a larger public sector with emphasis on state-led heavy industrialisation. Resource rents were also deployed explicitly for interethnic redistributive purposes through the ethnically redistributive New Economic Policy. Therefore, the drive for state-led heavy industrialisation was also seen as an effort to marginalise the ethnic Chinese business community.

Thus, reviewing the state-business relations, Jomo et al (1997) note the absence of strong corporatist arrangements in Southeast Asia compared to the prevalence of the national and firm-level corporatism in Northeast Asia. More recently, notably after the economic and political crisis of the mid-1980s across the region, emphasis has shifted towards promotion of some corporatism involving private business interests. An example can be found in the establishment of the Malaysian business Council in 1991, which was viewed as one of the manifested efforts to consolidate the "Malaysia Incorporated Policy " adopted in the early 1980s. Similar efforts to promote some corporatism are found in Singapore, where the private sector is increasingly consulted and represented in various consultative institutions and on the boards of state-owned enterprises in the semblance of tri-partisan structures involving employers and the ruling party and controlled trade unions (Jomo et al 1997).

Economic liberalisation and privatisation policies implemented since the mid-1980s have served to limit some powers of the state in relation to the private sector. However, in the process, the interests of foreign business have been promoted above those of the local business community. Generally, it is assessed that local entrepreneurs have not grown strong enough to advance effectively the agenda of late industrialisation.

While the power of local business enterprises remain rather weak, it is widely believed that Overseas Chinese traders have played a crucial role in generating dynamism in Southeast Asia (Jomo et al 1997). They have developed extensive business networks and accumulated substantial capital, heavily relying on informal credit and contracts based on personal trust and kinship, rooted in culture and community sanction. Having networked well among themselves, they have managed to reduce transaction and information and other costs as well as risks involved in cross-border economic transactions. At the same time, in relation to nationalist economic projects, their capital may be foot-loose, more integrated into the international circuit of Overseas Chinese or foreign capital. Since their business activities do not receive definite protection from the laws and regulations of nation-states, the pattern of their investment is often governed by "short-termism" stemming from insecurity against the general background of anti-Chinese sentiments. They tend to invest more either in financial markets, real estate and other speculative, fast and high-yielding activities or in import-substituting manufacturing that receive state protection with certainty. As witnessed in recent months, adverse economic and political circumstances could lead to large -scale flight of ethnic Overseas Chinese capital.

Contiguous Factors and External Conditions-- Regional Dynamics and Regional Contagion Effects

There is no doubt that one of the important external sources of simultaneous growth and structural transformation of the Southeast Asian economies is found in the pan-East -Asian `contiguous effects’. The Southeast Asian economies in recent decades have greatly benefited from dynamism associated with regional industrial restructuring. Industrial relocation within the East Asian region has definitely contributed a great deal to the export-oriented manufacturing boom of these economies. It has been driven by the response of Japanese firms, and later Korean, Taiwanese and Singaporean firms, as well as European and US multinationals, to rapidly shifting comparative advantage and other differential regulatory conditions within the whole East Asian region. .

In the 1970s, faced with rising domestic labour costs and energy-intensive, high-pollution industries, Japanese firms began to relocate labour-intensive and environmentally less acceptable industries to Southeast Asia. Hence, the first wave of Japanese investments in the region was mostly in resource-based activities to secure resource supply and in manufacturing, either import substituting for protected host markets, or labour-intensive activities of parts and components to reduce wage costs. Together with large firms, small subcontracting firms in a keiretsu network began to relocate their production overseas.

In the mid-1980s, however, the new phase of relocation of Japanese firms was triggered and subsequently accelerated by the sharp yen appreciation and the increasingly publicised trade frictions that Japan experienced with the US and European Union countries. Accordingly, this second wave of Japanese outward investment was directed much more into export-market oriented manufacturing activities. Japanese large firms have become active in forming regional manufacturing network as part of their characteristically outward-looking internationalisation and globalisation strategy. A large-scale relocation of small firms to Southeast Asia continued, participating in this manufacturing network. Consequently, production lines have been increasingly organised across countries in the region, involving large intra-regional flows of parts and components. The shares of Japanese investments in total foreign direct investments in Indonesia, Malaysia and Thailand reached 32 %, 29 % and 54 % respectively by the early 1990s.

