Fostering Productive Capacities and Structural Transformation in Africa: The Role of the Private Sector

Historically, no country has successfully moved up the development ladder and achieved advanced-economy status without developing productive capacities, undertaking capital accumulation, and fostering structural transformation. Neither has any country achieved these processes without developing a dynamic private sector and engaging in value addition, manufacturing, technological learning, and catching up. In recognition of this historical reality, African countries have undertaken wide-ranging policy reforms aimed at fostering a vibrant and competitive private sector. However, unfortunately, Africa’s private sector remains weak, fragile, vulnerable to exogenous shocks and characterized by informality. This has limited the role of the sector in the development of the region’s productive capacities, jobs creation, and poverty reduction. Ironically, the weakness of the private sector itself is, in turn, attributed to the limited development of the overall, economy-wide productive capacities in Africa. This chapter applies the multidimensional Productive Capacities Index (PCI) of the United Nations Conference on Trade and Development (UNCTAD) to assess the intrinsic and two-way relationship between the development of the private sector, on the one hand, and progress in building productive capacities, on the other. It compares the level of development and performance of the private sector in Africa with selected countries from Asia and Latin America, where the private sector has played a critical role in fostering productive capacities, capital accumulation, and structural economic transformation. Drawing from these countries’ experiences, the chapter argues that Africa’s persistent lag in the development of productive capacities is attributed largely to the weak private sector development and vice versa. The chapter further argues that it takes more than policies and strategies to enhance the role of the private sector in economic development. Besides putting in place coherent and consistent micro and macroeconomic policies and strategies, building institutions, providing key infrastructure such as electricity, and designing effective incentive structure, and expanding the key ingredients that constitute productive, capacities are critical requirements for the development of the private sector in Africa.