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Businesses
can help build the Africa of the future. What is needed is a smarter leadership
that can work together with all stakeholders to address the challenges facing
businesses and put Africa on the path to transformation.
By
Chimezie Uzoigwe
Businesses are important for wealth creation
and development of any society because they undertake huge risks to innovate,
create and market value bringing prosperity to themselves and society. The
impact of businesses is not just limited to creativity and wealth creation,
they foster interactions in communities and ensure the survival of people tied
to the business activities. Many believe that business entrepreneurship is
Africa’s best bet to attain economic and social development. Leading entrepreneur,
Mr. Tony Elumelu, who professes the Africapitalism philosophy believes that
“entrepreneurs will play a central role in bringing together private wealth and
public need and that the transformative impact of economic growth unleashed by
a fully empowered, socially conscious entrepreneurial class will dwarf the
results achieved by the previous aid-driven approach to Africa’s development.”
Businesses are contributing immensely to
Africa’s development. The African Development Bank estimates that Africa’s
private sector accounts for over four-fifths of total production, two-thirds of
total investment, and three-fourths of total credit to the continental economy,
and employs 90 percent of the employed working age population. Given this
position, the optimal performance of African businesses is important as it
becomes clearer that the aspiration for a transformed Africa can only be
achieved through effective partnership between the public and private sectors.
Africa is attractive for business. Six
African countries – Ethiopia, Congo DRC, Ivory Coast, Mozambique, Tanzania and
Rwanda are among the thirteen fastest growing economies in the World, according
to the World Bank. Africa’s demographics also promise a huge dividend for
business. The continent’s one billion, mainly youthful consumers are an
increasingly compelling market as consumer spending per capita already matches
that of India and China and is expected to reach US$1.4 trillion in 2020.
Mckinsey, in a June 2010 article, had noted that the rate of return on foreign
investment in Africa dwarfs that of any other developing region. Thus, Africa
has continued to draw attention not only from businesses abroad, but also from
existing players in the continent.
Despite Africa’s attractiveness for
business, there are still many challenges facing businesses in the continent.
Doing business in Africa remains largely difficult. Sub-Saharan Africa had a
regional average score of 56.28 points out of 100 and a regional rank of 114
out of 189 ranked economies in the 2016 World Bank’s Ease of Doing Business
Index. There are still challenges, with respect to the environment, for
business, policy, corruption, access to resources, political and economic
stability and uncertainties, which hurt business competitiveness.
While many businesses have fallen on the
way, the thriving ones have grown to be resilient to these challenges. But this
still comes at a huge cost – a loss in business and social prosperity that
could have been attained if businesses do not have to invest in adaptation
strategies.
Challenges
Facing African Businesses
Nigeria is a good case study of how business
potentials are unnecessarily undermined by state ineffectiveness. With a
youthful population, a growing middle class and a huge consumer base, Nigeria’s
business environment is naturally favourable for businesses to excel. But
government’s overwhelming presence in some aspects of the economy (doing what
she should not be doing) and underwhelming presence in other aspects of the
economy (failing where she is needed) is hurting the ability of entrepreneurs
to utilize these favourable natural conditions to create wealth. Largely due to
state ineffectiveness, entrepreneurs in Nigeria continue to face difficult
challenges in the following areas:
• Access To Resources
Finance is key to running any successful
enterprise. Lack of access to finance is perhaps the biggest challenge for
intending entrepreneurs and a constraint to growth for existing enterprises.
Banks generally prefer to invest in government bonds and treasury bills and to
lend to influential and billionaire businessmen, most of whom invest majorly in
somewhat ‘sterile’ activities like oil importation, rather than lend to SMEs.
Thus, government’s overwhelming presence in the economy partly crowds out
financing for private enterprises from the banks. Although there are many
government intervention schemes for enterprise financing, these schemes are not
unified, are poorly co-ordinated and implemented and thus, do not achieve set
objectives. For example, many MSME operators have continued to lament the
hurdles they face in accessing the Central Bank of Nigeria’s ₦220 billion MSMEs
development fund and funds from the Bank of Industry (BOI).
• Weak Enabling Environment
The enabling environment for business in
Nigeria is poor. Insecurity is still a major threat to businesses. For example,
the Boko Haram insurgency has crippled economic activities in the North-Eastern
part of the country. A new wave of militant insurgency in the Niger-Delta has
led to the destruction of major oil and gas pipelines and facilities, and
caused production shut-in. The implication of this for the national economy can
best be imagined. Nigeria also continues to suffer from a severe
infrastructural deficit. From poor transportation networks to epileptic power
supply, the story is the same. While most businesses operate by generating
their own power at huge costs, the situation is usually worsened due to
frequent scarcity of petroleum products and the attendant long queues in gas
stations. Only a few months ago, many businesses could not run because there
was no public power supply, and the state oil company, the Nigerian National
Petroleum Company (NNPC) which superintends over a corrupt oil subsidy regime
was unable to meet the demand for petroleum products as private oil marketers
were unable to access foreign exchange to import the products.
