Firm characteristics, business environment, and performance of non-traditional agricultural SME exporters in Ghana

Abstract

The contribution of Africa’s agricultural exports to world trade is less than 15%, although agriculture employs close to 60% of the work force in Africa and contributes on average 30% of gross domestic product. And the foreign revenues generated so far could not stimulate Africa’s further development. This is associated with the fact that Sub Saharan Africa (SSA) economies do not control world market prices, not much investments went into agriculture, and exports had little added value. In the last three decades, two strategic interventions by the Africa Union (AU) stand out, namely, improving the agriculture and agribusiness environment and diversification of export portfolios. This has been done in a number of ways, such as promoting export diversification (programmes/strategies) of non-traditional exports including agricultural exports. Ghana is no exception. In 2017, Ghana was listed in the World Development indicators as one of the best performing countries in Africa. In 2019, the International Monetary Fund (IMF) discussing the fastest growing SSA economies (per GDP growth %) stated Ghana (7.6%) as one of the top three, behind Ethiopia (8.5%) and Rwanda (7.8%).  So it is interesting to investigate how Ghana as one of the fastest growing SSA economy stimulates non-traditional agricultural exports (NTAE). The thesis focuses on small and medium enterprises (SMEs) because these constitute about 85.3% of all the NTAE companies. Though there is a pile of literature on Ghana’s export and SMEs, a theoretical gap still exists that needs to be explored to identify which factors at NTAE SME level itself, and the general business environment stimulate or hinder NTAE performance. The thesis starts out using the resource based view (RBV) but it acknowledge criticisms that the RBV is much focused on the internal capabilities of the firm. The criticisms of the RBV suggest that resources alone do not fully explain firm performance. The unexplained link can be better explained by application of other theoretical concepts. For this reason, the network and supply chain management (SCM) theories are used together with the RBV to better link resources and networks to performance.   A mixed method combining a quantitative and a qualitative approach has been used. The cross-sectional analyses are based on a sample of 152 NTAE SMEs located in the coastal, forest and savannah zones of Ghana, with 83% of the cases located in the coastal zone. Partial Least Squares Structural Equation Modelling (PLS SEM) analyses was applied.  The overall objective of this study is to identify the internal and external factors that facilitate or hinder NTAE SME export performance. This knowledge is used to provide suggestions towards a more effective policy framework to support NTAE SMEs’ operations. The thesis addresses the following central research question, within the theoretical context of the Resource Based View (RBV), Supply Chain Management (SCM), and network theories, which characteristics (specifically internal capabilities, resources and network relationships) of NTAE SMEs and their business environment are positively related to their export performance? The results show that performance is highest for those SMEs where the CEO has received tertiary level education and has export experience for over five years, exports directly (no use of traders/agents), makes extensive use of Ghana’s export institutions, use export contracts and is a member of SME associations. The network relations in the upstream processes are mostly based on relational embeddedness, based on trust (unwritten agreements) which has led to strong bonds over time. The scenario downstream is a little different. The networks are dense for NTAE SMEs who belonged to an association and sparse for those who did not. Export knowledge, corporate governance, product development, and professional and technical support are positively related to export performance. Interestingly, export mode is negatively related to export performance. The reason for this finding might be that in the case of Ghanaian NTAE SMEs the export mode is restricted. The general findings suggest that the macro state level policy is not adequately aligned with micro level policy/factors. Empirical results show that the upstream network linkages are poor between NTAE SMEs and extension services. Further the downstream network coordination is equally poor as either the certification processes/controls are not effective enough, export regulations are not strictly adhered to, leading loss of export market (reject of goods).  The weak institutional support also leads to that the NTAE SMEs are handicapped to build capacity to strengthen their resource bases. From an RBV perspective, NTAE SMEs have to build resources to strengthen their entrepreneurial and innovation capacity. This can be done through continuous innovation and safeguarding knowledge build up. It is crucial where there is/are no national sub-sector policy(s) and regulator(s) because chain operations are seriously affected increasing costs of coordination. Agribusiness financing is perceived to be inadequate, with urgings for more government prioritization to support this. The findings also suggest that export knowledge and good organization of the upstream supply chain relations will help NTAE SMEs to gain better performance when competing in international markets. The type of export product is a determining factor for downstream costs. Implications of the study suggest that NTAE SMEs could improve their social networks through building groups or associations for exporting with strong monitoring and enforcement of rules. Some policy intervention include encouraging public private partnerships where government shortfalls in NTAE support are identified. Incentives made available to private sector actors in agri supply chains would strengthen their resource base, so more services can be provided. The provision of export hubs in the forest and savannah zones, with the same facilities as those found in the coastal zone will ensure equitable spread of opportunities to NTAE SMEs. An alternative could be extending services through e-information, e-training and capacity building at reduced costs. It would be helpful for future studies to go more in-depth into the different sub-sectors using a longitudinal approach to support this cross sectional study. Also a larger sample of NTAE SMEs could be captured for the forest and savannah zones