1 AFRICAN DEVELOPMENT BANK AFRICAN DEVELOPMENT BANK Private sector development in Private sector development in Africa Africa Evidence based on AEO Evidence based on AEO European Commission Brussels12 Sept. 2006 Celine Kauffmann Economist OECD Development Centre
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1 AFRICAN DEVELOPMENT BANK Private sector development in Africa Evidence based on AEO European Commission Brussels 12 Sept. 2006 Celine Kauffmann Economist.
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1 AFRICAN DEVELOPMENT BANKAFRICAN DEVELOPMENT BANK
Private sector development in Private sector development in AfricaAfrica
Evidence based on AEOEvidence based on AEO
European Commission
Brussels12 Sept. 2006
Celine KauffmannEconomist
OECD Development Centre
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African Economic OutlookAfrican Economic Outlook
African Development Bank
OECD Development Centre
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L. Kasekende (AfDB chief L. Kasekende (AfDB chief economist): economist):
“in most countries, the private “in most countries, the private sector is ready to play a more sector is ready to play a more prominent role but faces huge prominent role but faces huge
constraints”constraints”
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11 Private sector development in Africa: the Private sector development in Africa: the missing middlemissing middle
A limited access to financeA limited access to finance
22 Insufficient and deficient InfrastructureInsufficient and deficient Infrastructure
33
44
55
Limited access to marketLimited access to market
A predatory public sector?A predatory public sector?
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SMEs in Africa: the missing middleSMEs in Africa: the missing middle(AEO4)(AEO4)
Little private sector development, except in south Africa and north Africa
SMEs suffer the most from adverse economic conditions and little conducive business climate
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The failed potential of The failed potential of privatisation for private sector privatisation for private sector
development (AEO2)development (AEO2) Under-developed “indigenisation” process,
especially in network utilities
A financial policy environment tilted towards foreign investors?– difficulties in borrowing working capital (high interest rates)– large–scale projects requiring heavy capital investment
Stock-markets in their infancy– 1990-2003: only 4% transactions through public floatation – Africa has the highest concentration of the newest and
smallest stock markets: market capitalization < $100 million– capital markets often remain means for government to raise
loan finance rather than to mobilise capital for industry.
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Some encouraging trends?Some encouraging trends?
Reforms to support involvement of locals in PSD– 20 000 Zambians invested in the stock market in 2000,
compared to less than 1 000 in 1994
– Directed group participation in Uganda & pre-emptive rights equivalents in Cape Verde
– South Africa and the black empowerment: Khulisa offer for launch of Telkom shares on the JSE in 2003
Intra-Africa FDI & emerging multinationals from North Africa, South Africa (2nd investor in Africa after China with >600 projects in 2004)
Mauritius and the SME development in power sector
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The costs of doing business in The costs of doing business in AfricaAfrica
Direct costs such as labour costs are not that high
Source: Eifert, Gelb & Ramachandran (2005) on World Bank ICA data
Indirect costs account for 20-30% of costs– Energy (largest indirect cost: 1/3 of total), transport, telecom,
security…– Red tape, regulation
Limited access to finance
Limited market access (narrow domestic markets, little regional integration, decreasing share in world exports)
Productivity(Shirts/operator)
Unit labour cost
Africa 14 0.16$
China 18 0.23$
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Cost structure, firm-level average, by Cost structure, firm-level average, by countrycountry
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Senegal
Morocco
China
India
Ethiopia
Nigeria
Uganda
Zambia
Tanzania
Kenya
Mozambique
Materials
Labor
Capital
Indirect
Source: Eifert, Gelb & Ramachandran (2005) on World Bank ICA data
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Composition of indirect costsComposition of indirect costs
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Ethiopia
Kenya
Morocco
Mozambique
Nigeria
Tanzania
Senegal
Uganda
Zambia
Energy
Land rent
Transport
Telecom
Security
Maintenance
Other
Source: Eifert, Gelb & Ramachandran (2005) on World Bank ICA data
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11 Private sector development in Africa: the Private sector development in Africa: the missing middlemissing middle
A limited access to financeA limited access to finance
22 Insufficient and deficient InfrastructureInsufficient and deficient Infrastructure
33
44
55
Limited access to marketLimited access to market
A predatory public sector?A predatory public sector?
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Top of the list obstacle: weak Top of the list obstacle: weak infrastructure development infrastructure development
(AEO3&5)(AEO3&5)
Major effect of lack & disruption in energy supply
High transport costs
But one major improvement: TELECOM
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Access to infrastructure: Access to infrastructure: energy energy bottleneck and exclusion of rural populationbottleneck and exclusion of rural population
% total Pop % rural hholds
% urban hholds
Electricity 14.9 8.3 54
Water 64.1 53.9 82.6
Sanitation 36.5 27.9 54.3
Telecom 89.7/1000hab
0.7 54.3
Transport Road: 3.5km/hab
Source: Estache, World Bank (2006)
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Electrification ratesElectrification rates
World average
Developing countries average
0102030405060708090
100O
EC
D
Tra
ns
itio
ne
con
om
ies
Mid
dle
Ea
st
La
tin
Am
eric
a
De
vel
op
ing
As
ia Afr
ica
Su
b-
Sa
ha
ra
No
rth
Afr
ica
Source: IEA
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Electricity losses in 2001Electricity losses in 2001
0% 10% 20% 30% 40% 50%
OECD Total
ZambiaMozambique
MoroccoSouth Africa
TunisiaEthiopia
EgyptZimbabwe
GhanaCote d'Ivoire
AlgeriaGabon
SenegalKenya
TanzaniaCameroon
Nigeria
Source: IEA
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Share of firms owning generator Share of firms owning generator by firm sizeby firm size
0 0.2 0.4 0.6 0.8 1 1.2
Senegal
Morocco
Ethiopia
Zambia
Mozambique
Uganda
Kenya
Tanzania
Nigeria
Large
Small & Medium
Micro
Source: Eifert, Gelb & Ramachandran (2005) on World Bank ICA data
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AEO political indicatorsAEO political indicatorsHardening of the regime (and not social troubles) is Hardening of the regime (and not social troubles) is negatively correlated with private investment and negatively correlated with private investment and
growthgrowth
0.000.020.040.060.080.100.120.140.160.180.20
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
No hardening
Hardening
GDP Growth
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Key messagesKey messages
Rethinking the role of States in Africa– Limiting interference with private sector activity but
increased dialogue (e.g. in the search for diversification)– Strengthening institutional capacities (regulatory
framework and public sector management)
Importance of predictability and consistency: The donor community should not add to the already volatile environment
Scaling-up aid to key sectors that require huge resources (infrastructure), leveraging private funding and supporting government spending
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Thank youThank youfor your attention!for your attention!