Overcoming the Challenges of Doing Business in Africa

Overcoming the Challenges of Doing Business in Africa

DOI: 10.4018/978-1-4666-4570-7.ch010
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Abstract

This chapter presents a framework and suggests specific strategies to eliminate or minimize the impact of the environmental micro-challenges when doing business in Africa. The minimization of these challenges will most likely attract increased Foreign Direct Investments to Africa. The chapter discusses twenty different policy and strategic initiatives that can make Africa an attractive business region. It also thoroughly explains how effective application of these strategies has helped other regions or countries with emerging economies such as China, India, and Brazil to grow phenomenally in the last three decades.
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1. Introduction

Globally, doing business remains easiest in the high income economies of the Organization for Economic Co-operation and Development (OECD) and most difficult in Africa and South Asia (World Bank Doing Business Report, 2010). More than a billion African people, and particularly the over 900 million people, in 48 countries, in Sub-Saharan Africa, continue to present the world with its most formidable development challenges. Africa is supposedly home to 34 of the world’s 48 poorest countries. The average income, excluding the Republic of South Africa, Botswana, Mauritius, and Seychelles—some of the highest per capita income African countries—is only US$600 per person (ERA, 2010).

Of the 32 countries in the world with the lowest levels of human development index, 24 are in Africa, and few countries on the continent are on track to meeting many of the Millennium Development Goals (MDGs) (ERA, 2010). In contrast to other regions, in which poverty levels have declined dramatically over the past four decades, the number of poor people—living with less than US$2 a day—in Africa has increased. From 1981 to 2001—at the height of the World Bank and IMF imposed structural adjustments period—the number of Africans living in poverty almost doubled from 164 million to 314 million (Moyo, 2009).

Yet progress has been achieved since 2005, in crucial areas, and thus many scholars and commentators (Deng et al., 2002; Kamara et al., 2008), including the World Bank, have for example, called 2005 “the Year of Africa” (ERA, 2010). African economies are increasingly active in making political and institutional reforms to create a conducive, suitable, and supportive business climate. According to the ERA (2010), considerable progress has consistently occurred in the following areas:

  • Gross National Income (GNI) per head has recently averaged over $1000 in Sub-Saharan Africa, ranging from slightly above $100 per head in Burundi to over $7000 in the Seychelles. This will reduce poverty. Further, pandemics such as HIV/AIDS, tuberculosis, and malaria are being contained and their negative effects on the Africa populations being permanently reversed (UNAIDS Report, 2009);

  • Access to Information and Communication Technologies (ICT), while still limited, is increasing. In 2002, there were about 12 personal computers per thousand people in Sub-Saharan Africa, a rise of more than 30 percent from 2000. Internet use and mobile phone is rising rapidly in Africa, with a very high intensity penetration level (Mom Ibrahim Annual Report, 2009);

  • Africa’s political leadership is taking ownership of conflict resolution, good governance, and poverty reduction, at both national and regional levels, through initiatives like New Partnership for African Development (NEPAD), African Leadership Forum (ALF), and Conference on Security, Stability, Development, and Cooperation (CSSDCA) (Deng, et al., 2002);

  • A substantial improvement in economic governance and ease of doing business has taken place across Africa since 2005 and African countries are some of the best reformers in the world today (ERA, 2010). And since the mid-1990s, the Gross Domestic Product (GDP) in 15 African countries grew consistently at a rate of over 6 percent per year. The African Development Bank (AFDB) anticipates that African GDP will grow at 7.5 percent in 2010 and 8.5 percent thereafter (Benoni, 2010);

  • Several countries have increased exports by more than 10 percent per year - new exports in cut flowers, horticultural products, tourism, and manufactures—are reaching an increasingly a diverse set of markets in the world (ERA 2010);

  • Skilled political leadership, international support, and Africans’ desire for peace have led to real progress in addressing conflicts—Uganda, Rwanda, Liberia, Sierra Leon, Burundi, South Sudan, and Mozambique are examples of countries that have made real turnarounds and are now relatively stable, peaceful, and growing (Deng et al., 2002). In North Africa, the Arab Spring is changing the area and bringing democracy to countries that have been single man dictatorships for decades. However, Somalia has remained a thorn in the African flesh. The country is increasingly becoming ungovernable, insecure, and even developing a terrorist and piracy cultures.

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