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Challenges of Enterprise-Driven Economic Growth in Africa
John Kuada
There is a growing concern within the development research and policy communities today about the persistent sluggish economic growth in most African countries despite the general upturn in the world economy during the last two decades and the general reduction of poverty in most developing countries. The search for explanations for Africa’s poverty has stretched from considerations such as corruption, poor governance and institutional problems (Killick et al., 2001), to the limited attention to private enterprise development (Fafchamps et al., 2001). The African Union has recently estimated that corruption costs Africa 148 billion US dollars per year, thereby increasing the costs of business transactions in Africa by up to 20 per cent. Similarly the World Bank estimates that corruption impedes growth rates by 0.5 per cent per year. There is also the problem of weak supply side of the economy due, partly, to low levels of entrepreneurial activities throughout Africa. Other scholars have shown that the impacts of the activities of external agents such as donor organisations and Multinational Corporations (MNCs) operating in Africa have not always been positive, as expected by economic theorists. Based on this understanding, it makes sense to argue that reversing the downward trends in growth and development in Africa requires the joint and consistent effort of a multiple set of actors – foreign and local firms, governments, the bureaucracy, the donor organisations and the civil society – all pulling in the same direction.
These challenges have encouraged some scholars to turn to sociologists and anthropologists for inspiration and insight. Sociologists generally argue that the keys to economic growth are to be found in the social structures and the nature of the value systems in each society. Individuals and local entrepreneurs as well as external agents such as donor organizations and foreign investors are guided in their behaviours by the social structures, values and governance mechanisms of the societies. Thus, if economic planners can identify the principles of co-operation and adaptation which are inherent in their societies, they should be in a position to mobilize them to provide vehicles for economic growth. To do otherwise would be to overlook animportant creative potential within societies.
Taking the MNCs as an example, it has been argued in the literature that these corporations can play ‘lead agent’ roles in developing countries by facilitating the generation and diffusion of innovations through their subsidiaries which are located in the developing countries (Nohria and Ghoshal, 1997). On the other hand, it has also been argued that the relative differential advantages that MNCs have in the developing economies in terms of superior asset sizes, technological capabilities and higher levels of operational experience(Harrigan, 1988), as well as inter-organizational dependencies enable them to exert disproportionate influences on the operations of the local firms and generate economic rent through the relationships.
These considerations have informed the contributions in this volume of AJBER. In the first paper, Edoho focuses attention on one aspect of the relationship between MNCs and local institutions in Africa. He reports on the practices of corporate social responsibility of the oil producing MNCs in the Niger Delta region of Nigeria. Oil production has taken place in the region for almost five decades through joint ventures between the Nigerian federal government and the MNCs. But although Nigeria, as a country, has benefited tremendously from the oil endowment, the Niger Delta region has been impoverished as a result of oil spills and environmental degradation. The laws and regulations intended to elicit the best practices in the oil industry in order to protect the environment have not been enforced due, largely, to the financial interest in the state-corporate alliance. The author therefore proposes the formation of a new autonomous agency to enforce the laws and monitor compliance under a multi-institutional strategy.
Sunu and Kuada’s paper conveys a more positive impression of the activities of MNCs. It provides some evidence of the lead agent role of MNCs in Africa by reporting the results of an empirical investigation into the antecedents and degree of market orientation of a subsidiary of an MNC located in Ghana. The study is premised on the understanding that MNCs transfer “best management practices” through their subsidiaries to local firms in developing countries and thereby upgrade the managerial knowledge and performance of these firms. This takes place through linkages with their local suppliers and customers. The results show that the MNC in question adopts market-oriented strategies in its relationships with local customers. They also support evidence from previous studies that top management emphasis combines with organisational characteristics such as inter-departmental connectedness, and market-based reward system to influence the degree of market orientation of firms. The company’s customers have validated the self-assessment of market orientation made by the company’s employees. The study has not however fully established any adoption of market-oriented practices by the customers of the company.
The last two papers focus attention on the challenges of developing entrepreneurial businesses in Africa. Until recently, entrepreneurship has been seen as isolated and discontinuous innovative efforts made by individuals with calvinistic attitude to work and life. Entrepreneurs were believed to operate best without strong social relations, since such relationships were presumed to weaken the allocative efficiency of their resources and act as a barrier to the growth of their businesses. Studies during the past three decades have, however, introduced novel dimensions into our understanding of the process of entrepreneurial development (see Moore, 1997). Dominant considerations in the entrepreneurial research now include impacts of the social contexts of entrepreneurs on their business activities, and the existence of non-market resource leveraging mechanisms in small business development process (Unger, 1998).
