Transcript 1 - OECD
Private sector development in Africa Evidence based on AEO Celine Kauffmann Economist OECD Development Centre European Commission Brussels12 AFRICAN DEVELOPMENT BANK Sept. 2006 1 A f r i c a n E c o n o m i c O u t l o o k African Development Bank OECD Development Centre AFRICAN DEVELOPMENT BANK 2 L. Kasekende (AfDB chief economist): “in most countries, the private sector is ready to play a more prominent role but faces huge constraints” AFRICAN DEVELOPMENT BANK 3 1 Private sector development in Africa: the missing middle 2 Insufficient and deficient Infrastructure 3 A limited access to finance 4 Limited access to market 5 A predatory public sector? AFRICAN DEVELOPMENT BANK 4 SMEs in Africa: the missing middle (AEO4) Little private sector development, except in south Africa and north Africa SMEs suffer the most from adverse economic conditions and little conducive business climate AFRICAN DEVELOPMENT BANK 5 The failed potential of privatisation for private sector development (AEO2) Under-developed “indigenisation” process, especially in network utilities A financial policy environment tilted towards foreign investors? – difficulties in borrowing working capital (high interest rates) – large–scale projects requiring heavy capital investment Stock-markets in their infancy – 1990-2003: only 4% transactions through public floatation – Africa has the highest concentration of the newest and smallest stock markets: market capitalization < $100 million – capital markets often remain means for government to raise loan finance rather than to mobilise capital for industry. AFRICAN DEVELOPMENT BANK 6 Some encouraging trends? Reforms to support involvement of locals in PSD – 20 000 Zambians invested in the stock market in 2000, compared to less than 1 000 in 1994 – Directed group participation in Uganda & pre-emptive rights equivalents in Cape Verde – South Africa and the black empowerment: Khulisa offer for launch of Telkom shares on the JSE in 2003 Intra-Africa FDI & emerging multinationals from North Africa, South Africa (2nd investor in Africa after China with >600 projects in 2004) Mauritius and the SME development in power sector AFRICAN DEVELOPMENT BANK 7 The costs of doing business in Africa Direct costs such as labour costs are not that high Productivity (Shirts/operator) Unit labour cost Africa 14 0.16$ China 18 0.23$ Source: Eifert, Gelb & Ramachandran (2005) on World Bank ICA data Indirect costs account for 20-30% of costs – Energy (largest indirect cost: 1/3 of total), transport, telecom, security… – Red tape, regulation Limited access to finance Limited market access (narrow domestic markets, little regional integration, decreasing share in world exports) AFRICAN DEVELOPMENT BANK 8 Cost structure, firm-level average, by country Mozambique Kenya Tanzania Materials Zambia Labor Uganda Capital Nigeria Indirect Ethiopia India China Morocco Senegal 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Eifert, Gelb & Ramachandran (2005) on World Bank ICA data AFRICAN DEVELOPMENT BANK 9 Composition of indirect costs Zambia Uganda Energy Senegal Land rent Tanzania Transport Nigeria Telecom Security Mozambique Maintenance Morocco Other Kenya Ethiopia 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Eifert, Gelb & Ramachandran (2005) on World Bank ICA data AFRICAN DEVELOPMENT BANK 10 1 Private sector development in Africa: the missing middle 2 Insufficient and deficient Infrastructure 3 A limited access to finance 4 Limited access to market 5 A predatory public sector? AFRICAN DEVELOPMENT BANK 11 Top of the list obstacle: weak infrastructure development (AEO3&5) Major effect of lack & disruption in energy supply High transport costs But one major improvement: TELECOM AFRICAN DEVELOPMENT BANK 12 Access to infrastructure: energy bottleneck and exclusion of rural population % total Pop % rural hholds % urban hholds Electricity 14.9 8.3 54 Water 64.1 53.9 82.6 Sanitation 36.5 27.9 54.3 Telecom 89.7/1000hab 0.7 Transport Road: 3.5km/hab 54.3 Source: Estache, World Bank (2006) AFRICAN DEVELOPMENT BANK 13 Electrification rates 100 90 80 70 60 50 40 30 20 10 0 World average AFRICAN DEVELOPMENT BANK North Africa SubSahara Africa Developing Asia Latin America Middle East Transition economies OECD Developing countries average Source: IEA 14 Electricity losses in 2001 Nigeria Cameroon Tanzania Kenya Senegal Gabon Algeria Cote d'Ivoire Ghana Zimbabwe Egypt Ethiopia Tunisia South Africa Morocco Mozambique Zambia Source: IEA OECD Total 0% AFRICAN DEVELOPMENT BANK 10% 20% 30% 40% 50% 15 Share of firms owning generator by firm size Nigeria Tanzania Kenya Uganda Mozambique Zambia Ethiopia Large Morocco Small & Medium Senegal Micro 0 0.2 0.4 0.6 0.8 Source: Eifert, Gelb & Ramachandran (2005) on World Bank ICA data AFRICAN DEVELOPMENT BANK 1 1.2 16 Telecom: impressive progress AFRICAN DEVELOPMENT BANK 17 Strengthening institutional capacities / public sector management Setting the right regulatory environment – to promote local business, – to facilitate private sector involvement in PPP Develop and improve planning function and fiscal management: – To ensure consistency with national development programs – To make the most of increasing number of actors and budget support – To redistribute raw material gains Promote coordination