[T]he way in which the international community has chosen to define priorities for the reform of the investment climate may be hurting, rather than helping, Africa’s prospects for industrialisation. The donor reform agenda for the investment climate has centred on economy-wide reforms in trade, regulatory and labour market policies, designed to reduce the role of government in economic management. At the same time—shaped in part no doubt by the relentless pursuit of the Millennium Development Goals—donor attention to Africa’s growing infrastructure and skills deficits has been weak at best.

This is John Page – former chief economist for Africa at the WB – in an interesting new paper asking whether Africa can industrialize (ungated version here). Although the red tape is a well-known problem to private sector development, he argues that  the “Doing Business / investment climate”  approach has some serious shortcomings. First, it fails to identify the binding constraints to industrialization – causal relationships are often proved by assertion rather than persuasive evidence. Second, they have diverted the attention from more serious diagnosis and policy reform. In particular, little attention has been paid on infrastructure and human capital creation.

The Doing Business surveys convey the impression that stroke of the pen reforms, such as reducing the time and cost of opening a business or reform of property rights, hold the key to more dynamic industrial growth. In the words of the World Bank’s own evaluation department: ‘Simple causal relationships are asserted where the evidence supports only association and the causal factors are complex’ (World Bank, 2008b, p. 41). Doing Business was not designed to be used as a country-level diagnostic tool. It is a cross-country benchmarking exercise. The indicators were developed to support cross-country comparisons on the basis of uniform criteria, and they are uniformly weighted. For this reason they cannot capture country context or be used to identify within country priorities, even for the regulatory climate.

 

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