Private sector participation is essential to improving continental trade in Africa

BY NICHOLAS ADERINTO

Intra-African trade remains low despite efforts from the African government to improve continental trading capacity. In the recent decade, intra-African trade accounted for about 12 percent of Africa’s total trade. One of the leading causes of low continental trade is the absence of a strong and efficient private sector. While the current trade framework focuses on lowering trade barriers, increasing the efficiency of the private sector’s productivity can improve Africa’s trading performance. The current framework necessitates a need to shift toward integrative private sector participation.

The private sector bears the main brunt of the trade constraints. While the public sector, through the government, negotiates and signs trade agreements, the consequences of the private sector play an integral part in African trade. It is why African governments must operate systems viable for private sector participation.

Poor infrastructure reduces by 40 percent in Africa, and per capita output grew by 2 percent. This lack of infrastructure capacity means that the private sector cannot compete at the highest level in terms of productivity.

Governments in Africa must seek new ways to attract funding for infrastructure projects. For example, infrastructure bonds have been successfully utilised to fund South Africa and Kenya road renovations. These funds might be used to help finance infrastructure projects all over Africa.

One of the identifiable limitations to African private sector development is the lack of access to financial resources. Private businesses find it hard to secure reasonable funding. Only about 23 percent of African companies have access to loans, compared to 46 percent in other developing countries outside Africa. The 23 percent receive loans at 6 percent higher interest rates than their counterparts in other parts of the world.

Stringent collateral requirements typically accompany these high loan interest rates. small and medium businesses (SMEs) have limited access to finance since banks prefer to lend to large corporations.

Furthermore, business support services must be in place to help SMEs shift from informal to formal firms. The process will enhance credit availability and help overcome the informality associated with the search for business funding.

Governments and companies should be equal partners in trade issues. However, a major communication gap hinders mutual understanding and effectiveness between the two parties. A credible structure for a prosperous state–business interaction must be built to harness private sector potential, boost productive capacity, and improve opportunities for developing intra-African trade.

Equally, African governments must interact with the private sector to understand the private sector’s challenges and how to overcome them. Such information exchange is significant for developing beneficial policies to promote entrepreneurship and boost intra-African trade.

Regional trade has the potential for long-term growth, poverty reduction, and equitable development. Examples of such transformation abound in Asia and Latin America. In Africa, however, the predicted benefits are slow to materialise. The private sector’s extensive absenteeism is one of the most important factors contributing to the situation. All stakeholders must take the necessary steps to address the challenge.

Nicholas Aderinto is a writing fellow at the African Liberty