The other first-tier NICs have followed a similar path. After liberalisation of outward foreign investments by government in the late 1980s, Taiwanese overseas investment accelerated, driven by its "south-bound policy" to encourage relocation of labour intensive SMEs to Southeast Asia. It was also motivated by its desire to gain access to the envisaged enlarged regional markets under the AFTA agreements. They have rather successfully localised their operations with ethnic Chinese firms in the host economies.

South Korea also increased its foreign investment in Southeast Asia as well as Vietnam and Northeast China, in response to the won appreciation of 1987 and the repeal of restrictive labour regulation in 1987 with the resulting marked wage hike. Within Southeast Asia, investment by South Korean firms has been particularly concentrated in Indonesia’s export-oriented manufacturing sector.

It is clear in all cases that, the relocation process has been under explicit governments’ encouragement in their effort to reshape and upgrade the industrial landscape of the home countries. For example, the relocation of Japanese firms has been congruent with their private business interests as well as the planned sequence of phasing out "sunset" industries and supporting "sunrise" industries and technologies. Japanese official aid and loans were actively utilised to facilitate and finance the process of regional cross-border migration of industrial sites under the official "economic cooperation" programme.

Therefore, as Jomo et al (1997) stress, the rapidly reshaping regional division of labour associated with FDIs by East Asian firms has not been simply market -driven phenomena, but very much influenced by industrial and investment policies of the host economies as well as their official aid allocation.

Indeed, the "Flying Geese" thesis advanced by Akamatsu in the 1930s as an economic explanation for Japan’s pre-war foreign policy in East Asia has been popularly used to provide an analytical perspective to the pattern of these recent regional development changes in East Asia, whereby each nation involved constantly cultivates "new areas of comparative advantage, resulting in a hierarchical, yet fluid division of labour among economies all striving to industrialise (Jomo et al 1997). This thesis is very much a variant of the product cycle trade theory with emphasis on national location rather than industrial firms’ decisions as the unit of analysis.

Rowthorn (1996) points out that this thesis exaggerates Japan’s role as a benign leader of flying geese which portrays the East Asian development as an overly harmonious process of cooperation. However, there is no disagreement that direct investment flows by Northeast Asian firms have intensified and accelerated the process of widening and deepening of regional manufacturing networks with in context of regional economic integration and globalisation. They have certainly been a strong force in creating regional dynamism in Southeast Asia.

However, this regional dimension of East Asian development can be a liability to economic management of countries involved in the downturn phase of economic activities. As witnessed in the current Asian crisis, it has manifested itself as adverse regional contagion effects. Nidhiprabha (1997) notes that when the Thai Baht experienced a high volatility with the sharp devaluation in July, 1997, a number of the Southeast Asian currencies were under severe attack by currency market dealers. This widespread contagion effect on currencies is explained by the similar export structure, the high volume of intra-regional trade among these economies, and a fear of competitive devaluation. All countries in the region could not escape this adverse effect, plunging together into a crisis condition. This includes countries such as Singapore, which did not exhibit problematic macroeconomic and financial indicators similar to those of Thailand. As Nidhiprabha notes, while the correlation between movements of the Southeast Asian currencies was low before the crisis, the correlation coefficients among them increased sharply to over 0.9 once the crisis set in, making it difficult for traders and investors to diversify risks by using regional currencies and assets in their portfolio.

In addition to the discussions of policies earlier, this section presents a brief review of the policy experiences of the two regions in order to show that the above interpretation of policies and their outcomes is overly simplified. Indeed, as we have seen, there are some similarities in the overall policy regimes between the two regions, which have often been disregarded in the policy debate. Yet, these apparent similarities conceal subtle, yet crucial, differences in their policy design and implementation context. It is these differences that are critical in engendering the differential degree and forms of integration of these economies into the global economy.

