Tuesday, July 16, 2013

Promoting Intra-African Trade and Private Sector Dynamism

According to the Economic Development in Africa Report 2013 promoting entrepreneurship and building private sector supply capacity are vital to enhancing the capacity of African enterprises to produce and export goods to both regional and global markets. Efforts to promote entrepreneurship and intra-African trade must address the challenges presented by five distinctive features of Africa’s enterprise structure, namely (i) high and rising levels of informality, (ii) the relatively small size of African firms, (iii) weak inter-firm linkages, (iv) low levels of competitiveness and (v) the lack of innovation capability. 

There is therefore a need for policy actions to stem rising informality in Africa through facilitating the transition of firms from the informal to the formal economy. This requires simplifying procedures for obtaining permits for business registration, government provision of information to all citizens on how to start a business and on the rights and responsibilities of entrepreneurs, simplifying the tax system to reduce the cost and complications of complying with laws and regulations and strengthening the capacity of government agencies to administer laws and regulations.

African Governments should also facilitate the upward mobility of enterprises and the growth of firms by providing better access to finance and business services, particularly for SMEs. The establishment of credit bureaus and registries to reduce information asymmetry between lenders and borrowers is one feasible mechanism for enhancing access to finance for SMEs. Furthermore, developing the capacity of SMEs to meet the needs of large firms through training and the provision of business services and market information will promote inter-firm linkages and should be a priority for African Governments. 

Large firms (both domestic and foreign) can also contribute to the development of business linkages by providing SMEs with information on opportunities in their supply chain and also investing in education and training aimed at building the skills of the local community. 

African Governments should also address the constraints on intra-African trade imposed by the lack of transport, energy, communications and water infrastructure. The report argues that, given the scale and scope of African infrastructure needs, there is a need to strengthen domestic resource mobilization on the continent and also catalyze more private investment into infrastructure through public–private partnerships. It also recommends that regional development finance institutions should float infrastructure bonds to mobilize more funds for infrastructure development. Furthermore, it recommends that African Governments also address the issue of the lack of competitiveness of African enterprises, perhaps through granting subsidies to reduce the cost of factor inputs for exporting enterprises,

The establishment of a credible mechanism for effective relations between the State and business is also needed to unlock private sector potential, build productive capacity and enhance prospects for boosting intra-African trade. African Governments need to have regular consultations with the private sector for a better understanding of the constraints they face and how to address them. Purposeful and predictable leadership will also be needed to build trust between Governments and the private sector and create an environment that can enhance and sustain dialogue between both stakeholders. Checks and balances are also needed to ensure that close collaboration with the private sector does not exacerbate rent-seeking behavior. Transparency in dealings with the private sector and also the inclusion of civil society in dialogues between firms and Governments is a good way to reduce the scope for rent-seeking and corruption.

Rethinking the approach to regional integration

There is a need for a move towards a development-based approach, which pays as much attention to the building of productive capacity and private sector development as to the elimination of trade barriers. While the elimination of trade barriers is important, it will not lead to a significant expansion of intra-African trade if productive capacities are not developed. This requires deliberate government measures to strengthen the domestic private sector and promote industrial restructuring and economic transformation. It also requires a strategic approach to trade policy, coordination of investment into priority areas and strengthening of the institutions and capabilities of African Governments for implementing economic policies. The report identifies industrial policy, development corridors, special economic zones and regional value chains as important tools and vehicles for promoting intra-African trade within the context of developmental regionalism.

There is therefore a need for more direct intervention by the highest levels in government with regards to private sector concerns e.g. at the presidential level.


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