Business Climate in Africa

A recent study about business on the continent reveals that:

Africa’s immense growth potential could help explain high levels of confidence compared to that of business leaders elsewhere, many of whom work in mature markets that were heavily impacted by the crisis.

At the World Economic Forum Africa, that was held in Dar es Salaam, Tanzania, the common theme was economic-development co-operation and taking a bigger spotlight on the international stage. “Time to move Africa from the periphery to the center of the global economy” was the common theme among those who attended.

Africans must believe in themselves and “be the change they want to see” was a message that resonated across the Forum’s sessions and private meetings. President Kikwete of Tanzania reminded participants at the closing plenary that the smallest share of global exports comes from Africa – just 3.5%. “Africa remains predominantly a primary producer and importer for industrial use. We produce what we don’t consume and we consume what we don’t produce,” he said. “This cannot continue.”

The press release went on to say that:

Despite Africa’s huge potential, it suffers from lack of integration in the global economy. “If there is any predicament to African development, it is this state of affairs,” said Jakaya M. Kikwete, President of Tanzania. “[It is time] to move Africa from the periphery to the centre of the global economy.”

To end the continent’s marginalization, Africans must believe in themselves and “be the change they want to see” was a message that resonated across the Forum’s sessions and private meetings. Jacob Zuma, President of South Africa, noted that the upcoming World Cup 2010 will show the world that Africa is ready to do anything. “There were a lot of doubts and scepticism. But people who come to Africa will see that we are not just bushes and mountains. They will see how Africa is ready to do anything that can be done anywhere else in the world.” President Zuma urged potential investors to act now. “In a short period of time, Africa is going to be the place for doing business globally. FDI will come on its own.”

There is no time for appropriate regulatory structure to be set up before initiating public-private partnerships, advised Pat Davies, Chief Executive, Sasol, South Africa, and Co-Chair of the meeting. “Focus on where there are markets and opportunities and use business to remove barriers,” he said. “Give business reasonable certainty and predictability and we can [create more] partnerships. Companies help create regulatory frameworks by making the investment decision.”

One of the keys to unlock Africa’s potential lies with young people, who comprise 60% of the population. “Let’s take a bunch of young people and put their minds on fire. You should believe in the demographics [of Africa], make your human capital capable and entrepreneurship will happen,”

The last part is key, especially when the continent has young demographics compared to Europe and Asia. There is lots of growth potential due to the fact the many people are of age to work for years to come, develop societies and create socio-economic dynamism built with new ideas and thinking.  We all know that people of old age rarely create or develop new break throughs that benefit the rest of society.

President Kikwete most important statement was when he said “Unleashing entrepreneurship is key, but will depend on quality education of Africa’s next generation of business and political leaders. The future of our nation is in the hands of our youth.”

I have to reinforce this point. Investment early on goes a long way to build a cohesive and productive  society for all. This has been proven over and over. It’s a solid foundation for success.  Besides education, the business has to be improved to create room and opportunities for entrepreneurs to network and small-medium size businesses.  improve the quality of a country’s business regulatory environment.

The World Bank uses 10 selected indicators to measure the competitiveness of an economy to investors. They include:

  • The ease with which one can start a business.
  • How long one takes to get construction permits for a premise.
  • The ease with which one can hire workers or relieve them of their duties when necessary.
  • How long it takes for one to register property.
  • The ease with which one can obtain commercial credit
  • How well an investor and his investment is protected from expropriation or harassment.
  • The ease with which one can pay taxes.
  • The ability and efficiency of importing/exporting goods and services from the host country.
  • How efficiently and effectively one can enforce a contract in default and finally the ease with which one can close their business if need be.

Investment indicators

These indicators measure the quality of a country’s business regulatory environment.

Africa has the poorest business environment with the average rank of all sub-Saharan Africa countries being position 139 out of 183 countries. It is, however, the second fastest reforming region going by the number of reforms undertaken in the last one year after eastern Europe and central Asia. This means improving the business environment and trade maybe finally hitting home in a continent known for bureaucratic quagmire and corruption.

It is sad that Africa is home to the poorest, economically marginalized, and least developed but with technologically sophisticated human beings on the planet. For a continent endowed with natural resources, our governments should ensure we are the first and fastest in terms of reforming and improving our business regulatory environments to hasten socio-economic development at national, regional and continent wide level.

From the ‘Doing Business 2010’ rankings, the country’s business regulatory environment deteriorated and therefore, dropped by 11 places from position 84 last year to position 95. Rwanda has a consistently improving business environment and was the world champion reformer last year beating countries with long trading histories like the UAE and Egypt.

Mauritius, at position 17 has the best business environment in Africa and made six changes to the regulatory environment which helped it improve its ranking by six positions. Others ranked as having better environments in Africa ahead of Kenya were South Africa, Namibia, Rwanda, Zambia and Ghana at positions 34,66,67,90 and 92 respectively ahead of Kenya.

Investing in Kenya takes 12 formal procedures, 34 days on average and costs about a third of per capita productivity.

Less duration

In Germany, an Organization for Economic Co-operation and Development (OECD) country, it takes only nine procedures (five of which take place concurrently), an average 18 days and only a twentieth of a German’s per capita productivity.

But in construction, Kenya is doing well.  The country has 11 procedures one must fulfil to invest. Kenya is ahead of the OECD average of 15 procedures and five months. This is the best rational explanation for the construction boom that has been happening since 2004.

The steps that are taken need to be duplicated across the continent, not just in certain pockets for the continent to prosper.

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