4.1 Sub-Saharan African Trade Policies

As we saw earlier, the trade policy regimes that prevailed between the time of independence and the adoption of Structural Adjustment Programmes in SSA were generally highly interventionist and protectionist (Oyejide 1997). Imports were restricted by a web of inhibiting licensing systems; high tariffs were erected; escalated or cascading tariff structures made up of several layers as well as varying degrees of import prohibitions and tight foreign exchange controls were instituted. Exports were discouraged by substantial implicit and explicit taxes, including the adherence to exceedingly overvalued exchange rates, as well as frequent use of non-tariff barriers such as prohibition of certain export items. The regimes were truly inward-looking both on the import and export sides, so that many economies were locked in a permanently de-linked position from the world economy. The extent of SSA’s integration into the global economy was kept to a minimum. Protections provided were neither time-bound nor performance-linked. They could not be used as an effective means to graduate infant industries from protection. Little thought was given to a strategic dynamic path of the trade regimes which should be evolved as industrialisation and economic development proceeds. Further, trade policies were implemented in a "rather haphazard, incoherent and internally inconsistent" manner (Oyejide 1997).

The overriding economic justification for adopting and maintaining such highly protective inward-looking trade regimes are two-fold: fiscal imperatives and balance-of-payment considerations. With the extremely narrow tax-base and the weak tax-collecting capacity, governments have been overly dependent on tax on international trade transactions for their fiscal revenue. Furthermore, politically locked into unrealistically overvalued fixed exchange rate regimes, a burden of adjustment to recurrent balance-of-payment crises tended to fall on the use of trade policy instruments. Thus, trade policy instruments have been overwhelmingly used for macroeconomic management, i.e. both for attaining internal and external balances. Faced with repeated balance-of-payment and fiscal crises, the short-term double requirements of compressing imports while increasing trade tax revenue dictated trade policies. Non-tariff import barriers and controls have been extensively applied to reduce the import bill, while the level of tariffs and export tax was kept high. Ironically, many reckon that the rates of international trade tax in SSA have far exceeded the revenue-maximising level (Rodrik 1996).

Importantly, under such conditions, the need for raising the export earning capacity has been neglected. The omission of this long-term developmental perspective is extremely detrimental, and in many cases fatal, for a foreign exchange-constrained economy such as most of SSA countries with their high dependence on imports for intermediate and capital goods. Thus, anti-export bias in this trade regime was particularly damaging in having stifled the incentives of exporters such as cash export crop farmers. This is one of the crucial factors behind SSA’s low degree of openness, measured as export/GDP ratio. The share of exports for a medium-sized country in SSA declined from 24% in the 1960s to 22 % in the 1990s, while this ratio doubled from 19% to 38% for countries in East Asia (Elbadawi et al 1998). SSA’s share in world exports dropped from 3 % in the mid 1950s to 1% in the mid 1990s against unprecedented expansion of world trade (Elbadawi et al 1998, Yeats et al 1997).

While SSA countries failed by and large to participate in, and benefit from, one of most dynamic aspects of the post-war world economy, they could not shield themselves from the turbulence of the international economic system. Recent cross-country studies on the long term growth, such as Sachs and Warner (1996), Collier and Gunning (1997), and Collier (1994) found the low degree of openness to be the main reason for the slow-growth performance of African economies, while Rodrik (1997) reports that export-taxation was a significant factor for explaining growth in his regression analysis, separately conducted for the worst growth performers in Africa.

Even though the choice of protective trade regimes was certainly made within the context of the import-substitution development strategy, the absence of comprehensive well-phased industrialisation programmes made trade policy instruments almost ineffective in achieving their developmental objectives. Except for Mauritius, whose performance is generally comparable to that of East Asia, it is hard to find a national programme which co-ordinated successfully and coherently trade policy with other complementary sectoral policy instruments such as technology development policy, financial policy or industrial/competition policy.

