Addressing the capacity gap to improve Africa’s investment climate

William Asiko News & Analysis Trade, Industry & Investment

Africa has a wealth of natural resources and investment potential that it can harness to boost economic growth and transform the lives of its people. From oil and gas resources to mineral deposits to arable land, the opportunities are endless. Today, both domestic and foreign investors are taking advantage of these opportunities and driving economic growth in a number of African countries, a claim that is bolstered by the fact that six of the 12 fastest-growing economies in the world are in Africa.

However, the business environment in many countries remains discouraging. Businesses struggle to register, to obtain necessary licenses, to move their goods in and out of the country, and to meet their statutory obligations, like paying taxes. When they enter into commercial disputes, resolving them is often a lengthy and costly process, and can potentially be a matter of life or death for smaller enterprises.

In an effort to attract investments, many African governments have been taking measures to improve the business environment in their countries, a fact that is evidenced in the improvements that have been recorded annually in the World Bank’s Doing Business Report. According to the 2015 edition of the Doing Business Report, nearly a third of the business regulatory reforms that took place in 2013/14 happened in Africa.

Nevertheless, a lot more needs to be done to boost private investments on the continent. African countries have to enhance investment performance by creating an environment that allows businesses to operate in a secure, hassle-free and conducive manner. This requires the creation of government policies and regulations that encourage businesses to grow and to perform better, faster and more innovatively. It also necessitates the reforming of the administrative environment to ensure that it encourages, rather than hinders, business performance.

Once a conducive environment has been created, governments need to secure and enhance investor confidence by ensuring that this conducive environment is maintained and continuously enhanced. This means the policies and regulations that create this environment have to be robust and have to cover the needs of both government and the private sector. They also need to be constantly updated to keep pace with the fast-moving and ever-changing needs of the business environment.

In order to create such robust policies, governments need people with the technical knowledge and skills to envision the kind of environment that would be conducive to both the private and public sectors and to create plans that would bring this vision to reality. They need people who can implement these plans in the same spirit in which they were envisioned to ensure they deliver the desired conducive business environment. They also need people to monitor and regulate the business environment in a way that encourages enterprises to grow and flourish.

However, capacity gaps in government are a major challenge for many African countries. Several factors are at play here: firstly, many education systems in Africa have historically struggled to keep up with the fast-changing needs of labour markets. Secondly, incentives for working in the public sector are low. For example, government salaries tend to be lower than those in the private sector, and opportunities for career and personal growth are limited. Third, sometimes patronage, rather than merit, is used to recruit people in government. As a result, those with the right skills and knowledge, either from within the country or returning diaspora, gravitate to the private sector, leaving the government to struggle to fill capacity gaps.

The consequences of this can be detrimental in several ways. Firstly, weak government policies create an environment that neither encourages businesses nor ensures optimal revenue for government. Businesses struggle to register, face long and expensive delays when importing and exporting goods, and have to deal with cumbersome bureaucracy just to pay their taxes. As a result, some businesses exploit loopholes to avoid paying taxes. Consequently, governments then struggle to collect tax revenues from a small pool of businesses that are already battling to operate in an unfriendly environment.

Secondly, with capacity gaps, government is constantly playing catch-up. Instead of being in the forefront, creating new business and investment opportunities and laying down the requisite infrastructure for these developments, governments often find themselves trying to catch up to the needs of the private sector. This can be seen in the provision of infrastructure like power, roads, internet access, etc. In addition, the lack of adequate capacity means that government is constantly fighting fires. A perfect example of this is the real estate boom in many African cities where real estate construction far outruns government’s ability to expand roads and drainage systems, leading to traffic congestion and flooding during rainy seasons.

Lastly, the inability of government to adequately manage and regulate the investment space in the country can lead to feelings of resentment from the populace who get the impression that foreign investors are taking unfair advantage of them with government’s assistance. This is often expressed in feelings of mistrust and clashes between people and investors, and can sometimes lead to unrest.

Providing long-term solutions to capacity challenges in Africa requires structural changes to educational systems across the continent as well as a revamp of pay and incentives for those working in government. African governments will have to engage in these structural changes if they are to empower their people with incentives and opportunities to engage in productive activities that create wealth, employment and well-being.

In the meantime, African governments should take advantage of current opportunities that provide inroads in tackling the capacity issue through simple, inexpensive initiatives that provide quick and immediate results. These short-term solutions are in three main categories: tertiary training opportunities, on-the-job training opportunities and knowledge sharing.
Subsidized tertiary training opportunities that are provided by development partners or other partner governments are a good way of addressing capacity gaps in government. This includes Master’s and Post-graduate degrees that can boost government’s technical capacity at senior levels. On-the-job training offered via technical assistance during the implementation of development projects create a good way of transferring knowledge and skills, especially at a technical level. Knowledge sharing within the continent is a powerful way for governments not only to learn from other African countries that have managed to make it work, but also offers them encouragement that they too can make similar reforms.

The Investment Climate Facility for Africa provides technical assistance to governments that are interested in implementing investment climate reform projects. The on-the-job training and knowledge sharing opportunities offered along the way have helped many governments address their capacity challenges. But to permanently solve the capacity gap challenge, African governments will have to adequately address the way they recruit, retain and develop their workforce. This includes recruiting and retaining staff based on merit rather than patronage, providing competitive remuneration packages, and providing opportunities for development and career growth that are merit based.

These measures will enable African governments to get people with the required technical skills to create and deliver business environment policies that meet the needs of both government and the private sector, with tangible results. This will help to raise investor confidence, boost local and foreign private investment, and create greater economic activity. Then and only then will African countries begin to exploit their natural resources and vast investment opportunities in a way that truly boosts economic growth. And with the right policies and structures in place, that growth should lead to the transformation of the lives of millions of Africans across the continent.

Written by

William Asiko is the Chief Executive Officer of the Investment Climate Facility for Africa (ICF). ICF is a donor-funded development organization that works with the private sector and receptive governments in Africa to remove barriers to both foreign and domestic investment in their respective countries. William was formerly the President of The Coca-Cola Africa Foundation for a five-year period from 2007 to 2013, based in Johannesburg, South Africa.