Neoliberalism

and Structural adjustment programs in Cameroon : Privatizations from agricultural to electricity sectors.
Soraya Fouda Carleton University Department of Political Science April 12th ,2012. Abstract Decades of neo-liberal policies in Cameroon have negatively affected the economic and social development goals set at the independence in 1960. The article is an attempt to explain how Structural adjustment Programs privatization policies in the country have damaged major sector of the economy such as agriculture or power energy; but also major social sectors. The article will focus on privatizations of agriculture and electricity, with an analysis of the effects those privatizations have on the developmental agenda. Key words : Structural adjustment programs, economic development, social development, privatization, corruption.

 Under president Truman, the world started to see development as an escape to underdeveloped world. If one country was underdeveloped, it was the duty of developed countries to help them. The world become split in two; developed versus underdeveloped. In 1980s the neo-liberal approach of the market became the obvious solution to bring those countries out of poverty; and like many others underdeveloped nations, Cameroon did not escape its applications. The Bretton Woods institutions, the World Bank and IMF implemented the Washington consensus with Structural adjustment Programs; neo-liberal policy agenda of reforms poor countries should apply to growth their economy. From its implementation in 1987 in Cameroon until today, neo-liberal policies of the Washington consensus have been a failure. What are the consequences of such failure to the economy and the population? This is the question this article will attempt to answer. Two of the mains sectors that undertook reforms are going to be discussed to understand the dynamic of the second Structural adjustment Program implementation in Cameroon and its developmental policy. The first one was the liberalization of the economy and the main economic sectors that are agriculture and oil; but the focus on this paper will solely based on agriculture. The second one is poverty alleviation and growth promotion by strengthening the supply and quality of essentials social services such as education, health etc. through the liberalization of those sectors, Finally, the privatization and reforms of the energy sector with a specific focus on electricity ( IMF report 7 ) .

 The developmental state has two components; one is ideological and the other one is structural. In terms of ideology, the developmental states primary mission is to ensure economic development, usually through high rates of accumulation and industrialization (Mkandawire 2). The state has the ideology that it has to economically develop the nation. The Cameroonian state did it after the independence; the new government had the ideology to develop the state and create high rates of accumulation. At the structural level, state structure is at the chore of this aspect of developmental state. It means that the state emphasizes the capacity to implement those economic policies effectively. The capacity of the state to implement those policies depends on various institutional, technical, administrative and political factors (Mkandawire 2). The state should be a strong state in order to succeed into implementing those policies. It is important to understand in the developmental state theory the factors that have accounted for success can also be the same reason for economic failure. This is what happened in Cameroon, where its performances until the mid- 1980s would have qualified it as a developmental state until the economic crisis of 1985-86 when it became an anti- developmental state. Another important point to understand with the developmental state is the idea of nationalism. The inducted nation has for a goal to catch up with more advanced economies (Mkandawire 3 ); that was the idea behind the whole nationalist movement in Africa after Independence. In the case of Cameroon, nationalism also brought nationalization of all major economic sectors. To follow the idea of developmental state both ideologically and structurally, after the independence, the Cameroonian state performed very well economically from 1961 to 1985, with agriculture supporting the economy. The countrys economy was well managed and had one of the highest per capita incomes in sub-Saharan Africa (Amin 6). The main 3

objective of the development policies of the state was a 5 years plan to integrate politically and economically all regions and to improve the standard of living of the population (Amin 12). Policy makers were focused on doubling the per capita incomes and reduce the social and economic inequalities. During that time, there was an increase in the government revenue as well as in salaries. The government adopted a welfare-state/interventionist approach to its policies and extensively intervenes in the economy; the prices of goods and services were regulated, as well as public industries and agricultural inputs were subsidized (Amin 13). The creations of many public enterprises underline the dynamic of protectionism in the country. Nevertheless, in the mid 1980s, after more than two decades of rapid economic growth, the economy collapsed. This was partly because a fall in world prices for its main export commodities and poor domestic management ( Amin 7) . One of the main exported commodities was agriculture with cocoa and coffee as well as bananas and rubber. As a solution to the crisis, the government decided to become more involved in the economy. The state concentrated on expanding more the public sector and the government became more and more interventionist in transportations, general services such as electricity and water were nationalized ( Amin 7 ).The state gained more control of industries such as their dominant economical sector agriculture . Agriculture accounted for almost 34% of the GDP and employed 80% of the labor forces and providing 85%of export from 1961 to 1985 (Amin 5). Considering the data at that time and the expansion of the agricultural sector and discovery of oil, the government encouraging private sector capital investment to invest, the country had all the pre-conditions for an economic take off (Rostow 6); Indeed, the prices drop in the main agricultural goods by almost 60% (Awung & Atanga 2) Cameroon was exporting was a major issue for the economy.

