African governments are rolling out the red carpet for foreign investors, offering incentives and benefits to attract capital. However, in their efforts to lure international businesses, they may be overlooking a crucial factor in their attractiveness: the strength of their local entrepreneurial fabric. Competititive local enterprises are essential in convincing international investors to set up shop.
A recent conversation with an investor from BlackRock highlighted the importance of local businesses in investment decisions. The investor expressed concerns about the health of small and medium-sized enterprises (SMEs) in West African countries, rather than focusing on tax exemptions or state guarantees. This concern is rooted in the fact that investors do not operate in a vacuum; they require reliable suppliers, subcontractors, and distributors to operate effectively.
A robust local entrepreneurial ecosystem is vital in determining an economy's competitiveness. It influences investors' costs, risks, and profitability prospects. An economy with a fragile entrepreneurial fabric may offer attractive incentives but still fail to become a competitive destination. African governments have been competing to attract international capital, but their strategies often contradict each other.
Special economic zones, one-stop shops, tax exemptions, and land facilities are some of the initiatives used to attract foreign investment. These efforts are necessary for the continent's industrialization, infrastructure development, and job creation. However, similar determination is not always evident in policies aimed at nurturing existing local businesses. In many countries, SMEs face significant obstacles when trying to expand, modernize, or access new markets.
Local businesses often encounter challenges such as expensive credit, difficulties in securing guarantees, delayed payments, complex administrative procedures, and competition from better-funded imports. In contrast, foreign investors announcing significant investments often receive high-level institutional support. This disparity raises questions about public policy priorities.
Supporting local entrepreneurs does not mean diverting resources from attracting foreign investment; rather, it enhances the conditions and returns on investment. A multinational company that finds capable local suppliers, logistical support, and distributors has a more sustainable competitive advantage than one relying on temporary tax exemptions.
To achieve success, African governments must prioritize the development of local entrepreneurs and create an environment conducive to their growth. This involves implementing policies that promote public procurement accessibility, controlled payment deadlines, adapted financing mechanisms, reliable infrastructure, and industrial policies that foster relationships between large enterprises and local suppliers.
Key points
- Supporting local entrepreneurs is crucial for Africa's attractiveness to foreign investors.
- A robust local entrepreneurial ecosystem is essential for an economy's competitiveness.
- African governments must prioritize the development of local entrepreneurs to create a sustainable business environment.
