Ethiopian Business Review

The Private Sector: The Engine of African Renaissance

The story of Africa’s renaissance is not a new one. It is as old as African predicament itself. Ever since the slave trade era and the consequent colonization, Africa has tried to reinvent itself with varying degrees of success. There are many stories of successive generations asserting themselves by resisting and breaking loose from past dominations.

When most of African nations gained independence from colonial rule around 50 years ago the euphoria and high expectations that engulfed these newly independent countries was unprecedented. Yet fifty years on, most of these expectations remain unmet.

Most of African nations gained independence at a time when the ‘cold war’ was at its peak and were forced to make a choice between Eastern and Western political camps. Having just come out of colonial rule, perpetuated by the West, most of African countries found themselves in the Socialist Eastern bloc, which adversely affected the development of its private sector. The African private sector was not able to serve as a potent instrument for the achievement of rapid and sustainable economic growth and development in the majority African countries.

After being hamstrung for decades by difficult political and economic conditions and burdensome government policies, recent developments have created a favourable situation for the African private sector to become the main engine of growth. In the current era of globalization, the role of the private sector in the attainment of rapid and sustainable economic development has become critical. Most African countries have come to recognize the pivotal role that the private sector plays in helping the continent reach its full economic and social potential and realize its long awaited renaissance.

Africa’s population, geographic size and wealth of natural resources make it an attractive investment destination. According to the African Development Bank (AfDB) 2011 Report, Africa’s 54 countries are made up of one billion people and they are growing at a rate of 2.3 million people a year. Its middle class numbers about 300 million and it boasts 60 pct of the world’s unutilized arable land and significant percentages of the world’s gold and oil. Moreover, it is now safer, less risky and more profitable to invest in Africa.

Despite these opportunities, Africa continues to account for marginal shares of global investment flow. African economies are characterized by the absence of a viable private sector, relative dominance of the public sector, presence of a large informal sector, and the absence of tools for research and innovation – all of which have a negative impact on employment and economic growth. The continent also faces a serious infrastructure gap that presents a challenge to development and investment.

However, recent years have witnessed a significant improvement in the economic growth performance of Africa amidst a global financial crisis and economic mayhem. Six of the ten most rapidly growing economies in the world are African. Many African countries have started to create a better environment for domestic growth by adopting and implementing economic policy reforms and improving macroeconomic management. People are realizing that a better business environment means better economic growth. The partnership between the public and private sector is improving. According to 2011 report from the African Development Bank (AfDB), Africa’s private sector accounted for more than 80 percent of total production, two-thirds of total investment, and three-fourths of total credit to the economy over the 1996-2008 period. It was also responsible for 90 percent of employment.

Although the recognition of the importance of the private sector as an engine of growth has been increasing, the sector still faces a number of challenges. Therefore, African governments need to create a more welcoming business environment through local and flexible policies with input from the private sector. In addition, entrepreneurship should be encouraged through better infrastructure; including ICT.

Reducing the risk and cost of doing business by securing private property rights, improving governance, simplifying regulations and promoting competition, removing constraints in industries with high growth potential, strengthening regulatory and institutional frameworks, improving access to finance and synchronizing the education policy with the needs of the private sector, will help reinvigorate the African private sector, materialize the African renaissance and uplift its people from the shackles of poverty, backwardness and ignorance.

All in all, the private sector should be seen as a sin qua non for the realization of the African renaissance. A vibrant domestic private sector is the perfect link in the cycle to improving competitiveness in African economies, signaling the existence of an enabling environment for business, and attracting foreign investment. A thriving private sector will also promote inter-African trade which historically has been nonexistent and led to further exploitation from the West and East.

Mulu Solomon

Mulu Solomon, President of Ethiopian Chamber of Commerce and Sectoral
Associations is also the Vice President of the Executive Council of the Pan African Chamber of Commerce and Industry - East Block. She can be reached at muluright@gmail.com

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