After 1985, the economy became stagnant; Food production grew while the export crop production declined. With its main economic sector affected and declining, the state began to be in a very sensitive economical situation; hence by 1986, the government started internal adjustment, including measures in the areas of prices policies and institutions. They launched an austerity program in 1987; the World Bank and the Cameroonian state started to considered Structural adjustment programs as a way to recreate growth and re- launched the economy through neo-liberalism. Neo-liberalism is rooted in the notion that there is only one body of economic theory with universally applicable concept. Neoliberals believe private producers consumers are pre-supposed to be utility and profit maximizers who respond rationally to correct market signal. They assert market will produce rationale behaviors that efficiently reflect market signals based on the principles of scarcity and choices. Neo- liberals find important to consider the historical background but their theorical construct also examine government and states, as they exist in practice with all their various imperfections highlighted (Brohman 7) .Neo liberalism theory agenda is based on principles of free markets, economic liberalization and open market; it is one of the reason they are looking closely to states and governments flaws. The Neo- liberalist development agenda started in the early 1980s with the Bretton Woods agreement alongside the Reagan- Thatcher era. Bretton Woodss institutions and the Washington consensus with powerful organizations such as the World Bank and the IMF decided on an agenda to promote liberalism in third world countries. IMF has different programs they implemented in developing countries to stimulate growth (Hutchful 10); but it was really through Structural adjustment Programs that the IMF and the World Bank 5

introduced neo-liberalism to Africa. Underdeveloped nations, in the face of the economic crisis of the mid 1980s started to turn to the IMF and World Bank to lend money to create again a cycle of growth in their economy. The argument of the Washington consensus and the economic powers behind Bretton Woodss institutions was that a laissez-faire capitalism was necessary for a broader political and social freedom (Broham 17). Hence, IMF and the World Bank started economic programs in Africa; one of the IMF main objectives was to incorporated trade policies, public sector reforms, deregulation, external liberalization, emergence of monetary government, and rollback of the state to Africans countries (Hutchful 7). But, those lenders did not allocate the money without conditionality; starting 1981, borrowers countries were required to implement adjustment policies with certain conditions. With all the neo-liberals reforms in the continent and the economic crisis, the Cameroonian state decided with the IMF in 1989 to implement Structural Adjustments Programs (SAPs) with 150 millions dollars loan from the IMF (Awung & Atanga 17). Conditions to the SAPs were reforms involving the preparation and implementation of poverty reduction, the maintenance of a stable macro-economic environment, the set up of mechanisms to ensure efficient and transparent use of interim debt reliefs and strengthening public expenditures and management (Awung & Atanga 19) .The issue of poverty alleviation started to become of the World Banks preoccupation in the 1990s; hence it became one of the conditions of the bank to lend money. The bank strategy in fighting poverty relied heavily on redistribution of public expenditures, rather than new founding (Hutchful 16). In 2000s, Cameroon reached the position of Highly indebted poor country initiative and benefits from interim debt reliefs from its creditors previously accumulated through loans 6

from the IMF and the World Bank in the first phase of SAPs implemented from 1989-1999. Following the release of its debt credit, the IMF implemented a second structural adjustment program plan (SAPs II). The main goals to their medium-term adjustment program was to strengthen macroeconomics stability, to bring economy into a sustainable development path and to bring improve social conditions of population and reduce poverty (IMF report 3). Another mandatory condition in the second SAPs was the total privatization of para-statals organizations; that means the state would have to lose more control of some important sector of the economy (e.g. agriculture) (Awung & Atanga 19). With the guidance of IMF and World Bank, Cameroon engaged itself in a neo-liberalist development policy for 20 years, with recommendation to privatize diverse economic and social sectors such as education but also privatize energy such as water and electricity companies SNEC ( societe nationale des eaux du Cameroun) and SONEL ( Societe nationale delectricit). (African Development Bank Report on Cameroon 9). Public-enterprise reform and private-sector development have been designed in the offices of the Bretton Woods institutions. Like other structural adjustment measures, they have been accepted by virtually all bilateral donors and presented to African governments as the only way forward to development and economic growth (Konings 6) . Privatizations take their roots in the theorical stream of the liberalism founded by Adam smith. The central idea is that even imperfect, the market is preferable to the drifts of the public action that hinders the game of individual interests. Privatizations in Cameroon began in the late 1980s under the pressure of International multilaterals institutions. It has continued since at a slow and erratic pace. Since the first SAPs in 1989, Cameroon has undertaken a vast program of privatizations and restructuring 7

