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ENTREPRENEURIAL DEVELOPMENT AND THE INFRASTRUCTURE QUESTION IN AFRICA

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Title: ENTREPRENEURIAL DEVELOPMENT AND THE INFRASTRUCTURE QUESTION IN AFRICA


1
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
2
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?

3
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

4
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

5
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

6
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

7

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

8
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

9
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

10
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.

11
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

12
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

13
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

14
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.

15
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
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