In the absence of appropriate co-ordination among trade, industrial and technology policies, industrialisation strategies implemented in SSA did not have the required internal consistency and coherence, producing quite poor results. Despite the fact that industrial policy was supposed to address various forms of market failure, it was implemented without clearly identifying the sources and nature of market failure in the local/specific context. Rents were distributed, without being tied to any objective performance indicator. In reality, almost every form of rent, such as import licences, allocation of foreign exchange, subsidised credit, was mistakenly viewed and used as instruments for ‘political favouritism’. In practice, the ‘selectivity’ embedded in industrial policy was not always decided according to developmental criteria. Rather, it often created opportunities for corruption and rent-seeking activities. Naturally, import-substituting industrialisation implemented under such environments, failed to achieve the stated objective; i.e. technological development and dynamic competitiveness of indigenous industrial firms.

Without creating a congenial environment for indigenous industrial firms and entrepreneurs to emerge and grow, many African states turned to inward-looking pan-African regional integration schemes to address the constraints posed by the small size of domestic market. Indeed, the largest number of regional integration schemes is found in SSA (Oyejide 1997). Regional integration has been regarded as a viable way to achieve the benefits of economies of scale and greater specialisation without having strong links to world markets. However, many schemes suffer from the dearth of the prerequisites for their success, such as pre-existing high levels of intra-group transactions; complementarities among member states in goods and factors of production; and potentials for product differentiation among member states. Consequently, so far, very modest increases in intra-regional trade have been achieved through regional integration schemes. Having failed to establish appropriate compensation and enforcement mechanisms, member states are constantly engaged in negotiations, without producing regional dynamics.

Given these historical experiences, it is not surprising to find that trade liberalisation carried a greater weight in the Structural Adjustment Programmes. Trade liberalisation aimed at shifting away from an inward-looking stance to a ‘neutral regime’ without incentive-discrimination between importables and exportables, or further to an outward-oriented regime that could promote actively exports as well attract foreign investment and to facilitate technology transfer. In SSA a superiority of an outward-oriented regime over an inward-looking one has been increasingly accepted as a realistic all-encompassing growth-enhancing development strategy. In the absence of sufficient capital inflows, export expansion is increasingly viewed as the critical vehicle of technology transfer as well as the primary source for financing the indispensable bottleneck-breaking and technology-bearing imports (Oyejide 1997). However, given the unfortunate past experience with industrial policy, industrial policy was discarded altogether. Neither industrial policy nor technology policy formed an essential part of the new ‘outward oriented strategy’.

Oyejide (1997) notes that there are four categories of trade liberalisation attempts in SSA:

a) Trade liberalisation attempts induced by positive external shocks. They were typically temporary and partial shocks, caused by commodity price boom, as found in Tanzania and Kenya during the coffee price boom of 1976-7 and in Nigeria during the oil boom of 1970-6. These experiences were often followed by more severe import controls to cope with the commodity price collapse that ensued immediately.

b) "Own initiatives" that reflected internal policy dynamics. Examples of this type were found in Zambia and Tanzania during 1984-6 and Ghana in 1967-72. They were based on the Own-Funded Import Schemes, under which importers were allowed to bring in goods without official foreign exchange allocation and any questioning about sources of financing. They were instituted to ameliorate generalised shortage of essential goods and to control inflation induced by illegal underground trade.

c) Those associated with Structural Adjustment Programmes. They have been carried out across the continent, the single exception being South Africa. The pace, scope and sequence of liberalisation were designed and shaped by the SAP.

d) Those designed and implemented in the context of specific regional integration schemes. These are multilateral attempts to reduce trade barriers and create preferential trade areas. Despite persistent attempts, these schemes have not been successfully implemented, as observed in the trade liberalisation schemes of ECOWAS and the PTA/COMESA. The member countries have been involved in more intense unilateral liberalisation embedded in the SAP at the expense of the implementation of regional initiatives.

