The private sector is Africa’s primary engine of growth. It generates an estimated 70 percent of Africa’s output, approximately two-thirds of its investment and 90 percent of employment on the continent. Based on these statistics supplied by the African Union (AU), the creation and development of private sector jobs is seen as one of the most effective and sustainable strategies for elevating more Africans out of poverty.
Enhanced diversification of African economies has since become an important policy focus for the majority of countries on our continent. Efforts towards achieving economic diversification have also therefore brought to the fore the importance of private sector development, especially the development of small- to medium-scale enterprises (SMEs). Consequently, African governments in the region are embarking on structural reforms aimed at improving the business environment, a development that promises better prospects for inclusive growth and job creation over a sustained period of time.
Private sector growth also continues to be crucial in financing Africa’s future development. A dynamic private sector enables domestic revenues to grow, ultimately reducing dependence on foreign aid. Currently, combined domestic revenues across the African continent are now more than ten times the value of aid flows on our continent.
African states have made vast progress in improving the regulatory environment for business and promoting competition, trade and investment over the last decade. In 2011, 36 of 48 sub-Saharan African countries improved their business regulations. Rwanda has been an outstanding performer, demonstrating the value of sustained reform efforts. From ranking 58th in the world for ease of starting a business in 2006, it reached 8th place in 2011 and has been named several times among the top global reformers on the continent. Other strong performers include Burkina Faso, Mali and Ghana.
A 2012 Africa Development Bank study shows that the average cost of starting a business in Africa fell dramatically from $217 in 2006 to $77 in 2011, while the average time for business start-up declined from 58 to 35 days.
In addition, Africa’s competitiveness has also begun to improve, although it has traditionally started from a low base. Only three African countries (South Africa, Tunisia and Mauritius) feature in the top half of global rankings in terms of competitiveness, but a number of other African countries have begun to improve their positions over the past decade. However, costly red tape and draconian processes continues to be a widespread concern, encouraging businesses to remain in the informal sector.
Another constraint to private sector development in Africa is access to finance. A third of large companies and half of small enterprises struggle to secure finance on suitable terms. However, there are some encouraging signs. Over the past decade, there has been an explosion in financial service providers, including micro-finance institutions. The spread of mobile telephones has opened up exciting new opportunities for financial services. The number of stock markets covering the region has doubled since the 1990s, with 2000 companies now listed. This paves the way for African companies to mobilise the capital they need to invest in improving productivity and competitiveness.
Traditionally, Africa’s private sector development has been held back by a range of other factors, including inadequate infrastructure and education systems poorly suited to the needs of the labour market.
However, of particular concern currently is Africa’s lack of economic diversification. A typical African state is dependent on a handful of primary products (e.g. oil, minerals, cotton or cocoa) for the bulk of its economic activity, with little value added or offered. This results in limited economic opportunities which are far too often geographically concentrated, leading to wide regional disparities. Data from a 2011 Southern African Development Community (SADC) household survey suggests that between 15 and 20 percent of income inequality stems from differences among geographical areas.
Economic concentration also increases vulnerability to changes in commodity prices and climate variability. A key priority for the future is therefore diversifying Africa’s economic base to create opportunities for a larger share of the population, while creating more robust growth and reducing vulnerability.
A Public / state-owned banking system of the deposit-taking kind ( like ABSA, FNB etc.) needs to be established urgently to provide the much-needed finance for productive investment( not consumption) for SMMEs and entrepreneurs in the sectors of renewable energy generation, recycling, public transport, organic farming and local light manufacturing( The green economy)
Private sector growth and development in Africa exists by default. In most African countries, corruption, mismanagement and other destructive forces undermined what public sector growth and development could have existed. Furthermore, most African countries had extremely limited access to capital, and what they did have was squandered.
In other words, the facts in this article are largely correct, but they do not prove that private-sector development is necessarily ideal for Africa. In South Africa, for instance, where there was a much stronger state, the development of the private sector could not have taken place without the public sector’s involvement in developing transport, electricity supply and general social amenities. (As in virtually all countries.)
In reality, one could make a strong case that in Africa, the private sector is unduly powerful. Colonialism, after all, was essentially a private-sector initiative — which became all the more important once the colonial state’s hand was removed and the neocolonies were run for the profit of the metropolitan transnational corporations.
We are not going to diversify our economies without state intervention. South African mining companies are happy to continue mining until the ore runs out. If we want beneficiation the state will have to take care of it. Once it’s up and running the private sector will try to take it over, saying they always thought it was a good idea.
