GROWTH IN AFRICA: A DEVELOPMENT MODEL THAT WORKS and A RELATED SET OF POSSIBLE RESPONSES

1. Strategic business partnerships for growth in Africa GROWTH IN AFRICA: A DEVELOPMENT MODEL THAT WORKS and A RELATED SET OF POSSIBLE RESPONSES Growth in Africa is about going beyond aid; it’s about identifying a suite of possible responses for both the public and private sectors By Corin Mitchell: SBP South Africa, www.sbp.org.za

2. Psi (private sector initiative) Objective:To develop and expand the role of the corporate private sector in African countries by increasing the business opportunities for local businesses to participate in the pro-poor growth of the economy – as a natural part of successful commercial operations. • The brief from the private sector – creating a network & platform: • Develop flexible & innovative approaches to encourage sustained & thriving economic markets around corporate operations in Africa • Act as a catalyst to facilitate & encourage partnerships towards the common goal of developing local economies • Promote corporate citizenship profile by growing local economies through the advancement of local suppliers & thereby helping to ensure increased prosperity • Capture the learning & experience exchange for replication and regional roll-out • Use this network and platform to inform national and local governments of barriers to business growth

3. Psi structure & operational features • Framework for companies to work collectively to advance local supply chain: • CEO steering committee, the working group, facilitator • Dialogue and engagement with local government/chambers • Introduction of tools for spend mapping & tracking • Development of shared SME supplier database (web-based) • Adoption of a common rating system; quality, price & delivery • Regular cross-sharing of supplier development strategies & mechanisms • Advancement of CSR learning & image building • M & E and impact assessment • Captured learning for replication & knowledge dissemination • Feeding into ‘Big Business’ in dialogue with Government • In SA through various business associations and platforms • In Tanzania through Confederation of Tanzanian Industries and the Investor Round Table meetings • In Malawi through the NAG and directly with Ministry of Trade & Private Sector Development

4. Psi results & achievements • In SA: • Since 1998 generated contract value of over R1 billion to the SMEs involved, 600 new SMEs introduced into local supply chains, over 3,000 new sustainable jobs and. • Now pioneering peer-to-peer SME networks linked into corporates and local government • In Tanzania: • In 2001 initially 6 companies, currently 17 within the Psi network • Direct procurement from Tanzanian SMEs in aggregate of • 2002: $21m 2003: $30m2004: $45m- an aggregate growth of 40% per annum • High-level endorsement & buy-in from the Government of Tanzania, launched by Minister of Finance, a platform for ongoing business dialogue with Government • UN and DFID recognition of Psi as an innovative & pioneering model of corporate social investment to achieve market-driven local economic growth • In Malawi: • In 2004, 9 corporates signed into the Psi • Endorsed and launched by the Minister of Trade & Private Sector Development • Creating a practical platform for dialogue with government

5. Psi: Challenges & broader objectives • Bringing about systemic change: • Winning the hearts-and-minds agenda • Change management within the corporate private sector (CEO buy-in; measurement and line managers) • Roll-out regionally must be based on demonstration of practical success • A highly effective basis for getting the ear of government • Practical platforms for dialogue set up; business and government engage in positive and substantive public-private dialogue • Sustainability & Localisation: • Facilitation for limited time, no large cost-base set up in-country for the Psi. Private sector funding ongoing in Tanzania, privately funded in Malawi with small DFID/BLCF grant • If change management is effective, Psi methodology becomes locally owned

6. Cutting Red Tape (CRT) SA compliance cost survey: Counting the cost of red tape for business Methodology: • Large-scale survey: 1800 businesses from large corporations to survivalist SMEs • Core of survey: representative sample of 1108 formal sector firms; generated reliable quantitative results. - Supplemented by sectoral surveys, and survey of informal entrepreneurs - In-depth vernacular interviews; frequent call-backs; accurate but expensive Results: • Total gross compliance costs equivalent to 6.5% of GDP in 2004 (US$866 million) • Compliance costs highly regressive: burden on smallest firms 10 (or more) times heavier than on largest firms. • Rapid regulatory inflation since democracy: i.e. nearly 3 times as many regulations in 2004 as in 2002 • Cumulativeness & complexity are the key problems; and these problems are likely to grow as the economy shifts increasingly into services • Tourism – a key growth sector - faces the heaviest burden

7. SA regulatory cost survey: outcomes • Government shifts regulatory policy to ease burden on business - e.g. VAT and other tax systems simplified • Ongoing research and advocacy: - tourism study; possible regional and other African country work • Improved business-government dialogue: - substantive, evidence-based, politically (relatively) non-controversial • SBP-led investigation towards implementing RIA system for Presidency and Treasury • ‘Lowering costs of doing business’ now top of political agenda

8. Platforms and dialogue • Private sector linkages work; national and local government/chambers and municipalities, large companies and SMEs • CRT creates a focus for business and government interest in regulatory reform, increasing and broadening this interest through research and evidence-based advocacy • Business was actively involved in the regulatory costs study and received the results enthusiastically. • Business organisations used SBP’s findings for their own dialogue with government • The National Treasury invited SBP to present its findings to a specially convened meeting of senior economists and officials • South Africa has a system for regular interaction between government and business – the Presidential Big Business Working Group. Organised business brought these findings to the working group for formal discussion with senior officials in key government departments (Presidency, Treasury, DTI, Labour), organised business and organised labour

9. Platforms and dialogue • An important input into a new policy focus for government; ‘lowering the cost of doing business.’ This focus was reflected in the 2005 Opening of Parliament Address and the 2005 Budget • Business and government are interacting on more detailed, sector-specific results of the research, at another official tri-partite forum • The growing interest in regulatory good practice led to a decision by Presidency and National Treasury to commission a study on the feasibility of introducing RIA into South Africa • SBP was commissioned to lead the work, under the guidance of a reference group under government, business and labour – this provided a regular opportunity for government and private sector interaction regarding regulatory good practice in general and RIA in particular • Through the reference group and other interactions, government demonstrated commitment to hearing business’s views and taking their concerns on board • Overall, the research has provided a new dimension to business-government dialogue, based on real evidence gathered from both business and government respondents.

10. Conclusion The Psi creates exciting opportunities for business-government dialogue on concerns ranging from immediate practical issues to the regulatory environment and the investment climate