Studies conducted by the World Bank in the 1980s and 1990s concluded that Africa was not doing well economically and socially largely because of distortions in the domestic domain. In its 1994 report entitled Adjustment in Africa: Reforms, Results, and the road ahead, the Bank noted that although there was no single explanation for Africa’s poor performance, economic decline was due in large part to poor domestic policies at macroeconomic and sector levels. The distortions were compressed into state intervention in production and economic regulation; overvalued exchange rates; large and prolonged budget deficits that undermined macroeconomic stability needed for long-term growth; protectionist trade policies and government monopolies through nationalized enterprises and financial institutions that reduced competition vital for increasing productivity; and a bias against exports especially of agricultural produce through heavy taxation.
The Bank recommended a new development paradigm (structural adjustment) to correct these policy distortions. It called for the state to be limited to the provision of basic services and a stable policy environment; promotion of exports with a focus on agriculture; promotion of private sector; maintenance of macroeconomic stability; and avoidance of overvalued exchange rates.