Traps to avoid, lessons to be learned

While technical assistance (TA) is often provided to government bodies (such as central banks and ministries), it is also provided to develop the private sector and, in particular, small and medium enterprises (SMEs) in Africa. Such private sector TA focuses on the development of individual enterprises, but also on developing meso-institutions, such as business associations, training institutes and other business support organisations. Traditionally, private sector TA has had three purposes. Firstly, to invest grant money in human capital to achieve a human development return. In this regard, the language used in the world of TA traditionally focuses on ‘human capacity building', ‘skills transfer' and ‘training'. Secondly, to provide seed funding to new enterprises or initiatives in order to build organisational capital. Thirdly, private sector TA develops institutional capital via the creation or strengthening of private sector support institutions, and encourages innovation and the deepening of markets. Millions have been spent by development agencies on TA, but to what end? Going forward, is there a role for TA, and if so, what form should it take? The purpose of this article is to provide a critical analysis of the efficiency as well as the efficacy of TA, and to highlight some of its starkest shortcomings. This evaluation will look at TA to private sector development in Africa, both to individual enterprises, groups of companies or business associations, and to public or private support organisations.

Top-down, externally driven TA agenda – a recipe for waste

In recent years, a significant amount of TA support has been targeted at the development of business associations and business support structures. Unfortunately, these meso-structures have mostly been created from the top-down, i.e. via government-driven initiatives financed by external donors, who took little account of the actual needs of the beneficiaries they were trying to support. This usually started with the design of TA programmes where the content was decided between the development agency and the relevant government department, withlittle involvement of the private sector. This lack of involvement of the ultimate beneficiaries has usually resulted in a failure to create appropriate business service associations and company networks. There are numerous obstacles or system-inherent weaknesses that prevent a significant involvement by the final beneficiaries and true ownership of the support provision. Development agencies' heavy administrative requirements, particularly in terms of cost and time, make it almost impossible for private sector organisations to implement TA. African governments can also cause problems due to their own vested business interests.

Inappropriate tools

A clear need of the African economies with the majority of people still working/living in the informal sector and with subsistence agriculture being by far the main provider of employment/survival is to address these realities and provide appropriate tools for change. The delivery of Western machinery and mechanisation has not fallen on fertile ground, nor has the provision of specialised consulting services to companies borne fruit. The relevance of TA has been undermined by focusing on a small group of formal enterprises in the non-agricultural, often capital-intensive sectors in many African countries. As a result, the required technical agricultural skills have not been adequately developed, neither have technical colleges nor the labour-intensive sectors, such as the artisanal sector. The leather sector in Ethiopia is a case in point, where TA was concentrated on a few companies, some of whom could have afforded it themselves, and on the development of support institutions with Western machinery. These were not aligned with the realities of most tanneries in the country. In West Africa, the provision of TA to an industrialised textile sector has arguably hindered the strengthening or emergence of a professional artisanal sector, where the appropriate basic spinning, weaving and finishing skills were not developed.

A maturing TA sector requires standards

The TA sector has developed over the last few decades, attracting numerous consultants and consultancies. The purpose of this predominantly public-funded sector is to support the development of the private sector. This can create problems, for example, when selecting the right service providers for TA missions. It is often an intermediary, the development agency, which chooses the TA provider. There is a tendency to choose the cheapest instead of the best-suited service provider, and the right skill set becomes secondary to administrative and financial requirements. There are also no uniform TA standards, as each development agency has created its own pool of service providers with their own set of reporting tools and objectives. Despite their lack of public data, the main African economic sectors have been much studied. Yet, one would be hard pressed to find specific, implemented actions emerging from these. The ‘one-week fact-finding mission without follow-up' is a classic feature of African TA, or consultants are asked to produce a report, which ends up unused.

Lack of co-operation exchange

Where there are very limited resources and negative externalities (for example, lack of efficient public services, widespread corruption, adverse climate conditions), one would expect, for the sake of efficiency, the pooling of scarce resources. Unfortunately, this is often not the case with TA providers still work in isolation in order to raise their own flags, particularly when there is stiff competition between agencies for less and less money. Duplication of TA is observed in almost every country and sector in sub-Saharan Africa, and this is linked to a lack of involvement of private enterprise beneficiaries at the design/initial stage of TA and their consequent lack of buy-in.

What makes TA succeed?

