Need for dialogue to improve competitiveness

Sub-saharan Africa has seen economic growth rates averaging more than 5 per cent for the last 15 years. However, economies are largely agrarian bolstered by extractive resources and usually with a large informal economy, which largely focuses on local trading. The Africa Competitiveness Report 2015 makes the assumption that increased competitiveness is a critical driver of structural transformation and broad based growth. However, as we learn from WEF’s Global Competitiveness Index, most countries in Africa are not competitive. Indeed, the move by many from agriculture to services rather than to manufacturing suggests that their current growth is unsustainable. But, WEF suggests, to support manufacturing and to become more sustainable, they need better infrastructure – energy, roads, ports, irrigation – as well as improved education, and a more conducive business enabling environment. In particular, WEF sees a need for reduced barriers to trade a strengthened regulatory framework (especially for rules of origin, competition policy, intellectual property rights and dispute resolution). They argue for the removal of both tariff and non-tariff barriers and improved access to finance. They suggest that the “success of reform agenda will also depend on active dialogue among key stakeholders” (p82) between countries, not least to promote knowledge sharing and peer learning, but I would argue that more dialogue is needed between public and private sectors as well.

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Big Results Now: regulations and regulatory reform

In October 2012, the Government of Tanzania resolved to establish a strong and effective system to oversee, monitor and evaluate implementation of its development plans and programmes – called ‘Big Results Now’. This was launched in the first half of 2013 and is being implemented through the Transformation and Delivery Council (TDC), the President’s Delivery Bureau (PDB) and Ministerial Delivery Units (MDUs).

The PDB has a primary objective to facilitate, monitor and evaluate the delivery of BRN initiatives in six national key priority areas: agriculture, water, energy, education, transport and resources mobilisation.

In December 2013, at a meeting of the Tanzania National Business Council chaired by President Kikwete, it was agreed that the PDB should also focus on constraints imposed on business by the enabling environment and recommend proposals to address those constraints.

The GoT recognises the need to improve Tanzania’s business enabling environment as one contributor to economic growth and is therefore organising a four week “lab” on business environment reform commencing 24 February 2014. The objective of the lab is to proposals with timescales, costs and key performance indicators. A planning meeting has agreed six priority areas to be addressed by the lab: regulations and regulatory institutions; access to land and security of tenure; taxation; corruption; labour law and skills; and contract enforcement, law & order.

I will be participating in the work stream looking at regulations and regulatory institutions. The pre-lab meeting identified seven basic issues that will need to be considered:

  • Simplification and automation of processes and procedures in doing business;
  • Harmonisation, consolidation and automation regulatory institutions;
  • Separation of revenue generation objective and functions from regulatory functions – agencies funded from government budget;
  • Regulation making should be participatory and transparent and reflect the spirit of underlying laws;
  • Business registration and regulatory licensing is streamlined, simplified and modernised;
  • Lead times for enforcement of regulations introduced; and
  • Regulatory Impact Assessment (RIA) including participatory processes and consultations should become part of a mandatory process for development and gazetting of regulations.

Each lab will involve around 20 senior people drawn private and public sectors. The hope is that the participants will not only develop workable and acceptable proposals but also that they will feel sufficiently committed to success that they will do whatever is necessary when they return to their day job.

I would welcome feedback from anyone who would like to influence the work of the lab and will be blogging over the course of the time that I am participating

Misguided incentives drive the wrong behaviour

Last week, I was working with the Leather and Allied Products Manufacturers’ Association of Nigeria (LAPAN).

They tell me that once upon a time Nigeria had a large number of big name shoe companies, exporting to the whole of West Africa, but that Nigeria has allowed that position to slip and now imports around 100m pairs of shoes every year.

There is an incentive for businesses to export – the export expansion grant – which provides a grant (actually an import credit, but the impact is the same) of 30 per cent of the export price to the business actually exporting. This was originally inroduced to stimulate exports – and it has been so successful – estimates of export values range up to £3bn, the second largest export after oil –  that it is extremely difficult to buy finished leather of decent quality in Nigeria.

It seems that some businesses are extremely good at extracting the grant from the government whilst others are less good, so some businesses have not been paid for years. As the grant technically is an import credit, it is most beneficial to those businesses that are importing – or to businesses which can sell on their credits. The largest businesses are able to sell on their credits for close to face value but smaller businesses, with less clout, are lucky to get 40 per cent of face value. As a result, some of the largest tanneries are buying up leather from smaller tanneries, at a premium to the local price, but at a discount to the effective export price and thus cornering the market. The main consequence is that businesses further along the value chain, especially smaller businesses, find it very difficult to source leather locally – to the extent that they often end up importing leather to make up their shortfall.

LAPAN explains that while many of their business members are very small, their hope is that by joining together they can recapture some of this lost market. They note, for example, that the business members of the National Association of Hide and Skin Dealers supply 60 per cent of the more than 40m sheep and goat skins processed annually in around 20 tanneries. They hope to be able to help businesses with training; they are advising businesses on how they can be more environmentally friendly; and they are advocating to change public policy in relation to the EEG, so that more leather stays in the country, which will be much more beneficial to the economy, creating many more jobs and wealth in a hard pressed part of the country round Kano.

Doing Business 2012

The eagerly awaited Doing Business 2012, the latest in a long line of Doing Business reports, has just been published by the World Bank. The Bank reiterates its assertion that “enabling private sector growth and ensuring that people can participate in its benefits requires a regulatory environment where new entrants with drive and good ideas … can get started in business and where firms can invest and grow”.

Over the last year, the Bank says that 125 economies implemented 245 reforms affecting indicators measured by Doing Business. In sub-Saharan Africa, 36 of 46 governments improved their regulatory environment – which is extremely encouraging but also reflects their generally low rankings and need to take more action. Even more encouragingly, three of this year’s top ten reformers are African: Sao Tome e Principe, Cape Verde and Burundi. All are small, two are islands, but one is important as a constituent of the East African Community – and its neighbour, Rwanda, continues to impress, rising a further five places to 45th. Tanzania is at 127, down from 125, and Mozambique is at 139, down from 132, so they still have all to play for – and with the help of development partners such as DANIDA and DFID are trying hard to make a difference. The real need, I suspect, is for these governments to change the culture within government. Tanzania, for example, has worked hard to change the culture within its Ministries. It has one key reform that affects its DB rank: it has made it easier to get good through the ports. But too many government agencies are looking for new ways to extract money from businesses rather than making it easier for them to do business – and the consequence is that business leaders perceive that it is getting more difficult to do business in Tanzania.

Improving the enabling environment

All round the world, spurred on by the World Bank and its Doing Business reports, governments are looking for ways to make it easier for businesses to do business. There are a host of factors that comprise the so-called enabling environment (sometimes called the investment climate) including infasructure (power, roads, water, telecoms etc), access to finance, regulation and licensing, corruption, access to skilled labour, macro-economic factors such as inflation and interest rates and many more. In developed couuntries, we take many of these – such as reliable power or telecoms – for granted and complain about regulation and access to finance. These are both important in developing countries as well – but generally power and corruption are seen as the key barriers to business and the main deterrents to investment.

My objective in writing this blog s to draw attention to some of the problems that exist in places such as Tanzania, Kenya, Mozambique and Nigeria – and to encourage debate and discussion about what could be done to improve the enabling environment in those countries. I don’t imagine that I will have time to write something every day, but I hope that I might manage at least once a week, so please keep coming back – and please contribute.