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Introduction
1.1 Overview
T
he New Partnership for Africa’s Development (NEPAD) constitutes Africa’s cur-rent socio-economic policy framework in the form of a pledge by African leaders, based on a common vision and shared conviction, that they have a pressing duty to eradi-cate poverty and to place their countries, both individually and collectively, on a path of sustainable growth and development and active participation in the world economy and body politic.Recent evidence on economic development indicates that an efficient private sector, in effective partnership with the public sector, has the potential to lift Africa out of poverty.
Examples from developed western economies and the rapid growth of East Asian coun-tries have ably demonstrated this. Moreover, sustainable economic growth grounded on entrepreneurship and a successful private sector is generally seen as key to poverty allevia-tion. Thus, the Economic Commission for Africa (ECA) decided to adopt Private Sector Development as a main theme of the Economic Report on Africa, (ERA) 2003. This theme was also adapted by all ECA sub-regional offices (SROs) for their respective re-ports on economic and social conditions for 2003. Also, during the 8th Intergovernmental Committee of Experts held in Lusaka in April 2002, it was recommended that the role of the private sector in economic development be analysed in a special study.
The private sector is generally conceptualized as a basic organizing principle for economic activity, where private ownership is an important factor, markets and competition drive production, and private initiative and risk-taking set economic activities in motion [Schul-pen and Gibbon, 2001]. There has been a shift in development thinking from the 1960s and 1970s, when the State was regarded as the prime mover of economic developments, to the State and the private sector being regarded as critical partners in the development process. In the current viewpoint, the relationship between the State and the private sec-tor is seen as a partnership that should concentrate on creating a conducive environment for market and economic forces. The focus of the State should be on the promotion of an effective legal and regulatory framework, social and economic infrastructure, public services and essential services to the poor. The role of the market and the private sector is to produce and distribute goods and services efficiently.
The general consensus today is that the State is structurally handicapped, and has little capital to enable it to be efficient under market conditions. The actual shift in develop-ment strategies has been aided by the structural adjustdevelop-ment conditionalities of the World Bank and IMF, and the current emphasis is on private sector development coupled with a global convergence towards political and economic liberalization. All countries in the Southern African sub-region have embraced democracy and market forces as the twin foundations of the new political economy and the foundation of this new political eco-nomic system is the private sector.
Private sector output, except for Mauritius, South Africa and Zimbabwe, remains low, which is essentially a reflection of economic underdevelopment; As a result, the private sector remains in its infancy in Southern Africa in comparison to other parts of the world.
There is, however, substantial scope for increased private sector development through the expansion of existing enterprises, and through the establishment of entirely new ones. The challenge is for national governments and sub-regional umbrella organizations to focus on the development of policies and strategies for rapid development of the private sector with a view to solving the major socio-economic problems, such as high levels of poverty.
Africa has been perceived as a region troubled with political and civil conflicts. Thus, the primary policy challenge for the sub-region is to develop a new image of political stabil-ity. However, with the signing of national peace accords in Angola, Southern African countries are steadily moving towards the consolidation of constitutions that will further institutionalize democratic principles and practices. These developments will help to con-solidate political stability in the sub-region so that governments are able to give more attention to legal and regulatory issues.
In view of severe domestic resource constraints, the sub-region needs to attract substantial FDI as a principal source of fresh investments and technology transfer. This is, in addi-tion to stimulating local investments. Governments need to provide a legal and regula-tory framework, and macroeconomic systems that address the concerns of both types of investors, foreign and domestic. With increased globalization, the competition for FDI is severe. Africa is receiving the lowest share of FDI in the world. In this regard, and in the context of institutional development, some countries in the sub-region have established Investment Promotion Agencies (IPAs) tasked with the responsibility of addressing regu-latory matters and also of developing a number of policies to address the special concerns of foreign investors.
