ENTREPRENEURIAL DEVELOPMENT AND THE INFRASTRUCTURE QUESTION IN AFRICA

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ENTREPRENEURIAL DEVELOPMENT AND
THE INFRASTRUCTURE QUESTION IN AFRICA
MS EVELYN N. OPUTU MANAGING DIRECTOR
BANK OF INDUSTRY LIMITED, NIGERIA
TRENDS IN GLOBAL FINANCE AND INFRASTRUCTURE
2008 EMERGING OPPORTUNITIES IN AFRICA
CONFERENCE, LONDON JUNE 23 2008
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INTRODUCTION

• Sustainable development of the African continent
  can only be achieved through continual economic
  growth and better integration into the
  international trade system. Enhancing
  entrepreneurial activity in Africa is therefore a
  key element in the agenda for poverty reduction
  in the continent
• Recent rapid growth in African economies has,
  however, exposed the largely inadequate and
  antiquated infrastructure in the region and the
  decay is hindering the creation and development
  of vital MSMEs in growing sectors. This could
  derail the momentum of growth
• Conventional thinking is that deepening and
  broadening the African entrepreneurial base
  requires an enabling State to provide modern
  social and physical infrastructure. But do
  governments in Africa have the financial and
  executive capacity to match the pace and content
  of the continents revving entrepreneurial engine
  in their bid to provide and maintain needed
  infrastructure?

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Current situation audit

• Success story of African private enterprise, in
  infrastructure as typified by success of the
  mobile phone industry in the telecommunications
  sector and ESCOM of South Africa in the power
  sector
• Success in telecommunications required
  relatively modest investments compared with vast
  revenues being generated. Telecommunications
  infrastructure has been built on an
  incremental basis and with subsidies from
  consumers

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Current Situation Audit (coned)

• With telecommunications, the evidence is that
  governments legislated intelligently in many
  countries enabling entrepreneurs in the sector to
  receive large capital investments and reap
  economies of scale. Compare with water and
  sanitation, power, rail transport, and roads
  still considered government responsibility in
  most of Africa
• There is preponderance of poor records of big
  projects. A major challenge therefore, is in
  identifying scalable models for delivering
  infrastructure projects that work

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Current Situation Audit (contd)

• There is significant cumulative incremental
  investment by private capital in
  telecommunications, education, power,
  transportation and to a lesser extent water and
  the environment. Mobile phone companies for
  example provide own power for cell sites
• With the best of intention, Governments capacity
  to provide holistic solutions addressing the
  broad infrastructural needs of the economy is
  impaired by a combination of financial, executive
  and management constraints

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Challenges for entrepreneurial Development

• Common agreement that the expansion of
  infrastructure, especially roads and rail would
  catalyze Africas advance toward the attainment
  of the MDGs through expanded and better market
  access and integration
• Jeffery Sachs in Escaping The African Poverty
  Trap argues that increased investment in
  infrastructure builds an important highway out of
  African poverty. Estimates of the amount of
  additional investment required is in the region
  of 20billion per annum to support rural, urban,
  national and regional infrastructural development

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Challenges for Entrepreneurial development

• Increasing urbanization is reinforcing and is
  being reinforced by the rapid expansion of the
  informal sector. Together, both highlight the
  inadequacy of the infrastructural framework for
  development
• Poor social infrastructure limits the motivation
  of the ordinary people whose energies must be
  mobilised for the huge development effort required

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Challenges (contd)

• Energy is central to the goals of
  entrepreneurial development but Africa with
  immense range of potential energy sources
  (petroleum, natural gas, coal, hydro, wind and
  solar) has the least energy capacity in the world
• Africa needs to develop its productive capability
  to take advantage of the opportunities of
  increased market access. Investment in
  infrastructure is key as is access to affordable
  technology, an enabling domestic environment for
  private investment and innovation and human
  resource development

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The Way Forward

• African governments facing tough budget
  constraints should envision the use of private
  finance initiative as a miraculous way to
  continue building costly infrastructural systems
  with the financing and the risks carried by the
  private sector. Public-Private Partnership
• Purpose is not to transfer responsibility to
  private hands, but to diversify funding sources
  away from the public debt and share risks
  appropriately among all relevant parties i.e.,
  the government, corporates (service providers and
  equipment manufacturers) and financial
  institutions each assuming the types of risk
  for which they are comparatively best suited

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The Way Forward (contd)

• This approach facilitates proper allocation of
  both scarce resources and specialized expertise
  as well as ensures better value for money on each
  unit of available investment on infrastructure.
• Such investments will not only create new jobs
  but the spill-over will empower young people to
  become business people that are financially
  self-sufficient and capable of employing others.
  Will also unlock potentials in agri-business,
  manufacturing, services and the knowledge
  economy.

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The Way Forward (contd)

• A word of caution on PPP though especially in the
  power sector. Countries need to understand the
  objectives of private sector involvement before
  seeking to foster it. For example, better system
  reliability and efficiency as an objective may
  clash with say, minimize retail power tariff.
  Likewise investors and their bankers need to
  understand how they can integrate their
  development and financing efforts with these
  objectives.
• Over-riding objective should be benefit to the
  consumer in the near- and long-term. The
  implication of this is that the interest of other
  stakeholders in the restructuring process such as
  ministry officials, current employees and unions
  and contractors are important transition issues
  but not the main focus of the process

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The Way Forward (contd)

• Countries should have a clear understanding of
  how they want the restructure of the
  infrastructure agency to proceed both in the
  near-term and in the long-term and why. To
  paraphrase Lewis Carroll in Alice in Wonderland,
  it is much easier to get there if you know where
  you are going.
• Besides PPP, we could build opportunities on the
  back of existing investments in infrastructure
  projects. In Nigeria, for example, power used by
  telecom companies for powering cell sites is
  self-provisioned. These could become more cost
  effective if the companies tap the economies of
  scale, buy bigger power plants and sell down
  excess capacity to rural farmers to power
  irrigation pumps and the large number of small
  entrepreneurs within the vicinity of the cell
  site

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The Way Forward (contd)

• In addition, in the interim, create industrial
  clusters to profit from common services. As part
  of a process for providing enabling environment,
  local authorities could establish facilities and
  public goods to encourage industrialization
  through subsidies, infrastructure investments and
  tax incentives. Within clusters, successful
  entrepreneurs should invest in businesses that
  are upstream suppliers or downstream buyers of
  their core products to profit from the benefits
  of cluster building.
• African entrepreneurs must put more emphasis on
  what they can do themselves through better
  organisation of effort

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Conclusion

• Africa needs entrepreneurial education and
  training. A shift in mindset from employment in
  government and corporates to self- employment can
  contribute to reducing unemployment and poverty.
  This entails nurturing entrepreneurs from
  beginning of the education process. Starting a
  business has to be considered a valid option and
  not a last resort.
• This calls for simultaneously creating national
  economic conditions needed to fulfil
  internationally agreed development goals as a
  first step to ensuring that the 21st Century is
  the century of development for all. An
  enthusiastic entrepreneurial class together with
  modern physical and social infrastructure are a
  necessary condition to strengthening Africas
  competitiveness.

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Conclusion

• My brief notes here are not intended to imply
  infrastructural determinism as the basis of our
  advancement. African development is not only a
  function of infrastructure. Infrastructure must
  be complemented by easier access to capital, a
  knowledgeable class of entrepreneurs, a
  reasonable degree of stability and predictability
  in the political and economic environment as well
  as institutional architecture that guarantees
  contract enforcement and security of life and
  property.
• I thank you for you Kind attention