Doing Business in Africa

Africa is a continent with rich investment potential for both domestic and international investors.

As part of its remit, ICF seeks to tackle the misperceptions that currently exist about Africa as an investment destination and place to do business. Despite the headlines of war and famine, we believe Africa deserves to be recognised as a continent of opportunity and enterprise. According to World Bank figures, Africa currently offers the 'highest returns on investment of any region in the world.'

That said, we are under no illusions that Africa is an easy place to do business. It was no surprise when the World Bank yet again rated sub-Saharan Africa as the world's least business-friendly region in its recent 'Doing Business Report'.

The Challenges

The continent has an extremely fragmented business landscape, and businesses - regardless of their size or structure - have to contend with numerous obstacles and barriers that make running a business difficult.

Excessive and ineffective bureaucracy can often stifle and inhibit good business practice. Take customs, where delays in Africa are often notorious, as a key example. Complying with the many customs regulations and requirements that exist at both a country and regional level can prove burdensome, expensive and time-consuming. It is currently easier and quicker for Burkina Faso to export its green beans to France than to its neighbours. More critically, there is little incentive to comply with regulations and laws when non-compliant competitors so often jump the queues and evade the regulatory burdens.

Africa's infrastructure is another issue that needs to be addressed. Day-to-day business across the continent is so often thwarted by practical struggles with transport, logistics, energy and technology. The costs of closing Africa's infrastructure gap are estimated to be around an extra US$20 billion a year, according to the Commission for Africa.

ICF also believes developing Africa's capital markets and increasing access to finance and credit for enterprises is crucial. Linked to this is the need to strengthen property rights and improve the legal and enforcement systems that protect and promote legitimate business.

The role of SMEs

Boosting Africa's SME sector will also be key to the long-term sustainability of the private sector on the continent.

In high income countries, the SME sector has been estimated to contribute more than 50 per cent to gross GDP. In low income countries, the contribution of the SME sector to gross GDP has been estimated at 16 per cent - and in most Africa countries, the SME contribution has been estimated at less than 10 per cent. This untapped potential makes SMEs vital to the economic transformation agenda - not just in terms of GDP, but also the potential for job creation, innovation, capacity building and so on.

Optimistic Outlook

Despite the challenges that exist to doing business in Africa, we remain optimistic that sustainable change can be delivered - and delivered in seven years.

Many African countries are already showing an appetite for investment climate improvement - according to the World Bank, in 2007-2008, countries in Africa implemented more changes than in any year to date: 28 economies implemented 58 changes. Two West African countries led the way, Senegal and Burkina Faso, closely followed by Botswana.

Since 2005, the pace of change has continuously increased in the region with a 70% increase in the number of countries improving between 2005 and 2008. This year, Africa has seen the second highest number of changes, behind Europe and Central Asia. Out of the 58 changes carried out this year, two-thirds took place in 10 countries primarily in West and Southern Africa.

The broad base of support that ICF has received from African Governments and institutions is evidence of a growing consensus that investment climate improvement is crucial for wider economic growth. Furthermore, the recent economic growth enjoyed by Africa can, at least partly, be attributed to improved governance and strengthened investment climates across the continent