A major weakness in the small enterprise development processes in Africa remains that of leveraging both tangible and intangible resources for growth. Previous studies have shown that African entrepreneurs have limited capacity to source and absorb resources (Kamanyi 2003). The two papers provide insight into different aspects of the resource leveraging problem.
Bassem and Borhen’s paper reports the results of a survey of the loan repayment behaviours of 328 clients of two microfinance institutions in Tunisia. The results provide mix conclusions about the factors that impact repayment performance. Factors such as the age of the borrower, the nature of business, the borrower’s business experience, the length of repayment period, the degree of credit rationing, the overall wealth of the borrower, and the lending practices of the microfinance institution appear to be positively influence the repayment performance of the respondents. At the same time, other factors including the legal status of the business, the use of a guarantor, the rate of indebtedness of the borrower, the loan size, and the presence of other lending institutions appear to impact repayment performance negatively. The results therefore provide some indication about how to improve the loan repayment performance of small business owners in Africa.
Kuada’s paper provides a general review of the debates about stimulating economic growth that alleviates poverty without creating dependency on external aid flows. The first contribution of the paper to this debate is to argue strongly in favour of private enterprise economic growth in Africa. The central argument is that the creation of more jobs in the small and large communities in Africa is the most effective means of achieving the twin goals of poverty alleviation and independence of external assistance. The paper also highlights the role that social capital and socially-engineered resources can play in activating the more tangible economic resources in Africa. Finally, it draws attention to the drawbacks that culturally prescribed expectations carry for entrepreneurs. The conclusions of the paper is that efficiency mechanisms that can raise productivity in African economies are urgently required, just as consistent and committed efforts are required to improve general resource leveraging in all the countries. These efforts should include creating an enabling environment for private enterprise development in general and improving skills and institutional capacity to support productivity growth and competitiveness.
Put together, these papers support the view that private enterprise remains the most viable approach to poverty alleviation in Africa. But the successful adoption this approach to development requires the creation of supportive environment. Thus, Granovetter’s (1985) view that virtually all economic behaviour is embedded in networks of social relations must be taken seriously and must guide economic development policies. Social and political systems in Africa can either make the developmental impacts of economic transactions more efficient by giving key economic actors greater access to relevant information, enabling them to coordinate activities for mutual benefit, and reducing opportunistic behaviours, or less efficient by colluding with economic actors. Thus, the greatest economic development challenge Africa faces in this century is to shift the mindset of the societies away from short-term individual gains and more in support of building a civil capability to support growth and redistribution at all levels of the societies.
References
Fafchamps, Marcel, Teal, Francis and Toye, John (2001), “Towards a Growth Strategy for Africa” Centre for the Study of African Economies, University of Oxford REP/2001-06
Harrigan, Kathryn Rudie (1988), “Strategic Alliances and Partner Asymmetries”, Management International Review, Vol. 28, p. 53-72. (Special Issue)
Kamanyi, Judy (2003) “Poverty Reduction Strategy, Development Assistance, Gender and Enterprise Development Impact Assessment: The Case of Uganda” A paper presented at a conference organised by the Institute for Development Policy and Management (IDPM) University of Manchester and Women in Sustainable Enterprise (WISE)
Killick T. (2004) “Politics, evidence and the new aid agenda” Development Policy Review 22(1): 5 – 29.
Killick T., White, H., Kayizzi-Mugerwa S., Savane, M-A. (2001) African Poverty at the Millennium:Causes, Complexities and Challenges (World Bank: Washington, DC.)
Moore, Mick (1997) “Societies, Polities and Capitalists in Developing Countries: A Literature Survey” The Journal of Development Studies Vol. 33 No. 3 pp. 287-363
Nohria, Nitin and Ghoshal, Sumantra (1997) The Differentiated Network: Organizing Multinational
Corporations for Value Creation (San Francisco, CA: Jossey-Bass Publishers)
Unger, Danny (1998) Building Social Capital in Thailand (Cambridge, Cambridge University Press)