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1            Background of the Study:

At the inception of SAP it was clearly stated that " the objective of Government is to evolve a realistic and sustainable market determined exchange rate for the Naira, so as to reduce the demand for foreign exchange to available supply and to reduce the pressure on the balance of payments" (CBN Annual R'eport1986, Obadan 1993~377)" --- The package of adjustment measures adopted from 1986 placed a heavy burden on monetary policy for containing domestic and external sector instability " (Akatu 1993 : 321 ) .

The above x-rays some of the major projections shared by governments and people of many Sub- Saharan African countries on the prospects of the IMFNVorld Bank initiated structural adjustment programme introduced in the 1980s. The objectives of SAP include inter aha:

I              Strengthening the Balance of payments position.

2.       Reduction in domestic financial imbalances, including less government deficit financing.

3.        Elimination of price distortions in various sectors of the economy.

4.        Promotion of domestic savings in public and private sectors.

5.        Increasing trade liberalization.

6 .      Revival of orderly relationships with trading partners and creditors.

7.           Mobilization of additional external resources. (Tarp 1993: 2). Exchange rate and Money supply were instruments judged important in the reallsation of the above objectives of SAP


Whereas Ghana initiated reform programmes in 1983 (with the advent of the Rawlings administration in 1982), Nigeria waited three more years before joining the queue (by the Babangida administration in 1986). The deregulation of the exchange rate in both economies (an automatic requirement of the structural adjustment) led to the use of external reserve in the management of monetary policy. Before adjustment, inflation rate in Ghana stood at 116% (1977 rate) and

peaked at only 39% in Nigeria (1984 rate). With the introduction of SAP however the situation changed for both counties. By 1991 it stood at a single digit for Ghana and 13% for Nigeria (the latter having risen earlier 50.4% in 1989) (Faruqee 1993: 280, Leechor 1993: 161).

On the exchange rate front, the Ghanaian cedi was devalued from C2.75

per'dollar in 1983 to C90 per dollar in 1986. Even at that though, the parallel market rate was still about twice the official rate. This led to the introduction of the foreign retail auction in 1986, which covered most trade transactions with the exception of cocoa, petroleum and other essential imports. The foreign exchange market thereafter functioned smoothly as the exchange rate adjusted to changing market conditions and the overvaluation of the cedi was virtually aliminated (Leechor 1993: 161).

The situation in Nigeria however, was not as smooth. The phasing of the transition to deregulated rates and the introduction of different tiers of foreign t?xchange raised some practical problems. The first-tier foreign exchange which applied to official transactions was pegged at a rate far above the market determined second-tier rate. This placed a large premium on rent-seeking activities, which increased greatly, and introduced further distortions in the economy. Even after the merger of the two tiers in 1987, two separate rates still existed - the official and inter-bank rates. The rapid expansions of money


supply (from N3.8 billion in 1985 to N52.7 billion in 1988) helped accelerate the growth of the margin between the official auction rate and the market determined

inter-bank rate (Faruqee 1993: 280;  he Economist 1988: 8).

These factors-coupled with different levels of national governments' commitment to the reform processes and institutional /cultural constraints- led to d~vergentoutcomes in the reform attempts of the two countries. A closer examination therefore of these key factors as they obtained in the two countries may yet be of importance to the counties in the Sub Saharan Africa (SSA) region in their struggles for economic realization.

1.2     Statement of the Problem;

It   is  obvious     that   the   question  of    macroeconomic    adjustment     has

generated immense interests among policy makers - and that rightly so. It is now common to characterize economic policy regimes in many African countries as pre-SAP, SAP or post-SAP. The success or failure of SAP has also meant the success or failure of many economic units in these countries.

However, despite the milestone that SAP was in many countries, there have been mixed results from different countries regarding its implementation


and effects. (World Bank 2001: 1). For example, while Ghana had been hailed as a successful reformer, Nigeria has passed for a non-reformer. (World Bank 2001:1, Herbst and Soludo 2001; Husain and Faruqee: 1996: 1-8). A big question then arises vizr Given that initial conditions in most of these countries were identical, what are the determinant factors behind such discrepancies in outcomes of implementation of SAP?

Several answers can be (and have actually been) given. But a large amount of such answers are based on sentimental approach(es), which examine only the sociopolitical reactions attendant upon the implementation of SAP (e.g. Ejiogu 1989; Ashwe 1988: 19 - 20 among others). There have been some critical analysis based on the performance of certain macroeconomic variables, for example, the balance of payments, in the reforming country (e.g. Okorunmu 1986 for Nigeria). While these approaches may have certain utilitarian uses, they have the underlying assumption that the implementation procedure and the institutional composition of the reforming countries were adequate, and that only the policy effects needed examination. But given the insight proffered by

Englebert and Hoffman (1996: 16), cross-country analysis of implementation ' procedures and institutions have a lot to offer in attending to the puzzle of the performance of SAP in Sub-Saharan Africa.

One such instrument and institution that may require assessment is the exchange rate. Doubtless, it was one of the most pervasive instruments used for structural adjustment in many African countries. Yet there has been very little examination of the efficiency of the exchange rate in many African countries. Few (like Aron and Ayogu 1995:150-192) that handled such did so on an individual country basis and did not relate their work to SAP. Besides, the effects of changes in monetary variables on the performance of output growth before and after SAP have received little attention. In view of that, there is the need to examine the relative efficiency of the foreign exchange market in Nigeria and Ghana and compare the outcome relating the findings to the performance of both economies in the implementation of structural adjustment. There is also the need to examine the relative importance of money supply in both countries and assess their impacts on output growth with an eye to finding the underlying


reasons  for  the  differences     in final  outcome  of  the  implementation of  the

structural adjustment programmes in the two countries.

1.3     Objectives of the Study:

In view of the above, the broad objective of this work is to assess the relative efficiency of some institutions 1 instruments crucial to the success of the IMF programme in sub Saharan Africa. This we shall undertake in two sub-objectives viz:

1.              To assess the relative efficiency of the foreign exchange market (institutions of SAP) in Nigeria and Ghana.

2.              To examine the significance or otherwise of monetary movements on economic performance in the two countries.

The findings under both Sub-objective shall be related to general policies and performance of the two economies during SAP and after SAP

1.4 Statement of Hypotheses;

This study shall therefore be guided by the following hypotheses.

1     The foreign exchange markets in both countries are efficient, and so are not

responsible for the differences in outcome of SAP implementation.

2.       Money supply in both economies are not relevant to the changes in


growths in both countries and so have no effects on outcome of SAP policies.



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