Sometime before the year 2050, the number of Africans between the ages of 15 and 24 will pass the 400 million mark. Where and how will they work, and will they earn enough to support their families? Today, many young Africans queue up for jobs in the public sector, and remain unemployed when these are unavailable. Many opt for migration as a solution, often by uncertain and highly dangerous routes. What has too often been left out of the calculus is the private sector, which currently accounts for 90% of the new jobs created in developing countries globally, and which will ultimately be the engine of job creation in Africa. The good news is that in 2005 and 2006, Africa became an easier place to do business, with dozens of countries cutting the time, cost and red tape involved in establishing a firm and complying with legal and regulatory requirements. Two out of three African countries in this period reformed the business climate in some way. Niger, for example, shaved nine days off the time it takes to register a new company. Mali eased the requirements for obtaining a building permit and made simpler the inspections for new construction. The result: a 36% drop in construction costs. Burkina Faso reduced the number of procedures required to launch a business. Similarly, Madagascar chopped the time and expense of starting up. Of course, to benefit from the improving environment, African companies must sell products and services the rest of the world wants to buy. That’s increasingly the case. Kenyan roses account for over 60% of the roses sold in Europe today, but flowers from Ethiopia, Uganda and Kenya are gaining market share as well. Affiliated Computer Services operates in Ghana, providing back-office services for the healthcare, insurance, and communications sectors. A to Z Textiles, a Tanzanian company, employs a workforce of 3200—90% being women—to produce a growing output of mosquito nets. World Bank research in Africa shows that at the factory floor level, African firms show productivity levels that aren’t too far from those of China, Bangladesh and other developing countries that have lowered poverty levels considerably through expanding exports. It’s the high indirect costs of regulatory inefficiency and poor infrastructure that put otherwise competitive African companies at a disadvantage. In Rwanda, when ships load up on coffee in Mombasa, coffee farmers only get 20 percent of the sale price. The other 80 percent goes partly to so-called informal payments along the way, but also partly to transportation costs. Cutting these costs by as little as 1 percent would translate into a 5 percent increase in the incomes of poor farmers. Lowering the costs of power outages would help hundreds of firms raise productivity, expand exports and pay higher wages. Overall, the environment to address some of the problems inside African borders is improving. Africa is also seeing a pick-up in economic growth. A group of fast-growing countries, excluding the oil producers, have posted an average annual growth rate of 5.5 % in recent years. These countries are home to 35 % of the people in Sub-Saharan Africa. To push the African economy to the next level of expansion, and to bring along countries that are lagging, Africa will need much higher investment. According to the United Kingdom’s Commission For Africa, “the challenge is to generate an environment where Africans want to invest in their own farms, businesses, countries and continent, and which attracts greater flows of foreign investment.” Currently Africa’s ratio of investment to GDP stands at 18%, well below the 24% average for all developing countries, and the lowest of any developing region. Improved investment conditions will stimulate more domestic investment and more foreign direct investment, which remains feeble. Net foreign direct investment in Africa was $10.1 billion in 2004, a mere 1.6 % of global flows, with more than half going to Nigeria and Sudan. Historically, African countries have looked to development assistance to solve economic and social problems, but this is out of step with other developing economies, which get more out of private investment. Indeed, for every dollar that donors send to developing countries, there are four more dollars that arrive in the form of private investment. Senegal, notwithstanding a record of macroeconomic stability and steady growth, sees a surprisingly low level of foreign investment. Local firms say that credit is so costly, and often unavailable, that they aren’t expanding and creating jobs. According to the Bank’s Investment Climate Assessment for Senegal, local firms also are held back by low confidence in the judiciary system and a regulatory framework many find confusing. Recent trends are encouraging, however. In 2005, according to the U.N. Conference on Trade and Development, inward foreign direct investment rose 78% to $31 billion in Africa, second only to the increase in direct investment flows into West Asia. If African countries begin to get more of their share of foreign direct investment, the economic ripple effects in job creation, higher growth and technology transfer will be considerable. More countries are working with the private sector to set priorities for reform. The World Bank and International Monetary Fund have assisted the African presidents of Ghana, Mali, Senegal, Tanzania and Uganda in establishing high-level investor councils to shape strategies for improving the investment climate. In Senegal this group helped push a new anti-corruption law. In Ghana, the investors’ council pushed to reduce the time required for clearing customs. By removing some of the obstacles that make it hard for businesses to expand, improve productivity and generate jobs, these countries are investing in job creation. Such moves are good for enterprises, but they are critical for a growing generation of Africans looking for a livelihood and a basis for hope. |
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