While Africa’s economic performance since the 2000s has indeed been a highly notable success, it has not managed to solve the problem of poverty as such economic success has not translated into job and income creation. The African economy is still trapped within the confines of a monocultural economy, relying on an inefficient system built on a limited inventory of primary goods; it is not only failing to produce added value but also suffering from de-industrialization with the aim of settling into the normal process of economic turnabout still far on the horizon. The Millennium Development Goals (MDGs), an international initiative to eradicate poverty, are nearing their conclusion in 2015 after starting in 2000, and contrary to the initial expectations, the lack of tangible effects on Africa has given weight to the argument that big changes to the paradigm of aid giving are inevitable.
Nearly 15 million young people join the job market in Africa every year but the industries’ absolute lack of capacity to assimilate these people has resulted in youth unemployment levels reaching near-crisis levels. The private sector is arguably the most effective sector in terms of contribution to the eradication of poverty, and job creation through private sector is increasingly seen as the new paradigm of international development cooperation. Development cooperation has hitherto been focused on social developments like education or public health; recently, however, the emphasis has increasingly shifted to economic development through the development of the private sector, and from it, the goal to eradicate poverty. Stemming from this context, this study is about private sector development (PSD) in Africa, which is a sector of increasing importance and necessity as a target of development cooperation.
This study aims to propose viable options for an increase in the variety and effectiveness of development cooperation efforts being undertaken by Korea. The private sector and poverty can be said to be directly linked to each other in that the private sector can be said to be the most effective agent in the eradication of poverty, either through a microeconomic approach (jobs → increase in income → alleviation of poverty) or a macroeconomic approach (increase in tax revenue → increase in public investment such as education or infrastructure → increase in productivity or the capacity of the poor). Many nations in Africa have already established national visions of achieving middle-income group status by 2025, and to realize this, economic development must be attained through PSD. The private sector―being a practical leading agent of economic transformation, increase in productivity, and added value through the strengthening of private firms―can be said to be of paramount importance in bringing about economic development.
In this aspect, this study first reviewed the status and characteristics of the private sector in Africa and analyzed its details and limitations from various angles. Next, this study provided qualitative and quantitative analyses of the significance of support to the PSD of Africa with a focus on job creation and increase in income. Afterward, the status and characteristics of PSD support from various donor nations were analyzed, with implications for Korea as well. Finally, priorities for Korean cooperation with Africa were drawn from the exploration of needs in Africa and the capability of support from Korea. Co-operative options for individual items were presented as well. The summary of chapters, thus, would be as follows: Chapter 2 analyzes the status and characteristics of the private sector in Africa from multiple angles and defines the structural limitations that prevent further development of the private sector. Also, the role and importance of the private sector in bringing about inclusive growth,  such as job creation, and change in economic structure, is highlighted as well as its role in development cooperation. The private sector in Africa can be said to be the “engine” that drives the growth of the economy as 80% of gross production, 67% of gross investment, 75% of gross credit, and 90% of employment all stem from the private sector. However, the private sector in Africa is currently incapable of propelling the development of its countries’ national economy as it suffers from a number of problems including lack of productivity and competitiveness.
Most private firms in Africa are micro-enterprises, barely operating on a subsistent level within the informal sector. With this, most of the poor in Africa work in microenterprises, which are usually small-scale enterprises with less than ten employees, often made up of family members or relatives. Nevertheless, the private sector plays an important role in the national economies of African countries. While small-scale enterprises (including micro-enterprises) contribute only a small part to gross production, the sheer number of these enterprises means that they play the greatest part in job and income creation. Factors that deter the growth of the private sector in Africa range from financial exclusion to lack of infrastructure, deep-rooted corruption, excessive corporate regulation, and the emigration of a professional workforce. However, the prospect of PSD is not always hopeless. In fact, the rampant problems in Africa can be said to present an abundance of opportunities.
In Chapter 3, a cross-sectional analysis is conducted to assess private sector development (PSD) quantitatively and the effect of PSD on per capita GDP and unemployment rate focusing on inclusive growth in Africa. By considering inclusive growth with the distinctive features of Africa’s PSD such as the informal sector, PSD is defined more broadly than simply the enhancement of investment climate and business environment, and the purpose of Chapter 3 is to assess PSD and areas of focus for PSD in Africa; furthermore, inclusive growth is considered with small business ownership, financial system inclusion, and intermediation of business investments. The sources of data are The Inclusive Growth and Development Report 2015 and The Global Competitiveness Report 2014-2015 of the World Economic Forum along with “Informality and Development” by La Porta and Shleifer(2014). The analysis employs a linear structural equation model to account for the endogeneity of GDP per capita and unemployment rate, and an unstructured covariance matrix is assumed to reflect complicated relationships among selected variables. The results of analysis indicate that, in Africa, small business ownership is the only significant factor of inclusive growth that causes high income levels and low unemployment rates.
