‘Strengthened private sector to boost continental trade, integration’

The United Nations Conference on Trade and Development (UNCTAD) has emphasised the need to strengthen the private sector as part of measures to boost regional trade and integration in Africa.

According to the agency, regional trade has the potential to contribute to sustained growth, poverty reduction and inclusive development, but the expected results have been slow to come to the fore in Africa especially with the weakness of the African private sector.

UNCTAD in its policy brief noted that the private sector has a crucial role to play in making regional integration work for Africa because, though trade agreements are signed by Governments, it is the private sector that understands the constraints facing enterprises and is in a position to take advantage of the opportunities created by such agreements and regional trade initiatives.

“For the objectives of regional integration in Africa to be realized, African Governments therefore have to create more space for the private sector to play an active role in the integration process instead of leaving the sector to act as a passive participant.

“Steps taken by many African countries in the 1980s and 1990s to build the capacity of the private sector included reform of the business environment, such as the protection of property rights, relaxation of labour regulations and other structural adjustments. Yet the experience of the past three decades has shown that, while these reforms may be necessary, they are not sufficient to promote entrepreneurship, unlock private sector dynamism and boost productive capacity in the region”, UNCTAD advocated.

On the challenges encountered by the private sector, UNCTAD stated that evidence show that the poor infrastructure in the continent reduces the productivity of companies by 40 per cent and per capita output growth by about 2 percentage points, thus responsible for a huge drawback on the competitiveness of the private sector in Africa, as it limits access to markets, raises trade costs and reduces productivity.

To address the challenges, the agency stressed the need for African Governments to catalyse more private investments in the energy and transport sectors to boost regional trade, adding that governments should also explore new and innovative ways of attracting investment for infrastructure projects on the continent.

“Another vital area that needs to be creatively addressed in the capacitation of African enterprises is access to financial resources, which studies suggest is one of the major constraints to private sector development in Africa.

“Private firms in Africa have a hard time getting access to affordable finance for their businesses. Only about 23 per cent of African enterprises have access to loans or lines of credit compared to 46 per cent for non-African developing countries. It has been established that even this 23 per cent gets loans at interest rates that are 5–6 percentage points higher than their counterparts in other regions of the world.

“The high interest rates are also often coupled with forbidding collateral requirements. This scarcity of access to finance is especially serious for small and medium enterprises (SMEs) as banks tend to target large enterprises. Meeting the financing needs of SMEs is given low priority by domestic financial institutions. There are ways in which African Governments could work closely with the private sector to improve the financial infrastructure on the continent”.

“African countries are separated from each other by more than 100 bilateral borders. These borders constrain continental trade and integration given that they impose financial costs on traders and also create uncertainty. Measures such as the coordination of border controls, transit guarantee schemes or pre-arrival customs processing can facilitate cross-border trade but they also require collaboration among neighbouring countries”, the policy brief stated.