Improving Africa's business environment
African countries which have signed up to the African Peer Review Mechanism (APRM), established by the New Partnership for Africa's Development (NEPAD), are set to benefit substantially from the recently proposed Investment Climate Facility (ICF), which will "make Africa an even better place to do business", by removing the real and perceived obstacles to domestic and foreign investment. The report of the Commission for Africa, established by UK Prime Minister Tony Blair, has given unqualified support to the ICF, which is part of the African Union's NEPAD programme and endorsed by African heads of state.
Calling on African governments to "unleash the strong entrepreneurial spirit of the African people," the report, published in March, points out that the ICF is "complementary to existing efforts in Africa, has African ownership and is able to address many obstacles to investment in a dynamic way. It has the flexibility needed to reflect the country and sectoral diversity across the region and is private-sector led." It is to be managed under business principles with quick disbursements and a focus on measurable and rapid results.
The report formally recommends that donor governments and the private sector should co-ordinate their efforts behind the ICF - which requires US $550 million from donors and the private sector over seven years "to identify and overcome the obstacles to doing business." It is hoped that the facility will fund over 300 projects, mainly in the 24 countries, which have signed up to the APRM. Professor Wiseman Nkuhlu, Chairman of the NEPAD Steering Committee, has described it as "a downstream tool to help implement the recommendations of the Peer Reviews." Professor Nkuhlu chairs the International Advisory Group, made up of high-profile African and international business leaders, which provides advice and accesses the design and proposals for the establishment of the ICF.
The ICF will be an independent trust, driven and controlled by the private sector and financed by contributions from business, the G8 countries, bilateral and multilateral agencies - described as a private-public partnership rather than a public-private partnership, with private sector money being leveraged against donor agency funding on a one to ten basis. Interim arrangements for the establishment of the ICF are being managed by SBP, a South African based development agency with extensive experience in building business activity in Africa.
The ICF is supported by key African institutions, including the NEPAD Secretariat, the NEPAD Heads of State and the NEPAD Heads of Government Implementing Steering Committee; key multilateral and bilateral donor agencies, including the World Bank, the UK's Department for International Development (DFID), other G8 nations, and the Danish Agency for International Development (DANIDA). The ICF is also fast gaining endorsement and support from a number of leading multinational corporations operating in Africa, which are closely engaged in promoting the interests of Africa.
Recent studies, such as the Commonwealth Business Environment Survey 2003 and the World Bank's Doing Business in 2005, have provided new insights into the dynamics of business growth and the elements that impede Africa's economic advancement. More enabling and business-friendly systems for enforcing contracts, collecting debts and dealing with the state are essential to promoting investment, economic growth and industrialisation.
All studies cite severe deficiencies in judicial systems, ambiguity over property rights, bureaucratic red tape, and the ability to enforce contracts. As the rationale for the ICF states: "these problems are not unique to Africa, but as the most marginalised region in the world, it has far less ability to absorb their impact." Thus a main objective of the facility will be to assist African countries to put in place "simpler, better and more appropriate policies, legislation and regulations that facilitate domestic and foreign investment, competition, trade, job creation and business generally".
The results are measurable. The World Bank study found that many developing countries could improve their annual growth rates by as much as 1.4 per cent if they created an efficient regulatory environment for business. As stated in the Africa Commission report, "In Uganda, which underwent widespread investment climate reforms, GDP grew around seven per cent per year during 1993-2002, reducing the share of the population living below the poverty line from 56 per cent in 1992 to 35 per cent in 2000. In Tanzania, an improvement in the investment climate is behind the county's fastest growth in 15 years. In Mozambique, investment climate improvements resulted in a doubling in private investment as a share of GDP between 1998 and 2002."
It is estimated, too, that 60 per cent of the savings of Africans are currently held in OECD countries - a huge source of potential investment that will only be re-invested in Africa if the business environment improves. A key ICF target will be to increase the average annual growth rate by two percentage points in at least 12 APRM countries in the seven years of its operation.
The private sector has its responsibilities too. The ICF will address issues such as corporate governance, crime, security, corruption, HIV/AIDS and malaria - emphasising the private sector response to these. In identifying the priorities for an improved environment for investment through the ICF, the Commission for Africa has drawn on the expertise and experience of a high-level African Business Contact Group - 120 companies in Africa and Europe with interests in, and a commitment to, Africa.
To coincide with the G8 Summit of world leaders in the UK in early July, the private sector - under the banner of G8: Business Action for Africa - will hold a business summit in London on 5 and 6 July, organised by the Commonwealth Business Council and the Commission for Africa, in collaboration with NEPAD. As Chair of the G8 summit, Prime Minister Tony Blair has stated that he looks forward to receiving the results from the conference, which will then be transmitted to world leaders.
The Commission for Africa has called for more balanced media coverage of Africa while the ICF will address negative perceptions by publicising investment success stories - which will also be featured at the London business conference. According to business leaders, "the view of most African business leaders and operators is overwhelmingly optimistic. Given a fair chance, fair trade and good governance, Africans can transform their economic and social prospects". The ICF is a welcome new development for Africa's future.