DEVELOPMENT: New Africa Commission Report Reiterates Basic Goals

By Julio Godoy Reprint | | Print |

Julio Godoy

BERLIN, Feb 24 2009 (IPS) - Africa’s arduous path to development could be eased if governments took elementary measures to improve infrastructure, coordinate regional trade policies, capacitate customs personnel to speed up the regional exchange of goods and services and facilitate access of small and medium enterprises to financial resources.

These are some of the conclusions of a new study on African economic development perspectives, carried out by the Confederation of Danish Industry (CDI) in cooperation with several African private sector associations. The CDI is a premier employers’ organisation and lobbying body for Danish business.

The study, titled ‘‘A better future for Africa: Recommendations from the private sector’’, concludes that local governments and international cooperation should particularly focus attention on upgrading five sectors in the African economy.

Other than the above-mentioned improvement of infrastructure, access to finance and trade facilitation, the CDI says that professional education, technology transfer and the empowerment of women can play a key role in the launching of a steady development process in Africa.

The report will be officially present on May 7 in the Danish capital of Copenhagen, with the participation of representatives of the CDI, the Danish government and delegations from the African governments and the region’s private sector.

The paper is a CDI contribution to Denmark’s Commission on Effective Development Cooperation with Africa, known as the Africa Commission (AC), which was launched in 2008 by Danish Prime Minister Anders Fogh Rasmussen to make recommendations about the developmental challenges facing Africa.

Several international bodies, such as the World Bank and the United Nations, African governments and other regional groups, including African private business associations, are members of the AC.

The paper’s main thesis is that only the African private sector can create enough jobs to eradicate youth unemployment. ‘‘(Private) business is the single most important factor for creating jobs and economic growth, and thus eradicating poverty,’’ the document says. ‘‘However, for business to prosper, the right enabling environment must be in place.’’

But this ‘‘enabling environment’’ has not been a priority in African policies nor in international economic cooperation, Marie Gad, economic policy advisor at the CDI and author of the paper, told IPS.

Gad admitted that the five sectors identified by the report are commonplace in analyses of deficits in developing countries. ‘‘And yet, these sectors do not enjoy priority in the international economic cooperation initiatives or in the African governments policies,’’ Gad claimed.

To substantiate her claim, Glad said that less than 10 percent of the Danish development aid is aimed at improving the framework within which private business in Africa operates.

In the preparation of this report, the CDI discussed the business situation in Africa with eight business associations in Kenya, Uganda, Tanzania, Rwanda, Mozambique, Zambia, Botswana and South Africa.

According to Gad, these associations complained that the national and regional frameworks within which they are forced to work are not conducive to create jobs and wealth.

Gad gave another example. ‘‘African banking systems does not support the operations of small and medium sized enterprises (SMEs),’’ she said.

Indeed, the report points out that private sector companies need financing to expand. ‘‘However, in many developing countries, finance is not readily available, especially for small and medium-sized companies.’’

And, though finance has a high cost and is difficult to access in most low-income countries, ‘‘nowhere is credit more expensive or less accessible than in Sub-Saharan Africa,’’ the report indicates.

The report refers to the World Bank’s enterprise surveys, according to which almost 50 percent of African private companies identify this lack of access to credit as a major constraint for their operations.

This deficient access to bank financing mostly affects SMEs. While large companies can usually obtain credit at banks and micro entrepreneurs have access to the growing volume of microfinance, ‘‘SMEs fall into the so-called ‘missing middle’,’’ the report argues.

This situation is illustrated by the collateral requirements of African banks. Since few SMEs can show evidence of a credit history, banks require collateral. ‘‘Unfortunately, demand for collateral from African SMEs is generally between 100 and 200 percent, making it impossible to meet,’’ according to the paper.

Therefore, Gad said, ‘‘the CDI believes that facilitating credit access for growth-oriented SMEs should be a top priority in Africa.’’

The report recommends that an African ‘‘venture capital fund should be created to finance innovative projects that are commercially, socially and environmentally beneficial. The fund should be focused on a limited number of sectors, as food, water, health, housing, to be able to provide qualified advisory services to investment projects.’’

Furthermore, African countries need an increased use of credit reference bureaus. ‘‘In many countries there are no credible credit reference agencies for the banks to rely on in their assessment of loan applicants,’’ Gad added. ‘‘Thus, the unfortunate situation is that every company without collateral for a loan is a high risk client to the banks.’’

The report also proposes improving possibilities of using land, buildings and machinery as collateral through better ownership laws and practices, renewed focus on land measurement, establishment of conflict resolution mechanisms, increased awareness of the importance of protection of property rights, including land ownership.

Another example of the basic difficulties economic development faces in Africa are the barriers to regional trade. Studies on development since years emphasise that trade among developing countries – the so-called South-South trade – improve welfare gains, enhance regional linkages in the manufacturing sector and help diversify developing countries’ exports.

Following such conclusions, Gad suggests in ‘‘A better future for Africa’’ that enhancing trade across Africa can create new businesses and jobs and increase the standards of living.

However, the report points out, intraregional trade in Africa faces a number of barriers, including poor infrastructure, high tariff rates and low purchasing power in large parts of Africa.

Cumbersome border control and customs clearance constitute additional major problems. All these barriers represent additional costs amounting to 20 to 30 percent of the costs of goods, the study claims.

As a result, ‘‘international competitiveness remains low due to these problems and the prospects of developing interregional trade suffer,’’ the paper says.

‘‘A better future for Africa’’ does not only suffer of repeating well-known conclusions of other studies on development – it was also formulated before the global financial meltdown crisis worsened into the present global recession.

‘‘At the time we were working on the report, we did not imagine the full dimension of the global crisis,’’ Gad told IPS.

That the crisis and its consequences – credit crunch, reduction of international demand for African goods, and of official development aid – can darken African development perspectives, is beyond question.