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What are the barriers to private sector growth in Africa, and how can they be overcome? The biggest physical challenge is the lack of good roads and reliable power; social challenges include ethnic segmentation and fragmented markets. This brief shows how investing in infrastructure and improving access to education can help bring about a broad-based business class in Africa.
This CGD Brief is based on the book, Africa's Private Sector, by Vijaya Ramachandran, Alan Gelb, and Manju Kedia Shah.
The low-income economies of sub-Saharan Africa have far fewer miles of paved roads and fewer modern freight- and passenger-transport systems than any other region. Inadequate infrastructure restricts businesses to fragmented regional markets or to opportunities with profits large enough to cover high transportation costs. Businesses that try to supply markets beyond their immediate vicinity can lose nearly 6 percent of the value of the consignment to transport costs. The ill effects of bad infrastructure are difficult to reverse because, unlike the power supply which can improve or deteriorate rapidly, transport bottlenecks are typically long-term—bad roads and limited transnational linkages have kept markets and businesses highly segmented for decades. As a result, African businesses are far less productive than Chinese businesses, when “indirect costs” such as electricity and transportation are accounted for.