The capacity of smoothing shocks highly depends on the ability of African policy makers to diversify their economies.
Boosting the private sector and improving economic and political governance are crucial.
Despite progress in macroeconomic management, little has been done to create an environment conducive to private sector development. The cost of doing business in Africa is still high as a result of policy uncertainty, inadequate physical infrastructure, poor access to investment capital and banking services, and cumbersome procedures and regulations governing the establishment and operation of businesses.
Small and medium-size enterprises (SMEs)
must be strengthened SMEs foster economic diversification; they are a source of wealth generation; and they produce the bulk of job opportunities for future generations of Africans. Yet, after decades of policies aiming to lift legal and financial constraints to capital accumulation, SMEs still constitute the “missing middle” of African economies (see Development Centre Policy Insight No. 7, Financing SMEs in Africa).
Access to finance represents the major constraint to SME development. Promoting access to finance for SMEs will require improving the business climate, strengthening SME’s own capacity to cope with formal banking requirements, promoting financial-sector development and diversifying the sources of financing, notably by favouring intra-private sector linkages.
More effort should be made in the fight against corruption Better economic and political governance is crucial to improve the business climate and to ensure the sustainability of the reform.
If democracy has improved overall, corruption continues in many countries. The focus on good governance has intensified.
Democracy has started to take root in a number of countries in the last ten years, as testified to by the flourishing of political parties and by the easing of conflicts. The NEPAD and the African Union have played an important role in this. In particular the African Peer Review Mechanism launched in 2003 is expected to provide a candid assessment of the situation in African countries and foster progress in this area.
According to Transparency International, however, corruption levels have increased in Africa between 2000 and 2004, with oil rich countries including Angola, Chad, Libya, and Nigeria displaying the highest rates of corruption. The only notable exceptions are Botswana and Tunisia, rated as half-way towards a corruption free environment.
Checks and balances and external monitoring by civil society are needed to improve political accountability and the delivery of the government. The strengthening of public expenditure management systems could ensure not only a more a more efficient allocation of the resource but it represents also an important way of building trust with the donor community.
African Economic Performance in 2004:
A Promise of Things to Come?
by Nicolas Pinaud and Lucia Wegner Policy Insights No. 6 is derived from the African Economic Outlook 2004/2005, a joint publication of the African Development Bank and the OECD Development Centre
To learn more about this author, visit OECD Development Centre's Website.
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