“African countries need to address the barriers that keep African business less competitive,” says AfDB Chief Economist, Louis Kasekende

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Tunis, 26 June 2007 – The Chief Economist of the African Development Bank (AfDB) Group, Louis Kasekende, has emphasized the need to address those barriers that hold down business development in Africa and reduce the ability of the African private sector to be competitive in the global economy. Speaking during an interview in Tunis, Mr. Kasekende specifically mentioned weak infrastructure, lack of access to finance – including trade finance – and discretionary as opposed to rule-based regulatory environments.

The Chief Economist pointed to studies that showed that while African companies were competitive at the firm level, beyond the factory gate they became less competitive. "African countries thus need to improve the business climate, remove critical supply-side constraints, build productive capacity, raise product quality and labour productivity, and adopt trade-promoting policies," he said.

Mr. Kasekende added that there was the need to maintain macroeconomic stability in order to reduce investment uncertainty and promote private sector development. African countries, he stressed, needed to reduce the high administrative barriers and excessive regulations that result in substantial delays and high transactions costs to firms wishing to invest. Starting a business in most African countries, he noted, was still relatively costly and getting a licence processed was equally time-consuming.

Asked about those specific actions that should be considered at the national or regional levels to boost productivity and reduce transaction costs, the Chief Economist said that more investments should be directed towards upgrading the level and quality of infrastructure provision, which condemns the continent to low competitiveness in the global market.

He indicated that financial markets were also critical in promoting the investment climate, stressing that to be able to attract more domestic and foreign investment, there was need for continued political stability, respect for the rule of law and protection of private property in many countries on the continent.

In response to a question on the recent Annual Meetings of the African Development Bank Group in China, he said that the message that was taken to Shanghai was that there was some good news coming out of Africa, and that the continent was ready for business.

Mr. Kasekende called on Africans businesses to engage more aggressively with Asian companies, advising that there were lots of opportunities for joint-ventures in a number of areas between the two continents, including supplying processed materials and tourism related investments, such as travel service management. He said that there was more headroom for deepening trade and investment relationships between Africa and Asia.

The AfDB, he said, was also in a unique position to play a role in strengthening the relationship between the two continents, especially as Asia had begun to align its financing to the development priorities of Africa.

On the question of regional integration, Mr. Kasekende said that effective action in that regard would allow Africa to expand trade, pool resources for investment, enlarge local markets, and industrialize efficiently by taking advantage of the scale of production that large markets make available. African countries, he pointed out, face a number of challenges in accelerating the pace of regional integration on the continent: weak regional institutions; multiple and overlapping membership in regional economic groupings; absence of strong regional focal points; limited domestic constituency for regional integration in member states, and sectoral challenges, particularly in the areas of trade, macro-economic policy convergence, free movement of factors of production, and infrastructure deficiencies.

He said the Bank had, in recent years, set aside a percentage of its concessional financing facility (currently 15%), exclusively for supporting regional integration, through loans and grants for investments, regional studies and capacity building projects. The Bank, he pointed out, had identified and financed a number of regional infrastructure projects under the NEPAD Infrastructure Short-Term Action Plan (STAP). During 2002-2006, the Bank financed 33 such projects and programs, consisting of 18 physical projects, including one private sector project, 12 studies and 3 capacity building projects within the NEPAD framework for a total Bank Group financing of US$1.024 billion, and mobilized about US$1.6 billion in co-financing of some of these projects.

With regard to the possibility of a common continental currency, Mr. Kasekende pointed out that that a common currency could be a powerful instrument of economic integration in Africa. He said that the principal economic argument was that such a move would reduce the cost of transacting across borders as well as boost intra-African trade which, he noted, is currently very low. He added that a common currency could serve as an external agency of national fiscal restraint, pointing out that a successful monetary union would require that African countries commit themselves to macroeconomic convergence criteria that would include low inflation and sound fiscal policies. He urged African countries to draw on the experiences of the CFA franc zone (West and Central Africa) and the Common Monetary Area (Southern Africa), both of which had provided the continent with the necessary building blocks of monetary union.