Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter April 28, 2018

Inclusive Industrialization: The Interplay Between Investment Incentives and SME Promotion Policies in Sub-Saharan Africa

Colette M.A. van der Ven EMAIL logo

Abstract

Most Sub-Saharan African countries have adopted policies to attract foreign direct investment (FDI) and policies to stimulate the growth of small and medium enterprises (SMEs). While a significant body of literature exists analyzing how these objectives can be mutually reinforcing, the negative interplay between these policies remains relatively unexplored. This paper examines whether, and in what circumstances, investment incentives could undermine SME competitiveness and, conversely, whether policies aiming to promote SMEs through encouraging FDI-SME linkages could impede FDI. This paper demonstrates that, absent a comprehensive approach to policy making, tensions invariably arise between investment incentives and SME promotion policies.

Acknowledgment

The author expresses thanks to Nicholas Jordan for helpful research assistance. The author also thanks the participants of the 2017 Law and Development Conference for helpful feedback on an earlier draft of this paper. Disclaimer: The views expressed in this paper represent the personal views of the author, and do not represent the views of Sidley Austin LLP or its clients. This article has been prepared for informational purposes only and does not constitute legal advice. Readers should not act upon this without seeking professional advice.

References

Abor, J. and N. Biekpe, Small Business Financing Initiatives in Ghana, 4 Problems Perspective Management, no. 3 (2006).Search in Google Scholar

African Development Bank, Leveraging Capital Markets for Small and Medium Enterprise Financing in Rwanda (2013).Search in Google Scholar

Ansu, Y., “Industrial Policy and Economic Transformation in Africa: Strategies for Development and a Research Agenda”, in J.E. Stiglitz, J.L. Yifu and E. Patel (eds.), The Industrial Policy Revolution II: Africa in the Twenty-First Century (London, UK: Palgrave Macmillan, 2013).Search in Google Scholar

Ayentimi, D.T., J. Burgess and K. Brown, Developing Effective Local Content Regulations in Sub-Saharan Africa: The Need for More Effective Policy Alignment, 24 Multinational Business Review, no. 4 (2016).10.1108/MBR-08-2015-0040Search in Google Scholar

Brazil, “Structured Discussions on Investment Facilitation”, JOB/GC/169, 1 February 2018.Search in Google Scholar

Calice, P., V. Chando and S. Sekioua, Bank Financing to Small and Medium Enterprises in East Africa: Findings of a Survey in Kenya, Tanzania, Uganda and Zambia, Working Paper Series no. 146 (Tunis: African Development Bank, 2012).Search in Google Scholar

Dalberg, Report on Support to SMEs in Developing Countries through Financial Intermediaries, available at: <http://www.eib.org/attachments/dalberg_sme-briefing-paper.pdf>.Search in Google Scholar

Dinh, H., V. Palmade, V. Chandra and F. Cossar, Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Create Jobs (Washington, DC: World Bank, 2012).10.1596/978-0-8213-8961-4Search in Google Scholar

East African Community’s Customs, Manufacture Under Bond (MUB), available at: <https://customs.eac.int/index.php?option=com_content&view=article&id=48&Itemid=95>.Search in Google Scholar

English, P., P. McSharry and K. Ggombe, Raising Exports and Attracting FDI in Rwanda, International Growth Center Policy Brief no. 38402 (2016), available at: <https://www.theigc.org/wp-content/uploads/2017/01/English-et-al-2016-policy-brief.pdf>.Search in Google Scholar

Ethiopia, Growth and Transformation Plan 2010/11-2014/5, Vol. 1 (2010).10.5089/9781463922054.002Search in Google Scholar

Farole, T., Special Economic Zones in Africa: Comparing Performance and Learning from Global Experience (Washington, DC: World Bank, 2011).10.1596/978-0-8213-8638-5Search in Google Scholar

Farole, T. and D. Winkler (eds.), Making Foreign Direct Investment Work for Sub-Saharan Africa (Washington, DC: World Bank, 2014).Search in Google Scholar

Ghana, Free Zone Act (1995).Search in Google Scholar

Ghana, Local Content and Local Participation in Petroleum Activities – Policy Framework (Accra, February 2010).Search in Google Scholar

Ghana, Ghana Shared Growth and Development Agenda GSGDA II (2014–2017).Search in Google Scholar

Hansen, M., From Enclave to Linkage Economies? A Review of the Literature on Linkages between Extractive Multinational Corporations and Local Industry in Africa (Copenhagen: Danish Institute for International Studies (DIIS), 2014).Search in Google Scholar

