The G20 needs to facilitate private sector-led growth in Africa

Across the world, private-sector engagement has become the main driver of economic and social progress. Africa is no exception here. Most of the continent’s economies are still heavily agricultural, and the small African farmer is a private-sector operator and an entrepreneur if there ever was one. So, too, are the various tradespeople and craftworkers in Africa’s fast-growing towns and cities. It is businesses, not governments, that provide the bulk of the investment, innovation, employment and income which can bring about the growth and productivity increases that alone can lift millions of Africans out of poverty.

Many African economies have grown fast over the last decade, and not even the global economic crisis has slowed their progress for long. Despite the challenging global context, governments are more intent than ever on moving away from being mainly recipients of unpredictable and unreliable international charity flows. Instead, they aim to attract significant investments and gain proper access to capital markets in order to create jobs, livelihoods and ultimately the freedom and dignity enabled by economic success and self-sufficiency.

The private sector across Africa is still grappling with major problems, including ineffective and inefficient administrations, corruption, competition from unregulated and often illegal players, a poorly educated and inadequately trained workforce, and anti-competitive labour laws or significant trade barriers to both exports and imports. If some of these problems are the result of exogenous factors such as small market sizes and ethnic segmentation, many others are well within the powers of governments to change – for instance, poor transport and energy infrastructure or cumbersome labour regulations.

The primary responsibility for tackling these problems naturally rests with Africans. It is customary to say that it rests with governments; however, it is equally important to stress the responsibility of the private sector. The private sector must become better at organizing itself, speaking with a clear and audible voice, and defining an agenda, priorities and objectives. It must be able to lobby governments, who in turn will know exactly what to focus on in order to support their private sectors. Encouragingly, there is increasing evidence of this happening: we are seeing a more proactive private sector, and more governments working harder to address the concerns of the private sector.

For example, African governments are privatizing state-owned enterprises, reducing trade barriers, cutting corporate taxes, and remodelling education systems to meet the needs of business. As a result, African countries now feature regularly in the top ten reformers of the World Bank’s Ease of Doing Business Index, with Rwanda even coming top in the 2010 report.

Clearly, there are limits to what African governments and private-sector actors can do on their own to encourage and promote growth led by the private sector. Even the most progressive and business-friendly players have to bow to the realities and imbalances of the global economic system, and depend on international decision-making bodies in which they still too often have little say. This applies particularly to rebalancing international trade and eliminating distorting subsidies, especially in agriculture, which are so damaging to the African poor. Despite countless promises and declarations of intent, we are still waiting for a few crucial changes to a system that presently limits Africa’s potential for sustainable growth based on agriculture.

Representing 85 per cent of global GDP and nearly two-thirds of world population, the G20 is uniquely positioned to take decisive action on a few specific areas such as trade and infrastructure, which can unleash business-led growth in Africa. Armed with true political will, its members have the power to conclude the Doha trade round and phase out protectionist measures, or at least reduce international tariffs and national subsidies. They could also do much to ensure that international development assistance is a spur to private-sector growth, rather than a substitute for it.

The 2010 Seoul Consensus on Shared Growth struck all the right chords. This time, incentives to implement what has been agreed may be right, too. As the CEO of a FTSE 30 company making about 60 per cent of its profits in Asia, I can attest that the fact that emerging economies have now reached a meaningful scale is the main transformation that has taken place in the world economy during the last 20 years. The French presidency, with the active involvement of other G20 members, can impulse a step change in how issues are approached and managed in a world where global growth will increasingly come from emerging markets. And many of the most promising markets in the medium term are in Africa.

If the G20 delivers on its promises, I am confident that the private sector in Africa and around the world stands ready to do the rest to empower Africans and lift them out of poverty.

By Tidjane Thiam, CEO of Prudential plc