The only period that Africa had anything to trade was the very short colonial period when farming was built up by the colonisers – deliberately because the explorers like Livingstone had said that the Arab Slave trade was partly an Africa chiefs’ desire for manufactured goods like cloth and they only had people to sell in return.
Subsequently Africa has had a lot of minerals to sell, including oil, but it is still only the Chiefs (politicians nowdays) who have benefitted.
“However, costly red tape and draconian processes continues to be a widespread concern, encouraging businesses to remain in the informal sector.”
This could cause the economic statistics to become guess work for a large part.
The same is happening with unemployment statistics. Offically at 25%, unofficially rumoured at 40%. It is unlikely that this 15% difference does not make the odd Rand or is all employed in criminality.
A task for SA Stats to find better sources for their stats and forecasts to assist governement in planning and decision making.
I agree with both Yaj and Creator.
Government has a responsibility to create incentives to guide the economy into directions that foster greater social, environmental and economic sustainability and stability. Maybe we should heed Yaj’s suggestion and begin with overhauling our corrupt banking sector!
As Creator alluded to private sector growth as an intrinsic part of pre-colonial cultures which thrived for thousands of years in Africa, India, China, South America etc., before the cancer of colonialism swept over the world in the last few centuries. They were ALL about “private sector growth”, creating sustainable jobs and living in harmony with the environment.
Lee-Roy, though I liked your initial blogs, I find your recent blogs have taken on scholarly tones which seems to pander to an audience living in ivory towers. C’mon, get off that fence and lets hear your views on nationalization. I’m sure you’ll agree that nationalization of certain key industries is crucial to our long term survival and prosperity as a nation. Alternatively, should the 1%, in the name of “private sector growth”, be allowed to continue to extract obscene profits from the rape and plunder of our natural resources and its contribution to corruption of Africa?
Yaj
SA did have deposit taking banks called Building Societies, like Saambou and the Prudential – unfortunately the Afrikaner let them convert to banks.
More important, in my opinion, is that we had MUTUAL Insurance Companies – owned not by Shareholders at all, but by policy holders – like Old Mutual and Saambou – benefits were MUCH more when there were no shareholders. Unfortunately those were also allowed to convert.
Which is why we must resist any more privitisation of social responsibilities – like E-Tolling by outsider profit taking administrators, and hospitals run by shareholder profit taking Insurance companies.
Health, Justice, Education, Transport are the responsibility of the STATE.
Dave Harris says: “Maybe we should heed Yaj’s suggestion and begin with overhauling our corrupt banking sector!”
Kindly provide facts and/or corroborating evidence that our banking sector as a sector is corrupt. The reason why I am saying this is that your statement is clearly not meant to be opinion, but meant to be factual.
Please note: At any time, in any social sphere (government, industry, trade unions, charity organisations, religious movements, etc.), you will always find the OCCASIONAL individual that performs a misdeed. What you are implying, however, is that in the banking sector it is more than just isolated incidents, and that the whole banking sector is actually pervasively corrupt.
So since yours is not an opinion, but actually a statement, you should have the FACTS to back it up. And as already pointed out to you, showing isolated incidents will not be sufficient – the onus is now on you to PROVE beyond any doubt the existence of prevalent, sector-wide corruption.
As the saying goes: “Extraordinary claims require extraordinary evidence.”
If you cannot prove it, do the honourable thing and retract your blatant untruth.
Creator states: “We are not going to diversify our economies without state intervention.”
This is somewhat better than many of the unproven claims Dave Harris bandies about, as this statement is clearly an opinion (rather than the statement of a fact).
So let me respond in kind with my own opinion: “Too much state intervention is happening at the moment, which is stymieing diversification of our economies.”
Hhmm. Clearly I have exactly the opposite OPINION as Creator’s.
Now, if anyone says mine doesn’t prove anything, then I can just as well say that Creator’s opposite opinion doesn’t either.
So, neither of our OPINIONS added much to the debate, did it now…
On the other hand, Lee-Roy opened his piece with clear FACTS. I would suggest Creator reads and internalises those facts, and then maybe reconsider his/her OPINION in the light of facts.
PS. I am not asking the same of Dave Harris, because my reading of his writings suggest he doesn’t want to bother himself with facts.
@lyndal: The ANC learned this trick from the old guys. The “privatisation” of Telkom was such a case. A large chunk of the new shares were reserved and issued to “female blacks” and another portion ended up in the hands of a few top guys in the ANC and the communication world.
What is new?
Our banking system is one of the best regulated and safest in the world. If you don’t want to pay bank charges don’t internet bank and use a savings account. Don’t expect services for free.
Or if you must have a government deposit taking institution – open a savings account at the Post Office.