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African Industry in Decline: The Case of Textiles in Tanzania in the 1980s by Peter de ValkReview by: Howard SteinThe International Journal of African Historical Studies, Vol. 32, No. 2/3 (1999), pp. 585-587Published by: Boston University African Studies CenterStable URL: http://www.jstor.org/stable/220448 .

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BOOK REVIEWS 585

this collection of thoughtful writers, whose experiences in Uganda clearly left them deeply attached to the country and its people. They are prepared to accept a degree of responsibility for postcolonial failures but they reject the simplistic "divide and rule" conspiracy scenario. Finally, credit is due to the editors- Douglas and Marcelle Brown-for the remarkably high professional standard of production in this privately produced volume, which easily surpasses many recent prestigious university press publications.

JOHN A. ROWE

Northwestern University

AFRICAN INDUSTRY IN DECLINE: THE CASE OF TEXTILES IN TANZANIA IN THE 1980S. By Peter de Valk. Basingstoke: Macmillan, 1996. Pp. xii, 370; 62 tables, 19 figures. $65.00.

In recent years there has been a rancorous debate over the impact of structural adjustment on industry in sub-Saharan Africa. Proponents of liberalization argue that devaluation provides incentives to export and a disincentive to import, thereby encouraging the growth of export-oriented industries and more use of local resources. Protectionism should be reduced and made uniform to ensure that the incentives to produce reflect local opportunity costs of resources. Interest rates must be raised to real levels to attract savings while encouraging the use of more appropriate technology (e.g., avoiding capital-intensive technology that was adopted due to cheap interest rates). Financial deregulation and privatizing banks will permit financial institutions to allocate funds to finance private investment in industry. Reducing government deficits and restraining money supply growth will lead to stable prices that will enhance the climate for investment. Entrepreneurs in the informal economy will be encouraged to shift to small-scale manufacturing through market incentives and the removal of regulatory restrictions. Overall, reducing price distortions will help move production into industries that exploit the local comparative advantage, leading to a robust, efficient, and prosperous manufacturing sector.

Critics of World Bank/IMF packages argue that this view of the effect of adjustment on industry ignores the real world structural and institutional con- straints of African economies. Rapid devaluation can harm profitability of export- oriented enterprises by increasing the cost of imported inputs. High-quality local inputs may not be available as replacements. High interest rates and tight credit may work against industries relative to other sectors since they tend to have high- er working capital needs. Completely liberalizing foreign exchange may also harm industry due to the longer turnover period and higher costs relative to other groups like importers. Banking deregulation/privatization may have a deleterious effect since there are few incentives for private bankers to initiate loans to the industrial sector (they tend to be of longer duration and have greater risk).

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586 BOOK REVIEWS

Rapidly lowering protectionism can lead to problems on the revenue side as inexpensive imports can quickly flood local markets. The revenue problem can also be exacerbated by the tendency of the austerity embedded in conditionality to lower real wages and domestic sources of demand. Finally, adjustment does not deal with (and will likely exacerbate) an array of structural weaknesses that affect industry, including underdeveloped and unreliable infrastructure, a poorly devel- oped and eroding educational system with its implications for human capital, poor indigenous entrepreneurship, particularly in the informal sector, and so on. Over- all, critics argue that adjustment will deindustrialize existing industrial capacity without creating a significant amount of new investment.

Much of the early debate between the international financial institutions and their critics occurred in the absence of detailed empirical investigation. In the wake of a series of case studies of African industries under adjustment, this has slowly begun to change.1 In this context, Peter de Valk's detailed study of Tanza- nia's textiles in the early adjustment period of the latter part of the 1980s is a welcome addition to the literature.

