Africa: Private sector account for over 80 per cent of total production

AfDB President, Donald Kaberuka

 Africa’s private sector accounted for more than 80 per cent of total production, two-thirds of total investment, and three-fourths of total credit to the economy between the periods 1996 to 2008, African Development Bank (AfDB) said in its 2012 report.

The “African Development Report” published last month, also said the private sector was also responsible for 90 per cent of formal and informal employment. It also noted that the private sector in most African countries plays critical role to helping the continent reach its full economic and social potential.

Commenting on the report, AfDB President, Donald Kaberuka, said the sector is now poised to become the main engine of growth for the African continent, after being constrained for decades by difficult political and economic conditions and burdensome government policies.

However, he maintain that the private sector is also a provider of essential goods and services to the public and a key source of the revenues African countries need to meet their development challenges. 

The AfDB said it has made private sector development one of the four priorities of its Medium Term Strategy (MTS) for 2008-12, along with infrastructure, governance, and higher education. 

The Bank has been promoting the development of the sector for more than four decades, and is integrating private sector development across all its operations with threefold objective, in order to generate a greater developmental impact. 

“The objectives are supporting regional member countries in improving business enabling environments and strengthening their international competitiveness; broadening participation and inclusion in the private sector and supporting local enterprise development for spurring robust employment creation and improving social well-being; and encouraging the embodiment of social and environmental responsibility, sustainability, and good corporate citizenship in private sector development,” the report said. 

Though the private sector helps to reduce poverty, the AfDB laments that reliable statistics on private sector activities in African countries are scarce. 

It added: “Most of the activities are informal, carried out by micro, small and medium enterprises. Laws and regulations critical for private sector development and corporate governance were undermined by poor monitoring and enforcement.”

The Bank suggested that the development of Africa’s infrastructure at the pace necessary to unleash its economic potential requires a concerted effort to improve planning, preparation, and procurement capacities in line ministries and relevant sector units. 

It also requires the mobilization of financial resources; and adopt a regional approach to infrastructure development, it added.

Challenges

The “African Development Report” also examines the challenges facing the private sector’s development and underscore ways of addressing them by taking country differences into account. 

 “Although the private sector in African countries faces common challenges, the impact of these constraints varies according to the stage of economic development,” it noted. “Fundamentally, the constraints include insufficient transport networks and lack of access to power and finance.”

It also found challenges varying by type of firm, with large companies being more concerned about corruption, skill shortages and labour regulations, while export-oriented businesses place tax administration at the top of their list. 

These systemic factors are of less importance for small firms, which find the lack of access to (and high cost of) finance, insufficient collateral, and the business owner’s limited technical, management and accounting skills, to be more binding, the AfDB explains. 

It added that the most severe challenge for microenterprises is access to finance, with those in AfDB countries also constrained by business licensing procedures.

However, the AfDB president said “The Bank is committed to addressing the constraints of private sector development.  “We believe that private sector development is fundamental for creating inclusive growth through employment creation,” Mr. Kaberuka said. 

 

Written by Modou S. Joof

 

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