Trade liberalisation carried out as part of SAPs are the most comprehensive and longest -sustained attempts in the African post-independent history. Attempts have been made to compress and rationalise tariff structures with a sharp reduction of the average number of tariff categories and less varied tariff rates. Consequently, the scope for discretion has been cut with the enhanced transparency of tariff policy. Non-tariff barriers and quantitative restrictions have been eliminated in several countries and partly or fully tariffied in many cases. The traditional reliance on trade policy instruments for balance-of payments management was reduced with shifts to flexible exchange rate systems to take burden of payment adjustments. However, in many countries, trade procedures continue to be characterised by red tape and corruption, while trade monopolies continue to exist and export crops continue to be taxed.

Moreover, in the process of implementation, many reforming countries found it difficult to adhere consistently to trade liberalisation. The sustainability and credibility of trade reforms have become a worrisome issue in Africa. Frequent reversals are observed in many countries. Either removed restrictions were reinstated, or some existing barriers were strengthened to offset reductions. For example, Nigeria, which eliminated the most quantitative restrictions (quotas and licensing), increased dramatically the number of import bans. Ghana, which previously made great strides in cutting formal tariffs, introduced large special taxes on imports. Indeed, both Nigeria and Kenya experienced virtually total reversals in 1994 and in 1986 respectively, while Kenya and Ghana have had a history of frequent reversals since the early 1970s. All these reversals are traced, by and large, to fiscal and balance-of-payments incompatibility.

Viewed from a political economy perspective, the difficulties encountered in implementing trade liberalisation are attributed to the re-distributional politics prevalent in Africa, i.e. the political imperatives to transfer wealth and rents from politically unorganised rural groups to vocal urban groups (Bates 1981). Beinen (1991), however, argues that self-interested government officials, rather than urban producers in import-substituting sectors are the main opponents of trade liberalisation. Rodrik (1997) offers an alternative thesis, arguing that a prime political factor explaining the resistance to trade reform lies in the governments’ inability to discipline themselves, rather than re-distributional imperatives per se. He suggests that another factor is the uncertainty surrounding the identity of gainers from a new trade regime because of the incompleteness of information.

While it is difficult to escape the political reality, it shows how important it is, in designing credible and sustainable trade reforms, to take into account conditions prevailing in Africa. A number of pressing issues have to be addressed. For example, a practical issue arises from the difficulty of finding alternative secure sources of tax revenue and instituting efficient tax-collecting systems in the short-to medium-term, leading to perpetual fiscal imbalance. Further, balance-of-payments may worsen with a deep, generalised and sudden import liberalisation as witnessed already in many SSA countries. Finally, a premature de-industrialisation could set in if trade liberalisation is carried out without regard to the competitiveness of otherwise dynamic successful domestic enterprises. A temporary and strictly-time bound protection for selective industries is surely justified for the `learning by doing’ period on the infant industry grounds if industries are selected in view of SSA’s dynamically evolving comparative advantage. Trade liberalisation programmes have to be designed in the light of these practicalities as well as in the context of forward-looking industrialisation strategy. A well-formulated and coherently executed industrial and technology policy is called for in this context.

Further, given this African reality, the pace, sequencing and phasing of trade liberalisation have an important bearing on the sustainability of reforms. In view of the need to have a sustainable export revenue base in order to avoid recurrent balance-of-payments crises, export promotion policies should be instituted at an early stage of trade liberalisation before deep import liberalisation is implemented. For SSA, an immediate task for export expansion involves, above all, re-building the primary commodity export sector and creating a capacity for processing export commodities. At the same time, raising competitiveness and technological capability of industrial firms has to be addressed due to the pressing need for export diversification

In this context, an issue of time-phasing and sequencing of export promotion and import liberalisation measures should be considered in a medium-to long-term perspective. For example, both Brazil and Argentina implemented reforms in two stages: during the first stage lasting 2-3 years, commercial policies were geared to export liberalisation and promotion rather than competitive tariff reduction. After completing this phase only, tariffs were allowed to fall competitively in the second stage, yet still in a gradual and discriminatory fashion over two years. In this relation, Nash (1992) argues that "introducing export policy reforms shortly before, or at least at the same time as, import reforms permits an early export supply response and allows unification of the tariff structure to proceed without burdening exporters (p.63)".