The first two chapters draw heavily on the literature on industrial organiza- tion to lay out a series of theoretical explanations and tools used to explain indus- trial performance at the micro- and macroeconomic levels. Chapter 3 provides a useful summary of the changing nature of technology, industrial organization, and international agreements as they affect textiles. Of particular interest is the cri- tique of the UNIDO model of industrial transformation, which seems to be incon- sistent with recent examples in Africa and elsewhere. Chapter 4 provides an inter- esting summary and synthesis of different policy approaches to developing the textile sector from a variety of case studies (two in Europe, three in South and Southeast Asia, and four in Africa).

Chapter 5 gives a brief history of the Tanzanian postcolonial state and econ- omy, including the liberalization measures introduced in the 1980s and the discus- sions and debates concerning the parastatal sector. Chapter 6 presents a variety of economic indicators (profitability, exports, capacity utilization, and efficiency) to measure the performance of the textile sector in Tanzania from 1979 through 1988. Chapters 7 and 8 discuss and evaluate (using econometrics) the possible factors affecting textile performance (the implications for the debate over the impact of adjustment will be discussed below). The final chapter makes some recommendations to improve the performance of Tanzania's textile sector.

While the author nicely lays out the different traditions used to explain firm behavior in market economies, he relies on eclecticism to sidestep any attempt at resolving conflicts between the approaches. This is a bit disappointing since it misses the opportunity to use the Tanzania study to comment inductively on the

I See for example, Sanjaya Lall et al., Technology and Enterprise Development: Ghana Under Structural Adjustment (Basingstoke, 1994), for an excellent study of manufacturing in Ghana, and his follow-up article, "Structural Adjustment and African Industry," World Develop- ment 23, 12 (1995).

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BOOK REVIEWS 587

literature. De Valk creates artificial boundaries between theories by assigning one approach to a subgroup of each level of analysis (micro, meso, macro, and inter- national). For example, at the microlevel, measurements of efficiency in Tanza- nian companies rely on neoclassical production functions (relative or best practice total factor productivity using constant elasticity of substitution production func- tions). This effectively assumes the neoclassical microeconomic world of con- tinuous well-behaved isoquants and constant returns expansion paths where one is able to compare the relative distance from a hypothetical origin to determine the level of efficiency. At the macrolevel, in contrast, the author rejects the predatory state view embedded in neoclassical political economy and adopts more of a neomarxist view, which sees the ruling elements of Tanzania constituting a "form of monopolistic state capitalism."

Despite some minor reservations of this reviewer, the book does have important implications for debates concerning the underlying weaknesses of Afri- can industries and the impact of adjustment. Based on a 1988 detailed analysis of three representative firms (one private and two public), liberalization has contin- ued or exacerbated the trends of the preliberalization period, including a decrease in profit margins and capacity utilization. On the cost side, finance costs, espe- cially the servicing of foreign commitments, had risen. There had also been a drastic increase in the relative price of both imported inputs and domestic cotton (p. 266). On the revenue side, firms such as the TEXCO, the parastatal textile holding company, complained about the flood of imports from liberalization. TEXCO operations in 1988 were still badly affected by power shortages, inade- quate water supply, terrible shortages of foreign exchange, and liquidity problems due to credit constraints relative to higher needs (p. 241). De Valk warns in the book that most firms "will face serious problems in continuing production if remedial measures are not taken" (p. 266).

The econometrics testing evaluating the macroeconomic factors responsible for performance also leads to results contrary to the prediction of proponents of adjustment. Contrary to the neoclassical economic/adjustment view, textile exports were negatively related to the nominal exchange rate and positively related to domestic prices! The impact of the real effective exchange rate was highly insignificant on exports. Companies were therefore exporting to finance imports for the domestic market. Testing also indicated that profitability was negatively related to devaluation, supporting the critics' view that the impact on the cost side overwhelmed the incentives created by higher revenues. Overall the evidence indicates the need to go beyond adjustment's narrow focus on price variables to deal with the multifaceted challenges of reversing the decline of Afri- can industry. The book is highly recommended to those interested in understand- ing the complexity of these challenges.

HOWARD STEIN

Roosevelt University

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