A Vision of a More Attractive Africa

Quote of the day comes from the Secretary-General of the U.N. Kofi Annan.  As he notes in the latest issue (2006 #3) of the Compact Quarterly, a newsletter of the U.N. Global Compact: 

…it is the absence of broad-based business activity, not its presence, that condemns much of humanity to suffering.

This issue focuses on Africa, and as Georg Knell writes in the introduction, institutional environment within which business operates is quite important in making sure the private sector contributes to the wealth and development of society:

…responsible business practices will provide benefits to society only in an enabling environment. Business cannot grow or become competitive if public institutions are failing or ineffective. Men and women will not even attempt to grow their informal businesses into thriving small or medium-sized enterprises if bureaucrats punish them by seeking rents instead of offering effective support. Creating incentives in support of responsible entrepreneurship remains a huge challenge, but it is also holds the promise of enormous rewards.

Of particular interest should be a piece by Paul Walsh, who writes about the difference between perceptions and reality:

No other region of the world is described with such sweeping generalizations as the 54 countries of Africa. As a consequence, bad news from one country tends to tarnish the image of the whole continent.

I’ve held my set of ‘perceptions’ about Africa, until I got more involved in some of our programs on the continent.  Needless to say, I have come across a number of success stories, where local business leaders are taking the lead in improving the economic well-being of citizens in their countries — whether it is anti-corruption work, corporate governance initiatives, or efforts aimed at improving access to information. 

Paul Walsh thinks that one of the greatest challenges facing Africa is to improve its “image problem.”  He is probably right in that this image problem should be addressed, however, there is a host of other issues lurking under the surface.  According to this year’s Index of Economic Freedom, for example

…sub-Saharan Africa remains the world’s least economically free region.  The country that represents the median score for sub-Saharan Africa – Zambia – ranks 111th in the 2006 Index.  over three quarters of the region’s countries – 33 out of 40 graded in the 2006 Index – remain “mostly unfree.”

In all, taking a bird’s-eye view of Africa will do little good.  In order to understand the business environment we must “get down and dirty” and look at how small and medium firms, which don’t have the leverage of multinationals, survive in daily adventures of doing business.  It is not just returns on the stock exchange that matter, but it is also costs of registering a business (which have a direct impact on the ability of entrepreneurs to be part of the formal economic activity).  According to the Doing Business database, for example, countries in sub-Saharan Africa are way behind economies in other regions of the world in this category.  In the end of the day, it goes back to the enabling environment issues that Georg Knell talks about above, and how these market institutions impact the operation of multinational firms, SMEs, and the smallest of entrepreneurs.

So, while we should recognize some African economies for their achievements, we should also remember that much work remains to be done in terms of improving the business climate so that business can become the engine of growth and human development.  If this happens, the image problem may just take care of itself.

Published Date: July 31, 2006