Listen to this article
The explosive growth of commercial activity in Africa, both local and international, cannot hide the reality that the continent remains a difficult place to conduct business.
Africa tends to get a worse press than it deserves, much to its own business community’s frustration. No one today talks about Asia as a homogenous block in business terms, lumping Myanmar in with Malaysia, or South Korea with Nepal – and Africa is equally diverse. Business conditions vary widely among its 52 countries.
Nevertheless, there are common challenges to doing business across much of the continent – challenges that frustrate home-grown companies as much as would-be international investors.
Across Africa, impediments to doing business include – to a greater or lesser degree – a weakly regulated business environment with most entrepreneurs confined to the informal sector; multiple barriers to accessing affordable finance; rickety legal systems and poorly enforced laws; inadequate infrastructure, poor power supply and unreliable access to input and output markets; and a political environment in which personal connections carry more weight than the law.
In the worst cases, businesses must cope with political instability, security threats and an operating environment that can frighten all but the most determined.
But as various recent studies suggest, including the World Bank’s Ease of Doing Business Index and the Mo Ibrahim Index of African Governance, the regulatory environment is improving, if unevenly, across most of the continent. And the opportunities are ever more evident to Africa’s traditional partners, now anxiously watching as China, India and other emerging economies ramp up their investment on the continent.
The continent’s advantages include abundant natural resources, whether commodities, land or energy, whose strategic and financial value is generally increasing. It also has a vast, inexpensive pool of labour; a growing middle class that brings growing demand for consumer goods (and better governance); and an increasing recognition that business can play a much greater role in reducing the costs of goods and services to all of Africa’s billion people, including the hundreds of millions living on or below the poverty line.
There are countless examples of bold businesses grasping these opportunities – and not just the “big ticket” items relating to extraction of resources, promoting tourism or investment in infrastructure, land or agricultural productivity.
Businesses also come from transforming frustrations into opportunities: addressing the energy deficit by tapping Africa’s vast natural power, including solar, hydro, wind and geothermal; using mobile phones to overcome communication barriers and to extend financial services to those without a bank account; and developing financial and other products that poor people and communities can afford.
Some companies are looking more systematically at ways to modify or tweak supply chains, not just to boost the bottom line, but also to create more jobs and thereby strengthen their local credentials. They are seeking to tap into the entrepreneurial talent of rapidly growing numbers of otherwise unemployed young men and women – for example, by extending credit, insurance and market support in ways that create business and learning opportunities.
The many examples of success are inspiring, but they are not being replicated at anything like the pace or volume required to keep up with rapidly growing numbers of people, particularly in urban areas, or to ensure that Africa can compete with the rest of the world.
Much more needs to be done if African countries are truly to be open to business from their own continent and further afield, as a drumbeat of policy reports both from business associations and the international development community now insists.
The recipes for success vary, but the key ingredients are not a mystery; there is now much experience to draw upon. The central challenge is to forge partnerships between governments, the private sector and the development community that will sustain progress.
Governments must offer basic macroeconomic and political stability, and consistent national policies that support private sector development, encourage local and international investment, reduce the cost of finance and of doing business, and reward local entrepreneurship.
They must ensure a predictable regulatory environment by acting on corruption, and invest in human capital, particularly women, by improving access to information, training and skills development, for example.
The private sector can make it easier for governments to respond to entrepreneurs’ needs by engaging in sustained policy discussions and setting out clear steps for governments to take that will improve the business environment and help cash-strapped governments develop better strategies for economic growth and poverty reduction.
The development community is increasingly energised by the imperative of engaging the private sector and entrepreneurs in activities that will spur equitable economic growth and create jobs. Without those activities, the goal of reducing poverty and achieving the Millennium Development Goals will remain a mirage.
Development bodies can help by reducing friction between impatient business, embattled bureaucrats and ambitious politicians by mitigating risks, funding pilot schemes, paying for research and marketing studies, or encouraging knowledge sharing across borders and sectors.
If bold businesses are beginning to grasp the opportunities Africa has to offer, governments and development partners need to be bold, too – and make improving Africa’s business environment a top priority on the fast track to growth and poverty reduction.
The writer is executive director of the Africa Progress Panel