Growth and Structure of the Economy

Growth and Structure of the Economy

By the end of the first decade of independence, the government's strategy for economic growth and development appeared remarkably successful. Agricultural output of cash crops expanded, and, as evidence of diversification, the relative importance of unprocessed coffee, cocoa, and timber diminished as that of bananas, cotton, rubber, palm oil, and sugar grew. Using revenues from commodity sales, the government upgraded roads, improved communications, and raised the educational level of the work force. Local factories were replacing some imports by producing a wide variety of light consumer goods.

During the 1970s, the government's economic objective of growth remained unchanged. Agriculture--coffee and cocoa in particular-- remained the mainstay of the export economy and the largest component of GDP until it was overtaken by the service sector in 1978. But while agriculture provided about 75 percent of export earnings in 1965, that total had shrunk by 20 percent by 1975. Between 1965 and 1975, agriculture's share of GDP also declined by almost 20 percent. Industrial GDP, derived primarily from import substitution manufacturing and agricultural processing, increased by 275 percent from 1970 to 1975, while industry's share of export earnings increased from 20 percent in 1965 to 35 percent in 1975. The fastest-growing sector of the economy was services, which as a share of GDP increased by more than 325 percent from 1965 to 1975.

At the same time, problems that arose during the previous decade required adjustments. To reduce production costs of manufactured goods, the government encouraged local production of intermediate inputs, such as chemicals and textiles. The government also shifted some public investment from infrastructure to crop diversification and agricultural processing industries to improve export earnings. Meanwhile, work on such major projects as the Buyo hydroelectric generating station continued. Foreign donors, attracted by Côte d'Ivoire's stable political climate and profitable investment opportunities, provided capital for these endeavors. Until 1979, when coffee and cocoa prices plummeted and the cost of petroleum products rose sharply a second time, virtually every economic indicator was favorable.

Over the same twenty years, however, structural contradictions in Côte d'Ivoire's economic strategy became apparent and presaged the serious problems that became manifest in the 1980s. First, the emergence of a domestic market large enough to allow manufacturers of import substitutes to benefit from economies of scale required a wage for agricultural workers--the largest segment of the labor force--that was high enough to support mass consumption. But because the government relied on agricultural exports to finance improvements to infrastructure, commodity prices and wages could not be allowed to rise too high. Second, the government's focus on import substitution increased demand for intermediate inputs, the cost of which often exceeded that of the previously imported consumer goods. Moreover, Côte d'Ivoire's liberal investment code encouraged capital-intensive rather than labor-intensive industrial development. Consequently, industrial growth contributed little to the growth of an industrial labor force or a domestic market, and prices for consumer goods remained high, reflecting the high costs of production and protection. The investment code also permitted vast funds to leave Côte d'Ivoire in the form of tax-free profits, salary remittances, and repatriated capital. Decapitalization, or the outflow of capital, led to balance of payments problems and the need to export more commodities and limit agricultural wages. (As a result, the domestic market remained small, and consumer goods remained expensive.) By the start of the 1980s, as surpluses from commodity sales dwindled, the government continued to depend on foreign borrowing to stimulate the economy. Inexorably, the external debt and the burden of debt service grew.

In the 1980s, a combination of drought, low commodity prices, and rapidly rising debt costs exacerbated the structural weakness of the Ivoirian economy. Between 1977 and 1981, both cocoa and coffee prices fell on world markets, the current accounts balance dropped precipitously, and debt servicing costs rose, compelling the government to implement stabilization policies imposed by the IMF. The economy sagged even more when a drought during the 1983-84 growing season cut agricultural and hydroelectric output at the same time that rising interest rates on international markets increased the debt burden. No sector of the economy was untouched. Between 1981 and 1984, GDP from industry dropped by 33 percent, GDP from services dropped by 9 percent, and GDP from agriculture dropped by 12.2 percent.

Between 1984 and 1986, a surge in commodity prices and output, coupled with increased support from Western financial institutions, provided a momentary economic boost. The record 1985 cocoa crop of 580,000 tons, combined with improved prices for coffee and cotton, bolstered export earnings and confidence in the economy. Following both the 1984-85 and the 1985-86 growing seasons, the government again increased producer prices for cocoa and coffee, resumed hiring civil servants, and raised some salaries, all of which led to a rise in consumption. Food production also increased during this period, allowing food imports to drop. Similarly, a reduction in the cost of oil imports helped the country to attain a large commercial surplus by the end of 1986, thus considerably easing the balance of payments difficulties experienced earlier in the decade. These factors, combined with the rescheduling of foreign debt payments, gave the government some flexibility in handling its debt crisis and allowed it to begin paying its arrears to domestic creditors, including major construction and public works firms, supply companies, and local banks.

The economic resurgence turned out to be short lived, however. In 1987 the economy again declined. Compared with the first six months of the previous year, sales of raw cocoa fell by 33 percent, and coffee exports plummeted by 62 percent. GDP declined by 5.8 per cent in real terms, reflecting the slide in local currency earnings from exports. The trade surplus fell by 49 percent, plunging the current account into deficit. Trade figures for the first half of 1987 revealed a 35 percent drop in the value of exports in comparison with the same period in 1986.

In May 1987, the government suspended payments on its massive foreign debt and appealed to official government lenders (the Paris Club) and commercial lenders (the London Club) to reschedule debt payments. The Paris Club acceded in December 1987; the London Club, in March 1988.

As negotiations were proceeding, lenders pressured the government to introduce fiscal reforms. In January 1988, the government implemented a series of revenue-raising measures, which extended the value-added tax to the wholesale and retail trades and increased import tariffs, stamp duties, and tobacco taxes. In addition, the government initiated programs to privatize most state enterprises and parastatals (companies under joint government and private ownership) and to give a "new orientation" to industry.

Privatization was not a new measure. In 1980 the state made divestment an official policy and offered for sale many state corporations and the state's shares in jointly owned enterprises. Because the response to divestment was sluggish, the government proposed innovative alternatives to outright denationalization, such as leasing arrangements and self-managing cooperatives. By 1987, however, only twenty-eight of the targeted enterprises (in agribusiness, trading and distribution, public works, and tourism) had been sold. Moreover, the state still accounted for 55 percent of direct investment in the country.

The structural adjustments required by the World Bank in 1987 gave a new impetus to the divestment process. The government placed 103 industries in which it had holdings up for sale, although several companies considered to be of strategic importance to the country were later taken off the market. Included in this category were the Commodity Marketing and Price Control Board (Caisse de Stabilisation et de Soutien des Prix de Production Agricole--CSSPPA), the Petroleum Operations Company of Côte d'Ivoire (Petrole de Côte d'Ivoire--PETROCI), the Ivoirian Maritime Transport Company (Société Ivoirienne de Transport Maritime-- SITRAM), and the Ivoirian Mining Company (Société pour le Développement Minier de Côte d'Ivoire--SODEMI).

Divestment was a mixed success at best. Although Ivoirians took over more than half of the companies, those enterprises in which Ivoirians held a majority of the capital were very small--three- quarters were capitalized at less than CFA F50 million (for value of the CFAF)--and their rate of return was substantially lower than that of foreign-owned and state enterprises. In general, the larger the capital of an enterprise, the smaller the proportion owned by Ivoirians.

https://en.wikipedia.org/wiki/Ivory_Coast
http://countrystudies.us/ivory-coast/


Country Studies main page | Ivory coast Country Studies main page