# VII. CONCLUSIONS

Cote d'Ivoire's private sector entered the 1990s a colossus with feet of clay once thriving enterprises were deeply mired in an economic crisis accentuated by policy and regulatory rigidities, and encumbered by a weighty public sector. Significant parts of the private sector are most likely facing a bottomless downturn. Yet, there appears to be considerable untapped potential in the indigenous private sector: ranging from manufacturing small and microenterprises with some technical skills, but little business know-how; to medium and large enterprises straight-jacketed by taxes, regulation, the uncompetitive relationship between domestic and foreign price<sup>61</sup> , and policy uncertainties.

Much of the solution will depend on remedies previously prescribed in World Bank and Government documents following analyses of external and intemal competitiveness, public expenditure, and the financial system. The prescribed reforms are crucial prerequisites in the absence of which the pursuit of private sector development will be futile. It is important to note, however, that unless overarching economic distortions are removed, entrepreneurs may well focus their ingenuity on the wrong activities from a perspective of international competitiveness and long-term growth. To fulhy realize the benefits of the already initiated adjustment process it will also be necessary to - foster competition throughout the economy stimulating entry and growth at all levels of private enterprise, to enhance the security of property rights, and to raise the standards of public service.

This report has sought to provide an analysis of issues relating to the nexus of public and private sectors, drawing heavily on the perceptions of entrepreneurs themselves. It is intended to complemen **t** he existing body of economic and sector work on C6te d7Ivoire (notably the recent work on financial sector issues and public expenditure, and the extensive work underway for the Industry and Competitiveness Review). The next step should be to develop a private sector development strategy for Cote dlIvoire that would: (i) articulate macro- and microeconomic policy reforms; (ii) identify binding constraints to private enterprise operation and growth; and (iii) assign priorities and sequence interventions to alleviate those constraints. The analysis in this report suggests the following elements should be included in such a strategy.

Taxes The tax system needs an overhaul, both to reduce its impractical regulatory burden, and eliminate powerful disincentives that result from efforts to increase revenue extraction from a shrinking tax base. In particular.

* Marginal tax rates on enterprises, imports and formal sector labor are clearly in excess of either efficiency. or revenue-maximizing optima. They must be reduced in order to halt further erosion of the tax base.

The pervasive impact of the real exchange rate and of the compensatory measures it has required cannot be overemphasized. It is an indication of the uncertainty-shy, inward-looking, protected nature of large segments of the private sector in Cote d'Ivoire that only a very small minority of the entrepreneurs interviewed could be counted as advocates of change.

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