Alternatively, SSA can draw direct lessons from the Southeast Asian experience to execute simultaneously export promotion and import substitution policies in a complementary manner, as discussed below. For example, various schemes and measures that eliminate an anti-export bias for exporting firms, by giving access to essential imports at free-trade prices, have been instrumental for their export success. These include a creation of export processing free trade zones, or instituting schemes such as duty drawback, exemption schemes or bonded warehousing arrangements.

4.2 Southeast Asian Trade Policies

Outward Orientation

Most Southeast Asian countries started their quest for economic development at the end of the Second World War as open -traded economies, having for long been linked to the world economy mainly as primary commodity exporters. Thee Kien Wie (1997) notes that "whatever manufacturing activities there were in the ASEAN countries in the1950s, they consisted mainly of resource-processing activities and light consumer goods industries catering to the domestic market."

Following the example set by the Philippines earlier, Malaysia, Singapore and Thailand initially adopted an import-substitution industrialisation policy as their development strategies. Indonesia also introduced an ambitious state-directed industrialisation plan with the establishment of several large-scale, state-owned industrial plants. While Malaysia and Singapore relied mainly on tariff protection, other countries used extensively tariff as well as non-tariff protection.

However, as they were historically very open trading economies, import-substitution strategies in Malaysia, Singapore and Thailand were not pursued in an as inward-looking a manner as in SSA or Latin America. In Malaysia, the anti-export bias of its trade regime was less and tariff rates on manufacturing were low and relatively simple. Thailand’s import substitution policy was known to be mild. The primary commodity sector was encouraged to develop as main sources of earning foreign exchange and never penalised. Furthermore, while keeping import -substitution policies for industries catering for domestic markets, these three countries began in parallel to shift a policy focus onto export promotion in the 1960s (Singapore and Malaysia) and 1970s (Thailand), when it was clear that an easy phase of import substitution was completed.

In contrast, Indonesia pursued a most inward-looking industrialisation. Backed with enhanced oil revenue and vast other natural resources, it made a strategic decision in the mid-1970s to pursue the second stage of import-substitution, i.e. a heavy industrialisation involving the development of the basic resource-processing industries as well as engineering industries predominantly based on public-sector initiatives. Thee Kian Wie (1997) notes that it was only after the end of the oil boom in the early 1980s that the Indonesian government felt compelled to shift to a more export-oriented strategy. However, substantial import protection was maintained, particularly for the 10 designated state-owned ‘strategic industries’, including the high-tech aircraft industry.

Thus, the trade policy regime of these Southeast Asian economies remained open to the global economy even at the height of the import-substitution phase, through exports of primary commodities or processed products. Outward orientation was present throughout, maintaining strong trading links with the world economy. While industrial development was initially carried out under the regime of import-substitution, the growth and diversification of industrial products were realised with the timely adoption of an array of export promoting measures. Undoubtedly, it is the success of export promotion of selective manufacturing activities that has changed the industrial landscape of these economies.

However, it is important to note that the policy of export promotion was pursued at the same that they maintained considerable protection for import-substituting activities. In this sense, it can be argued that export promotion and import substitution were the two, equally critical, pillars of their increasingly outward-oriented industrialisation strategy. By the time import liberalisation was commenced in the 1980s as part of trade reforms and economic liberalisation, many leading industries had been exposed to the best available technology, while some managed to acquire a critical mass of some sort of technological capability. Moreover, import liberalisation was carried out in stages to ensure soft landing to import-substituting industries. Clearly, import liberalisation was a much less painful exercise for the Southeast Asian economies than for SSA countries.

Furthermore, Hill (1997) notes that in most of Southeast Asian countries, trade liberalisation was first applied to the export sector. He shows that " a dual trade regime has operated in which exporters have been placed on some sort of quasi free-trade footing, at least as it affects their raw material and capital goods imports, while maintaining substantial import protection.... They have been used as a transitional device en route to more general liberalisation".

