Credit constraints in manufacturing enterprises in Africa

We investigate the question whether firms in the manufacturing sector in Africa are credit constrained. The fact that few firms obtain credit is not sufficient to prove constraints, since certain firms may not have a demand for credit while others may be refused credit as part of profit maximising behaviour by banks. To investigate this question, we use direct evidence on whether firms had a demand of credit and whether their demand was satisfied in the formal credit market, based on panel data on firms in the manufacturing sector from six African countries. More than half the firms in the sample had no demand for credit. Of those firms with a demand for credit, only a quarter obtained a formal sector loan. In line with expectations, our analysis suggests that banks allocate credit on the basis of expected profits. However, controlling for credit demand, outstanding debt is positively related with obtaining further lending while micro or small firms are less likely to get a loan than large firms. The latter effect is strong and present in the regression, despite including several variables typically referred to as explaining why small or ‘informal’ firms do not get credit. The role of outstanding debt is likely to be a reflection of inefficiency in credit markets, while the fact that size matters is consistent with a bias as well, although we cannot totally exclude that they reflect transactions costs on the part of banks. Finally, we could not detect any differences between countries in the effects of these factors in the credit allocation rule, although financial deepening is found to explain most of the country-specific fixed effects, shifting the probability of obtaining credit across the firm distribution.

Linkages, Access to Finance and the Performance of Small-Scale Enterprises in Kenya

Micro- and small-scale enterprises (MSEs) have become important players in the Kenyan economy, but at the same time they continue to face constraints that limit their development. Lack of access to financial services is one of the main constraints, and a number of factors have been identified to explain this problem. These include the segmented and incomplete nature of financial markets, which increases transaction costs associated with financial services. On the supply side, most formal financial institutions consider MSEs uncreditworthy, thus denying them credit. Lack of access to financial resources has been seen as one of the reasons for the slow growth of firms. Literature from the new institutional economics, however, shows that institutional arrangements, like linkages and networks between firms, provide an important avenue through which firms can overcome some of these constraints.linkages, finance, enterprise performance

Investment in Africa's manufacturing sector: A four country panel data analysis

Firm-level data for the manufacturing sector in Africa, presented in this paper, shows very low levels of investment. A positive effect from profits onto investment is identified in a flexible accelerator specification of the investment function controlling for firm fixed effects. There is evidence that this effect is confined to smaller firms. A comparison with other studies shows that, for such firms, the profit effect is much smaller in Africa than in other countries. Reasons for the relative insensitivity of investment to profits in African firms are suggested.firm investment, liquidity constraints, African manufacturing

Are Chinese Technologies A Mode Of Entry For Firms In Developing Countries? The Case of Furniture Manufacturing in Kenya

Kenya has started to rely significantly on technologies developed in developing countries particularly China rather than those from advanced countries such as the United Kingdom, Germany and Japan. Using data from furniture manufacturing firms in Kenya, the paper compares the investment cost and the scale characteristics of the technologies (machines and equipment) from China with those from advanced countries and Kenya. By examining the characteristics of the firms that have invested in technologies from various sources, the paper concludes that the technologies from China and Kenya have lessened entry barrier (specifically high capital cost) for new firms, compared to advanced country technologies. Chinese technology appears to serve as an entry mode more than the Kenyan technology. In terms of barriers to entry, therefore Chinese and Kenyan technologies appear to be more appropriate for Kenya (and more generally developing countries) than advanced country technolog

The four food systems in developing countries and the challenges of modern supply chain inclusion for organic small-holders

To promote developmental objectives, such as growth, food security and improvement of the livelihoods of the rural poor, a greater understanding of the four food systems prevalent in the South is of great importance. Inclusion of small-holder farmers into the various food systems depends to a large extent on the capacity of the intermediaries and their ability to cope with both internal as well as external constraints while linking farmers to the agro-supply chains. The greater discrepancy between the intermediary’s own social and human capital resource base as well as the supporting resource environment, and the level of requirements demanded from agro-food systems; the greater constraints the stakeholders along the supply chain will encounter and the more difficult the inclusion of small-holder farmers will be

Constructs of Successful and Sustainable SME Leadership in East Africa

Despite the markedly increased foreign investment, East African economies remain characterized by low levels of investment and capital formation with high level of attrition amongst indigenous small and medium enterprises. While there is a high failure rate amongst these SMEs, some are beginning to turn the corner and are exhibiting signs of robustness, innovativeness and sustainability. Relying on narrative accounts of successful SMEs leaders in Kenya and Uganda obtained through interviews and focus group discussions, this study sought to construct an account of leadership practices and ascriptions of success for SMEs that had succeeded. The study identified eight leadership constructs characteristic of successful SME leaders in Kenya and Uganda grouped into visioning, building commitment, social capital, personal values, anticipation and resilience, resourcefulness, responsiveness, and entrepreneurial orientation. While these results, on the face value, are apparently not unique, it was in the nuances of the leadership practice that difference was made. In conclusion, the study highlights implications for these findings in relation to policy and leadership practice among SMEs

What have we learned from a decade of manufacturing enterprise surveys in Africa ?

In the early 1990s the World Bank launched the Regional Program on Enterprise Development in several African countries, a key component of which was the collection of manufacturing firm-level data. In this paper the authors review the research based on the data sets generated by these and subsequent firm surveys in Africa, with a special view to what they think are the most important policy implications. The authors survey the research on the African business environment, focusing on market size, risk, access to credit, labor, and infrastructure. They cover the research on how firms choose to organize themselves and how firms do business. They review the research on firm performance, including firm growth, investment and technology acquisition, and exports. They conclude with an extended discussion of the policy lessons.Economic Theory&Research,Private Participation in Infrastructure,Labor Markets,Microfinance,Small Scale Enterprise

Governments Don't Have to Go It Alone: Leveraging Public Funds to Attract Commercial Finance for Improved Water Services

This brief highlights the roles that governments can play and the mechanisms they can use to attract commercial finance into the water sector. The brief illustrates successful cases where water service providers accessed commercial financing to expand coverage, often to serve poor areas. Common constraints to commercial finance in the water sector are summarized, as are financial structuring and risk mitigation strategies to overcome these constraints