Provided that the model specification is correct, we can conclude that small business ownership should be considered a priority in Africa’s PSD. Higher income level is related to stronger technological readiness and larger market size, and lower employment rate has relationships with more higher education and training and more efficient labor markets. Yet the employed model has several limitations as follows: the number of observations is too small and standard deviations are fairly high; due to the limited inclusive growth indicators, panel data are not available, thus long-term analysis is not allowed; selected independent variables are indicators obtained from numerous sources, so correlations among variables are hard to determine; and a supposed unstructured covariance matrix, due to the high complexity of indicators, might cause weak validity of the inference of the chosen model. Variables including financial inclusion, informal sectors, infrastructure, and social security as focus areas of PSD in Africa, therefore, should be considered to achieve higher income level since the aforementioned variables show correlations with GDP per capita in diagnostic scatter plots.
Chapter 4 analyzes the approaches, policies and practices of private sector development for Africa in the cases of three bilateral donors―the United Kingdom, Germany, and the United States―in order to draw policy implications for the Government of Korea. In terms of intervention sectors and themes, the three donors had commonality in PSD work encompassing macro approaches for regulatory and policy reform, mid-level interventions for market development, and micro-level support to micro- and small-sized enterprises with a limited level of differences. All three donors had the whole-of-government PSD strategies stating guiding principles, purposes, and areas of intervention.
Highlighting the issue of fragmentation and lack of co-ordination among various aid agencies and ministries in PSD interventions of Korea, it was advised to first design a government-wide PSD strategy including a results framework and budget allocation plan. It was recommended to then incorporate this PSD strategy into the upcoming Mid-term ODA Policy for 2016-2020. Drawing upon the experience of Germany, diversifying PSD approaches was emphasized depending on the development status and fragility level of partner countries. As Korea’s African priority countries―Ghana, Ethiopia, Mozambique, Rwanda, Uganda, Tanzania and Senegal―consist of nations at different stages along the developmental path of private sector development, it was stressed that the design of PSD approaches and programs should be diversified for each country and reflected in Country Strategy Papers. It was also outlined that each of the three donors has PSD approaches focusing on their own strengths and experiences. For instance, the United Kingdom has an advanced financial industry focus with support for financial inclusiveness whereas Germany, with a strong Technical and Vocational Education System, emphasizes linking job creation and private sector development; and the United States, with competitive market mechanism, has a strong public and private partnership scheme.
In that context, Korea, drawing upon its own development experience, could consider a focus on appropriate technology, industrial zone development, and human resource development for PSD in Africa. Chapter 5, the core part of this study, discusses the priorities and options for cooperation between Korea and the private sector in Africa, based on the discussions and results of the previous passages. While Korea’s PSD support to African countries remains limited, the recent growth of its importance has led to recommendations for cooperation in four areas: entrepreneurial support, industrial complex development, professional or industrial workforce development support, and agricultural development. These areas are further elaborated as follows: First, entrepreneurial support is a viable possibility. Entrepreneurial boom remains active in Africa, perhaps to a greater degree than in any other place; however, the success rate of new businesses remains low because of various factors such as inadequate entrepreneurial support. From Korea’s point of view, providing entrepreneurial support to African countries may seem slightly far-fetched but the example of Rwanda shows that entrepreneurial support is a highly feasible option. African countries, having a drastically different context compared to Korea, necessitate above all an entrepreneurial support tailored to the local environment and entrepreneurs. Such entrepreneurial support can be said to be centered on “demand-centered technological development,” and as such, entrepreneurial support tailored to each of the target nations in Africa should take into consideration the ease of usage by locals and the feasibility of maintenance and continued development through the usage of appropriate technology.
The list of appropriate technology can be primarily drawn from a survey of the local populace, and a primary survey should be followed by an “appropriate technology database (D/B),” which then should be shared with relevant organizations. This database should involve the participation of not only the government aid agencies but also as much of the other actors as possible such as the local Korean population, corporations (local branches), nongovernmental organizations, social enterprises, and academia. This database can then be used as an important source of future entrepreneurial support and development cooperation at the grassroots level.