Export Promotion Efforts

A variety of policy instruments and measures were used to pursue export-oriented industrialisation in Southeast Asian economies, often involving extensive government intervention. As shown in Table 7, both Singapore and Malaysia opted for FDI-led industrialisation for export growth. Jomo et al (1997) explain this in terms of the political economy that prevailed in these two countries. Singapore wanted to attract foreign investment to ensure a continued international stake in the security and future of the country, even at the expense of discriminating against predominantly ethnic Chinese domestic capital. Malaysia invited foreign investors to limit and circumvent the expansion and accompanying influence of ethnic Chinese Malaysian capital.

Singapore was not only the first country to pursue a consistent export-oriented industrialisation strategy, based on foreign direct investment, but also made determined effort to upgrade the country’s industrial structure and comparative advantage by encouraging foreign MNCs to invest in high value-added industries. It also invested in upgrading technical skills to meet specific skill requirements by high-skill- and technology-intensive industries (Thee-Kian Wie 1997, Lall 1994) As a result, Singapore managed to transform its industrial and export structures into high value-added industries.

Malaysia has followed Singapore’s footsteps by relying heavily on foreign direct investment in its efforts, consciously trying to upgrade and diversify its industrial and export structure by shifting its comparative advantage. For this purpose it introduced export-processing zones (EPZs) on the west coast of Peninsular Malaysia, i.e. on the island of Penang.

These zones usually allow firms to import on a duty-free basis subject to requirement that their entire output is exported. Firms in the Zones benefit from special infrastructure pricing and provision, relaxed labour laws and no restrictions on foreign ownership and all encompassing institutionalised protection for investors. As Hill (1997) notes in the case of Malaysia, the establishment of EPZ coincided with the rapid global growth of internationally integrated electronics production by a few MNCs who placed a premium on low-wage production with good infrastructure and 100 % of foreign ownership, progressive, unilateral trade liberalisation and relatively open capital account. Since the inception, Malaysian EPZs have attracted a number of Japanese and US MNCs to set up consumer electronics assembly plants as part of the relocation of the labour-intensive processes of the vertically integrated electronics to lower wage countries such as Malaysia and Singapore.

However, Malaysian governments have consistently made strategic interventions to promote further upgrading into technology-based production with high skill contents. As a result, in the 1990s, electronics and electrical products account for nearly 60 % of Malaysia’s manufactured exports and Malaysia has emerged as the world’s largest exporter of semiconductors and among the largest exporters of other electrical goods and electronics such as disk drives, telecommunication apparatus, audio and video equipment.

Nevertheless it should be noted that though they were very successful operations for export-led industrialisation and generating employment opportunities for labour-surplus economies, EPZs have drawbacks in several aspects (Thee Kian Wie 1997). They tend to form ‘export enclaves’ with few local linkages to the domestic economies. Furthermore, the manufactured exports of these enclaves are highly import-intensive with a generally low level of local value-added . There is a danger of their becoming specialised in only assembly activities.

Thee Kian Wie (1997) has, however, pointed out that the Singaporean experience shows that these EPZs could develop over time local linkages with the domestic economy in line with the development of the technical capabilities of local supplier firms. In the case of the electronics industry in Singapore, since the early 1980s, the export oriented MNCs have been able to establish vertical linkages with local input suppliers. In this respect, Malaysia’s EPZs remain export enclaves consisting largely of assembly operations, as Malaysia has been less successful in fostering vertical linkages between the MNCs and local supplier firms , as the latter have not acquired sufficient capability in design and R&D. In this condition, Malaysia’s industrial structure is dualistic, with limited linkage and technology transfer to local enterprises.

Table 7: Ratio of FDI inflows to the Gross Domestic Capital Formation

1971-1993 (annual average)

Country	71-75	76-80	81-85	86-90	91-93
China	0.0	0.1	0.9	2.1	10.4
Hong Kong	5.9	4.2	6.9	12.9	5.7
India	0.3	0.1	0.1	0.3	0.4
Thailand	3.0	1.5	3.0	6.5	4.7
Korea	1.9	0.4	0.5	1.2	0.6
Malaysia	15.2	11.9	10.8	11.7	24.6
Philippines	1.0	0.9	0.8	6.7	4.6
Singapore	15.0	16.6	17.4	35.0	37.4
Taiwan	1.4	1.2	1.5	3.7	2.6
Indonesia	4.6	2.4	0.9	2.1	4.5

