 To grow economically, Africa must unleash the power of its enterprises to create jobs, expand exports, and generate wealth. Recently, pockets of export success—cut flowers from Kenya, vegetables from Senegal, clothing from Lesotho—have highlighted the fact that African producers can succeed in the global economy. But to multiply the stories of business success, African governments and their international partners will have to move in two directions: first, they must make the regulatory and legal climate for enterprise less costly and more transparent; equally important, they must increase their investment in infrastructure, particularly roads and power supply. Currently, entrepreneurs face more business obstacles in Sub-Saharan Africa than in any other region. According to the Africa Action Plan, “the combination of high regulatory costs, unsecured land property rights, inadequate and high-cost infrastructure, unfair competition from well-connected companies, ineffective judiciary systems, policy uncertainty, and corruption makes the cost of doing business in Africa 20-40 percent above that of other developing regions.” Firms in the region, particularly small and medium-sized companies, also complain of high financing costs, or little or no access to credit. To help countries take stock of the obstacles to private sector expansion, the Africa Region has conducted Investment Climate Surveys in fourteen countries, and is expanding the program this year to cover all countries. “Country by country, we are coming to identify the factors that have for too long made Africa a high-cost-high-risk environment to do business,” said Demba Ba, manager of the private sector development unit in the Africa Region. “The challenge lies in translating the analysis into specific actions. We have a number of efforts underway to build on the investment climate work. Indeed, the Africa Region has over $300 million in project lending to address specific constraints identified by the investment climate assessments.”  Cleaning up the environment for enterprise isn’t impossible. Rwanda last year took steps to ease the regulations governing cross-border trade, credit, and contract enforcement. South Africa, Botswana, and Mauritius rank among the more business-friendly countries in the world. Uganda and Tanzania both are undertaking reforms designed to reduce obstacles that emerged in the investment climate studies.
The payoffs can be significant. In Madagascar, a garment exporter estimated that if port clearance were reduced to one day, it would cut total costs by a sum equal to as much as 30 percent of the wage bill. The recently completed investment climate assessment for the country suggests steps for domestic entrepreneurs to expand their businesses and improve linkages to export processing zones.  ICAs, by benchmarking performance in particular areas, are supporting a pragmatic dialogue between governments, local businesses, and donors. Three pilots in setting up investor councils—in Ghana, and in Tanzania and Senegal—are showing the benefits of a constructive, problem-solving interaction between government and business in tackling issues like inefficient customs, and inconsistent tax enforcement. Two new councils started in Mali and Uganda will add to the experience.
In some countries such as Kenya and Senegal, factory-floor productivity isn’t far behind that of South Asian competitors. However, indirect costs stemming from unreliable power, costly transport, poor telecommunications, or crime create a sizable burden. Said Mr. Ba: “Identifying the most serious constraints country by country can guide us. This is one area where measurable progress should start to become evident in the next several years.” Currently, investment climate assessments are being disseminated in Senegal, Mali, Madagascar, South Africa, Lesotho, and Benin—with discussions underway to determine the policy or infrastructures changes most likely to unleash private-sector-led growth. |
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