Doing business in Africa needs more than targets
Tuesday, August 3, 2010
The Centre for Global Development has a proposal to help improve domestic trading conditions in Africa. The premise is simple and well grounded: Africa currently has the worst trading conditions in the world and foreign development assistance should be used to incentivise pro-business reforms. But despite appeal of incentivising much needed reform, the suggestion overlooks the biggest problem facing African entrepreneurs and businesses- domestic politicians who benefit from the status quo.
Offering rewards for hitting centrally planned targets is likely to incentivise bureaucrats to jump through hoops without fundamentally changing the local business landscape, which everyone, aside from vested interests, agrees is drastically in need of reform. Meaningful long-term reform will only happen if and when African governments become accountable to their populations via their fiscal revenues. Aid, no matter what for, undermines this accountability.
Furthermore, bureaucrats- whether in Washington or Western Sahara- are notoriously bad at “picking” useful business reforms , even if some of the tools they use have radically improved in recent years--see e.g. the World Bank Doing Business Index. Local businesses, traders and foreign investors are best suited to judging which regulatory and fiscal obstacles currently stand in their way. Yet without transparent, accountable governance and an independent legal system , improvements made in the areas most incentivised by aid will be offset by backtracking in other areas less well understood by the aid industry. Attempting to centrally plan and monitor this process, however necessary, will unfortunately condemn this new Doing Business Facility to the similar aid failures of the past.
The phenomenal growth of Mauritius and Botswana has shown that the tremendous benefits that pro-business reforms can reap. Crucially, these reforms where driven from the bottom-up and the benefits were principally bestowed upon the reforming economy. African politicians don't need the carrot of aid revenues, they should get on with it themselves. The aid industry mustn’t force their hand by creating incentive-laden targets that won't work anyway.