________________________________________________________________________

Source: Jomo et al (1997, Table 2.1, p.14), originally from UNCTAD, World Investment Report (various issues)

Before the mid-1980s, Indonesia and Thailand relied far less on FDI for export-oriented industrialisation. Indeed, in the early years, Indonesia openly adopted a hostile attitude and corresponding policy towards FDIs. After a brief period of open door policies from 1967 to the mid-1970s, the Indonesian government placed restrictions again on FDI in the light of the embarked second stage of import-substituting industrialisation, led by a number of state-owned enterprises.

With less reliance on foreign investment, both Indonesia and Thailand opted for other measures for promotion of manufactured exports. Among them, duty exemption and drawback schemes were successfully used to create free trade conditions for exporters. Bonded warehouses in Thailand enjoyed similar conditions through double tax exemption of both input and output, so long as the goods were destined for exports.

Hill (1997) notes a number of advantages of these schemes over the EPZs. They are relatively simple to administer. While firms are free to locate anywhere, there is no temptation for governments to either over- or under-price physical infrastructure.

In the case of Indonesia, the adjustable exchange rate system installed has been geared towards keeping the real effective exchange rate competitive. Thus, the Central Bank of Indonesia allowed the Indonesian Rupiah to depreciate by 4-5 % annually to offset the differential between Indonesia’s higher inflation and those of its major trading partners (Thee Kian Wie 1997). Also, in order to increase the value-added of exports, the Indonesian government banned exports of natural resources in unprocessed form. Under this enforced ‘export-substitution’, log exports and rattan exports were banned and Indonesia has become a significant exporter of both plywood and rattan furniture.

Finally, in both Indonesia and Thailand, successive deregulation of investment in the 1980s led to a surge in FDI in export-oriented industries, initially mainly labour-intensive, low skill industries such as garment and footwear industries. This was largely facilitated by the beginning of large-scale relocation of export-oriented, footloose, labour-intensive industries from South Korea, Taiwan, and Singapore. The FDI in medium technology goods also increased in the late 1980s, induced by the second wave of Japanese foreign investment in the region, as discussed above. In this respect, regional dynamism discussed earlier, rather than domestic policies, is probably the most important factor for the boom of export-oriented manufacturing industries since the late 1980s.

Nevertheless, our discussion above confirms that in all cases, extensive state interventions in facilitating export growth were instrumental for the remarkable success in trade and investment performance in Southeast Asia.

Industrial Policy

In contrast with the undisputed success brought about by export promotion policy in the region, many tend to agree with unfavourable verdicts frequently made with regard to the record of industrial policy. Hill (1997) concludes that industrial policy lacked coherence in all three countries examined in Indonesia, Malaysia and Thailand. Thus, he argues that "promotional measures have been prone to abuse; implementation has been sporadic and often short-lived; and there has been little systematic attempt to prescribe conditionality, in the sense of linking incentives to tightly defined performance criteria (p.4)"

The poorer performance and the fragmented character of industrial policy in Southeast Asia, compared to those found in Northeast Asia, surely reflect the limited institutional capacity for effective and sophisticated sectoral interventions as well as the socio-political conditions that prevailed in these economies, as discussed above. In the absence of a coherent industrial and technology policy, Thailand and Indonesia were not well equipped to seize the opportunities offered by potential dynamic comparative advantage. Malaysia has developed a dualistic industrial structure, as Jomo et al describes, "Manufacturing was often disembodied from the rest of national economy, and the ISI-EOI divide within the sector came to be reflected in a certain industrial dualism (p.154)".

However, Jomo et. al. (1997) argue that the failure of industrial policy is a lot more to do with the fact that it has been generally misused for meeting a hidden agenda, i.e. for re-distributional ends, mainly at the behest of politically influential business interests and inter-ethnic redistribution, as observed in Malaysia and Indonesia. Jomo et al (1997) summarise well the condition to support the argument as follows:

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