•
Policy Challenges
One of the key challenges facing entrepreneurs
in Nigeria at present is unfavourable government policies. For example, the
ideological posturing of the government on the issue of devaluation and the
rationing of foreign exchange by the Central Bank of Nigeria (CBN) for about
sixteen (16) months denied many entrepreneurs access to foreign exchange to
purchase critical goods that serve as inputs in their operations. Nigeria’s
land tenure system is also a key constraint to business success. Getting a
governor’s consent for a land an entrepreneur intends to acquire takes many
months and years in some states. Even the process of registering a business is
very tedious.
•
Corruption and Multiple Taxation
The high level of bribery and corruption and
a culture of patronage increases the cost of doing business in Nigeria and
reduces efficiency in business operations. For example, the foreign exchange
crisis which is harming businesses would have been better managed if the
country saved and grew its foreign reserves amidst high oil prices instead of
mismanaging the oil windfall. Multiple taxation is also harming entrepreneurs,
making many to seek to invest in tax havens. In Nigeria, once you set up shop
for business, you are confronted with taxes, rents, rates and levies to be paid
to different levels of authorities.
•
Uncertainty
Nothing kills businesses more than
uncertainty but in Nigeria, entrepreneurs face many uncertainties. It took the
newly elected President Muhammadu Buhari up to six months to constitute his
cabinet. It took a lot of unnecessary drama to get the 2016 budget passed.
Thus, the Nigerian stock market that surged and led the gains among world
equity markets on the back of the president’s electoral victory almost
collapsed due to the uncertainty created by the halt in governance for almost six
months. At present, the government’s policy direction remains unclear as many
final business and investment decisions are put on hold.
How I Would
Address the Challenges Facing Africa’s Businesses
Doing business in Africa is difficult
largely because Africa’s leadership has not succeeded on the whole in using the
tools of governance and policy to complement the ‘natural’ factors that make
Africa attractive for business. Although, modest gains have been achieved
through some outstanding reforms in a few countries, the challenges facing
businesses remain enormous. Africa’s businesses hold the promise of significant
further growth opportunities if these challenges are addressed. With a bolder,
stronger and smarter leadership, these challenges can be tackled and the full
potentials of businesses unleashed.
As a leader, I would use smart governance and
policy tools to address the challenges facing African businesses in the
following areas:
Creating
An Enabling Environment For Business
The enabling environment for business in
Africa is poor. Insecurity occasioned by conflicts is a major threat to businesses.
In Nigeria for example, the Boko Haram and the Niger-Delta crises are hurting
businesses and the general economy. A commitment to peace and consensus
building would be a major priority. Huge investments in infrastructure,
especially in power, transport and broadband would be undertaken to enable
businesses succeed.
Access
to Resources
Financing is key to business success, yet
banks prefer lending to governments than businesses in Africa, making the
public sector crowd out the private sector in terms of financing. To solve this
problem, I would pursue a borrowing policy that has a balanced mix of foreign
and domestic borrowing so as to create enough room for businesses to attract
financing from the domestic financial markets at favourable rates.
Policy
Government policies can make and unmake
businesses. In Nigeria, the government’s reluctance to allow a
market-determined naira exchange rate for an extended period and the rationing
of foreign exchange denied many businesses access to foreign exchange and hurt
their performance. I would pursue public policies that are market-friendly and
be consistent with my policies while showing flexibility when it is needed. I
would also undertake a reform of the land tenure system to make land more
useful for business in Africa.
Corruption
and Multiple Taxation
Corruption increases the cost of doing
business and yet remains pervasive in Africa. I would fight corruption,
especially through building strong institutions that can check corruption
before it happens. Multiple taxation would be eliminated by unifying the tax
system and adopting technology tools like e-collection to make compliance
easier. Tax incentives would also be an important tool I would use to drive
business growth.
Other
Measures
To support businesses, I would commit to
democratic tenets that ensure political stability. Macroeconomic stability
would be aggressively pursued to create an investment-friendly climate. My
leadership would be clear with its policy direction from the outset so as not
to create uncertainties that hamper investment decisions. I would invest in
ideas, technological innovation and entrepreneurship and move the economy away
from commodity dependence so that businesses and the economy can be shielded
from the impact of commodity bubbles. Building and strengthening institutions
that support businesses is important as well as building an effective public
sector that knows its place (does not do businesses most suited for the private
sector) but supports businesses to perform optimally. I would pursue regional
co-operation to address common business challenges and promote intra-African
trade. I would forge global partnerships with the rest of the World that favour
African businesses. I would also be willing to learn and replicate success
examples of transformational leadership especially the Lee Kuan Yew Singapore’s
story and the East Asian miracle and change the story of doing business in
Africa for good.
Businesses can help build the Africa of the
future. What is needed is a smarter leadership that can work together with all
stakeholders to address the challenges facing businesses and put Africa on the
path to transformation.
Chimezie Uzoigwe writes from the University of Benin, and can be reached through Chimezie.uzoigwe@gmail.com.
