If there is one thing that African economies are not good at, it is fostering the growth of the private sector and creating jobs. This problem, more than debt, more than global geopolitics, more than infrastructure deficits is holding the continent back.
As the last two centuries have shown in Europe, America and Asia, the greatest poverty reduction strategy is jobs. People getting regular incomes spend creating demand in the economy and driving growth. They save creating a pool of savings (something else Africa struggles to do) and that is invested in funding the growth fuelled by the growing demand. Africa needs jobs, and to get those we need a growing private sector. On top of this, private sector fuelled growth is indigenous, it is not reliant on cheap western credit, or Chinese largesse.
However, Africa does not benefit from this self-perpetuating driver of prosperity and poverty reduction. Wage employment in sub-Saharan Africa has barely risen 2% since 1991.
In fact, we have become so bad at it we have fetishised entrepreneurship, micro-enterprise, and self-employment. Encouraging young people to become entrepreneurs, to hustle, celebrating those that make it while not acknowledging the high failure rates that they experience (estimates suggest that 70-80% of African startups fail within their first five years). More so, the policy makers, multilaterals and foundations that lead the entrepreneur and MSME cheerleading fail to acknowledge that the high cost of credit and capital that fundamentally undermines those same entrepreneurs and businesses is driven by the fact that we have low savings and thus low levels of native capital available for investment. More than that, everyone trying to be entrepreneur, whether they want to or not, does the wider economy little good.
To rekindle our private sector and create jobs. We must create the conditions in which businesses can thrive and hire more people. Today African businesses are strangled by an ever-growing web of regulations, a policy environment that is unpredictable and disconnected from their everyday realities. Africa needs to create its own prosperity, drive its own growth and for that we need jobs, and our policies need to be geared towards that outcome.
Regulation that works not hinders
Regulation is necessary and it is not evil. Standards agencies and food authorities ensure that the food sold to us is safe to eat, medical boards and bar associations ensure that our doctors are not quacks and lawyers are not hacks.
A well-regulated economy is a positive for the private sector, it ensures stability, enables competition by levelling the playing and most importantly protects citizens. Africa, in general does not have good regulatory systems, and as a result the private sector is hampered by old regulations, poorly written regulations, contradictory regulations and sometimes no regulations. What Africa needs is regulation that works and getting there will require regulatory reform that does three critical things, expand capacity, updates and Africanises regulations.
- Capacity – many African regulatory agencies are understaffed, under resourced and underfunded and struggle to enforce their mandates. Frustrating businesses that need licenses, permits, approvals, certificates, standards etc. and endangering the public. Regulations are a necessary public service and the agencies in charge of delivering that service should have the capacity to deliver that.
- Updates – a lot of regulation and legislation on the continent is old, dating back to decades some to the colonial era. To operate modern businesses and attract investment you need modern regulations that cater for modern world. Without that you get either chaos or stagnation. For instance, Kenya’s building code dates to colonial Kenya of the 1950’s it does not account for modern construction methods, or modern ways of covering up shoddy work. This has led to a chaotic construction sector dependent on the morals on the developer in question. Leading to a country of modern buildings side by side with collapsing buildings that kill people. African governments need to take a step back, assess their critical regulations and bring them up to date.
- Africanisation – we have a bad habit of adopting regulatory regimes from another part of the world, because it is ‘global best practice’ but never updating and adapting them for the African context. Thus, we end up with regulations that we don’t really understand, that are not fit for the African purpose. It is not enough to adopt global best practice, but African governments must ensure that they adapted to and fit their context.
Coherent predictable policy
I have written about this previously and will keep writing about it. The way most African governments make and implement policy lacks coherence and ends up creating a disjointed and unpredictable policy landscape. Sectors (and their ministerial departments) do not exist in isolation, policy in one sector must be connected to another. A packet of biscuits, that you find on the shelf of a shop utilises products from different sectors, wheat from agriculture, milled flour, and sugar in the manufacturing sector, it is transported in trucks on roads from the transport sector and sold in a shop from the trade sector. It is very likely that the farmer, manufacturer, or shop owner has utilised credit from a bank or insurance from the financial sector. If policy is made in any of those sectors it can affect the others and the costs of doing business, and when done so in isolation, the unfortunate biscuit manufacturer may find their business adversely affected by a choice made without the consequences on their sector in mind.
Coherent, predictable policy is the bedrock of a growth environment for the private sector. We must keep demanding this from African governments until it becomes a reality.
Public Private Engagement, Accountability and Action.
One of the key lessons I take from the rise of the Asian tigers is the constant dialogue and collaboration between the public and private sector. Taiwan’s semi conductor industry, now the most important in the world would never have become a reality unless the industry and government were constantly talking and acting in pursuit of shared goals.
In Africa much the government and private sector have either an adversarial reaction where they are fighting each other or an ambivalent one where they talk but don’t listen. Significant sustained private sector and job growth requires genuine engagement and understanding between the public and private sectors.
Government and private sector must not only talk to each other but listen to each other. This requires both sides to recognise and understand that the motivations and goals of the other are legitimate and beneficial. Once that understanding is in place then shared goals can be developed. The growth of the private sector is an inherent goal of business, but it must also be one of government, tied to that the government goals of job growth and key issues like worker conditions, training and education, environmental sustainably must also be private sector goals.
When an honest dialogue and shared goals are established then, plans with key actions and milestones can be developed and the public and private sectors can hold each other accountable to those plans, and thus take real action.
Right now, Africa has an overwhelming number of vision 2030/35/40/60s etc. strategic plans, manifesto’s and blueprints. All of them developed largely by public sector and highly paid consultants with token input from the private sector. The core of their ineffectiveness stems from the fact that these documents are disconnected from and largely meaningless citizens and private sector they are being enacted on. Honest dialogue to establish shared goals and a shared plan will lead to real action and accountability because both the public and private sectors have something to gain from effective implementation.
So long as we continue the ambivalent and adversarial relationship between the public and private sectors, their engagement shall continue to be ineffective.
Jobs and growth
Without private sector growth and jobs, much of our development discourse is meaningless. With jobs come incomes, savings, investment, demand, and tax revenue. With jobs individuals and households have incomes, the ability to pay for housing, healthcare, recreation and invest in the future. In short with jobs come agency and dignity both for people and the nation, and dignity is at the core of my definition of development.
Without private sector growth and jobs, we will be stuck in our perennial cycle of economic growth that is meaningless to the vast majority of African’s, followed by debt crises as African governments attempts to invest and spark growth with debt (on the advice of consultants or multilaterals) falls flat yet again.
If we want indigenous self reinforcing growth, that enables people to live dignified lives out of poverty, then the lesson of the industrial revolution and rise of Asia is that you need a growing private sector and jobs. Our governments need to get serious about providing an environment that can foster that and collaborating with the private sector to create a shared vision for the future with jobs at its heart that both the public and private sector have a stake in achieving.