* Blogpost by IDEV Evaluator General. This blog was prepared for dissemination at the African Development Bank Group Annual Meetings 2018.
“Industrialize Africa” is the African Development Bank (AfDB)’s ambitious strategy to transform the continent, with economies moving from low to high productivity sectors; from agriculture to agro-industries; from raw mineral resources to high-value semi-processed and/or processed exports.
The AfDB plans to help double the continent’s industrial GDP by 2025 by investing $US 3.5 billion per year- over the next ten years- through six flagship industrialization programs: 1) Fostering successful industrial policies; 2) Catalyzing funding in infrastructure and industry projects; 3) Supporting the growth of liquid and effective capital markets; 4) Promoting enterprise development; 5) Promoting strategic partnerships; and 6) Developing efficient industry clusters.
Cognizant of the strategic role of the AfDB in promoting private sector growth in Africa, Independent Development Evaluation (IDEV) has over the past two years invested time and resources to uncover lessons and recommendations for effective private sector development in Africa. In collaboration with the Norwegian Agency for Development Cooperation (Norad) evaluation department, IDEV organized a series of knowledge events: the first was held in Oslo, Norway on 24 October 2016, the second in Nairobi, Kenya from 3 to 4 April 2017 and the third in Pretoria, South Africa from 30 to 31 October 2017. The peer-to-peer knowledge exchanges were based on the findings of our joint report Towards Private Sector-Led Growth: Lessons of Experience, which synthesizes the wealth of evaluative evidence from 33 recent evaluations carried out by both bilateral and multilateral institutions assessing various segments of public sector support for the development of the private sector (microfinance, private equity, public private partnerships, small and medium enterprises).
Held under the overall theme Private Sector Development in Africa: What works, What does not and Why?, through this knowledge and learning series we were able to tap into the knowledge and expertise of a diverse group of stakeholders (ministers, government officials, private sector leaders, civil society representatives, representatives of multilateral and bilateral development agencies, academics, think tanks and the media) both within and outside of the continent. From the exchanges, IDEV was able to glean the following practical and replicable solutions to address policy and institutional constraints to private sector growth, financing private sector development, supporting small and medium enterprises as growth nodes, as well as recommendations on how governments, development partners, and private sector actors can work to create shared value in Africa:
On addressing policy and institutional constraints to private sector growth in Africa
- The private sector needs a clear legal and regulatory framework to thrive. Important issues to be addressed include security of property rights, access to credit, export-quota policies/constraints, tariff and non-tariff barriers, tax regimes, and requirements related to licenses, permits, authorizations and inspections.
- Mechanisms to promote structured dialogue and knowledge sharing between government entities and the private sector should be institutionalized. Engagement of the private sector during the early stages of project development and pursuit of public-private partnerships are promising avenues to improve strategic collaboration.
On financing private sector development
- One of the key difficulties facing private sector development in Africa is access to medium- and long-term finance on affordable terms. This challenge can be addressed through foreign direct investment, (improved access to) local and regional financial and capital markets, and improved infrastructure. To enhance domestic resource mobilization efforts, Africa needs to build stronger financial institutions, improve regulatory frameworks, and strengthen transparency and accountability systems in the financial and banking sectors.
On supporting small and medium enterprises as nodes of growth
- To leverage the potential of micro, small and medium enterprises as an important source of innovation and job creation, governments need to make more efforts to create a conducive environment which addresses the specific constraints of Micro Small and Medium Enterprises (MSMEs). These include lack of access to markets and lack of access to finance.
- Lines of credit to commercial banks for on-lending to MSMEs have not achieved their objectives; therefore other ways to incentivise the banking sector to ensure adequate finance is provided should be explored. To further support MSMEs, innovative tools and instruments, systematic knowledge transfer and flexible tax regimes could usefully be considered.
On how governments, development partners, and private sector actors can work together, to create shared value
- Leadership (political will), implementation capacity, and institutional frameworks are essential for creating and advancing meaningful shared value. But of paramount importance is trust between the public and the private sector. That trust can be built through structured and open communication, inclusive dialogue, participation and accountability, and through efforts on both sides to understand each other.
- Development partners can play a bridge role between the public and private sector, acting as a broker/convener who understands both parties reasonably well and helps them to understand each other.
These lessons show that when it comes to private sector development, what Africa need is a comprehensive strategy and not a gap-filling substitute. Regulatory reforms are a good start but they are not sufficient. Catalytic effects should be at the core of our project design, with particular attention paid to the sustainability of these operations. And as the continent’s premier financial institution, the AfDB is well positioned to make a significant difference in private sector development, with operations and programs that focus on creating enabling business environments for shared growth and industrial sustainability in our regional member countries.
Rakesh Nangia
Evaluator General
African Development Bank