Interview: Akinwumi Adesina
What has been done to support small and medium-sized businesses (SMEs) entering the formal sector of Africa’s economy?
AKINWUMI ADESINA: The AfDB estimates that the informal economy in Africa accounts for 50-80% of GDP, 60-80% of employment and as much as 90% of new jobs. The quality of the regulatory framework is vital in a firm’s decision to join the formal sector. Almost all firms at this stage are SMEs, which account for over 90% of Africa’s private sector. Policies that encourage SME development are therefore critical.
The AfDB is aware that entrepreneurs in Africa face a number of challenges. These include an unsupportive business environment, a large infrastructure deficit, expensive and unreliable energy, low access to financing, and barriers to regional trade and the movement of resources. To tackle these challenges, we structured the Industrialise Africa project to develop industrial sector strategies and policy frameworks, provide additional funding to private sector projects on the continent, create and integrate regional and international value chains, and boost competitiveness and value creation by expanding the supply of business services.
What role do public-private partnerships (PPPs) play in the development of large-scale projects in Africa?
ADESINA: Governments need to work closely with the private sector to close African infrastructure gaps. Public-private partnerships (PPPs) are increasingly seen as a logical and appropriate recourse to the challenge that governments alone lack the ability to finance infrastructure and other large-scale projects. PPPs play a key role in facilitating projects by balancing a government’s desire to leverage private capital for public benefit with private sector interest in profit.
A strong legal framework is important in establishing the processes of any PPP tender and providing dispute resolution and transparency. It should also align with government policies and assign responsibilities to parties of the PPP. This enables the private sector partners to assess the project risks. Furthermore, governments should structure financing and revenues in a manner that incentivises investment. Blended finance, coupled with guarantee instruments, can be effective in attracting investors by reducing risk and improving the expected return of a project.
PPPs essentially represent a contractual relationship between the public and private sector for the management of risks and the sharing of revenues from the provision of a service over a period of time. Governments, in their zeal to conclude PPPs and deliver on promises and policies, can take on board risks that the PPPs are not able to manage. The PPP Knowledge Lab, a centre established by the Multilateral Development Banks, of which AfDB is a member, provides guidance on PPP conditions in different sectors and on the apportionment of risks in specific deals.
How do you believe global changes in trade policy and rhetoric will affect African markets?
ADESINA: For African countries, a shift to restrictive trade policies may have negative effects on jobs. New trade agreements imposing higher taxes and duties on exports will make the export sector of many African countries less competitive and less profitable, thereby affecting millions of workers.
The UK’s share in Africa’s total trade, for instance, has recently declined, but the country remains an important trading partner for Africa. In the near term, the slide in value of the British pound since June 2016 has increased the cost of African exports to the UK, which receives 3.4% of the region’s total exports.
US-Africa trade has also been on the decline for several years. Exports from Africa to the US dropped from a high of $113bn in 2008 to $27bn in 2017. US exports to Africa have also plunged from an all-time high of $38bn in 2014 to $18bn in 2017, and during this time China has become Africa’s largest trading partner.
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