2013-2017_-_Private_Sector_Development_Strategy

PILLAR 1 -
Investment and Business Climate
environment across Africa for large and small enterprises
alike, compared with other parts of the world.
The opportunities and incentives to invest productively,
create jobs, and expand are shaped by the costs and
risks associated with the business and investment
environment, and other non-physical barriers to
competition. Efficient and well-regulated public
services, effective law enforcement, and transparent
procurement practices all contribute to a better
investment and business climate, and faster growth
and development.
Key Challenge – Restrictive Business
Environment
Africa’s investment and business climate is characterized
by a wide range of regulatory and labor, trade and
business obstacles that reduce competitiveness and
constrain the private sector. These obstacles are seen
in two ways: first, through inconsistent policies at the
macro and sector levels and in each sector (regulation
and taxation, stability and security, finance, labor skills
development, infrastructure); and second, through
diminished credibility, public trust and legitimacy for
governance institutions, and an absence of channels
for wide participation in policy formulation. Despite wide
variations across Africa, these structural deficiencies
often result in bureaucratic red tape, poor control of
rent-seeking and lack of transparency, all of which
significantly reduce the credibility of public policy and
administration, and hinder governments’ enabling role
(see Figure 5). Where corruption is a threat, businesses
prefer to remain unregistered to escape what they see
as predatory policies. This makes for a difficult business
Africa’s underdeveloped financial markets present
further investment and business barriers to private
sector development. African formal financial systems
and capital markets are embryonic and face problems of
scale, volatility, long-term liquidity, and macroeconomic
and regulatory stability, and are perceived as risky by
outsiders. Current global financial uncertainty is a
complicating factor, as are increasing economic risks
in the wake of the 2008-2009 global financial turbulence,
which have led to much more expensive short-term
commercial financing, especially in trade finance. Access
to long-term credit is even scarcer on the continent.
The flow of credit to the private sector also remains
below other developing regions’ levels. Close to half of
Africa’s small businesses report that gaining access to
financial services is a major constraint. Only 22 percent
of African companies hold a loan or a line of credit
from a financial institution, compared to 31, 47, and
48 percent in developing parts of Asia, America and
Europe, respectively. 11
Furthermore, Africa’s financial infrastructure is generally
in nascent stages of development. Financial infrastructure
comprises a set of market institutions, networks and
shared physical infrastructure that enable the effective
operation of financial intermediaries, the exchange of
information and data, and the settlement of payments
between wholesale and retail market participants.
Credit bureaus, collateral registries and credit rating
11 African Development Bank, 2011. African Development Report (ADR). AfDB. Tunis.
Figure 05
Predictability of Regulatory Changes
% of firms who rated regulatory changes as fully or somewhat predictable
75%
63
58
55%
47
43
53 52 51
38
36
54 53 50
35%
15%
ADB countries
ADF countries
Fragile states
North Africa
East Africa
West Africa
Southern Africa
Central Africa
Net Oil Exporting
Net Oil Importing
Land Locked
Coastal
Source: Staff calculations based on enterprise survey data, 2010.
Private Sector Development Strategy, 2013-2017
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