of state owned corporations and public-private enterprises. In 1995, the government to made a decision to accelerate the privatization program and to extend its scope, by including main public utilities such as water, electricity, and telecommunication etc. (Ndzomo and Nzongang 2). Recognizing that its power sector needed to be modernize, the state power company SONEL, the sole generator and distributor of power needed to be privatized as the World Bank advised the government to do. In the late 1990s, only 452 000 connections existed, leaving most of the people in the country without electricity (International Finance Corporation 2); hence as a response, the government adopted a power sector reforms with the 1998 electricity sector Law, that set ground work for privatization of SONEL (International Finance Corporation 2). It is important to underline that even though there was a demand for more electricity from people, the privatization of the company itself was more to comply to the commitments imposed by the World Bank with SAPs (Pineau 4). The objectives of the privatization of the electricity sector were standard goal of liberalization/ privatization programs of the Bretton Woods institutions; indeed, the only assessment of SONEL made by the World Bank were very general and assert issues such as day to day management, lack of transparency, lack competition and weak ministerial oversight and high costs (Pineau 4) . Between 1998 and 2000, the government set new electricity policy framework to develop private involvement and competition under the supervision of ARSEL, the supervisatory regulation agency. One law and three decrees set the legal framework of electricity sector in Cameroon (Ministry of Economy and Finance of Cameroon para 3). Five large international companies initially expressed interest in SONEL;The State owned EDF from France, Hydro- Quebec from Canada, the American corporation AES , South 8

African ESCOM and Spanish state owned ESPENOSA (Pineau 6). In order to increase attractiveness of the deal to investors, the government guaranteed 50 % of the purchase price against risks and other potential issues (IFC 2). The transaction structure allowed 56% of SONEL capital to be acquired by the successful bidder to a transparent process. The successful bidder would be granted 20 years concession for the distribution, consumption and generation of electricity throughout the country; it would also have exclusive right to distribute and sell electricity to low volt consumers for 20 years and to medium and high volt consumers for the first 5 years. The reciprocal debt between SONEL and the government would be eliminated and some of SONEL outstanding debts would be transferred to the government (IFC 2). In November 2000, AES was the only bidder and acquire SONEL for 61 millions (Pineau 12). No further information is available on the transaction and contract signed between the government and AES, which is highly problematic as there is a clear lack of transparency (Pineau 7). AES also has the goal to build more dams to allow a greater generation of power throughout the country, especially after the drought of 2001 to 2003. Hence, they started a project with the co-financing of the World Bank in the region of Limb. The dam was supposed to be built in 10 months for the beginning of the rainy seasons, but major delays occurred, as with all of their other projects (Pineau 14).To summarize the objectives of the privatization of SONEL by the government and the World Bank were to use the private sector investment and benefit from its expertise, to improve service quality, to supply electricity at a competitive price, to involve the national private sector to SONEL capital, to fight the lack of transparency and competitiveness and the state interference to the day to day management.

 The power sector was not the only one to be liberalized and privatized; the agricultural sector restructuration was also one of the main aims of the World Bank with SAPs. Agriculture is part of a livelihood strategy to safeguard family food security, health and education. Agriculture is definitively the main economic sector in the country, but for rural dwellers also, it is the backbone of their livelihood. Men engage in cash-crop production while women take concern with food crop production (Fonchingong 3). The SAPs measures in agriculture was aimed to encourage the production of cash crop production for exports and to generate more for foreign exchange and render the country better able to service its debts payment (Fonchingong 3). Crops growing in the country include banana, coffee, cacao, plantains etc. In order to achieve these goals, the government and the World Bank decided to further liberalize the agricultural sector. The strategy was to improve the sector competitiveness and enhance productivity with a view to strengthening growth, increase farmers incomes and hence subsequently reduce poverty (IMF 5). The government also intended to improve basics infrastructures to the rural area as well as the quality of social services deliver to them. In order to improve the competitiveness and production of the sector so it could reach growth, the program provided for the publication of an agricultural policy statement (ADB report on Cameroon 21). The new agricultural policy of the government was based on modernization of the sector institutional framework, the improvement of incentives framework and the reinforcement of actions aimed at improving the competitiveness of export and quality of goods, especially in the cacao and coffee sub-sectors (IMF 7). To achieve these goals, the state decided to continue the decentralization of public administration and develop a strong partnership between the government and local communities. The program started in 1989/1990 and continues in 1999/2000 until now (IMF 5). 10

