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Sunday 21 April 2019
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The Business of Private Sector Development

Naku Chivuno

Naku Chivuno

…A synopsis of the synthesis of private sector development policies and strategies in SADC countries

It is generally accepted across the board and by all stakeholders that for economic growth and development to be manifested and sustained on a national level, private sector participation in the economy is required. Every country in SADC was at one time colonised and consequently, many of the ties that exist in the corporate sector of each SADC country can be traced to their colonisers to the extent that in almost every SADC country, the largest companies tend to be foreign owned. It is arguable as to whether or not many SADC countries are actually economically independent as with few exceptions, much of the capital in these countries is in the hands of foreign investors.
This is true in most significant economic sectors such as mining, construction, manufacturing and financial services sectors. However, this is most significant in the financial services sector as the financial sector drives the rest of the economy and as the old adage goes, “he who pays the piper, plays the tune”. This point is not being made to stir xenophobic feelings amongst readers (as shamefully, this is spreading rapidly across SADC despite the repeated calls for closer economic cooperation amongst member states by political leaders), but it is seeking to draw attention to the importance of increasing the levels of ‘home grown’, local capital participation in the economy beginning with policy formulation and the synthesis of private sector development strategies.
In the context of private sector development strategies and policies on a national level in SADC nations, there seems to be a deliberate bias in favour of the development of large corporates as the primary means of private sector development, whereas an examination of the development path of western, industrialized states shows that the development of small and medium enterprises was the key component of their early stage of growth and development. Most SADC governments are concerned with employment creation and retention as a primary policy objective and yet researchers have consistently shown that in terms of employment creation, SMEs are much more effective than medium and large businesses. SMEs are also less likely, and will generally take longer to lay off employees when markets turn because of the more intimate relationships between business owners and their employees. What this article is seeking to do is stimulate debate on these issues so that an appropriate response can be ignited by the relevant actors in advisory and decision making positions in government and the upper echelons of the corporate sector. This article is also seeking to highlight some of the deficiencies in private sector development policy / strategy formulation and implementation in SADC countries in general. (Businesses can be classified in several ways, according to turnover, number of employees, etc. For purposes of this article, small business are defined as those with 50 employees or less).
Access to finance to is the most significant factor that determines survival, sustainability and the rate of development of the private sector in Sub-Saharan Africa. In more developed economies, technology and innovation are comparatively more important as access to funding is a lot easier and owing to high levels of competition for high yielding investments, even start-ups can be easily funded. In Sub-Saharan Africa, with the exceptions of Mauritius and to some extent South Africa, the concept of venture capital and private equity financing is basically in a stage of infancy. With the exception of South Africa and Mauritius, the economies of SADC countries are in nascent stages of development and even so, the recent global economic crisis has exposed the vulnerability of the South African economy owing to its heavy dependence on commodities. Despite this however, South Africa, like Mauritius has an extensively developed services (including financial services) sector and this is helping it keep afloat despite the heavy impact of the slump in commodity prices.
The relevance of local participation in business is especially important in the financial sector owing to the fact that by nature, foreign capital is very ‘flighty’ and at the earliest sign of perceived risk it will up and go to a ‘safer’ destination regardless of the trail of destruction that may be left behind. In fact, South Africa has been able to ‘export’ its financial services industry on a ‘wholesale’ level and this seems to a be a key strategy going forward that is part of the country’s economic diversification plans. In fact, many South African corporates have developed what they term ‘Africa’ strategies to charter their push into other market in SADC that were previously not open to them in the apartheid days. This is seemingly unique to South African corporates and whether or not they are actively being supported by their government or not, there are no indications of corporates from other SADC countries exhibiting the same appetite for international expansion as South African companies are currently demonstrating.
Individual market sizes in SADC countries are relatively small when compared to major global with the DRC having the largest population of approximately 65 million compared to the United States (approx. 330 million), China (1.2 billion+), India (1.3 billion +). In fact, the entire population of Sub-Saharan Africa is estimated at approximately 800 million and on the basis of economies of scale, it is next to impossible to develop a viable manufacturing or industrial sector in any of the Sub-Saharan and SADC countries. Owing to its strong ties to the West, the United Kingdom in particular, South Africa was able to develop a manufacturing industry that ranges from mineral processing to motor vehicle assembly and to food processing. However, the effects of globalization have taken its toll on the manufacturing sector in South Africa, with cheap imports from China in particular, which are increasingly proving to be comparable in quality. South Africa’s labour problems have increased the cost of production and also have increased the risk of capital flight. A recent decision by the courts to allow class action law suits against gold mining companies by current and former employees who have suffered from silicosis will further erode investor confidence in South African industry and its economy as a whole. This also comes of the back of a ratings downgrade by both Moody’s and Fitch global rating agencies and a series of political scandals including the sacking of former finance Minister Nhlanhla Nene that in itself wiped off more than USD 10 billion in market capitalization in the South African market. As such, viewing SADC countries as individual markets is flawed and strategies and policies need to be developed where SADC is treated as an integrated market. Without this, industrial development in this bloc will be futile. Greater emphasis also needs to be placed on the development of the services sector.
