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Private-sector development

Attracting investors

by Floreana Miesen

In brief

Informal businesses deserve a chance to grow into formal companies: hairdresser’s shop in Dakar, Senegal.

Informal businesses deserve a chance to grow into formal companies: hairdresser’s shop in Dakar, Senegal.

Africa’s economies are going strong. At the same time, intra-continental trade remains slow. Obstacles include poor infrastructure, investor scepticism and small businesses´ lack of access to credit.

In recent years, Africa’s economy has been marked by notable re­silience. Today, African countries are amongst the fastest growing economies in the world. According to the joint Economic Report on Africa, which was published by the African Union (AU) and the United Nations Economic Commission for Africa (ECA) this year, the average annual growth rate was five percent over the last decade, and the reason was better economic governance.

Nonetheless, Africa’s share in global trade remains a mere 3.3 % and is mostly based on commodity exports, according to the report. Trade relations, moreover, tend to link African countries to nations outside their continent. The AU and the ECA point out that inter-African trade is hampered by many obstacles, including poor trade barriers and poor infrastructure.

On the other hand, African countries import a lot of food from other continents. Africa needs to tap its potential to feed itself, says Monty Jones, the president of the European Marketing Research Centre (EMRC), a Belgian-based organisation that promotes African businesses. Much arable land remains uncultivated which could be used for agriculture, Jones argues, and hydroculture and solar energy could generate many jobs too. “We maintain good macro-economic standards,” Monty says about African countries, “yet, we need to promote the integration of regional approaches.” In his eyes, deficits in energy supply, transportation, storage facilities and water management still undermine economic development. Improving matters would help to mobilise investments for its agribusiness as well as the mining and energy sector, Jones argued at this year’s Africa Finance & Investment Forum (AFIF) in Cologne in June.

Private-sector investments are crucial if a society is to prosper. According to Bruno Wenn of DEG, the German development finance institution, only the private sector can provide good jobs and long-term perspectives to Africa’s young population, so entrepreneurial initiative is essential. Wenn emphasises the relevance of small and medium enterprises (SME) and sees promising opportunities in the field of renewable energy. Nevertheless, he cautions against an all too simple approach. Donor agencies, he says, should stay aware of people’s basic needs when supporting SMEs. Furthermore, he wants governments’ and financial institutions’ performance to be appraised in this regard too. In his view, funding has too often not resulted in sustainable opportunities.

Today, foreign private-sector investors in Africa predominantly are from China and India. European investors have reduced their presence in Africa, says Emmanuel Eweta Uduaghan, the governor of Nigeria’s Delta State. Europeans, in his experience, worry about security and corruption, so building trust is a core challenge. Good governance is essential for a stable economy, agrees Dirk Harbecke from the African Development Corporation (ADC). The ADC is a private, pan-African banking group that is listed in Frankfurt and has a strong presence in southern Africa (Bank ABC and others) and Nigeria (Union Bank). However, Harbecke wants African entrepreneurs to get their act together too. Better business cases, he points out, help to attract investor money.

Banks always want to minimise their risks. In Africa in particular, many commercial banks therefore only do business with large companies. That not only makes it hard for inexperienced entrepreneurs to get start-ups going. It also stops informal businesses from growing into larger, formal sector companies that commercial banks would be willing to give loans.

Torek Farhadi from the International Trade Centre (ITC), a joint agency of the UN and the World Trade Organisation, says that central banks’ regulations should become better geared to helping smaller entities get access to credit. He does not think the private sector will raise enough capital on its own, however, and therefore wants governments and international donor agencies to foster an appropriate business environment.

Floreana Miesen