Enabling environment for enterprise development: Key policy measures for underpinning development

Since the end of the 1970s, one of the greatest achievements of China's development policy has been the promotion of labour intensive enterprises and the attraction of foreign investment, which has helped to make China's growth pro poor. China was recently the fourth largest exporter of merchandise in the world (Dicken, 2007), and trade accounted for 64% of the country's gross domestic product (GDP) (Naughton, 2007). The growth of China's industrial sector has made a great contribution to reducing poverty, since it has provided livelihoods for millions of Chinese, including many migrants escaping from poverty in rural areas. Many of these migrants send remittances back to their families in the countryside, thus increasing incomes in rural areas. It is estimated that around one fourth of China's workforce is currently employed in the industrial sector. The most important measures China has taken to foster industrial development over the last 30 years were improving the enabling environment through increasing liberalisation and the setting up of various types of Special Economic Zones and Development Zones.

In the beginning of the "opening up" period in the late 1970s, all of China's industries were still state owned. During the 1980s, the system was reformed which enabled a private sector to flourish, while state run enterprises were gradually cut back. Foreign investments were mainly attracted through the creation of the "Special Economic Zones" on China's southern coast. In these areas, the rules which applied to the rest of the country were relaxed, in order to encourage foreign direct investment and exports. The existence of these areas allowed China to experiment with new policies and attract foreign investment, while protecting its internal markets at the same time. Gradually, the rest of the country was opened up to foreign investments and enterprises, and financial markets were liberalised. Technology and skills were imported from abroad and adapted to the local conditions, especially the large supply of labour.

In most of sub-Saharan Africa, the industrial sector is still extremely small, with the partial exception of South Africa. The enabling environment is often not considered to be particularly attractive for foreign investment due to political instability, lack of infrastructure, human and institutional capacity constraints and a large informal economy. Attempts to encourage the creation of local businesses have often been hindered by a lack of training, investment and technology. Currently, the economies of most African countries rely mainly on the export of primary produce, which is exported for refining and manufacturing elsewhere. However, this cannot create as many jobs for local people as a strong manufacturing sector would, and it leaves African countries vulnerable to the highly volatile world prices for many commodities. Dependence on the export of natural resources can also foster corruption and mismanagement. Some experts propose abandoning the path of forced industrialisation in Africa so it can concentrate more on agriculture, which they see as the continent's natural advantage, while others think that creating a strong manufacturing and industrial sector will be necessary if African countries are to achieve sustained economic growth and poverty reduction. If the later view is correct, China could assist both by providing the necessary training and experience as well as by investing directly in the sector. Of course, it will be necessary to work in partnership with African governments and international donors, in order to address some of the structural problems which have prevented industrial development from taking place in most of Africa.