Contributions

  Overview of RPED Business Strategy    RPED Agenda    RPED Business Strategy

RPED’s analytical reports thus far have examined a number of important hypotheses about constraints to private sector growth in Africa. Based on approximately three rounds of data from Cameroon, Côte d’Ivoire, Ghana, Kenya, Tanzania, Zambia and Zimbabwe (and one round in Mozambique and Nigeria), these studies have enriched our understanding of the impediments to private sector supply response and directed attention to initiatives to spur growth. The following table indicates countries surveyed as well as the number and dates of each round of surveys.

RPED studies of technological capabilities and learning in African firms are some of the first systematic attempts to measure firm productivity and to assess the patterns and determinants of productivity in African manufacturing. The results of these studies point the way to specific technology policies to support learning in African enterprises (Biggs, Shah and Srivastava, 1995; Lall, 1993; Teitel et al, 1994). Furthermore, productivity or technical efficiency is a key determinant of firms’ ability to survive in the face of increased competition and to grow over time. It is also a major determinant of future standards of living in Africa. Using survey data and case studies, RPED has analyzed patterns and determinants of firm productivity in countries already surveyed, and has generated some useful suggestions for policy change (Biggs et al, 1995; Biggs and Raturi, 1997; Ramachandran and Shah, 2000; Sleuwaegen and Goedhuys, 1996; ISA Group, 1998).

In the financial area, RPED studies have examined some of the basic foundations of African financial markets and their impact on firms’ access to credit (Fafchamps et al, 1995; Cuevas et al, 1993; Fafchamps et al, 1997). These studies not only show the quantitative importance of finance for supply response, they also suggest ways to improve the operating conditions of financial markets and allocative efficiency.

One major finding is that the liberalization of trade and exchange rate policies has fostered domestic competition. As a result, the process of market selection has been strengthened to a point where there is no evidence that African markets “tolerate” inefficient producers or poor investment projects any more than markets in the developed world (Gunning and Mengistae, 1999). There are still significant productivity differences between firms within the same industry in every country data set (Biggs et al, 1995; Bigsten, Lundval and Soderbom, 1998). But there is also clear evidence that productivity differentials typically lead to the reallocation of capital stock from the less productive firms to the more productive ones through producer turnovers as well as differences in investment and growth rates within the same industry (Gunning and Mengistae, 1999). In other words, the evidence is that the rate of investment is normally higher for firms which have had a history of higher factor productivity.

Nearly all RPED-based studies of firm level investment confirm a recurring theme in the literature on Africa’s growth problem, namely, that the average rate of investment is extremely low. For example, in an analysis of data pooled from the Cameroon, Ghana, Kenya and Zimbabwe surveys, Bigsten et al (1999a) find that the median rate is almost zero. Since the same papers also show that the rate of return investment is extremely high (e.g. Bigsten et al; 1999a, 1999b), “lack of investment opportunities” cannot explain the phenomenon. And, despite its popularity, “lack of funds” does not seem to be any more credible either as an explanation. Studies do report that the majority of small and medium sized producers have highly restricted access to formal external finance (e.g. Dercon, 1994; and Fafschamps and Oostendorp, 1999). However, the evidence is also that finance is not a binding constraint on the investment decisions of the average firm. If it were, one would expect higher profitability to lead to a higher rate of investment, which in fact is not what is observed (Bigsten et al, 1999a; Gunning and Oostendorp, 1997). That leaves high risk premiums of investment projects as the only remaining explanation. There is no direct cross-country evidence on the importance of individual sources of uncertainty about returns to investment. However, two studies lend further support to the idea that considerations of risk may be the main factor in investment determination in Africa at the moment. Pattillo (1999) analyzed the Ghanaian sample to find that the rate of investment decreased significantly with the degree of irreversibility of investment decisions and firms’ uncertainty about the policy environment. In a second study, Fafchamps et al (1999) found that greater exposure to input supply risk led to larger inventory and cash holdings in the Zimbabwe sample, which could have been at the expense of fixed investment.

Analyses of cross-country samples in Bigsten et al (1999) and Mengistae and Pattillo (1999) show that exporters of manufactures are up to 23 per cent more productive than manufacturers producing for the domestic market only. While some of the same productivity premium may be a direct gain from the act of exporting, by far the larger portion of it simply reflects the fact that exporters will have passed a higher productivity threshold in entering international markets. This means that the typical non-exporter will have to raise its productivity by between 15 and 20 per cent to penetrate export markets. This is a rather hefty barrier that Mengistae and Pattillo (1999) trace to four major sources of higher transaction costs identified by other RPED based studies. These are: poor provision of infrastructure, problems of contract enforcement, corruption, and high costs of business information.

RPED’s work has also contributed to the operational programs of both policymakers and development agencies. At the World Bank, RPED’s data and research reports have been used in country operations in Sub-Saharan Africa. To cite a few examples, Ghana developed a technology promotion center, basing its operational directives on the results of RPED technology studies in that country. Ghana, Kenya and Senegal have pilot projects to assist in building technical capabilities in particular export industries based on findings of RPED export studies. Zambia’s proposed program to facilitate more technical training in industrial enterprises was stimulated by RPED’s work on the impact of firm training on productivity. Private sector support service programs in Zambia and Zimbabwe also relied on RPED for analysis and data to formulate these efforts. Private Sector Assessments and several micro-enterprise studies conducted by the Bank in various countries have also used RPED data. Furthermore, many country economic analyses cite RPED data as a primary source, and several financial sector reviews in East and West Africa have used RPED’s financial data to examine various aspects of financial sector efficiency. RPED core staff have also directly assisted development organizations and policymakers in several countries. Export promotion organizations in Ghana, Kenya and Zimbabwe have requested and received seminars by RPED staff. The Government of Kenya received assistance in negotiating textile trade quotas with the United States Government. RPED staff also worked with the US congressional staff to draft the preferential trade policy for Africa entitled The Africa Growth and Opportunity Act.

The various studies arising from the RPED data set have contributed in a variety of ways to a better understanding of economic conditions in sub-Saharan Africa and to better policymaking in this region. Studies using the RPED questionnaire carried out by other institutions in Uganda and Ghana have also provided a vast amount of information. Ongoing analysis of a 2001 survey of Nigeria and the forthcoming Ethiopia survey are first-time efforts is important areas of the region.

RPED must now focus on generating systematic time-series data to better understand the impact of policies over time. Data at the level of the individual producer will help address the problem of endogeneity which clouds other analyses of policy impact. It is desirable to expand the scope of RPED’s work, to cover more countries as well as to look more comprehensively into determinants of productivity and investment. In addition, it is critically important to continue monitoring manufacturing productivity in the economy, as a gauge of economic performance and as an input into policy dialogue. Since changes in productivity and investment depend upon a number of firm responses that necessarily take place over a period of time, only by monitoring manufacturing productivity over a number of years will it be possible to ascertain how African firms have changed in the wake of the recent reforms.