Prospects for sustained African development have rarely looked as good. Increasingly, growth led by entrepreneurs and private investments figures heavily into plans to sustain development and deliver its benefits to Africans long denied them.
In the decade to 2005, 17 countries in Sub-Saharan Africa enjoyed annual economic growth in excess of 5 percent, up from only five countries during the previous decade. Nine countries were near or above the 7 percent growth rate threshold needed to sustain poverty reduction.
The road to economic growth is not obstacle free, however. While conditions for growth and investment are strong when considered against Africa’s past, pockets of crisis persist and Africa remains the most difficult region in the world to do business.
"An improved investment climate in Africa needs to be the top priority to promote private sector-led growth," said IFC Director for Sub-Saharan Africa Thierry Tanoh. The World Bank has identified the business operating environment as the single, most substantial barrier to foreign and domestic investment in development countries.
IFC, along with the World Bank and Group institutions—the Foreign Investment Advisory Service and the Multilateral Investment Guarantee Agency—have been especially active encouraging reform in the business regulatory environment through programs managed by IFC PEP Africa.
The Investment Climate Team is already supporting government programs in Burkina Faso, Liberia, Madagascar Nigeria, Sierra Leone, and Sudan. Governments in the Central African Republic, Democratic Republic of Congo, Guinea, and Rwanda are showing increased commitment to making reforms.
There is still much to be done. African companies dominate the bottom of the global Doing Business rankings, which are compiled by IFC and the World Bank annually to measure the relative ease of operating a business on a global basis. In the most recent survey, 24 of the 30 most difficult economies to do business (out of 175 countries surveyed, based on 10 indicators) were in Sub-Saharan Africa.
Despite the poor performance in the overall rankings, hope is emerging. Africa went from the bottom of the list to become the third most active region for the pace of its business regulation reform. By using the Doing Business results to create a fictitious African country, Africana, using real practices from countries within the region, we would find that the new nation would rank 11 overall out of 175 nations.
A number of African countries, including Ghana, Rwanda, and Tanzania, are at the forefront of the trend within Africa to improve conditions for private companies, which in turn increases their economy’s ranking within the Doing Business report. Ghana created a single window for customs clearance that reduced trade time, reduced corporate income tax and eliminated a reconstruction levy, and lowered a property stamp duty from 2 to 0.5 percent of property value. Tanzania reduced time for trading by adopting a risk-based customs inspections process, reduced the cost of registering a business, reduced property taxes by 3 percent, and revised its property law to improve investor protections. Other nations are taking note and the demand for help in structuring reform is increasing
The worst performers in the Doing Business survey tend to have especially weak institutions or fragile governments. Despite an interest in reforming the business environment, they are often reluctant to make bold reforms due to perceived political risk. They also lack capacity, and so require sustained advice and involvement throughout the reform process to realize good results.
By 2009, IFC PEP Africa aims to improve by 27 percent the positions of at least 13 African countries in the IFC and World Bank Doing Business ranking. The increasing commitment from governments around the region suggests that this will be possible to achieve. Such gains could allow the hopes for sustained private sector-led growth to materialize in Africa.
The next Doing Business Report will be published on September 26, 2007.
For more information contact:
Daniel Musiitwa
Communications Officer
Johannesburg, South Africa
Tel: +27 11 731 3175
Email: dmusiitwa@ifc.org