Public policy can be defined as the authoritative allocation through the political process of values to groups or individuals in the community and therefore in the context of private sector development, it should be viewed as an authoritative guideline for action, i.e. the implementation of activities aimed at achieving overarching government goals and objectives. Public policy represents the formal articulation of the goals to be pursued and is in fact the link between the political and administrative processes of government. The main challenge with public policy as relates to private sector development is that neither the policy makers that formulate policies, nor the bureaucrats that advise them and implement these policies, have an accurate enough picture of the needs, challenges, desires and objectives of the private sector players they are seeking to act on behalf of. In Africa, and perhaps as a hangover from colonial times, there has emerged an inherent mutual distrust and suspicion between government and the private sector with each generally feeling the other is out to get them.
Government policy makers (politicians) in SADC countries generally behave as if the private sector players want to undermine them and remove them from power whereas the private sector players feel that policy makers want to destroy their businesses, cripple them with ‘unnecessary’ taxation, bureaucratic red tape and also instigate their workers against them. The resultant effect of these misgivings is an environment where neither prosper and the affected countries continue to teeter on the brink economic collapse and political demise. Development policy on the national level should be best characterized as a thoughtful attempt of a country to deal with the challenges faced by the populace and it must reflect the needs and the sentiments of those that it is intended to benefit if it is to be relevant, effective and sustainable. As such, the policy makers and their implementers must involve the populace in their policy formulation and implementation activities at every stage and on a continuous basis and in every context, and in particular in the context of private sector development, this should be a key indicator utilized in determining the relevance and appropriateness of various policy frameworks and by extension, it can also be used as a public sector management tool.
‘Strategy’ has become a popular word and is being thrown around by many so called intellectuals, some of whom, by their actions, do not have an inkling of what strategic thinking is. In academic terms, strategy in the context of private sector development on a national level can be defined as, “the matching of the activities of the private sector (or a specific industry) to the environment in which it operates in the context of the long term objectives of the private sector (or the specific industry)”. It can also be defined as, “the building or stretching of the private sector’s resources and competences to create opportunities or capitalize on them”. Consequently, when applying these definitions to the construction of private sector development strategies by government bureaucrats, an immediate and glaring conflict is revealed. Many government bureaucrats have never been employed in the private sector and even fewer of them have ever run businesses before. As such it is absurd that the development of private sector development strategies on a national level is often left to government bureaucrats who have little or no private sector experience whatsoever. Without an understanding of the operating environment affecting businesses, it is impossible for anyone to develop strategies to address issues that businesses face on a day to day basis, whether these issues are internally or externally focused.
In conclusion, the following is found to be true. In the context of the formulation and implementation of private sector development policies and strategies on the national level of SADC countries, it is imperative that the role of government should be underpinned by a high level of commitment to the growth, development and sustainability of the private sector in the long term and this should be reflected in the all relevant policies of the government based on input drawn from private sector players. In achieving competitive advantage on a national level, there has to be harmonization of national economic, social, technical and fiscal policies to support the development objectives of key private sector players, including SMEs. Relevant and sustainable national development policies and strategies must be holistic and as such, they must be preceded by an integration of policy, administrative support, and purposeful planning and programming at all levels and with the inclusion of all relevant parties.
Contrary to the belief that governments should get out of the way and allow business to dictate its own path, as the primary consumer of goods and services in the economy in each of their countries, SADC governments need to take a more active but informed role in the development and sustainability of the private sector. Much of the focus of SADC individual country private sector development programmes is targeted at attracting foreign direct investment (FDI) as this was the model that seemingly worked for the Asian tigers and was thus touted by mainstream economists as the ‘way’ to go. However, the political, social and cultural environmental differences between the Asian tiger countries and many SADC countries have been largely ignored and this has resulted in several challenges regarding efforts to grow the private sector in SADC. For SADC countries to develop they need the private sector players to come on board. And this can and will only occur when private sector players are recognized as equal and important partners in the national development discourse.

Naku Chivuno is a Lusaka based Business Development Consultant and Investment Advisor.




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