with infra national entities (Communities) and supra national institutions (regions, NEPAD) AFRICAN DEVELOPMENT BANK 18 1 Private sector development in Africa: the missing middle 2 Insufficient and deficient Infrastructure 3 A limited access to finance 4 Limited access to market 5 A predatory public sector? AFRICAN DEVELOPMENT BANK 19 A limited access to finance (AEO4) Congo, Dem. Rep. Burkina Faso Mozambique Congo Chad Niger Angola Uganda Zambia Tanzania Madagascar Cameroon Rwanda Gabon Algeria Ghana Côte d'Ivoire Benin Nigeria Botswana Mali Kenya Senegal Ethiopia Egypt Morocco Mauritius Tunisia South Africa Bank credit to private sector in 2003 (in % of GDP) IMF, IFS 0 10 20 AFRICAN DEVELOPMENT BANK 30 40 50 60 70 80 20 90 Business environment High risk, poor legal enforcement, lack of information Limited capacity Too big Commercial Banks Microfinance Institutions SME High transaction costs High perceived risk Limited capacity Inadequate tools Underdeveloped financial system AFRICAN DEVELOPMENT BANK 21 A 4-pronged Approach (AEO4) 1. Improving the business climate – Legal and judicial systems – Tax (UEMOA) and regulatory environment (South Africa) – Information 2. Bringing the SMEs toward the formal financial system – Strengthen SME capacity – Develop financial instruments to mitigate risks (Franchising, Leasing, warehouse receipt, Factoring, associative mechanism, guarantee funds, financial tools to facilitate cross-border investment of local savings) AFRICAN DEVELOPMENT BANK 22 3. Adapting existing lending institutions & tools • – – Expand and strengthen microfinance institutions (Senegal, Benin) Improve availability of banking services to SMEs (Kenya, Nigeria) Move towards an integrated system for financing SMEs (Mozambique) 4. Taking advantage of alternative sources of finance (remittances, clusters, linkages) – – – Remittances from abroad (North Africa, Senegal, Zimbabwe) Subcontracting (South Africa) / linkages (Zambia) Clustering (Kenya) AFRICAN DEVELOPMENT BANK 23 1 Private sector development in Africa: the missing middle 2 Insufficient and deficient Infrastructure 3 A limited access to finance 4 Limited market integration 5 A predatory public sector? AFRICAN DEVELOPMENT BANK 24 Some trade issues Limited intra-regional trade – Narrow domestic markets – Tariffs and conflicts limit cross-border exchanges Limited insertion in world economy – Non-trade barriers Emerging markets (cf. China and India, what’s in it for Africa?, 2006) – Risk of further specialisation – Increased competition on local markets AFRICAN DEVELOPMENT BANK 25 Progress in diversifying exports is varied, but remains very limited (Based on AEO diversification indicators) The higher the index, the more diversified the economy Morocco SACU Tunisia Madagascar Kenya Senegal Tanzania Cameroon Africa Mozambique Ethiopia 1996 2003 Uganda 0 10 20 30 40 50 Cote d'Ivoire 1996 Algeria 2003 0 5 10 15 20 25 30 Source: Export Diversification Index, African Economic Outlook 2006 AFRICAN DEVELOPMENT BANK 26 How to escape specialisation? Focus on one area rather than several (clusters) Develop comparative advantage in sectors not intensive in infrastructures, “institutions” and not directly in competition with Asian countries AFRICAN DEVELOPMENT BANK 27 1 Private sector development in Africa: the missing middle 2 Insufficient and deficient Infrastructure 3 A limited access to finance 4 Limited access to market 5 A predatory public sector? AFRICAN DEVELOPMENT BANK 28 The public sector: seen as predatory by the private sector Taxation, corruption, inefficient regulation Doing Business 2007: Africa ranks 3rd in pace of reforms, with Tanzania & Ghana among the top 10 reformers and Rwanda & Nigeria in the top 20 AFRICAN DEVELOPMENT BANK 29 Rank/175 Maurit ius Seyc helles Zambia Namibia Et hiopia Uganda Bot swana Sout h Afric a Ghana Mozambique Rwanda Madagasc ar Malawi Sudan Gabon Zimbabwe Nigeria Guinea- Bissau T anzania Niger Burundi Kenya Moroc c o Burkina Faso T ogo Chad Côt e d'Ivoire Equat orial Guinea T unisia Mali Angola Cameroon Egypt Congo, Dem. Rep. Guinea Senegal Benin Algeria Congo, Rep. Cent ral Afric an Republic Maurit ania AFRICAN DEVELOPMENT BANK 11 24 25 28 31 43 67 74 77 80 83 86 90 93 94 95 105 109 113 115 123 127 128 129 130 132 134 137 139 141 142 143 144 147 156 159 162 169 170 171 173 Doing business: paying tax 30 AEO political indicators Hardening of the regime (and not social troubles) is negatively correlated with private investment and growth GDP Growth 0.20 0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 No hardening Hardening 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 AFRICAN DEVELOPMENT BANK 31 Key messages Rethinking the role of States in Africa – Limiting interference with private sector activity but increased dialogue (e.g. in the search for diversification) – Strengthening institutional capacities (regulatory framework and public sector management) Importance of predictability and consistency: The donor community should not add to the already volatile environment Scaling-up aid to key sectors that require huge resources (infrastructure), leveraging private funding and supporting government spending AFRICAN DEVELOPMENT BANK 32 Thank you for your attention! 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