Second, the construction of industrial complexes should be a consideration. African countries’ popularity as an investment option for the light industry, such as textiles and clothing, has been on the rise, and coupled with the rise in interest of Korean firms, it is enough to warrant the need for light industrial complexes to be built through a public？private partnership (PPP). Considering the various circumstances of African countries and the lack of experience on the part of Korea, small- to medium-scale urban industrial complexes should be prioritized instead of large-scale industrial complexes. In this respect, funding is one of the most important issues. Funding should be based on a joint venture between Korean aid agencies (i.e., Korea International Cooperation Agency, known popularly as KOICA, Korea Eximbank, etc.) and enterprises (both public and private), with the possibility of financial cooperation with multilateral development banks (MDBs), such as the World Bank, the International Development Association (IDA), the International Finance Corporation (IFC), the Multi-lateral Investment Guarantee Agency (MIGA), or the African Development Bank (AfDB), or co-financing with bilateral development banks. The industrial complexes themselves can focus on the light industry, which has greater demand in the development process, i.e., with greater job creation and import substitution effects and the possibility of being integrated into the global supply chain. Some consideration of light industry areas can be textile, apparel, agro-processing, detergent, plastic (consumer and industrial), plywood and furniture, paper, and agricultural machinery and equipment. The demand for these products in Africa is constantly on the rise because of the increase in income and changes in living conditions; however, the lack of a manufacturing basis means that most of these products are imported. Technological transfers should be accompanied by psychological initiatives akin to the example of Saemaul Undong, or New Community Movement, motivating the workers to “work hard” and minimizing product defects through the “3-P Movement” (precision, probity, perfection), thereby raising the competitiveness and productivity of the firms through the “New Enterprise Movement.” Third, professional and industrial workforce development should be included in the support package. The primary education system in African countries has managed to achieve astounding levels of success through initiatives such as the MDGs, but tertiary and vocational education have not yet achieved nearly the same level of success. The level of higher education (especially tertiary education) remains low among the populace, and even the existing higher education institutions suffer qualitatively, causing alarming levels of job mismatch. Vocational education suffers from the same ailments. While various vocational programs are churning out a constant stream of trainees, some statistics indicate that the percentage of personnel with actual skills in demand by the corporations hover barely around 1% of the total. These observations indicate that Korean co-operative efforts should prioritize educational support to strengthen the basis and the qualitative capability of the workforce and ultimately resolve the job mismatches that plague the job market. Korean development cooperation in this regard has hitherto focused on hardware-based support, providing buildings to house vocational schools, or educational materials.
However, future endeavors should shift focus to demand-driven or market-oriented modes of cooperation, with the goal of reducing the discrepancy in the labor market. Any attempts to solve the discrepancy between the workforce supply and demand should focus on the synchronization of industrial demand (labor demand) and workforce supply (labor supply), and this attempt should be based on a precise survey of what technological skills are currently in demand by the industrial base. Such a survey can be followed by the determination of labor demand per individual industries (or sectors), which, in turn, can serve as basic data in formulating the blueprints of educational or vocational training policies. The magnitude of this task makes it unsuitable for a single aid organization to undertake it on its own and instead a partnership involving the government agency of that nation, or the AfDB, or aid organizations from developed nations could be considered. Other options for alleviating the job mismatch can include providing support to educational capabilities through partnerships between the universities, tailored education programs according to industrial development stages, and implementing national skill qualifications.
Fourth, support can be provided to realize a value chain in agriculture. African nations have abundant, farmable land, but the lack of infrastructure has resulted in the demand for agricultural goods surpassing the supply. Investments made on a massive scale are necessary to achieve a tangible increase in agricultural production, but neither poor farmers nor governments of the nations are able to provide such investments. Hence, agricultural development support could focus on developing agro-industrial complexes by establishing a locus of development in a certain area and focusing on the development in that area and thereby realizing a value chain in agriculture. The ultimate aim of an agro-industrial complex is to realize an economy of scale and value chain (increase in productivity → storage/processing → selling) and through it create added value, and such options could prove to be a suitable co-operative model considering the agricultural status of African countries and their needs. Such agro-industrial complexes should be focused on areas that enjoy superiority in market access, considering the situation of most African countries at present (especially the lack of infrastructure and, consequently, the isolation from the market). These projects should be preceded by an increase in productivity through seed developments and fertilizer provisions. Korea has a number of technologies regarding food crops, fruit and vegetables, and dairy farming, and has provided these technologies to developing nations as part of its development cooperation efforts. Agricultural storage areas and processing plants could also be an area of support.
The absolute lack of processing plants or storage sites often results in the harvested crops being thrown away in Africa, resulting in levels of postharvest loss (PHL) reaching up to 30%？50% of the total production. Next, support could also be provided in agricultural or rural development capabilities. To ensure sustainable development, psychological initiatives, such as diligence, self-help, cooperation, and a sense of ownership are equally important to material provisions or support. In order for comprehensive development projects, such as the agro-industrial complex, to successfully take root in the area, voluntary involvement of the local populace is of great importance in ensuring this goal. The experience of Saemaul Undong can prove to be instrumental in providing additional support through training rural leaders and organizing the populace. This study has narrowed down the prospective options for development cooperation into four areas, with the goal of providing a definite option of development cooperation in mind, but the size of the discussion has regrettably resulted in a surface-level theoretical exploration of policy options. However, this study can be said to be a pioneering work in PSD cooperation in Africa, and successive studies are anticipated to capitalize on the basis of this study to achieve greater scale and utility in the future. Conclusions drawn from this study can be applied to co-operative efforts between Korea and the designated target nations to achieve greater economic success and, in turn, impact poverty eradication.