Shanta Devarajan on Africa’s Private Sector

Shanta Devarajan is the Chief Economist of the Africa Region at the World Bank. He gave a lecture yesterday at the Colombia Business School on how to stimulate the private sector in Africa. Here are the main points…

• Despite relatively rapid economic growth, private investment in Africa is still relatively low
• The proximate reasons are poor infrastructure, weak skills and a host of policy and institutional impediments (such as business regulations and trade restrictions.
• Underlying each of these proximate reasons is some government failure. Transport infrastructure, for instance, is constrained by poor regulation that generates monopoly profits for trucking companies but keeps Africa’s transport prices the highest in the world; poor skills derive from nearly dysfunctional tertiary education systems; and many of the regulations are difficult to remove for political reasons. The few private-sector success stories in Africa (Kenya horticulture, Lesotho garments, Rwanda tourism) all got around these government failures; they have not spread economy-wide.
• The key to enhanced private sector growth in Africa, therefore, is government leadership that removes the underlying obstacles to infrastructure, skills development and entrepreneurship.