Structural adjustment programs in agriculture include both privatization and liberalization; the food crop development authority and the Market food board which had control of cacao and coffee, were both liquidated along with others developmental agencies in the process of liberalizing the agricultural sector (Bamou and Masters 7). The goals were also to grow new crops and implement a variety of new agricultural techniques. In order to achieve that, the public agricultural education system was virtually abandoned because of its degrading facilities and weak staffs , to private educational institutions that were better equipped with human and financial resources (Bamou and Masters 9). Liberalization and privatization of the sector also meant liquidation of the public agricultural bank; the aim was to allow the emergence of private financial intermediaries institutions. The agricultural reforms engaged in the early 2000 have and still on-going require a total withdrawal of the government in the activities. Tackling poverty was one of the prominent goals of the World Bank and they expected to do so through privatization and agricultural reforms as aforementioned. Twelve years after the implementation of SAPs II, the assessment of the policies imposed by the World Bank on Cameroonian economy are mixed; if some positive outcomes did occurred, the majority of the goals aimed at the three objectives aforementioned failed to produce any kind of economic and social growth. It is understood that privatization is effective if the first private contractor assure all the functions and activities of the enterprise not explicitly defined by the state and secondly, if the first contractor take in charge financial costs linked to the modernization and development of the enterprise but also, if the case arise the recorded financial losses. (Ndzomo and Ndzongang 8). Based on those two principles, privatization of AES-SONEL 11

was a success, but in term of the developmental agenda behind it, the consequences of this neo-liberal policy were disastrous. Indeed, since the privatization of SONEL, electricity issues in the country have been worse than what in was 13 years ago. Power cuts persist, and there is a long way to go before people can stay with lights on all the time. In 2003, following three years of drought, there was no water left in the dams, causing the turbines to stop, leading to black outs in most of the country lasting for several days. Since 2001, those events are recurring and on-going; people find themselves without water and electricity for days while the bills keep on growing. Electricity bills were up by 10% in the five years preceding the privatization of SONEL (IRIN para 3). In order to provide long-term power supplies, AES is trying to raise 100 millions dollars to build more dams as well as gases power thermals stations (IRIN para 10). Even though the numbers of connections have increase by nearly 50% (IFC 2), most of the goals achieve in 2001 are still not achieve, 12 years later. First, AES-SONEL has failed to supply electricity at a competitive prices, no competition take place and prices increases at a schedule basis (Pineau 17). Households consumers were hoping at the time to have better electricity services at affordable prices. In terms of the consumers goods and services the World Bank wanted to install by privatizing electricity, it is an enormous failure. Secondly, the government realizes that AES will not resolve the long-term issues of electricity in the country as they failed in 12 years to build more than one dam (Pineau 15). Finally, only two objectives of the government was partly successful; it was to use private investment and benefit from its expertise and its removal from day to day management as it only has 44% of the shares (AFD report 17). If the government partially succeeds in that area, they and the World Bank failed in all of the other goals as no private national sector investors get in the deal with IMF, there is still lack of transparency (a law was passed to protect the lack of 12

transparency in accounting (Pineau 17) ) . In conclusion, privatization of electricity in Cameroon brought higher consumers costs and poorer services.; if it failed to have positives changes, it has reinforced patterns of patron-clients relations ( Konings 7) . In the sector of agriculture, the results were not very different. Agricultural reforms in Cameroon have created a tremendous amount of economical tensions within the population. Those tensions can be felt between urban and rural population but also in gender relations. After the economic adjustment, there is now hardly dividing line between men and women in farming. The clear division of labor between men who were concentration on cash crops and women on food crops has now changed (Fonchingong 3). This is the result of the economic pressures brought with the SAPs; so now everybody works on land to ensure survival for them and their family. Moreover, the transfer of technologies that was supposed to happen with the liberalization of agriculture hardly occurred; indeed, in rural areas small farmers, most women and men work the land with basic agricultural tools. Hence, in rural areas women and men are involved in income generating activities outside their home; they have to leave rural areas to sell their crops in neighboring urban areas, if there is one. The issue is, because people in urban areas incomes have declined, farmers can only sell their crops at low-prices in the markets. So, there are no economical benefits from them, as they have to pay their own transportation to the city and sell their crops for less. This is affecting women more than men, as they have to take a better role to provide a livelihood for their family (Fongchingong 4) ; it is a failure for the social aspect of the development agenda the World Bank, as women are economically and socially under high volume of pressure, sometimes requiring their children to drop out of school to help them work in the land or sell crops.