Harrold, P., M. Jayawickrama and D. Bhattasali, Practical Lessons for Africa from East Asia in Industrial and Trade Policies, World Bank Discussion Paper (1996).10.1596/0-8213-3484-0Search in Google Scholar

Hufbauer, G. and J. Schott, Local Content Requirements: A Global Problem (Washington, DC: Peterson Institute for International Economics, 2013).Search in Google Scholar

Johnson, L., Space for Local Content Policies and Strategies: A Crucial Time to Revisit and Old Debate (Bonn: Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), 2016).Search in Google Scholar

Kathure Mwiti-Mbwiria, E., Firm-Resources as Entrepreneurial Determinant and Performance of Manufacturing Small and Medium Enterprises (SMEs) Foreign Firms Investing in Kenya, 4 International Journal of Research in Management and Social Sciences, no. 6 (2015).Search in Google Scholar

Kenya, Investment Promotion Act (2004a), available at: <http://www.kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/InvestmentPromotionActCap485B.pdf>.Search in Google Scholar

Kenya, Investment Promotion Act (2004b, amended in 2009).Search in Google Scholar

Kenya, Kenya’s National Industrialization Policy Framework (2010), available at: <http://www.trademarksa.org/sites/default/files/publications/EAC%20Kenya%20National%20Industrialization%20Policy%20Framework%20-%20Combined%2018-11-2010%20Revised.pdf>.Search in Google Scholar

Kenya Export Processing Zone Authority, available at: <http://www.epzakenya.com/index.php/about-us/available-space.html>.Search in Google Scholar

Kenya Export Promotion Council, available at: <http://epckenya.org/index.php?option=content&task=view&id=47&Itemid=66>.Search in Google Scholar

Lugemwa, P., Foreign Direct Investment and SME Growth: Highlighting the Need for Absorbative Capacity to Support Linkages between Transnational Corporations and SMEs in Developing Countries, International Journal of Economics, Finance and Management Sciences (2014).2(4): 245–256.10.11648/j.ijefm.20140204.13Search in Google Scholar

Mjimba, V., The Nature and Determinants of Linkages in Emerging Minerals Commodity Sectors: A Case Study of Gold Mining in Tanzania, MMCP Discussion Paper no. 7 (March 2011).Search in Google Scholar

Ndemo, E. and D. Smallbone, Linkage Dynamics between Small and Large Firms in Kenya, 5 DBA Africa Management Review, no. 1 (2015).Search in Google Scholar

OECD, Encouraging Linkages between Small and Medium-Sized Companies and Multinational Enterprises (2005), available at: <http://www.oecd.org/daf/inv/investmentfordevelopment/35795105.pdf>.Search in Google Scholar

OECD, Promoting Entrepreneurship and Innovative SMEs in a Global Economy: towards a more responsible and inclusive globalization (3–5 June 2004).Search in Google Scholar

OECD and NEPAD, Regulatory Environment for Foreign Direct Investment, background paper given at Investment for African Development: Making it Happen (Entebbe, 25–27 May 2005), available at: <https://www.oecd.org/investment/investmentfordevelopment/34783838.pdf>.Search in Google Scholar

OECD and World Bank, Inclusive Global Value Chains: Policy Options in Trade and Complementary Areas for GVCs Integration by Small and Medium Enterprises and Low-Income Developing Countries (2015).Search in Google Scholar

Oxford Business Group, “Kenya’s New Plant for Special Economic Zones”, available at: <https://oxfordbusinessgroup.com/analysis/zone-new-plan-sezs-should-help-shake-country%e2%80%99s-offering-investors>.Search in Google Scholar

Peprah, J.A., A.O. Mensah and N.B. Akosah, Small and Medium Sized Enterprises (SMEs) Accessibility to Public Procurement: SMEs Entity Perspective in Ghana, 4 European Journal of Business and Social Sciences, no. 11 (2016).Search in Google Scholar

Pollen, W., Local Content Requirements, Help or Hindrance?, African Business Magazine, 24 August 2016.Search in Google Scholar

Rodrik, D., Industrial Policy for the Twenty-First Century, Faculty Research Working Paper Series (November 2004).10.2139/ssrn.617544Search in Google Scholar

Rwanda, Rwanda Vision 2020 (2000).Search in Google Scholar

Rwanda Development Board, The Law on Investment Promotion and Facilitation, available at: <http://www.rdb.rw/uploads/tx_sbdownloader/Investiment_promotion_law_04.04.16.pdf>.Search in Google Scholar