Small and medium enterprises (SMEs) play a significantly productive role in the econo-mies of the sub-region. However, the biggest challenge is the lack of reliable statistics on SMEs and the informal sector at large. Ironically, because of poor statistics, there has not been adequate appreciation of the important roles SMEs play in the development of an economy. Generally, SMEs in Southern Africa have not been accorded the kind of policy priority they enjoy in many developed economies.
Fiscal and monetary policies need to be investor-friendly and also promote macroeco-nomic stability. The tax regime should also be such that the investor can make a worth-while profit. The sub-region is succeeding in developing investor-friendly fiscal and
mon-etary policies. However, the financial systems in many of the countries in the sub-region, except for South Africa, remain under developed and not conducive enough to support growing private sector participation effectively. The sub-region needs to create competi-tive financial systems that can stimulate and sustain high growth.
Another critical area for the development of the private sector is innovation. Most large companies in the sub-region are subsidiaries of transnational corporations (TNCs) and generally research and development (R & D) takes place at Western located R & D cen-tres of the parent companies. Local subsidiaries remain mere recipients of new technolo-gies because the high cost of R & D is prohibitive to most countries in the sub-region.
To date, the limited resources available for R & D in Southern Africa have been devoted to addressing the critical challenges of sub-regional, national and household food security.
Apart from agriculture related R & D, the scope in other areas is severely limited by re-source constraints. In spite of limited capacity for R & D, all countries in the sub-region must recognize the importance of innovation to their socio-economic development, and must put in place policies to develop a national culture of innovation. The basic policy is to have a literate society, and then encourage a science and technology content in higher levels of education. Basic literacy and general education should not be seen as mere social services, but also as an investment in human capital.
To sustain investments there must be access to markets. Most countries in the sub-region are members of the WTO and are also signatories to other international trade agreements.
Furthermore, all countries within the region belong to one or both of the major sub-regional groupings i.e. COMESA, SADC and SACU. The sub-sub-regional market should be the initial target for investment due to the comparative advantages in transportation costs.
One significant constraint on the domestic markets in the sub-region is the severe income and wage inequalities. Therefore Southern African countries must develop realistic labour policies to promote equitable income distribution and raise labour productivity which will, in turn, help stimulate domestic markets and investment.
1.2 Objective and Scope of the Study
The objective of this study is to analyse the challenges and opportunities for private sector development and policy implications for Southern Africa. The study examines the policy and institutional framework, and identifies a number of best practices within the sub-region that can assist member States to develop strategies for enhancing the role of the private sector role in socio-economic development. The primary focus of the study is FDI, local innovation, SME development, market access, policy and institutional mechanisms, and the way forward for Southern African countries. While the focus of the study is on Southern African economies, the study has drawn on good practices and models from other sub-regions and countries, broadening the perspectives from which policy chal-lenges and options can be drawn for the Southern African context.
1.3 Methodology
This study was mainly based on desk research at the ECA-SA sub-regional office in Lu-saka, and relied on secondary data from various sources. Library sources included the Uni-versity of Zambia, COMESA, ECA-SA, World Bank, and the British Council. Internet sources included the ECA-SA website, and the official websites of member States, World Bank, ADB, UNCTAD, and other specialized sources. Country case studies and data were also received from Namibia, Malawi, Mauritius, Mozambique and Zimbabwe.
In addition to secondary data, modest field investigations were conducted in Zambia, which entailed discussions with a number of public sector agencies, and business associa-tions. The study also benefited from the observations and discussions of two sub-regional workshops held in Lusaka in November 2003, i.e. the COMESA workshop on Com-mon Investment Areas; and the ECA Eastern and Southern Africa sub-regional workshop preparatory to the Fourth African Development Forum (ADF IV) on “Governance for a Progressing Africa”. The study also benefited from a third workshop organized by the De-velopment Bank of Southern Africa in March 2004, to review the first draft of the study.
Recommendations for the section on ‘The Way Forward’ were received from the 10th ICE, which took place in Lusaka, Zambia in May 2004. The meeting devoted a special session to Private Sector Development in Southern Africa.