16.02.2004 Feature Article

How Not to Develop the Private Sector

How Not to Develop the Private Sector
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Most of what now passes for “private sector development” under the Ministry for Private Sector Development (MPSD) is actually “business development” that appropriately belongs under the Ministry of Trade, Industry, and President's Special Initiative (MTIPSI).

Private sector development, as the name suggests, should focus on the wider business sector, making it conducive for all Ghanaian businesses, irrespective of who forms them, or how and when they are formed.

This means we must pursue cross-sectoral policies that deal with some of the most pressing but long-overlooked problems facing the private sector today: They include unacceptably long delays (sometimes more than a year) in securing telephone services for new businesses; costly and unreliable mobile telephone services as substitutes for the hard-to-get land lines; outrageous multi-year rents that rob new businesses of working capital; endemic power outages, despite steep rises in electricity tariffs; inefficient and expensive water delivery services, especially for big industrial concerns; and chronically inefficient port services that defy even the latest in port-management technology.

All these problems feed into the cost of doing business in Ghana and place the private sector at a competitive disadvantage in global markets.

For those on the low end of the income scale operating solely for the domestic market, the result of such institutional inefficiencies is poverty generation, not reduction. Think, for example, of the vulcanizer who loses at least one day of work every week because of power outages. That translates into nearly two months of lost income every year.

There can be no successful private sector, of course, without an efficient public sector, hence the need for aggressive public sector reforms as part of private sector development. Too many public sector services and processes that businesses depend on are embarrassingly outmoded and militate against the efficient operation of even the best- resourced businesses.

Some of the problems in the public sector appear trivial at first glance but in fact have serious implications for both business and national development. For example, many government offices continue to shut down for a “break” from 2-4PM daily, when all they have to do is stagger break times among employees to ensure uninterrupted service to the public, including businesses.

The question that arises is, What are their counterparts in better-organised societies doing during those two hours of fully paid idleness? Those counterparts are working, of course, raising productivity and incomes and inevitably becoming the “rich” countries that we always run to for “aid.”

When private sector development ignores sector-wide issues and instead concentrates on narrow, firm-specific programmes such as sourcing funds in the name of government for (risky) business upstarts or organizing “business plan” competition for people with no track record in business, it risks wasting scarce public resources on wild-goose projects.

For these new businesses would simply be going into a business environment that is bedeviled by antiquated physical and institutional infrastructure. Imagine being one of the business plan award winners and having to wait for a year to get a telephone line for your new business, or spending most of your business hours waiting for electricity while your counterpart in Malaysia has no such headaches.

Private sector development should primarily deal with these environmental issues and leave the business of forming new businesses to others, such as the MITPSI. (By the way, “gender advocates” should note that only two (5.3%) of the 38 team leaders rewarded by the MPSD for their business plans were women).

In order for private sector development to be successful, certain institutional changes will also have to take place. Because of the inter-sectoral nature of private-sector development (energy, water, roads, communications, ports, civil service, etc.), it would be better to have a secretariat, instead of a ministry, directly under the president, who, unlike a minister, has control over all sector ministers and can demand action where it is lacking. Under the present ministerial arrangement, the sector minister has no such authority over his colleagues, who are his equal. He can only “beg” them.

A private sector development secretariat should also initiate an ambitious research programme to establish best practices in management and production and encourage Ghanaian businesses to apply them. Similarly, it should identify those factors that, beyond conventional public policy, impede the effective development of the sector.

Our culture of distrust towards one another “(suro nipa na gyae saman,” we are repeatedly told in songs and movies) is one area requiring some attention. Development economists now agree that trust (or social capital) is essential to private sector development; the World Bank has an entire department devoted to that. Mediocrity also remains a serious impediment. The quality of virtually everything we do – masonry, carpentry, auto mechanics, road construction, public transport, and many more – remains far below the standards required to move Ghana into the ranks of the developed.

Finally, as government takes a greater interest in financing business development, it would substantially reduce the risk of failure if it establishes and monitors the country's Business Mortality Rate (BMR).

This is the rate at which new businesses die off over time (usually within 1-2 years), leaving behind a core group of “survivors”. Survivability depends on such things as personal qualities (level of education and previous experience of the entrepreneur, for example); the nature of the product or service they offer; the industry they operate in (is it new and thus high-risk, or mature with stable and low risks?); the state of the national economy (is it in a boom or a bust?); and the vagaries of the global economy (is external demand strong enough and reasonably predictable?).

Understanding these issues systematically through disciplined inquiry is exceedingly important for the efficient and viable development of the private sector. Anything short of that risks repeating past mistakes that arose from government's inability to tell the crucial difference between business development and private sector development. Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

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