It is an increasingly held view that TA is more meaningful when linked with investment finance to grow businesses and local economies.1 Where TA is provided alongside a loan or equity investment, interests can be better aligned between the TA provider and the beneficiary particularly where the provider has a stake in the beneficiary. For example, in Rwanda, German TA was provided to a financial institution to improve its ability to lend to SMEs alongside a loan for on-lending to SMEs. The UK Department for International Development's Financial Deepening Challenge Funds in Africa in the 1990s and 2000s were designed to encourage financial deepening and innovation. Such TA went hand in hand with private investment and was obtained via competitive tenders. The TA support was provided to specialised SME finance intermediaries and banks in order to build capacity to lend to SMEs. GroFin, a Mauritian-based fund providing finance and business development support to SMEs in Africa, received TA from Shell Foundation,2 which facilitated the research and development phase of establishing country operations in smaller markets in Africa. In Madagascar and Kenya, Business Partners (an SME finance provider that grew out of South Africa) received TA from the International Finance Corporation to provide business support to SMEs receiving finance, particularly to develop financial skills and business development skills. In the above cases, private sector capital was at risk in the beneficiary companies. Moreover, beneficiaries and their investors were accountable to TA providers for implementing the TA and the results achieved. Measurement of outcomes was specified upfront and took place during and after the life of the project, and lessons learnt were extracted. Notwithstanding these positive results, the scaling up of such approaches is challenging. The current focus of finance and TA providers is currently limited in scope and improvements are needed to better monitor and support beneficiary companies. What is also required is that TA providers build up the necessary institutional and organisational capital to scale up positive results. This is particularly true for building the appropriate local finance structures in Africa, taking, for example, the current micro-finance experience into the mass-finance of locally-owned enterprises. The experience of co-operative enterprises that have established credit-cooperatives and co-operative banks in fuelling local economic growth in many development countries could provide vital input.

Failures and their causes

Where TA has been provided without clear accountability, measurability, and with little or no investment at risk, it has often not fulfilled its purpose. At times, this has been because it either did not have a clear purpose (for example, a gift by the donor in order to buy from it – ‘tied aid' as practiced by various countries), or it had conflicting purposes (for example, satisfying the political requirements of the donor rather than the needs of the beneficiary), or it simply had the wrong purpose, for example, installing the wrong machinery in the wrong place – the so-called ‘white elephants' (such as fish factories in the north of Kenya). Where TA is ‘push' – rather than ‘pull', driven by real needs at the beneficiary company level, failure often results.

The way forward

The lack of measurement and transparency of TA programmes has meant that many donors and recipients are ignorant of the impact of TA and the lessons learnt. Many TA providers do not share their results, perhaps through embarrassment at the repercussions. It is far easier to say how much TA has been spent rather than to measure and assess its efficacy. A sharing of results and experiences could assist all practitioners to improve on current TA approaches and practices. In light of the above, there are a number of recommendations that can be made with a view to improving TA's effectiveness. A useful starting point would be to clarify the exact purpose of enterprise development support, focusing on critical skills development and self-help. TA should be used to support selected pilot projects for new sector development or innovation; scale up sector/SME development through the creation of bottom-up institutional capital at the meso level; and link TA with investment finance in order to create a true SME asset class. TA should also be linked to investment activity so that something is at stake and there is a vested interest in seeing the TA work. Where capital or debt is at risk and there is accountability to the TA provider by the beneficiary business, the chances of improved use of TA should increase. At least a portion of the TA should be provided in the form of an interest-free loan so that the recipient has an obligation to repay part of the cost. It should be used to encourage innovation and new ways of doing business and to catalyse private sector capital – first-loss provision of capital for funds or covering start-up costs of new funds. A sustainable link with development finance should be developed and a co-operation/joint governance structure for managing TA funds should be created, geared towards human resource development and institutional capacity building. Finally, there should be ongoing measurement of the results of TA against the original objectives. If TA is provided to increase the capacity of a financial institution to lend to a particular sector, the expected results should be quantified and measured accordingly.

Private sector TA can play a valuable role in Africa by encouraging innovation, increasing financial inclusion, and building human and institutional capacity. With greater measurement, sharing of results and proper accountability, private sector TA has a real future. If, however, there is no sharing of experiences, little measurement and no accountability, Africa would be better off without it.

1 On this topic, see the article by Nina Schuler, in this issue of Private Sector & Development. 

2 Shell Foundation was established by the Shell Group in 2000 as an independent, UK-registered charity operating with a global mandate.