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The agriculture liberalization has also affected farmers in a macro level. Before liberalization, there was the Food Crop market authority and the National Produce Marketing Board, which had control of cocoa and coffee. Their liquidation improved average incentives, but for many products and regions of the country, there were very few traders available; So, for the farmers, marketing costs actually rose. The deterioration of local marketing conditions inhibited farmers productions, which in turn limited the entrances into private settings to serve these markets (Bamou and Masters 7). The private educational agricultural institution created some improvements, but it only covered a limited range of skills and it served only certain regions of the country (Bamou and Masters 8). Moreover, with the privatization of the educational system, schools to skill trained farmers became expensive and most of the family cannot really afford to send their children or their spouse to have a proper agricultural skills train; especially local farmers who operates on a micro-level scale. Another big goal of the World Bank in this project was to build roads to connect rural and urban areas within the countries, but to also build roads connecting to other countries, so that agriculture could benefit from sub-regional competitiveness by allowing farmers to sell their crops to neighboring countries (IMF report 6). Unfortunately, because neighboring countries are dependent on Cameroonian crops such as plantain, farmers sell them at very high prices, often leading to the raise of prices of those crops within Cameroonian markets. For example, the price of a regime of plantains in 2005 was 2500 CFA (5 dollars) , now in 2012, it is close to 7500 CFA (16 dollars). The sub-regional competitiveness is a good policy as farmers can easily sell their crops outside of the country to neighbors, but it is also detrimental to Cameroonians as more and more local farmers can cross the border to sell

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their crops in Gabon or Equatorial Guinea, neglecting Cameroonian consumers who do not have enough economical mean to pay the regime of plantains at 7500 CFA. The reality of the agricultural sector in Cameroon right now is that government has abandoned farmers, as they do not have any kind of economic or social structure to dwell on such as banks to procure loans or educational system to help them enhanced their skills. Moreover, the liberalization of agriculture has created a form of food crisis within the country as prices for necessity means such as plantains, rice, chicken etc. are way to high for the consumers. Cameroon is the breadbasket of central Africa but yet, its own people are no longer able to afford to eat well at a reasonable price, in the name of a neo-liberal policy that did not take into account that neo-liberalism is a zero-sum game. The conclusion of this paper is a clear critique of SAPs and the neo-liberalist theory take through a post development theory. Indeed, post developmental theorists assert that solution to be found in the contextuality of development as a product of particular historical processes. The context of development is constantly changing at a variety of scales over times and among societies (Brohman 3). Structural Adjustment Programs have proved to be ineffective both by their policies implementation and also in term of their execution. There has been empirical evidence showing African governments may sign document initiating a neo-liberal policy without intending to execute it (Konings 6). Hence, even though donors are able to design and impose neo-liberal policies through structural adjustment programs to African governments, they appear to have less control over their actual implementation as in the case of Cameroon. Corruption and ethno-regional tensions often fuel the lack of proper implementations of those policies. Moreover, in the 15

case of the privatization of SONEL and the other policies, it is clear that the World Bank and the IMF did not take into consideration the current and evolving environment in which Cameroon was. They simply implemented the one fit for all policy they created. The failure of the structural adjustment programs in Africa and in Cameroon, has compelled the Bretton Woods institutions to recognize the positive role the state can play in the process of development ( Mkandawire 4) .In the case of Cameroon, certain sectors did not need to be totally liberalize, because of the social conditions at the time; but it was anyways, leading to an economic distraught in the population. A situation in which, the government will have tremendous amount of difficulty to reverse into something positive. 16

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 sheet;Web http://www.fdi.net/documents/WorldBank/databases/plink/factsheets/cameroon.htm
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ENTERPRISES IN CAMEROON: AN ASSESSMENT;Journal of Sustainable Development in Africa ,Volume 9, No.4, 2007;p2,8. Print. -Pineau, P-O;Transparency in the Dark: An Assessment of the Cameroonian Electricity Sector Reform ; University of Victoria, Vancouver; August 2004; p 4,6,7,12,14,16. Print. -Rostow,W.W; The Stages of Economic Growth: A Non Communist Manifesto;Cambridge: Cambridge University Press, 1960 ;p,6. Print.

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