Building Private Sector Enterprise In Africa

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SINCE THE 1980’S, AFRICAN MARKETS HAVE WITNESSED A SUBSTANTIAL GROWTH. ACCORDING TO A MCKINSEY & COMPANY REPORT, THERE GENERALLY HAS BEEN A 4.9% REAL GDP GROWTH ANNUALLY FROM 2000 TO 2008.

The continent’s collective GDP was roughly $1.6 trillion in 2008, almost the same as Russia and Brazil. According to a McKinsey & Company report, the urban population of Africa in 2008 was found to be greater than that of India and almost the same as China. The growth can be categorized in three sections. The first one is restricted to some of the fast emerging countries that are highly successful in the world market. The second consists of countries that are somewhere in the transition stage while the third column is occupied by a minority few that are dawdling further behind.

The above situation can be attributed to a number of different factors. At one hand, the rising oil prices have provided stability to oil-producing countries such as Algeria, Nigeria, Libya, Gabon, Angola, Chad, Equatorial Guinea, etc. On the other hand, countries like Kenya, Tanzania, Uganda, Ghana, Senegal, Cameroon, and Zambia are relying on diversifying their resources. Some of them depend on agriculture while others on natural resources to support their economy. Then there are still those countries that are struggling economically such as Ethiopia, Sierra Leone, and Somalia.

Despite the above encouraging numbers, majority of people on the continent still live on less than $10 (see chart below) a day. Poverty, disease and high mortality rate continues continues to be a great challenge that can only be tacked by constant boom in local and national economies. Hence, how do we continue to grow the aforementioned industries on the continent? The only way we can enhance this growth and guarantee that Africa continues to rise in a rapid way is solely through the betterment of our private sectors.  At the minute, private sector enterprises are not on the forefront of the growth taking place in Africa and until that changes, we cannot have economic growth stability.  According to the African Action Plan, entreprenuers currently face more business obstacles in Sub-Saharan Africa than in any other region in the world, a 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.”

How we can Build and Grow the Private Sector in Africa!

In order to improve the private sector on the continent, major reforms are required on governmental level. The good news is that some countries are already working on carrying out these reforms. Rwanda is an example. It’s now faster to open a business in Rwanda than it is in the US. Rwanda and Madagascar are the only African countries that rank in the top 10 of the fastest countries you can start a business in the world. More African countries ought to join that category. Below are some of the reforms that African registlators need to procure.

The first major reform needed is the clarification of the legal and regulatory policies, and work on their transparency. Introduction of business-friendly policies is essential. Governments need to change policies regarding the cost of exports and the taxes associated with it. Unless the legal and operational costs of running a business are reduced substantially, the chances of growth past the current scenerio will stay near zero.

Then, the infrastructure needs to be addressed: the cost of transport facilities in most countries in Africa is among the highest in the world. Energy facilities are also scarce and faulty, and business does not thrive in this kind of environment thus those problems have to be solved.  Most of these countries are not poor, just highly corrupted. They can build better roads and reliable energy plants, if corruption was halted, natural resources in these countries could be used efficiently to build a better insfrastructuuse.

The third reason that make certain businesses relactant to join African markets is that African countries have a weak (labour) skills pool. Today’s highly competitive labor market demands that our people receive top, proper education and that they are higly trained in labor and industrial skills. There is an essential need for extensive educational reforms in order to make labour adaptable to the work environment.

The lack of financial assistance for entrepreneurs in most countries has been one of the reasons why private sector industries in Africa has stayed stagnant. Capital is required to start a business thus we ought to extract a structured, functional and effective way of financing African entreprenurers. In developed countries, there are a number of associations that provide financial assistance to start-up businesses to help them flourish. We need to come up with the same associations. The formation of such institutions is critical in Africa’s private enterprise growth as it will encourage people to start businesses hence creating jobs and eradicating poverty e.t.c.

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Governments should also work towards regional cooperation with one another. Those that are already well on their way to growth and the ones that are still trying to gain basic necessities should coorperate as its a win win situation. Regional market integration among African countries can be quite efficient at providing initial support to new businesses. Other private businesses from around the world should also be encouraged and allowed to operate in African countries provided that they use native labour and create employment opportunities for locals. Governments should encourage an equitable and healthy competition between foreign and local markets to increase choices for consumers.

 

Conclusion

All of these facts call for strong leadership structures in Africa. Without proper change in the structures of our governments, growth is highly unlikely. Countries that have successfully emerged in the recent years are those that resolved their leadership issues and created a transparent and accountable system of practice. Achieving that could greatly enhance the private sector growth for emerging African countries, or any other emerging country in the world for that matter.

@RasMutabaruka

(Top image courtesy of emrc.be)

 

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