Removing Economic and Corporate Bottlenecks to Private Sector Development

Addis Ababa, 30 November 2007 (ECA) – Otieno Meriko shows me his recent bank statements, obviously very proud of his achievements in the last several years selling fish to Nairobi’s supermarkets from his family-owned small fish farm by Lake Victoria. The close to $ 5,000 he has made in the last year would more than double, he says, if only he could qualify for credit from his local bank. “There are so many poor people without jobs in my village, expanding my business would give me the leeway to employ more people, train even more, diversify my business and get more of them out of poverty,” he says.

These and other economic and corporate bottlenecks are crippling the potential for Africa’s private sector growth. The message to a meeting of the Committee on Human Development and Civil Society hosted recently in Addis Ababa by the United Nations Economic Commission for Africa (ECA) was a call for some radical changes to support private sector development.

“Despite the strides in improving the macroeconomic environment, significant economic and corporate governance bottlenecks to private sector and enterprise development still remain on the Continent.” Said Mr. Sam Cho, whose presentation on an ECA study on the issue outlined a number of impediments, including poor infrastructure; political instability; ineffective legal and regulatory framework; weak institutions; low level of available technology including ICT; inadequate integration of supply chains, markets and regions; and biased policies against small- and medium-size enterprises.

He noted that Africa has witnessed a steady economic growth, which peaked at 5.7% in 2006. High oil prices and commodity prices as well as increased ODA and FDI have yielded some positive outcomes, he said but pointed out that this growth has not translated into poverty reduction due to limited drivers of/and non-inclusive nature of growth in sub-Saharan Africa as well as low employment.

The figures mean little to the myriads of those living on less than the ever decreasing value of1 $ a day. As they wait for the day when opportunities open up for employment in the small and medium enterprise outfits, such as Meriko’s, the cost of living does not seem to get any easier.

Unfortunately, companies, such as those set up by Meriko are too small to reap the benefits of economies of scale. In East Africa, Meriko’s hopes of expansion are confounded by a huge barrier - access to financing, which according to the ECA study tops other issues, including corruption and taxes in the list of the ten most problematic factors in doing business in the region. Further, the land on which he has set up his operation is communally owned. Without individual property titles, there is not much incentive to diversify his business or access credit using his title deed as security.

At a time when Kenya is gearing for elections, Meriko hopes for a brighter future, where policy reforms will match the country’s growth and development strategy and that priority is given to constraints faced on the supply side, such as good governance, credit facilities and better infrastructure. He remains optimistic that the commitments being made by the dominant political parties will turn into action to truly enhance the overall role of the private sector and offer a chance for outfits such as his to grow exponentially.

For more on the study “Governance Bottlenecks: Private Sector Development in Africa by ECA’s Governance and Public Administration Division (GPAD) contact: ecainfo@uneca.org or go to http://www.uneca.org/gpad