The development of African private enterprises hampered by weaknesses in public governance

While private companies could be the flagships of the African continent, three specialists from the Agence Universitaire de la Francophonie and the French Development Agency believe that they are not receiving enough help.

Entrepreneurship in Africa is a major issue for job creation on the continent, where the growth of the working-age population will be the main factor. higher over the next thirty years.

However, currently African economies are already unable to provide jobs in sufficient numbers. Only 3 million jobs are created each year on the continent while 10 to 12 million young people enter the labor market at the same time.

Job creation is not only essential to enable poverty reduction, but also crucial to prevent socio-political tensions from growing (or even appearing in the most stable countries).

Private sector development is a major issue for job creation in Africa. The informal sector represents more than 80% of total jobs according to the estimates of the International Labor Office. While informal enterprises make it possible to provide a large number of jobs, they are most often not very remunerative and not very stable.

The development of the productive sector therefore requires the development of formal enterprises. The fabric of these businesses in Africa is fragile. These are few in number and are struggling to grow and improve their productivity. The development of this productive fabric suffers in particular from a business environment that is among the least favorable on the planet.

A climate not conducive to development

Private companies in Africa suffer from a business environment that is not conducive to their growth. States are in charge of setting the rules of the economic game. However, in Africa, the game is sometimes biased in favor of some. Regulations are numerous and costly. Thus, the cost to register a business is ten times higher in Africa than in OECD countries.

In addition, the rules are sometimes built more to promote private interests than for the collective well-being. For example, in Tunisia, under the presidency of Ben Ali, the regulatory framework was built to promote the interests of companies belonging to the Trabelsi clan, the president's in-laws. Finally, even though the rules are fair and equitable, the implementation of the rules is often complicated for lack of sufficient resources given to public administrations.

Faced with a regulatory framework lacking in readability, difficult to apply, or even diverted from the general interest by certain players, companies are struggling to develop. In the short term, compliance with existing rules generates additional costs for businesses.

This additional cost also concerns companies which adopt "avoidance strategies" such as resorting to unofficial channels to obtain the documents necessary for their activity. For example, in Sudan, 90% of companies state that they can obtain a building permit in less than two weeks, whereas the “official” deadline is 250 days.

This situation reflects the existence of a system of widespread corruption which is inequitable (not all companies have the same access to these alternative channels) and undermines the authority of the state. In the longer term, an unfavorable business environment, due to corruption or an inadequate regulatory framework, discourages companies from investing.

Thus, it may appear rational for a company to remain at a size below its optimal level, or in the informal economy, in order to avoid certain additional costs generated by an unsuitable regulatory framework or to become a little too visible in the eyes of authorities.

The limits of current actions

To promote private sector development, many African countries (often under pressure from international institutions) have implemented reforms aimed at improving their business environment. Thus, many countries have sought to facilitate business registration by reducing the number of administrative procedures required.

However, ex post analyzes of these policies show little or no effect of these reforms. Indeed, the latter have rarely received the necessary political support. The leaders were able to agree to make reforms by modifying the law but without giving the administrations the means to apply them, making them de facto lapsed.

In addition, these reforms usually focus on only one aspect of the problem, and their effectiveness is thus limited by the existence of other bottlenecks in the process. Following the failure of a formalization policy in Sri Lanka, researchers have analyzed the reasons. It appears that entrepreneurs could not access a title deed which was nevertheless essential to register. Similar situations are likely to exist in Africa.

This example underlines the need, in order to improve the business environment, to provide a comprehensive response to a systemic problem. In the short term, this strategy should be combined with complementary actions at company level. Companies that operate in a sector with an unfavorable business environment are confronted with corruption mechanisms that they can help to maintain by lack of alternatives or by design.

Aware that they are stakeholders in the situation, some companies are implementing internal codes of conduct (or ethics charter) and strengthening their private governance in order to limit the impact of this corruption on their activity (in order to improve reputation and minimize legal risks).

However, a company's efforts to combat these issues will only be effective if they manage to generate a ripple effect among other key players in its sector. Indeed, the company which initiates a virtuous approach bears an additional cost, which materializes in a loss of competitiveness.

Acting at the mesoeconomic level

Faced with the limits of actions at the macroeconomic and microeconomic level, we advance the idea to complete the range of actions by acting at a mesoeconomic level. This approach requires relying on intermediary bodies such as employers 'or inter-professional organizations, producers' unions or chambers of trades or commerce and industry.

These intermediary bodies can act at both macroeconomic and microeconomic levels. On the one hand, professional organizations can facilitate dialogue with the state. The quality of the “public-private dialogue” is fundamental so that the State has a detailed knowledge of the constraints of the private sector and can thus improve the business environment.

Professional organizations also make it possible to support internal business reforms by facilitating coordination between actors within a sector or a value chain and by bearing part of the costs of change.

Well-structured professional organizations are essential to improve the business environment and thus enable the development of private enterprises in Africa. International aid on this theme relies primarily on businesses and governments.

Promoting a rapprochement between donors and intermediary bodies is undoubtedly a lever of response, complementary to the existing tools, which should be deepened. Donors could, for example, help structure professional organizations by making financial and human resources available.

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Florian Leon, research fellow at the Foundation for Studies and Research on International Development, AUF (University Agency of La Francophonie); Pierrick Baraton, account manager in the guarantees division, French Development Agency (AFD) et Sebastien Fleury, Deputy Director of Operations, Proparco, French Development Agency (AFD)

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