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 helping deepen a country's and
local community's 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 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 people and 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 and technical expertise. This hurdle has bred
discouragement—small firms and microfirms feeling disempowered
and more susceptible to the shadow of larger and well connected
and politically savvy businesses thus perpetuating a widening
and disproportiate gap between these sectors of the economy.
Many 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 US
and many others have taken concrete steps over the last several
years to enhance 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 bred a dynamic and vibrant growth sector of private equity
investment in Africa whose seed funds sometimes 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 committed
an investment of roughly $25 million with more likely to follow.
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 should be 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 in Ghana 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.
Mr Chairman, the picture of achievement and
potential in Africa 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 increased 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, resources, and choices to the many who live and die with
so little.
I thank the Committee for the opportunity to
offer my thoughts during this inquiry.
Ian Houston
January 2006
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