Memorandum submitted by Clydebuilt International,
USA
In my experience studying the levers available to
stimulating private sector development in Africa, I have witnessed
an encouraging donor emphasis on the fundamental question of deepening
a country and local community commitment to a pro business environment.
My familiarity with microenterprise and small and medium enterprise
(SME) activity in Africa and elsewhere convinces me that an unhealthy
business climate burdened with the attributes of corruption, overegulation,
and taxation, etc. hits smaller and informal firms the hardest.
Consequently, because these sectors are so large in economic scope,
millions of vulnerable families struggle that much more.
In the United States and in the United Kingdom (and
in many other countries) if an entrepreneur has an imaginative
and practical idea to develop or grow an existing business they
have access to credit and outside financing. In Africa this is
not always the case. It is not that Africans lack entrepreneurial
flair, imagination, and commitment to making an SME or microenterprise
succeed, quite the contrary, it has traditionally been their lack
of access to credit. This hurdle has bred discouragement -- small
firms and microfirms feeling disempowered and frankly more susceptible
to the shadow of larger and well connected political businesses
thus perpetuating a widening and disproportiate gap between these
sectors of the economy.
As suggested public donors such as the United States
Agency for International Development, DFID, the United Nations
Development Programme (UNDP), International Finance Corporation
(IFC), the new Millennium Challenge Corporation (MCC) in the U.S.
and many others entities have taken concrete steps over the last
several years to address the issue of enhancing the overall business
climate in specific countries. Avenues are being pursued through
dialogue with governments, donors, and private sector actors to
reduce regulatory and administrative burdens and barriers, encourage
competition, and lower taxes.
A consequence of this activity and dialogue has bread
a dynamic and vibrate growth sector of private equity investment
in Africa whose funds come from public donors such as the British
and Canadians. The Canadian Government last year set up the Canadian
Investment Fund for Africa (CIFA), which consisted of an anchor
commitment of roughly $100 million. The equivalent contribution
is being raised from third parties. The UK's CDC is directly engaged
in this activity and has commitment an investment of roughly $25
million with more likely to follow. In essence, the fund will
provide risk capital for private investment in companies in Africa
to generate economic growth. Two Canadian firms, Actis and Cordiant,
were selected to manage the fund. Actis in particular is quite
impressive with a team that has considerable financial and economic
experience in Africa. And so more broad-based private investment
will make a clear difference in creating long-term sustainable
businesses in Africa with potentially enhanced trade and offering
investors very competitive returns.
Further, I have been impressed and encouraged with
an British initiative that has now taken form. It is called the
Investment Climate Facility (ICF). The ICF is dedicated to enhancing
overall investment conditions across the African continent. While
in its infancy it has great immediate potential because it has
backing from indigenous African groups and institutions, donors,
and entities in the private sector that daily work in the trenches
of the market. What is particularly attractive about ICF is its
practicality or in other words it offers a fundamental solution
to reducing regulatory barriers for investment. It also addresses
head on a growing consensus over the last several years that favorable
investment and pro-business atmosphere is imperative. While the
stated longevity for ICF is seven years beginning this month,
it could quite easily go beyond that due to its performance in
meeting objectives and if future funding streams are identified.
The African story is increasingly exciting
as economic and political reforms sweep across the continent.
In particular, the language of development has altered. What is
becoming clear is that entrepreneurs are the bellwether of wealth
creation. And their successes will continue to dispense with the
notion that government is the predominant agent of successful
development and growth. By nature, government can become an impediment
to growth through policies that create disincentives. The role
of government is to help set the conditions for growth and enhance
entrepreneurial trends both in the rural and urban areas of Africa.
A healthy, confident, and vibrant entrepreneurial class will dramatically
reduce African poverty.
I recently spoke with a President and
CEO of a firm called ENO International based in Accra, Ghana that
invests in plantation agriculture, financial services, among other
sectors. His name is Roland Akosah. Roland is a respected and
well-educated businessman and he typifies entrepreneurship and
risk-taking and has an excellent grasp of the local marketplace.
He notes that optimism is in the air. We both believe that a business-friendly
government has labored to stabilize the local currency since 2001.
It has managed to add to the country's foreign exchange reserves
even as unprecedented increases in crude oil prices threaten Ghana's
long-term growth. The ten-year old stock exchange continues to
yield impressive returns to investors. From housing construction,
telecommunications, pharmaceuticals and to plastics, there are
impressive private sector stories to tell from Ghana. Perhaps,
the most impressive untold African story is that of ECOBANK, a
pan-African financial services firm, operating in over ten African
countries. ECOBANK has built $2 billion equity from $32 million
in 15 years.
In conclusion, the picture of achievement
and potential is captivating and uplifting, but still fraught
with clear challenges. Over-crowding and old farming practices
have decimated the countryside. Thus, a rural-urban drift has
set in across Africa. Consequently, the business air quality is
such that it leaves many entrepreneurs, while focused and anxious
at the starting line, gasping for breath even before the gun goes
off.
Directly addressing the climate in which African
entrepreneurs operate and do business is key. Governments and
international donors must make investments that bolster emerging
and promising enterprises and create the economic conditions for
an emergent, dynamic entrepreneurial class in Africa to flourish.
By so doing, we will loosen the grip of poverty, and provide more
hope and resources to the many who live and die with so little.
17 January 2006
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