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African Reforms are essential to Boost Private-sector Development and Improve Governance

Guest post by: OECD Development Centre

Article Overview: 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.

African Reforms are essential to Boost Private-sector Development and Improve Governance

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

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Article Tags: african economies, business climate, capital accumulation, doing business in africa, economic diversification, fight against corruption, financial constraints, financial sector development, future generations, good governance, investment capital, macroeconomic management, medium size enterprises, nepad, number of countries, physical infrastructure, policy insight, policy uncertainty, private sector development, wealth generation



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