Rwanda Ministry of Trade and Industry, Small and Medium Enterprises (SMEs) Development Policy (2010).Search in Google Scholar

Rwanda Ministry of Trade and Industry, Rwanda Private Sector Development Strategy 2013–2018.Search in Google Scholar

Saltane, V. and P.G. Serna, Why Are Minimum Capital Requirements a Concern for Entrepreneurs? (2012), available at: <http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB14-Chapters/DB14-Why-are-minimum-capital-requirements.pdf>.Search in Google Scholar

Sauvé, P., Life beyond Local Content: Exploring Alternative Measures of Industry Support in the Context of WTO Accession, Journal of International Trade no. 1 (2016).Search in Google Scholar

Soludo, C., O. Ogbu and H.L. Chang (eds.), The Politics of Trade and Industrial Policy in Africa (Ottawa: International Development Research Centre, 2004).Search in Google Scholar

Staritz, C. and S. Frederick, Harnessing Foreign Direct Investment for Local Development? Spillovers in Apparel Global Value Chains in Sub-Saharan Africa (Vienna: Austrian Foundation for Development Research (ÖFSE), 2016).Search in Google Scholar

Tanzania’s Ministry of Industries and Trade, Sustainable Industries Development Policy (SIDP) (1996–2020) (1996), available at: <https://tanzania.go.tz/egov_uploads/documents/Sustaiable-Industries-Development-Policy_sw.pdf>.Search in Google Scholar

Tuomi, K., Review of Investment Incentives: Best Practices in Attracting Investment (International Growth Centre, June 2012), available at: <https://www.theigc.org/wp-content/uploads/2014/09/Tuomi-2012-Working-Paper.pdf>.Search in Google Scholar

UNCTAD, Investment Policy Review Rwanda (2006), available at: <http://unctad.org/en/docs/iteipc200611ch2_en.pdf>.Search in Google Scholar

UNCTAD, Best Practices in Investment for Development, Investment Advisory Series (2011), available at: <http://unctad.org/en/Docs/diaepcb2010d11_en.pdf>.Search in Google Scholar

UNCTAD, Economic Development in Africa: Catalysing Investment for Transformative Growth in Africa (2014a), available at: <http://unctad.org/en/PublicationsLibrary/aldcafrica2014_en.pdf>.Search in Google Scholar

UNCTAD, Local Content Requirements and the Green Economy (2014b), available at: <http://unctad.org/en/PublicationsLibrary/ditcted2013d7_en.pdf>.Search in Google Scholar

UNIDO, Tanzania SME Development Policy Review: Ten Years After (2012).Search in Google Scholar

United Nations General Assembly, Transforming Our World: The 2030 Agenda for Sustainable Development, UNGA Resolution 70/1 (25 September 2015), UN Doc A/RES/70/1.Search in Google Scholar

United Nations General Assembly, Addis Ababa Action Agenda of the Third International Conference on Financing for Development, UNGA Resolution 69/313 (27 July 2015).Search in Google Scholar

United States Department of State, 2011 Investment Climate Statement – Malaysia, available at: <https://www.state.gov/e/eb/rls/othr/ics/2011/157318.htm>.Search in Google Scholar

Van Der Ven, C., Trade, Development, and Industrial Policy in Africa: The Case for a Pragmatic Approach to Optimizing Policy Coherence between Industrial Policy and the WTO Policy Space, 10 Law and Development Review, no. 1 (2017).Search in Google Scholar

World Bank, Laws and Regulations Generally Promoting SMEs/Local Content, available at: <http://ppp.worldbank.org/public-private-partnership/laws-and-regulations-generally-promoting-smes-local-content>.Search in Google Scholar

WTO, Ghana’s Trade Policy Review (2014).Search in Google Scholar

WTO, World Trade Report 2016: Levelling the Trading Field for SMEs (Geneva: WTO Publications, 2016).Search in Google Scholar

Yong, L., Sustainable Industrial Development, available at: <https://isid.unido.org/about-isid.htlm>, accessed 6 August 2017.Search in Google Scholar

Zambia Development Agency, Investor Guide (2016).Search in Google Scholar

Published Online: 2018-04-28
Published in Print: 2018-06-26

© 2018 Law and Development Review

Downloaded on 30.1.2023 from https://www.degruyter.com/document/doi/10.1515/ldr-2018-0029/html
Scroll Up Arrow